Customers Foot Bill for Florida Utilities to Build ‘Unnecessary’ Gas Infrastructure For Excess Profit

Jerri-Lynn here: I’m cross-posting this piece from DeSmogBlog for two reasons. First is to debunk the common argument that although regrettable, expanding US natural gas pipeline infrastructure is necessary to supply expanding demand for natural gas. As Larry Buhl writes below, that isn’t the case for the state of Florida, and it’s certainly not clear that Florida Power and Light customers should be financing such expenditure so that the company can earn a  rate of profit that significantly exceeds the national average for public utility companies of similar size.

Second, President-elect Trump’s cabinet picks suggest that the incoming administration will assiduously pursue fossil fuel industry interests– at least at the level of national policy. But state level regulators also have roles to play, and could– although they did not in the Florida case discussed below– refuse to approve rate increases for infrastructure development. There is considerable potential for state and local organising and protest efforts– as the Dakota Access Pipeline (DAPL) protests have thus far established (although alas, those efforts may need to commence in earnest again if, as expected, the new administration allows DAPL construction to proceed).

By Larry Buhl, who writes regularly for DeSmogBlog and has been been a regular feature reporter for A & U magazine for 16 years. He has also reported for Wired, Yahoo News,, The Advocate, Marijuana Venture, and The Fight. His beats include environment, health and infectious diseases, politics and public policy, technology, general business and the arts. Originally published at DeSmogBlog.

On an August 2015 earnings call, Kelcy Warren, CEO of natural gas company Energy Transfer Partners, acknowledged that “the pipeline business will overbuild until the end of time.”

Critics of Florida’s utilities say they believe Warren. They point to state regulators allowing Florida Power and Light (FPL) to build not only new power plants using fracked gas from as far away as Pennsylvania and Texas but also natural gas infrastructure that includes the $3 billion Sabal Trail Pipeline.

And Florida residents are footing the bill for these efforts.

As Frank Jackalone, Director of Sierra Club Florida, said in recent blog post:

FPL has admitted that homegrown solar and batteries could do at least as good a job of powering Floridian homes and businesses — at competitive prices. To make matters worse, FPL is also using these power plants to try to justify building unnecessary gas pipelines such as Sabal Trail and Atlantic Sunrise.

Rising Rates But Not Rising Demand

In January FPL customers will see their utility bills rise by $400 million, to be followed by $411 million in rate hikes over the next three years.

Florida Power and Light, the largest utility in the state, justified the rate increase in a prepared statement, saying it would “support continued investments in FPL’s infrastructure, including the implementation of innovative technologies that help reduce and shorten outages, generate power more efficiently, and curtail fuel consumption and air emissions.”

The statement went on to say that FPL expects to continue investing $3.5 billion a year in its infrastructure for the next four years.

Detractors say that infrastructure is largely based on producing electricity from fracked gas, not solar, and that much of that natural gas infrastructure is unnecessary, based on demand.

The Sun Sentinel explored a questionable rationale for the public service commission’s support of the rate hike:

So why should customers like the deal? Because of the Public Service Commission’s recent record on FPL. … Since that 2012 rate hearing, the commission has approved every FPL request, including that Okeechobee County plant, which critics called unnecessary.

An analyst from BTU Analytics crunched the numbers as well, and said that forecasts for energy demand and conversions from natural gas to coal power plants don’t actually justify the construction of new natural gas infrastructure, as FPL has claimed:

In the 2016 electricity demand forecast, FP&L made no significant changes in customer counts, revised population growth estimates up, but drastically lowered its expected consumption of electricity per customer down in 2016 relative to 2015 on empirical evidence that consumers were bucking the expected trends of increased electricity usage compliments of energy efficiency and tighter building codes among other things. The resulting change in usage per customer wiped out nearly 11% of the expected electricity demand increase by 2024.

Despite that, clean energy advocates say, the Florida Public Service Commission doesn’t see falling demand as a reason to deny higher utility rates or the building of new power plants like the Okeechobee natural gas plant, slated for 2019.

