Should customers or shareholders pay $185 million for FPL deal?

FPL personnel walk through the bucket truck area in a drill for the 2015 hurricane season at Gulfstream Park in Hallandale Beach on Wednesday, April 15, 2015.
FPL personnel walk through the bucket truck area in a drill for the 2015 hurricane season at Gulfstream Park in Hallandale Beach on Wednesday, April 15, 2015. Miami Herald file photo

Should Florida Power & Light customers pay $185 million so that 35,000 customers in Vero Beach have cheaper electric bills? Or should FPL’s investors foot the bill?

That was the question before the Florida Public Service Commission when it made a little-noticed decision in June that allowed the company to charge the cost of acquiring the Vero Beach municipal electric company to its 4.9 million customers.

Now, the organization representing the state’s largest electric customers, the Florida Industrial Power Users Group, is challenging the decision and warning that the ruling could set the precedent for how regulators handle larger acquisitions by utilities in Florida.

In a petition filed Monday at the PSC, the Power Users Group alleges that the state regulatory board violated precedent and “common regulatory practice” by allowing FPL to charge its customers three times the book value for its purchase of Vero Beach’s municipal utility.

State law doesn’t require the PSC to regulate the purchase of a municipal utility but instead requires FPL to get permission if it wants to charge its customers in order to recover the cost of the deal.

Under the terms of the agreement, FPL will purchase the Vero Beach utility system for $185 million by the end of 2018 and ask its customers to repay it, along with as much as $23.7 million in guaranteed profits as allowed by the state regulated utility law, for the next 30 years.

According to documents filed by FPL, the company is paying $116.2 million over its fixed costs to Vero Beach and it is asking to be compensated for that through an “acquisition adjustment,” defined by the PSC as “when the purchase price is greater than the net book value.”

FPL argued during the June 5 hearing that the “accounting treatments” were necessary in order to give Vero Beach customers the same rates FPL customers receive. It predicted that by paying more now, customers would save $105 million over 30 years.

But PSC staff disagreed with FPL’s calculations and said that its analysis showed a $22 million loss to customers as a result of the “acquisition adjustment.” The staff said that FPL should be allowed to charge only about $21.3 million to its customers over 30 years and the remaining costs should be paid over time by Vero Beach customers or shareholders.

PSC commissioners rejected the staff recommendation and voted 3-2 on June 5 to approve the FPL request. Commissioners Gary Clark, Julie Brown and Andrew Fay voted for it, and Commissioners Art Graham and Donald Polmann voted against it.

The Power Users Group notes that none of the evidence and testimony presented at the hearing was under oath, and it is now asking for a hearing to present the evidence, either before the PSC or the Division of Administrative Hearings.

“Put simply, the commission should not be burdening FIPUG members and other FPL ratepayers with a rate increase to pay for the premium FPL is offering to pay the [city of Vero Beach] for its electric system,” the petition states.

The group wants the commission to reconsider its decision and, instead, rule that “FPL shareholders, rather than ratepayers” shoulder the $116.2 million excess cost of the $185 million purchase.

The ruling by the PSC comes at a time when Jacksonville Electric Authority, the state’s largest municipally run utility, is considering selling its assets and, FIPUG notes, any future bidder could seek the same favorable treatment that FPL was granted.

In a statement Tuesday, FPL spokesperson Sarah Gatewood said FIPUG was “attempting to derail something that is beneficial for all customers.”

“The Vero Beach electric system acquisition was shown during extensive hearings at the Public Service Commission to save FPL’s existing customers more than $100 million while immediately providing Vero Beach customers with FPL’s lower rates, high reliability, clean energy and award-winning customer service,’’ she said. “This last-ditch effort prevents FPL from lowering bills for Vero Beach electric customers, costing them more than $20 million a year.”

For years, controversy has surrounded the Vero Beach utility as many of its customers who live outside the city wanted to be served by FPL because the state’s largest utility charges lower rates.

Their argument was that because they lived outside the city, they were unable to vote for city officials who they contended raised utility fees instead of taxes to pay for city services.

The FPL deal, as approved, will allow Vero Beach residents that use 1,000 kilowatt hours of electricity a month to save about $26.73 in their monthly bill.

FPL attorney Wade Litchfield told the PSC at the June 5 hearing that the cost of serving the additional customers is “incremental” compared to the benefit of collecting revenues from them for the next 30 years. He said the company estimates that it will produce savings of $105 million over time.

“This is a classic win-win outcome,’‘ he said.

But the PSC staff and the Office of Public Counsel, which represents ratepayers before the commission, disagreed. They presented testimony that FPL’s calculations are flawed, which FPL countered.

Regulated utilities like FPL make a guaranteed return on investment from their capital assets, such as power plants. By acquiring the Vero Beach utility system, the company adds to its asset base on which to charge customers, thereby increasing its return on investment as well.

At the June 5 hearing, FPL analyst Scott Bores testified that FPL has exceeded its needed generating capacity with the addition of new solar-generating plants and the additional Vero Beach customers “are going to help pay for that capacity.”

On a divided vote, the commission concluded that “resolving the ongoing contention” between Vero Beach and neighboring communities over the cost of electricity qualified as the “extraordinary circumstances” needed to justify buying the utility at the inflated price.

“Unique problems require unique solutions, and under this particular set of extraordinary circumstances as described in this order, we believe our decision is in the public interest,’‘ the ruling stated.

At the June hearing, PSC Commissioner Graham disagreed.

“Just because the utility chose to spend three times the book value, I don’t know if it’s the duty of us to make them whole on that issue,’‘ he said. “... I think this is more of a political fix than a PSC fix.”

Politics has overshadowed many of the PSC’s decisions involving the state’s largest utilities. Commissioners Clark and Brown are both up for reappointment to the utility board and, at the time of the vote, they were awaiting nomination by the legislatively controlled Florida Public Service Commission Nominating Council, which sends six names to Gov. Rick Scott.

FPL has been one of the largest contributors to the political campaigns of both Scott and the Republican-dominated Legislature.

Mary Ellen Klas can be reached at and on Twitter @MaryEllenKlas

FPL's Florencia Contesse, Lead Communication Specialist Marketing & Communication, talks about repairs in Coral Gables.​