{"id":23249,"date":"2024-06-11T14:23:50","date_gmt":"2024-06-11T18:23:50","guid":{"rendered":"https:\/\/blogs.edf.org\/energyexchange\/?p=23249"},"modified":"2024-06-24T10:42:25","modified_gmt":"2024-06-24T14:42:25","slug":"florida-should-protect-utility-customers-from-rates-that-yield-excess-profits-for-affiliated-companies","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2024\/06\/11\/florida-should-protect-utility-customers-from-rates-that-yield-excess-profits-for-affiliated-companies\/","title":{"rendered":"Florida should protect utility customers from rates that yield excess profits for affiliated companies"},"content":{"rendered":"

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Florida is overwhelmingly <\/span>dependent<\/span><\/a> on natural gas imported from out of state to generate 75% of its power for customers like homes and businesses. Unfortunately, a loophole in fuel cost recovery policy creates financial incentives for outsized natural gas dependence, funded by Florida families and businesses through rates and Florida lacks a comprehensive process for integrated resource planning, instead typically deferring to 10-year plans filed by utilities, with no requirements to diversify energy sources.\u00a0\u00a0 <\/span>\u00a0<\/span><\/p>\n

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The state\u2019s largest utility, Florida Power & Light, supports a growing network of natural gas infrastructure, in part through contracts with affiliated companies. These types of agreements come with a risk of decreased competition. New analysis shows that customers\u2019 monthly bills are helping provide profits to FPL parent company NextEra at rates of return higher than Florida allows utilities to recover via contracts between FPL and NextEra-owned pipelines. Florida lawmakers and regulators should act to ensure that customers are protected.\u00a0<\/span>\u00a0<\/span><\/p>\nFlorida should protect utility customers from rates that yield excess profits for affiliated companies <\/a><\/span>Share on X<\/a><\/span>\n

Caution is needed when affiliated companies make deals<\/span><\/b>\u00a0<\/span><\/p>\n

To ensure adequate supply, electric utilities contract with natural gas pipeline developers for daily deliveries of natural gas to power plants, and state regulators allow utilities to recover these costs from customers in a fuel cost recovery charge.\u00a0<\/span>\u00a0<\/span><\/p>\n

Usually, these supply contracts between pipelines and utilities are negotiated at arms-length and driven by the markets. Pipelines are built when there is enough demand to support them, and utilities are motivated to seek the best price for gas and pipeline transportation.<\/span>\u00a0<\/span><\/p>\n

But FPL has contracts with two major gas pipelines owned by its own parent company, NextEra Energy. One is the Florida Southeast Connection pipeline that is fully owned by NextEra, where FPL has contracted for 94% of the pipeline\u2019s capacity.\u00a0<\/span>\u00a0<\/span><\/p>\n

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Affiliate dealings can <\/span>reduce competition<\/span><\/a> in the market, as the affiliated entities may not have the same incentive to compete with each other. Lack of competition can lead to guaranteed profits for shareholders at the expense of higher prices for consumers, as there may be less pressure to offer competitive rates or improve services. And affiliate-backed projects can result in overbuilding pipeline capacity, since profits are driving projects rather than genuine market need.\u00a0<\/span>\u00a0<\/span><\/p>\n

Utility customers help fund extra NextEra profits\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

In recent years, FPL signed 25-year contracts with both the Sabal Trail Transmission pipeline and the Florida Southeast Connection pipeline. FPL, Sabal Trail, and Florida Southeast are all <\/span>owned<\/span><\/a> entirely or partly by NextEra Energy Inc. FPL contributed 62% of NextEra\u2019s $7.31 billion in net income in 2023, thanks in part to Florida ratepayers who are on the hook for the majority of gas capacity and associated costs from NextEra\u2019s pipeline assets.\u00a0<\/span>\u00a0<\/span><\/p>\n

As a regulated utility, FPL\u2019s rate of return is capped between 9.7 to 11.7% by the Florida Public Service Commission per its last rate case. But thanks to contracts between FPL and NextEra\u2019s subsidiaries, FPL customers support a higher rate of return \u2014 and thus greater profits \u2014 for the pipeline companies. <\/span>NextEra makes $128 million in annual profit, an approximately 13% return on investment, from its pipeline subsidiaries \u2014 funds collected mostly from FPL customers.<\/span>\u00a0<\/span><\/p>\n

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Furthermore, over 97% of FPL\u2019s contractual payments to the Sabal Trail and Florida Southeast pipelines do not vary by usage. Thus, even if gas demand declined and FPL reduced its usage of the pipeline capacity in a given year, FPL and its customers would still be paying almost the same amount to the NextEra affiliated companies.\u00a0<\/span>\u00a0<\/span><\/p>\n

What Florida can do to protect ratepayers<\/span><\/b>\u00a0<\/span><\/p>\n

The Florida Public Service Commission has the responsibility to protect ratepayers from unreasonable or imprudent investments by utilities.\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n

State regulators should formally recognize that <\/strong>affiliate transactions require heightened scrutiny<\/strong>,<\/span> to ensure that customers are not subsidizing unneeded infrastructure or being overcharged.\u00a0<\/span>\u00a0<\/span><\/p>\n