The Florida Supreme Court on May 19 tossed out three orders from 2014 of the Florida Public Service Commission (PSC) that allowed the recovery of Florida Power and Light’s (FPL) costs incurred through its joint venture with an oil and natural gas company to engage in the acquisition, exploration, drilling, and development of natural gas wells in Oklahoma.
The recovery as fuel costs paid by FPL’s customers in its utility rates were considered by the PSC to be a long-term physical hedge. “Treating these activities as a hedge requires FPL’s end-user consumers to guarantee the capital investment and operations of a speculative oil and gas venture without the Florida Legislature’s authority,” the high court ruled. “Accordingly, we reverse.”
In a 2014 fuel clause proceeding, FPL filed a petition requesting approval and recovery of a specific gas reserves investment, the Woodford Project. This petition requested a determination that FPL would be eligible to recover, through the fuel clause, its “exploration expense, depletion expense, operating expenses, G&A, taxes, transportation costs and a return on the unrecovered investment, including working capital” for investments in the exploration, drilling, and production of natural gas in the Woodford Shale Gas Region in Oklahoma.
The Woodford Project is a joint venture agreement between FPL and PetroQuest, an independent oil and natural gas company. Pursuant to the agreement, FPL would invest directly in PetroQuest’s shale gas reserves in the Woodford Shale region and in return receive the rights to a share of the physical gas produced.
FPL told the commission that it was looking for opportunities to acquire natural gas at production costs (as an investor), rather than at market prices (as a purchaser), in order to help insulate customers from the volatility of the gas market. FPL asserted that its ownership interest in the Woodford Project would operate as a long-term physical hedge against the market volatility of natural gas prices used to provide electric service to FPL’s customers.
Citizens of the State of Florida, through the Office of Public Counsel, Florida Industrial Power Users Group (FIPUG) and Florida Retail Federation (FRF) participated as intervenors in the proceedings. Citizens and the Florida Industrial Power Users Group (FIPUG) moved to dismiss the Woodford petition, alleging that the PSC lacked the authority to consider and approve the project. The PSC denied the motion, concluding that it had jurisdiction under its statutory authority to set rates for public utilities. Those parties are basically the ones that brought the appeal to the Florida Supreme Court.
The high court said the PSC does not have the statutory authority to approve cost recovery for FPL’s investment in the Woodford Project. Under the plain meaning of two statutes, cost recovery is permissible only for costs arising from the “generation, transmission, or distribution” of electricity.
Said the May 19 ruling: “The Woodford Project’s exploration, drilling, and production of natural gas fuel in Oklahoma do not constitute generating, transmitting, or distributing electricity in Florida as the meaning of those terms are plainly understood. In other words, the exploration, drilling, and production of fuel falls outside the purview of an electric utility as defined by the Legislature. Additionally, the PSC does not have the statutory authority necessary to approve cost recovery for the Woodford Project through the characterization of the project as ‘a long-term physical hedge.’ While PSC’s ratemaking authority includes examining and approving cost recovery for public utilities’ hedging of fuel costs, the Woodford Project does not involve a certain quantity of fuel for a certain price.”