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Monday August 20th 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.

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