Florida Power & Light wants to get into the natural gas fracking business and it wants its customers to pay for it.
At a hearing Monday, the state’s largest utility asked regulators for permission to charge customers up to $750million a year to form a partnership with an Oklahoma oil and gas company because, it argues, the investment would help FPL stabilize fuel prices and save customers money.
How much? Estimates indicate the savings would be between $51million and $107million over the life of the project — or a total of 50 cents to $1 for the average customer over several years. In addition to the savings, FPL argues that customers also will benefit from less volatility in fuel prices.
In tapping a well that already produces gas, FPL argues, customers are unlikely to see price increases because exploration costs will be offset by savings from the investment — the first time any utility has asked to have its customers pay for gas exploration.
Opponents, representing the state’s largest commercial electricity users and the general public, had a simple response to the question before the Public Service Commission: “No thank you.”
They argued at a day-long hearing that the risks of operating the hydraulic fracturing, or fracking, outweigh the rewards. They said FPL can’t be sure that the natural gas wells will produce enough gas to meet its needs and customers will shoulder the costs of dry wells, environmental impacts and market changes for the next 50 years.
“Fifty years is a long time to receive guaranteed profits on something that’s not guaranteed,” said Eric Sayler, an attorney for the Office of Public Counsel, which represents the public in cases before the Public Service Commission.
He said the idea is an attempt by FPL to earn a guaranteed profit on the investment and have the risk borne by customers, not shareholders.
“No other utility has attempted to put this in its base rate,” he said.
FPL attorney John Butler downplayed the potential for risk and emphasized the innovation.
“With natural gas representing such a large component of FPL’s fuel bill, we have been searching for a way to both reduce and stabilize the cost of natural gas,” he told the commission. “We believe we’ve found the answer. FPL is proposing to invest in gas reserves that would meet a portion of our gas needs at the cost of production, rather than having to buy that same volume of gas at market prices.”
The PSC, which rarely rejects an FPL request, will decide the fate of the proposal by the end of the year. If approved, the investment will take place next year and FPL is asking for permission to go forward with similar proposals in the future without first seeking regulatory approval.
PSC chairman Art Graham said the issue was taking the commission into “uncharted territory” and wanted to proceed carefully, in the event the panel’s ruling is challenged.
Other companies are watching. Chief financial officer for Duke Energy Corp. Steve Young told Bloomberg News last month that his company is studying FPL’s proposal carefully because it is also considering asking regulators to let it invest in gas exploration to lock-in prices and earn profits from investments.
Under the proposal, FPL would partner with Oklahoma-based oil and gas drilling company PetroQuest and pay them for extracting natural gas. The company runs a fracking operation in a region known as Woodford Shale region of Oklahoma’s Arkoma Basin.
FPL would house its investment in its subsidiary, Butler said, “to provide greater accounting transparency.”
FPL would recover the costs associated with extracting the gas by passing it onto customers through the fuel clause on all FPL bills. FPL would earn a profit of 10.5 percent on the investment. Under the fuel clause, customers pay 100 percent of all fuel costs.
Right now, FPL buys natural gas on the open market and does not make a profit off of it. To offset swings in price in the volatile oil and gas industry, FPL hedges its purchases.
During testimony, FPL executive Sam Forrest said this was just another way of hedging against price swings. He acknowledged that there was little risk in the project for the company but, he said, there would be distinct benefits for customers.
“Ownership in gas production offers long-term price stability as the cost of gas is tied directly to production costs,” he said. “FPL’s customers will still benefit should gas prices drop but will be partially protected by investment in gas reserves should gas prices rise.”
Jon Moyle, attorney for the Florida Industrial Power Users Group, said FPL had another motive: profits. The company had built out its power plants with $1.5billion investment in upgrading its fleet in recent years, he said, and now is looking to find a way to add new costs to its base rates so that it can continue to enhance shareholder profits.
“How are they going to grow the company? Here’s one way: We’ll get into the oil and gas business,’’ Moyle said. “This is not a good deal for ratepayers.”
He suggested that the PSC, which enforces the law but doesn’t make policy, should ask the legislature to decide it if wants utility companies to use customer accounts to pay for investments.
“This is purely making policy,” Moyle said, “and we don’t think it should be done without the Legislature saying give it thumbs up or thumbs down.”