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Florida Supreme Court Puts Kibosh on FPL Fracking Charge

May 3, 2016 By Cheryl Kaften

The Florida Supreme Court ruled (Case Nos. SC15-95, SC15-113, SC15-115) on May 19 that the state’s Public Service Commission (PSC) exceeded its authority when it allowed Florida Power & Light (FPL) to charge its 4.8 million customers for a risky investment in an Oklahoma-based fracking company.

The high court reversed a June 2015 decision by the PSC that would have given FPL the go-ahead to collect up to $750 million from customers in order to engage in fracking for the next five years.

In a 6-1 opinion written by Justice Ricky Polston, the court found that, “This case is before the Court on appeal from three orders of the Florida Public Service Commission. The PSC approved the recovery of Florida and Light’s costs incurred through its joint venture with an oil and natural gas company to engage in the acquisition, exploration, drilling, and development of natural gas wells in Oklahoma. The recovery as fuel costs paid by FPL’s customers in its utility rates [was] considered by the PSC to be a long-term physical hedge. Treating these activities as a hedge requires FPL’s end-user consumers to guarantee the capital investment and operations of a speculative oil and gas venture without the Florida Legislature’s authority. Accordingly, we reverse.”

Case History

Based on court documents related to the history of the case, each year, the Florida PSC creates a docket to review and allow cost-recovery of fuel expenditures as well as to review hedging activities intended to minimize fuel price volatility by Florida’s investor-owned utilities. In the 2014 fuel clause proceeding, FPL also filed a petition requesting approval and recovery of a specific gas reserves investment, the Woodford Project. This petition requested a determination that FPL would be eligible to recover, through the fuel clause, its “exploration expense, depletion expense, operating expenses, G&A, taxes, transportation costs and a return on the unrecovered  investment, including working capital” for investments in the exploration, drilling, and production of natural gas in the Woodford Shale Gas Region in Oklahoma.

The Woodford Project is a joint venture agreement between FPL and PetroQuest, a publically traded independent oil and natural gas company. Pursuant to the agreement, FPL would invest directly in PetroQuest’s shale gas reserves in the Woodford Shale region and in return receive the rights to a share of the physical gas produced.

FPL alleged that it was looking for opportunities to acquire natural gas at production costs (as an investor), rather than at market prices (as a purchaser), in order to help insulate customers from the volatility of the gas market.

The Office of Public Counsel and the Florida Industrial Power Users Group (FIPUG) moved to dismiss the Woodford Petition, alleging that the PSC lacked the authority to consider and approve the project. The PSC denied the motion, concluding that it had jurisdiction under its statutory authority to set rates for public utilities. Following a two-day evidentiary proceeding, the PSC approved the Woodford Project.

The Stumbling Block

However, the court found that the utility could only recover costs “arising from the ‘generation, transmission or distribution’ of electricity,” while “the exploration, drilling and production of fuel falls outside the purview of an electric utility as defined by the Legislature.”

“It is undisputed that FPL is an electric utility,” the opinion continued. “It is also undisputed that the PSC’s ratemaking authority encompasses the authority to examine fuel cost expenditures and approve cost recovery to compensate for utilities’ fuel expenses through the fuel clause. … However, the PSC does not have the statutory authority to approve cost recovery for FPL’s investment in the Woodford Project.”

Speaking to the Miami Herald, FPL Senior Communications Specialist Sarah Gatewood said the company was disappointed by the ruling and it would have a “long-term negative impact on customers’ bills.”

“This is a great victory for ratepayers and will prevent them from having to bear the cost of some very speculative risk,” J.R. Kelly, the head of the Office of Public Counsel, told the same news outlet.

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