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Sunday June 24th 2018

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Is the Gulf Power Sale Good or Bad?

By Joseph Baucum

Understanding the intricacies of the retail energy sector and exactly how the control of electricity production affects consumers on a concrete level is, to put it mildly, complex.

But on this, almost all can agree: electricity is essential to modern existence, which, as a consequence, creates far-reaching impacts on ratepayers and their communities.

More so than a bizarre city ordinance or the majority of hot takes debated and disseminated on CNN, Fox News or MSNBC, electricity, in both its generation and consumption, tangibly plays a role in each life every day.

The Amish and a few grid escapists notwithstanding, electricity remains vital for almost all in America. It powers the lights in homes. It allows for air conditioning on sweltering summer days. Without it, food spoils, clothes stink and, perhaps most tragic of all, TVs go dark, crippling Southeastern Conference fanatics on college football Saturdays.

Of course, just as a battery has both a positive and negative terminal, electricity, for all its benefits, also carries several unfavorable consequences. All property owners and renters see their bank accounts reduced each month. And politics aside, the scientific consensus is that fossil fuel-burning power plants are the leading agents of global warming—an intensifying issue that all on the planet must grapple with, particularly those living in coastal areas such as Florida.

Beyond climate change, fossil fuel- and nuclear-generated electricity also produces other forms of harmful waste, such as coal ash, wastewater discharges and spent nuclear fuel. The latter remains deadly for thousands of years, and there is no permanent disposal site for it.

With all of this in mind, opinions are divided on the ramifications, both positive and negative, for Florida ratepayers involving a recently announced transaction between two energy utility giants.

On May 21, NextEra Energy Inc. revealed it would purchase Gulf Power Co. from the latter’s Atlanta-based parent company, Southern Company, as part of a nearly $6.5 billion deal. In a state that prohibits residents from choosing their electricity provider, the sale of the Florida Panhandle’s energy monopoly to NextEra, which already owns the state’s largest monopoly utility in Florida Power & Light, should only extend NextEra’s dominance within the state’s retail energy sector.

But given that electricity, a product that almost all must consume to survive, directly impacts the wallets of every ratepayer as well as public health and the planet, the jury remains out as to what extent the transaction will benefit consumers or the environment.

Florida’s Monopoly Structure
Officials from NextEra declined to respond to multiple inquiries from Inweekly for this story. Gulf Power spokeswoman Kimberly Blair directed all questions to Southern Company.

But in an emailed response, FPL spokeswoman Sarah Gatewood stressed that it is NextEra, not FPL, which is purchasing Gulf Power. She said FPL and Gulf Power would remain distinct entities, owned by the same parent company.

“Gulf Power will continue to serve its customers across Northwest Florida as it does today,” she wrote.

From bill-paying perspective, it appears FPL customers will continue buying electricity from FPL, where a monthly residential bill of 1,000 kWh is $99.37, according to the Florida Public Service Commission (PSC). Gulf Power customers will continue buying from Gulf Power, where a monthly residential bill with the same consumption is $131.28.

But before going any further, it’s helpful to understand how Florida differs from other states regarding retail electricity. Not all states maintain the monopoly approach that Florida employs. Some states allow customers to choose their energy provider, no different than selecting between Publix or Walmart, AT&T or Verizon or McDonald’s or Burger King.

Texas, for example, allows energy companies to compete for customers in regions that previously contained an investor-owned utility. The result has been cheap rates, according to state and federal statistics, and more renewable energy options for Texas residents.

The Texas Public Utility Commission maintains a website, powertochoose.com, that allows residents in competitive regions such as Dallas-Fort Worth and Houston to enter a ZIP code and select from as many as 300 residential plans with prices as low as 5.5 cents a kilowatt-hour per 1,000 kWh.

Conversely, Florida maintains a system that authorizes investor-owned utilities to operate as legal monopolies. The utilities sell electricity in a given service territory without competition from rival energy companies. According to the most recent data from the Energy Information Administration, monopoly utilities Gulf Power and FPL charged residential customers in 2016 13.36 cents and 10.17 cents per kWh, respectively.

Now, the PSC exists to protect consumers from price gouging and other exploitative practices. The PSC regulates what an investor-owned utility can invest in and how much it can charge customers to make a reasonable profit on the investments for its shareholders.

In this type of system, the more a utility like Gulf Power or FPL can invest in capital assets, such as new or expanded power plants, the more those costs can then get passed off to customers and, ultimately, the more profits the monopolies can make for shareholders. To avoid paying for unnecessary power plants and other investments, ratepayers are beholden to how the PSC permits the utilities to operate.

Is the Texas or Florida system better for consumers?

Based on federal data, Texas has resoundingly beaten Florida on cheaper energy rates. Since 2011, Texas has had more affordable residential rates in five of the years. In every year, Texas has also had cheaper commercial and industrial rates, which might explain why Florida keeps losing to Texas in rankings of best states for business.

For Florida to move to a competitive environment like the one in Texas, the Florida Legislature would have to deregulate the utilities, which is unlikely considering how heavily investor-owned utilities lobby lawmakers.

Which now brings us back to NextEra’s announced purchase of Gulf Power and what it portends for the monopolies, their shareholders and customers.

NextEra-Southern Company Deal Explained
In addition to acquiring Gulf Power, which serves more than 450,000 ratepayers, Juno Beach-based NextEra also is purchasing Southern Company’s Florida City Gas, which has about 110,000 customers throughout Miami-Dade, Brevard, Indian River and St. Lucie counties. NextEra also gains ownership interests in two natural gas-generating sites, Plant Oleander and Stanton Energy Center.

