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FP&L considers charging customers to explore fracking; Duke Energy could follow suit

Duke Energy is one of two Florida utilities pondering the high-risk natural gas exploration business, and they want customers to pay for it.

Already, state regulators are considering a proposal from Miami-based Florida Power & Light to charge its customers as much as $750 million a year for a fracking exploration project in Oklahoma that the utility says could help lock in fuel prices for years and save customers money.

Duke is watching closely and could follow suit if FPL gets its way.

Here's the real bottom line:

Florida utilities currently do not profit from the cost of fuel used to run their power plants. The utilities bill customers for their fuel costs as a pass-through charge.

But the fracking deal would allow the utilities to earn profits on the fuel that powers their plants, along with revenue from the construction of the facilities and the electricity they generate. FPL's proposal would be the first effort by the state's utilities to charge customers for fracking exploration.

"This is socialism," said Mark Cooper, a senior fellow for economic analysis at Vermont Law School. "This is plain and simple national socialism in Florida. They have no risk. Why should ratepayers bear that risk?"

Stephen Smith, executive director of the Southern Alliance for Clean Energy, put it this way: "If it goes bad, it's all on the back of the customers. Instead of using their own corporate dollars, they want to use ratepayer money. This is part of the same narrative: the utilities are out of control."

To Smith and Cooper, the idea of charging customers for fracking exploration is reminiscent of Duke's use of the state's so-called nuclear advance fee to build the proposed Levy County nuclear plant. But Duke canceled the project after spending $1.5 billion of customer money with no refund.

The fracking proposal comes at a time when the utilities are seeking every opportunity to preserve their increasingly troubled business model. The utilities' revenue and profits face a growing threat from ratepayers' ability to reduce their energy consumption with more efficient products and homes as well as to produce their own power from rooftop solar panels or other sources.

The state Public Service Commission already gave the utilities a huge leg up last week when regulators approved proposals by the power companies to gut their energy-efficiency goals by more than 90 percent and end the state's solar rebate program at the end of 2015.

Jennifer Zajac, a Duke spokeswoman, said investment in fracking exploration is just one of many proposals that the utility is considering as it seeks to bring stability to volatile natural gas prices.

"It would lock in gas supplies in the long term at the wellhead," Zajac said. "If we did that, it would reduce the fuel (price) volatility with gas. Customers do like us to reduce fuel costs. We would have to get a solid return.

"No hard decisions have been made yet," she added. "We'll be following what happens with FPL and the Florida commission."

Charles Rehwinkel, state deputy public counsel, who represents consumers before the PSC, had filed a motion to dismiss FPL's request, arguing that allowing a utility to charge customers for natural gas exploration was out of the commission's jurisdiction. He said the Legislature never gave the commission such broad power.

If the commission approves FPL's plan, it could face a legal challenge, with the Office of Public Counsel already arguing that the commission is overstepping is bounds.

"This case is about whether you have the power or authority to act, and you do not," Rehwinkel told the commission last week.

The five-member panel disagreed and moved forward with this week's hearings on the issue.

"The specific project before us, I find intriguing," said Commissioner Lisa Edgar during hearings Tuesday. "But I am also wrestling with how the guidelines (for executing the proposal) would interact with our procedures."

J.J. Terry Deason, an FPL expert witness, said the utility would be comfortable with the utility approving the proposal and in the near future developing guidelines for executing the project and protecting consumers.

Deason described the proposal as noncontroversial and that it will benefit consumers in the long run.

"What's being proposed," Deason said in defining the plan, is "a different way to procure the fuel."

Cooper, the senior fellow at Vermont Law School, said the trouble isn't with FPL and Duke seeking different ways to secure natural gas but the way the utilities are trying to fund the projects. He said the typical way for utilities to conduct such a project is to form a subsidiary that would explore the potential natural gas well.

By creating separation between the utility and its natural gas exploration efforts, state regulators can better ensure that customers are getting the best deal on fuel prices, Cooper said. But covering the utilities' cost of exploration means the ratepayers may pay for something that they will never get.

"You cannot shift all of these risks to ratepayers," Cooper said. "If it is a dry hole, why should ratepayers be paying? Here's an easy one for the PSC: This is so off the wall, they should be able to say no."

Contact Ivan Penn at ipenn@tampabay.com or (727 ) 892-2332. Follow @Consumers_Edge.

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