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Supreme Court rejects FPL natural gas plan

FPL requested to invest in gas production at Woodford Gas Reserves Project

(istock)

TALLAHASSEE, Fla. – Utility regulators exceeded their authority in allowing Florida Power & Light to invest ratepayers' money in a controversial Oklahoma natural-gas project, the state Supreme Court ruled Thursday.

The court, in a 6-1 decision, said the Florida Public Service Commission didn't have legal authority in 2014 to approve FPL's request to invest in the drilling and production of natural gas in what is known as the Woodford Gas Reserves Project.

"This may be a good idea, but whether advance cost recovery of speculative capital investments in gas exploration and production by an electric utility is in the public interest is a policy determination that must be made by the Legislature," Justice Ricky Polston wrote for the majority. "For example, in contrast to natural gas exploration and production, the Legislature has authorized the PSC to approve cost recovery for capital investments in nuclear power plants and energy efficient and renewable energy power sources."

FPL had argued that by passing along the costs for production, the project would help shield the utility's customers from future price swings for natural gas.

Joining Polston were Chief Justice Jorge Labarga and justices Barbara Pariente, R. Fred Lewis, Peggy Quince and James E.C. Perry. Justice Charles Canady dissented, arguing that the Public Service Commission acted within its legal authority.

"The purpose of the Woodford project is to acquire natural gas, which is used to produce approximately 65 percent of the electricity FPL generates," Canady wrote. "Acquiring natural gas is therefore necessary for and integrally related to FPL's primary function of generating electricity."

The Public Service Commission, still reviewing the ruling, had not decided its next step Thursday afternoon, spokeswoman Bev DeMello said in an email.

The same went for FPL, which was "disappointed" in the decision that could potentially have "long-term negative impact on customers' bills," spokeswoman Sarah Gatewood said in an email.

"We continue to believe the Woodford project is a smart long-term investment on behalf of FPL's customers that will help us provide reliable electricity at low and stable prices by investing directly at the source to provide rate stability and reduce risk for our customers," Gatewood wrote. "We also believe the PSC was on solid ground in approving a utility's natural gas investment used in the provision of electric service, and appreciate its careful consideration of this innovative approach."

FPL has collected about $78.4 million for the Woodford project, which is already providing natural gas for the company. The total comes to less than $1 a month on a typical customer's bill. It remains unknown if any money will have to be refunded.

The Florida Industrial Power Users Group, which challenged the commission's decision, called the court ruling "a good day" for consumers.

"They will not be forced to pay for risky oil and natural gas ventures in Oklahoma and elsewhere," said Jon Moyle, an attorney for the group, which represents businesses that use large amounts of electricity.

State Rep. Jose Javier Rodriguez, a Miami Democrat who has been critical of the commission and FPL, called the ruling "positive" and said he anticipates the issue will be fought next year in the Legislature.

"It is outrageous that Florida Power & Light believes that ratepayers should front the cost of their speculative fracking project in another state and even more perplexing that the Public Service Commission believed it within their purview to approve this project," Rodriguez, who is running for a Senate seat, said in a statement.

FPL contended the investment would help the company find natural gas at production costs rather than through potentially more expensive market prices.

State law allows the Public Service Commission to set the amounts of money that utilities can recover from customers for a variety of expenses.

Polston wrote in the ruling that the commission has legislative authority to approve cost recovery involving the "generation, transmission, or distribution" of electricity, but that the "exploration, drilling and production of natural gas" through the Woodford project falls outside those guidelines.

He also wrote that approvals cannot be given for a project defined as "a long-term physical hedge" without knowing what the eventual savings may be for consumers.

"The Woodford Project does not involve a certain quantity of fuel for a certain price," the ruling states.

Canady countered that there is no "principled distinction between purchasing natural gas on the wholesale market and purchasing it in the ground and extracting it."

"I also disagree with the majority's conclusion that the Woodford project does not qualify as a long-term physical hedge because it does not involve 'a certain quantity of fuel for a certain price,' " Canady wrote. "The primary purpose of hedging programs is to reduce the variability or volatility in fuel costs paid by customers over time."

When regulators last June capped FPL's annual investment at $500 million --- the power company wanted $750 million a year --- they also agreed to revisit the investment program in five years.

Commissioner Julie Brown said at the time that the goal of the project was to provide protection to customers, help stabilize rates and encourage innovation.

"I think this type of program is worthy of our consideration," Brown, who now chairs the commission, said at the time. "If there was a time limit or duration on this program, just three to five years, it would allow us an opportunity to gather enough meaningful data to assess if customers are benefiting from the program."