House hears bill to allow utilities to charge for exploratory fracking
The Florida House Subcommittee on Energy and Utilities on Tuesday will hear the proposal sought by Florida Power & Light to allow the company to expand its rate base by charging customers for investments in natural gas fracking operations in other states.
It's the only bill on the agenda for the committee's three-hour time slot and it's sudden appearance on the committee calendar surprised even the committee's chair, Rep. Kathleen Peters, R-South Pasadena, who had been told by House leaders that the bill was not going to get a hearing.
"This is a jump ball bill, is what I'm told,'' said Peters said, who opposes the bill. "There are so many freshman on that committee that I'm not sure they'll know what a jump ball is."
Rep. Jose Felix Diaz, R-Miami, the chairman of the Commerce Committee which will hear the bill if it's approved -- as expected -- by the subcommittee, also deflected responsibility for putting the industry-sought bill on the agenda. He would not explain who added it.
"I did not ask for that to be on the agenda,'' he said. "I reviewed the agenda that had it on it. Nobody forces anybody to hear any bill."
The bill, HB 1043 by Rep. Jason Brodeur, R-Sanford, would give the Florida Public Service Commission the authority to allow utilities that generate at least 65 percent of their electricity using natural gas to invest in oil and natural gas exploration, including fracking.
Although FPL is the only utility that could meet the criteria to qualify today, Duke Energy Florida, Inc., and Gulf Power Company are expected to qualify in the near future, if the bill is approved, according to an analysis by the House staff. It would also be the first time in the nation that a utility company would be allowed to shift the risk of an exploratory drilling to customers, instead of shareholders, without determining whether the investment is prudent, the analysis said.
The bill is aggressively opposed by environmental advocates, large utility users, and the AARP, which has urged its members to call committee and write legislators and voice their opposition.
"We've been inundated with emails -- all against the bill,'' Peters said on Monday. She said she considers the bill a short-sighted attempt by utility companies to expand their rate base before photovoltaic solar threatens the current business model.
"The market is going to continue to shift,'' she said. "Solar storage is coming and if we have the capacity to store electricity generated by solar, this is a non-issue."
A companion bill in the Senate, SB 1238, received fast-track treatment two weeks ago after the chair of the Communications, Energy and Public Utilities Committee Sen. Frank Artiles, R-Miami, was given celebrity status at a NASCAR race sponsored by FPL's parent company, NextEra Energy.
FPL and NextEra are two of the top contributors to legislative political committees in the last election cycle, contributing $6.7 million to state and legislative political campaigns and committees in 2015 and 2016, including $30,000 in direct contributions to Brodeur. This year, the company has already given $1.5 million to political committees that influence lawmakers.
The Senate Communications, Energy and Public Utilities Committee unanimously approved the bill with little discussion and no debate as five Republicans and three Democrats overlooked warnings from opponents that the policies would cost FPL customers millions and lock the Florida utility into reliance on fossil fuels for decades to come.
The bill overturns a court ruling that rejected FPL's attempt to get the fracking investment approved by the Florida Public Service Commission.
In 2014, FPL petitioned the PSC to approve its investment in a joint venture with PetroQuest, an oil and natural gas exploration company. FPL would invest directly in PetroQuest’s shale gas reserves in the Woodford Shale region in Oklahoma and receive the rights to a share of the physical gas produced. In January 2015, the PSC approved FPL’s participation in the project and in July 2015, it agreed to new guidelines that allowed FPL to participate in similar projects in the future without the need to seek PSC approval -- a decision that went against a PSC staff recommendation.
The decisions were challenged by the Office of Public Counsel, which represents ratepayers before the PSC, and the Florida Industrial Power Users Group. They argued against allowing an electric utility to be permitted to recover non-regulated investments through regulated rates and suggested that fracking was not the same as fuel hedging.
In May 2016, the Florida Supreme Court agreed and reversed both PSC orders, concluding that regulators had exceeded their authority by approving the cost recovery for the project.
"Exploration, drilling, and production of natural gas fuel in Oklahoma do not constitute generating, transmitting, or distributing electricity in Florida,” the majority ruled in a 6-1 decision. It rejected the argued that the fracking project could be considered a hedge against price increases because it “does not involve a certain quantity of fuel for a certain price.”
FPL's proposal, called the Woodford Gas Reserves Project, allowed FPL to earn a guaranteed profit off of the investment. Although the company claimed the investment would provide a long-term hedge against volatile fuel costs and save customers money, FPL revealed that the Woodford project had cost customers about $5.8 million and did not save fuel costs.
According to the House's staff analysis, any utility that is "eligible to use this cost recovery mechanism will have the opportunity to expand the base upon which it earns a return on investment at the PSC-approved rate."
It added that "customers may or may not experience savings as the result of a PSC-approved investment" because the bill requires that the investment be produce the savings over the life of investment, which are calculated based on projections of natural gas market prices and production costs, as well as volumes of natural gas produced over time, which can fluctuate.
The House staff noted, however, that since FPL filed its petition for the Woodford Shale Project in 2014, the project's costs have "fallen below the levels originally projected and it has produced higher volumes than originally projected.''