Utilities Tilt Playing Field in Favor of Gas

In late November, the Florida Public Service Commission approved a maximum profit rate, or return on equity, of 11.6% for FPL. That profit rate will go into effect in January and last for the next four years, unless the Florida Supreme Court reverses the commission’s decision.

The problem, detractors say, is that this 11.6% profit rate is well above the national average of 9.5% for similar-sized public utility companies, according to the Edison Electric Institute.

“Florida law requires utilities to provide least-cost service and in return are supposed to get a fair return for providing such services, but that’s not what’s happening [with FPL],” Sierra Club’s Frank Jackalone told DeSmog.

Jackalone adds that because FPL’s parent company, NextEra Energy, is one of the owners of the still-in-construction Sabal Trail pipeline, along with Duke Energy of Florida and Spectra, “FPL is basically shaking hands with itself.”

Not surprisingly, there’s been an uptick in mergers between utilities and natural gas-pipeline companies, including Duke and Piedmont, and Southern Company and AGL, just this year.

Jackalone and other critics say the threat of less profitable clean energy sources is one reason FPL has been fighting the expansion of rooftop solar and other alternative forms of energy, and why the company and a Koch Brothers-backed group invested millions in a misleading ballot initiative to restrict rooftop solar, an initiative that was rejected in November.

Justifying Construction with Overestimates

Critics say even though Floridians are looking at solar to meet their energy needs, Florida’s utilities, backed up by the public service commission, have the following rationale: If utilities build it, Floridians will have to use it. And even if Floridians don’t use it, they’ll be paying for it anyway.

A recent article in Southeast Energy News contends FPL pushed for the construction of the Sabal Trail pipeline in spite of the fact it will deliver double the amount of gas needed by Floridians:

In 2013, in public testimony, FPL projected a need of 400,000 decatherms (Dth) a day by 2017 and 600,000 Dth/day by 2020. In their 2014 application to FERC, they projected that Sabal Trail will provide 800,000 Dth/day by 2017 and 1.1 billion Dth/day by 2020.

The Florida Public Service Commission allows FPL and other Florida investor-owned utilities – Duke, Gulf Power, and Tampa Electric — to charge customers for capital expenses for new plants as well as related expenses, including pipelines ($3 billion for the Sabal Trail pipeline) and environmental compliance. These utilities can even pass on losses from “hedging” to customers.

According to the Wall Street Journal, Florida’s four largest utilities suffered net losses of $6 billion on their program from 2002 to 2015 because their natural gas hedges “wound up being considerably more expensive than eventual market prices.” But those losses, the Journal says, were absorbed in large part by rate payers.

A Sierra Club blog post from March 2016 slammed the monopolistic practices of Florida’s utilities:

Tallahassee has an even worse record of approving massive, multi-billion dollar natural gas power plants and a so-called hedging program, all of which puts the profits of the state’s biggest monopolistic utilities before people. The hedging program alone cost Floridians $6 billion from 2002 up to and including 2015, while insulating those big utilities from the costs and risks of their bad decisions to double down on natural gas. Think of all the solar, wind, energy efficiency and storage we could have bought for $6 billion!

Neither Florida Power and Light nor the Florida Public Service Commission responded to DeSmog’s requests for comments for this story.

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  1. john bougearel

    Jerri-Lynn: Another great Forgotten Man story….Larry, nice opening line. In fact, that is quite the juicy quote from ETP’s CEO Kelcy Warren, namely that “the pipeline biz will overbuild until the end of time.” Give Kelcy enough rope and he is sure to hang himself with it!.

    That is the kind of quote the forgotten men and woman would like to see go viral, and could be a particularly useful meme for the protest in S Dakota as ETP continues to ram a pipeline down the throats of the Sioux Indians.

  2. lyman alpha blob

    Excellent post. This is the type of argument that protesters need to use to get more people on their side against these projects. It might be nice to think people would be opposed merely to preserve the beauty of the earth or because of some other such heartstring-tugging argument, but it’s still how much it impacts one’s wallet.