Under the terms of the sale, NextEra would assume $1.4 billion in debt from Gulf Power, but altogether, the new ratepayers would add to NextEra’s robust total, which already includes nearly 5 million customers served by FPL.

In the announcement, Jim Robo, chairman and chief executive of NextEra, stressed how the transaction, which could officially close in the first half of 2019, would bolster the utility’s financial well-being and corporate future.

“Following the financing of the transactions and as a result of expanding our regulated operations, we expect to continue to maintain $5 billion to $7 billion of excess balance sheet capacity with which to further support our long-term growth,” Robo said in the news release.

In Southern Company’s news release, Thomas Fanning, the corporation’s president and CEO, similarly underscored how the sale would aid his company’s financial standing and shareholders. Southern Company maintains subsidiaries in Alabama, Georgia and Mississippi.

“This sale provides Southern Company the opportunity to deliver great value to our organization, bolster our financial profile and continue to build the future of energy as one of America’s premier energy companies,” Fanning said. “These Florida businesses are being sold at a price that provides substantial value to our stockholders while entrusting the customers of these exceptional franchises to a high-quality utility company that has a well-established presence in the state.”

As to who owns final approval of the transaction from a regulatory standpoint, J.R. Kelly, Florida public counsel, said no Florida entity, including the PSC, has any authority concerning the sale. To Kelly’s knowledge, the Federal Energy Regulatory Commission must review and approve it.

The Office of Public Counsel, established by the Legislature, represents the ratepayers in cases before the PSC where the utilities have requested a rate increase.

But what of the ratepayers? How will the transaction affect them?

In terms of leadership and direction, Kelly noted that since NextEra would own both FPL and Gulf Power, “they will have total control over both entities.”

In light of how NextEra and FPL officials have historically exerted their influence in the state to further their corporate interests, it is this element that worries critics the most.

FPL’s Checkered Past
With the knowledge that other states, such as Texas, have opened their retail energy markets to competition, which has dropped prices and spurred innovation and clean renewables, the Southern Alliance for Clean Energy’s Susan Glickman said the fact that Florida has gone the opposite direction by exacerbating its monopoly structure is worrisome.

“Southern Alliance for Clean Energy is concerned about so much of the Florida market being controlled by one company,” said Glickman, Florida director of the Knoxville, Tennessee-based energy watchdog group. “FPL is the largest utility in Florida. The purchase of Gulf Power would be by their parent company, but the leadership between NextEra and FPL is lockstep.”

And it is how the leadership of NextEra and FPL has been made evident through proceedings before the PSC that Glickman warned is a cause for concern in how NextEra would similarly oversee Gulf Power.
For example, Integrity Florida, an independent research organization, published a thorough account in October of how the PSC, the entity tasked with scrutinizing the state’s investor-owned utilities, has instead served the interests of the energy monopolies and their shareholders.

A main point of the analysis is how the PSC’s five-commissioner board remains tied to the Legislature and governor’s office, entities susceptible to political spending and lobbying from the utilities. The governor appoints commissioners to the PSC, while the Florida Senate then confirms the appointments.

The Integrity Florida report detailed several examples of FPL’s influence over the regulatory process:

•In 2009, FPL requested a rate hike of $1.3 billion but later in the proceedings admitted to overcharging customers about $1.3 billion for aging infrastructure that was partly as the basis for their request. In 2010, the PSC denied the request, but months later, “four of the five PSC commissioners who voted against the increases in rates lost their jobs on the commission.” Since then, FPL gained approvals by the PSC for rate increases for a 2012 request of $690.4 million per year with an additional $304 million over four years as new plants came online as well as a settlement for an $811 million increase from a 2016 request.

•The PSC in 2014 approved FPL’s request to pass costs off to consumers for its share of a $191 million joint venture known as the Woodford Project with Oklahoma-based PetroQuest Energy to explore for natural gas. In 2015, the PSC then approved FPL’s request to pass off as much as $500 million more to consumers to expand on the project. The Florida Supreme Court later stepped in and ruled the PSC had overstepped its authority in approving the requests.

•The commission also approved in 2014 petitions by FPL, Gulf Power, Duke Energy of Florida and Tampa Electric 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 2017, Sen. Frank Artiles, R-Miami-Dade County, fast-tracked two bills sought by the utilities. One bill would have negated the court ruling concerning the Woodford Project by allowing the PSC to approve cost-recovery requests related to natural gas investments. As this was playing out, Artiles was photographed wearing a jacket with a “NextEra” logo at a Daytona 500 race sponsored by NextEra. He also used the event as a fundraiser and raised more than $10,000. Artiles later left office during the session due to unrelated controversy. Both bills ultimately died.

In response to Integrity Florida’s findings, PSC spokeswoman, Cindy Muir, emailed a statement to Inweekly.

“The PSC vigorously stands to ensure that Florida’s consumers receive reliable, safe service at a reasonable cost,” she wrote. “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 defended FPL by questioning the overall credibility of Integrity Florida’s report. She contended the report was inspired and funded by “a small circle of politically motivated individuals with a history of being curiously selective in their criticism.” She also pointed to NextEra’s global standing as a leader in renewable energy. FPL’s parent company does indeed lead in clean energy production in states that allow for competition.

“How can a group with ‘Integrity’ in its name accept money from an anti-utility group to produce an anti-utility report?” Gatewood challenged.

But Gatewood declined to speak to any of the report’s specific findings. And the approvals from the PSC offer a portrait of how state regulators, who are supposed to protect the ratepayers, have allowed FPL and the industry to operate.

Equally as important, Glickman said, is how the monopolies go about achieving their ambitions through lobbying and political spending.

“We’ve seen them time and time again use heavy-handed tactics to get their way,” she said.