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State says FPL doesn’t need to pass tax savings to customers

The state’s top utility company chose to tap the company’s reserve fund to pay for Irma-related costs and then use the tax savings to replenish the reserve.
FPL energy grid equipment in Fort Lauderdale.  [Times file]
FPL energy grid equipment in Fort Lauderdale. [Times file]
Published May 15, 2019
Updated May 15, 2019

TALLAHASSEE -- After Hurricane Irma, Florida Power & Light benefited from a major federal tax overhaul that saved the utility hundreds of millions of dollars.

With a windfall of cash, what was it to do for customers and investors?

The state’s top utility company chose to tap the company’s reserve fund to pay for Irma-related costs and then use the tax savings to replenish the reserve.

The state Office of Public Counsel, which represents utility consumers, and two business groups were not pleased with this decision and argued in April that FPL should have passed along tax savings to customers instead.

Florida’s Public Service Commission, the state’s utility regulatory board, decided Tuesday that FPL was not in the wrong, and ruled that the savings can be used to replenish the company account that was tapped to pay for Irma costs.

“I think the agreement allows FPL to use the funds this way,” Commissioner Gary Clark said. “Sometimes I’m not a big fan of the process that we use, but once we commit to the process it’s something we are stuck with ... and I don’t find any evidence that the rates aren’t fair and reasonable.”

The argument involved a series of issues that stem from a 2016 base-rate settlement agreement, where FPL was granted the ability to pass along storm-related costs to customers if a major storm like Hurricane Irma hit. The settlement also included provisions to set a maximum return on equity of 11.6 percent and approved FPL’s use of the financial reserve.

In late 2017, Congress passed the federal tax overhaul that reduced corporate income-tax rates from 35 percent to 21 percent, saving FPL about $650 million, according to the Office of General Counsel.

Commissioner Julie Brown said under the settlement agreement, FPL customers were put in a unique position by benefiting from the rates. They avoided a surcharge on their bills after Irma, Brown said, and continue to benefit with rates that are “in the public interest.”

Brown pushed back against allegations by the Office of General Counsel and other groups that FPL is over earning.

“This commission will take action if the utility is over earning,” she said. “That is not the case today. Period.”

FPL spokesman Mark Bubrinski said the commission made the “right decision.” He said maintaining the settlement agreement is “beneficial to customers” and will continue to allow FPL to keep base rates “frozen through at least 2021,” or beyond the terms of the settlement.

“Hurricane Irma cost roughly $1.3 billion. Our customers didn’t pay a dime,” he said. “We were pleased to be able to do that ... This keeps more money in our customers’ pockets over the long term.”

The commission also voted Tuesday to allow Gulf Power to pass along storm-related costs to customers who use at least 1,000 kilowatt hours per month. Gulf Power and FPL are both owned by NextEra Energy, based in Juno Beach.

Gulf Power will pass along $342 million in Hurricane Michael-related costs to customers — a roughly $8 increase for customers who use 1,000 kilowatt hours per month and more for those who go beyond that. Using an air-conditioner for eight hours a day, for example, would be about 340 kilowatt hours per month. A pool pump adds up to about 1,240 kilowatt hours per month.

The rate increase would start in July, and last about five years.

In its February petition, Gulf Power asserted that it incurred approximately $350 million in costs as a result of Hurricane Michael, which barreled through the Panhandle in early October. The staff recommended that the commission approve the proposal, and it did so with little debate. The commission has signed off on such proposals from utilities after past storms. Also, Gulf Power operates under a 2017 rate settlement that anticipated the utility would be allowed to recover such costs if a major storm occurred.

Commissioner Clark said recovery is “not cheap,” and that most families will actually be paying more than $8 per month. Clark said after seeing the damage and suffering the outage in the wake of the Category 5 storm, the cost will be worth it.

“Most houses use 2,000 kilowatt hours per month,” he said. “Some will see $16 a month in charges or $30 a month in charges. It is going to be difficult, but it is justifiable at this time.”

Bay County’s emergency management chief, Mark Bowen, said as more people are dependent on technology like home dialysis systems and oxygen generators, storm recovery is even more crucial.

“Even the most resilient components on our community were very depended on power,” he said, “In less than two weeks, we had over 95 percent of Gulf Power customers back. I know that timely restoration of power literally saved lives.”

Bay County’s economic development chief, Garret Wright, said energy restoration was crucial for the Panhandle’s economy, too.

“Immediately following Hurricane Michael, there was a lot of uncertainty regarding the future of our economy,” he said. “Our economy wouldn’t be how it is today if Gulf Power hadn’t responded in the way they did. We are all vulnerable to hurricanes and don’t know when the next hurricane will hit.”

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