    Somebody here recently posted an excellent video of Patti LaDuke making a similar argument against DAPL – that it was unnecessary and only being built because one of the companies involved would be in breach of a contract and wouldn’t get paid.

  3. blert

    Solar power is not the story.

    LED lighting is the story.

    It’s cutting the basic need for electricity — across the board.

    Lighting is the dominant load for most utilities. So when and as LEDs gradually cut demand there is little need for new capacity — period.

    The Germans found out that solar/wind power can’t be tolerated beyond a certain point… found out the hard way. They almost crashed their power grid!

    All of the solar and wind power schemes use inverters to inject AC power up into the grid.

    This technology has an Achilles heel. It must follow and synchronize with the utility’s infinite bus. ( 50 Herz for the Germans ) In a system that has too much of this going on, the infinite bus is destabilized — resulting in circuit breakers popping open all over — and very rapidly, too.

    After the fiasco, the big German players booked HUGE losses to shut down their solar cell factories. (Siemens)

    The very suprised Electrical Engineers figured out — retroactively — that they’d already saturated the system. Germany can’t withstand any more inverter generated electricity.

    ( Spot load displacement still can work. It’s the big projects that feed into the grid that cause grief. )

    And in other news, solar power bankrupted the Spanish government. They’d managed to get power rates all the way up to $0.56 per kW-Hr. (per NY Times ) So Madrid ultimately renegged on its deals. This bankrupted thousands of Spanish citizens, who’d built solar farms expressly based upon the terms proffered by the government.

    I favor solar power… but we’re going at it the wrong way.

    The ideal solution is to mimic the TVA — and build large in New Mexico — where conditions are ideal and land is inexpensive. Then the power should be shipped out as Direct Current at high voltages. This gets you away from the German grid stability nightmare, and the Spanish cost over-run.

    1. lyle

      Actually the ideal load for a utility is either incandescent lamps or heating with power factors of about 1. However most load is really motors (in particular in Fl with all the AC systems, which typically have at least 3 motors per unit, i.e. a compressor an outside unit fan and an indoor blower) add refrigerators and freezers to this type of load as well as things that move powered by electricity . Load has had this profile since the electric streetcar was introduces, and lighting became less of an issue. Note that LEDs and CFLs don’t exhibit the good power factor characteristics however due to having transformers in them.
      Demand growth is flattening due to more efficient motors as well as electronic devices which again have non unity power factors.

  4. PlutoniumKun

    This seems to be a common ‘flaw’ in the legal set up for private utilities worldwide (a feature, not a bug I’m sure). In the UK there are similar issues with water companies grossly overinvesting in flood protection schemes when much cheaper management schemes would almost certainly be better.

  5. TheCatSaid

    To add another concurrent example of government support schemes gone amuck, in Northern Ireland the First Minister of the Northern Ireland Assembly is under political fire because she was responsible for setting up a renewable energy scheme that allowed people to claim a refund that was more than their total infrastructure cost. So now there’s a hole of £400 Million caused by overspend on that scheme.

    Total NI population size is approx. 1 million. NI had big budget problems already (despite being subsidized by UK). NI is now looking to its citizens for an increase in their power rates to pay for the overspend on this scheme.

    The First Minister says “oops” and “This is my biggest regret” but she won’t step down.

    I’m not sure about the distribution of the goodies from that scheme, but it would be interesting to know who benefited most from this handy dandy wealth transfer.

    I can accept subsidizing renewables in many ways, but this was not a good way to do it.

    1. PlutoniumKun

      Yes, its potentially a huge scandal. £400 million is a gigantic chunk of Northern Irelands budget. There are stories out there of farmers keeping barns toasty and warm all year round with wood chip burning to maximise their grant.

      Arlene Foster is quite a nasty piece of work IMO, and what is interesting is that its her fellow DUPers and OUP politicians who are pushing this. I suspect she saw it as a way to funnel money to the type of small business people who form much of the DUP’s base. It has wider significance as she seems the most gung-ho of Brexiters in NI, if she is removed there might be more movement in terms of Unionists shifting their position as they slowly realise that the economic implications for Northern Ireland are pretty horrendous.

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