Report: Review shows Florida’s utility watchdog has become a lapdog

A non-partisan research group reviewed years of decisions by the Florida Public Service Commission and concluded, in a new report, that the regulatory board is more focused on meeting the utility industry’s needs than those of consumers.
A non-partisan research group reviewed years of decisions by the Florida Public Service Commission and concluded, in a new report, that the regulatory board is more focused on meeting the utility industry’s needs than those of consumers. Miami Herald file photo

The watchdog over electricity rates for most Floridians has been captured by the utility industry and the result is costing consumers, according to a new report released Monday by the independent research organization Integrity Florida.

The report analyzed dozens of decisions made by the Florida Public Service Commission in recent years and concluded that there is an “inordinate focus on what additional money a [utility] company wants, at the expense of attention to what the public interest needs.”

The report details what it calls “egregious voting and unfair ratemaking,” a selection process that allows the utility industry to heavily influence legislators and the governor — who appoint the regulators — through campaign cash and lobbyists, and a revolving door between the Florida Legislature, the PSC and the utility industry.

“Make no mistake, what we’re talking about today is corruption. It’s legal corruption,” said Ben Wilcox, director of Integrity Florida at a news conference Monday. “It’s institutional corruption but it’s corruption nonetheless.”

READ MORE: “Florida’s new utility regulator: Uber driver, donkey farmer, legislator”

Absent change, the group writes, the five-member board will continue to make “decisions that are often not in the best economic interest of Florida’s families and businesses.” For example:

▪  This year, the PSC unanimously approved a $400 million Florida Power & Light rate hike for 2017 as well as a $411 million increase over the next three years despite arguments from opponents that the decision boosts company profits at a cost to consumers and allows FPL to fund natural gas expansions that it “has failed to justify as the most necessary or cost-efficient option.”

▪  In 2014, the commission approved proposals by FPL, Duke Energy, Gulf Power and TECO “to dramatically cut Florida’s energy efficiency goals by more than 90 percent while also terminating solar rebate programs by the end of 2015.”

▪  In 2013, despite demands from consumer advocates that the decision be delayed until more information was available, the commission voted 4-1 to charge consumers $3.2 billion for costs related to the shuttered Crystal River nuclear plant and the canceled Levy County project.

▪  Until last year, the PSC allowed the four investor-owned utilities to lose $6.5 billion over 15 years on hedging programs related to natural gas.

Florida Power & Light, which bears the brunt of the report’s focus, called it “an error-riddled stunt from a group with a history of accepting money from special interests to promote their viewpoints,” in a statement from spokesperson Sarah Gatewood.

Integrity Florida, a non-profit independent research institute whose mission is to promote integrity in government, receives contributions from dozens of individual donors and associations including League of Women, Voters of the Villages, the Tea Party Network, the Southern Alliance for Clean Energy and the Progress Florida Education Institute.

PSC spokesperson Cynthia Muir said in a statement that “the PSC vigorously stands to ensure that Florida’s consumers receive reliable, safe service at a reasonable cost. Decisions are made in the public interest, balancing the needs of consumers with those of the utility to continue to provide reliable service to those very consumers.”

Gatewood noted that “FPL ranks among the cleanest, most reliable electric providers in the nation while our typical customer rates are 25 percent lower than the national average — and we believe that matters a lot more to our customers than” the Integrity Florida claims.

Wilcox said that while FPL can make its own claims, they are a product of “the control, the influence, the utilities have over legislators and the PSC,” he said. “It’s a dysfunctional system.”

In the next few months, the PSC will decide how much its customers will pay to reimburse the utility companies for repairing the disabled smart electricity grid — much of it originally financed with federal funds — and restoring power after Hurricane Irma.

It will decide what, if anything, the utility companies must do to better harden their systems for storms. It will decide whether to allow FPL to charge another $115 million for nuclear power plants that continue to be delayed — and may never be built. And it will decide whether to allow Duke Energy to raise customer rates $82 million for costs associated with the cancellation of the Levy County nuclear plant.

To remedy the problem, which has been nearly 40 years in the making, the group recommends Florida return to elected PSC commissioners — but this time with steeper standards, including a prohibition on their accepting campaign contributions from the entities they regulate — or implement a series of reforms aimed at restoring independence to the five-person regulatory board.

The report notes that the Legislature in 1978 intended to “take politics out of the commission’s utility rate decisions” when it made the five-member board appointed. Several bills have been offered in recent years to update the system but none have gone anywhere.

“It’s an open question as to whether the agency truly serves the ‘public’ as its name implies,” the report states. “Policymakers should consider whether steps need to be taken to further insulate the PSC and its regulatory decisions from influence and interference by the legislature and the utilities.”

Wilcox said the system proved it had become captive to the utilities in 2010, when four commissioners appointed by former Gov. Charlie Crist voted against a rate increase sought by Florida Power & Light. The company then led a lobbying effort that led to the state Senate to refuse to confirm two of the commissioners and the nominating commission to reject the reappointment of the other two.

“Since then, the PSC has remained under the thumb of the Legislature, which is heavily influenced by the utility industry,” he said.

Another area the utilities have had an influence over is in the Office of Public Counsel, the state agency that is supposed to represent consumers in rate cases. Unlike other states, Florida’s small has only 15 employees with a budget of $2.4 million, compared to the $24.6 million budget at the PSC with a staff of 277.

Several states, such as Iowa, Ohio and Pennsylvania, have the office located within the attorney general’s office. California’s consumer advocate office has 147 employees, and some smaller states — like Maryland, Michigan and Wisconsin — have offices larger than Florida’s, said Alan Stoncipher, another of the report’s authors.

“Utilities are gaming the settlement process,” Wilcox said, often working out their differences behind closed doors without the consumer advocate involved.

For example, in 2012, the PSC granted FPL’s request to raise base rates by $690.4 million per year after negotiating a settlement without the public counsel. At that time, Public Counsel J.R. Kelly “argued that FPL was making excessive profits, using its utility as a monopoly to subsidize shareholder earnings for the nonregulated side of its business at its parent company, NextEra,” the report said.

Wilcox said utilities “approach the process of negotiation much like a used car dealer who marks up the initial asking price knowing that they will eventually agree to a lower amount.”

He also said that regulators have routinely allowed utilities to shift the risk of expensive projects from shareholders to customers, putting the cost of nuclear reactors and natural gas fracking operations on customer bills regardless of whether or not they are successful.

“Policymakers should revisit the 1978 decision to move from an elected to an appointed PSC,” Wilcox said. “They may well determine an appointed system still has the most merit, but additional steps should be taken to ensure the public is better represented in the nomination and appointment process.”