Describing the case as “specious, legally and factually baseless,” Florida Power & Light has asked state regulators to reject a petition that seeks to force the utility to refund as much as $736 million to customers and reduce base electric rates.
The state Office of Public Counsel, which represents utility customers, and two business groups filed the petition Dec. 5, focusing, in part, on FPL’s tax savings under the federal tax overhaul approved last year. But FPL on Friday filed a 22-page response that disputed the arguments and urged the Florida Public Service Commission to deny the petition.
FPL provides power to almost all customers in Flagler County and Palm Coast. The company said it has complied with a 2016 rate settlement that was signed by the Office of Public Counsel and one of the business groups filing the petition, the Florida Retail Federation. Along with the tax savings, the dispute involves a complex mix of issues including Hurricane Irma restoration costs and a profit limit and a financial reserve that are parts of the 2016 settlement.
“Petitioners’ advocate an interpretation of the settlement agreement for which there is simply nothing that comes close to exhibiting a good faith basis,” FPL’s response said. “It lacks textual support and in some cases is directly contravened by the express terms of the settlement agreement.”
But in the petition, the Office of Public Counsel, the Florida Retail Federation and the Florida Industrial Power Users Group contended that the utility is seeing as much as $736.8 million a year in tax savings from the federal tax overhaul — and that the savings should be passed along to customers.
“Contrary to the 2016 stipulation and settlement between FPL, OPC, and the FRF (the Office of Public Counsel and Florida Retail Federation), contrary to the ‘regulatory compact,’ and contrary to fundamental regulatory principles that require utility rates to be fair, just, and reasonable, FPL is improperly attempting to retain all of the tax savings for the benefit of its shareholder, NextEra Energy, Inc., rather than flowing back these dramatic windfall cost savings to its customers,” the petition said, referring to FPL’s parent company.
The Public Service Commission approved the 2016 settlement, which froze FPL’s base rates with some limited exceptions. The multi-year settlement included numerous provisions, including setting a maximum return on equity — a common measure of profitability — of 11.6 percent and approving FPL’s use of a reserve. In the petition and response this month, both sides indicated the reserve was designed to provide financial flexibility for FPL.
When Hurricane Irma tore through the state in September 2017, it caused massive damage to electric infrastructure, with FPL saying its restoration costs were about $1.3 billion. That was followed about three months later by Congress and President Donald Trump approving the federal tax overhaul, which, among other things, lowered the corporate income-tax rate from 35 percent to 21 percent.
Florida utilities have long been allowed to pass along storm-restoration costs to customers. But FPL paid its Irma storm-restoration costs and made an accounting entry to charge off those costs against the reserve created in the 2016 settlement. It then planned to replenish the reserve with savings from the tax cuts.
In the response filed Friday, FPL said the move allowed it to avoid increasing customers’ bills to cover the storm-restoration costs. If it had not used the strategy, FPL said typical residential customers would have seen increases of about $4 a month in 2018, with the amount going to more than $5 a month in 2019 and 2020.
“Consistent with the terms of the settlement agreement, however, FPL has managed its business in a manner that avoids these charges and provides customers greater rate stability over a longer period,” the utility’s attorneys wrote in the response.
But the Office of Public Counsel and the business groups contend that nothing in the 2016 settlement allowed the “resurrection” of the reserve after it was exhausted following Hurricane Irma.
They argue that FPL should instead be required to pass through the tax savings to customers on monthly bills and contend that FPL is exceeding the maximum allowed return on equity. The petition requested that the commission “initiate a comprehensive review of FPL’s base rates” and order a permanent rate reduction based on the tax savings.