Floridians Against Increased Rates, Inc. v. Gary F. Clark, etc.

CourtSupreme Court of Florida
DecidedSeptember 28, 2023
DocketSC2021-1761 & SC2022-0012
StatusPublished

This text of Floridians Against Increased Rates, Inc. v. Gary F. Clark, etc. (Floridians Against Increased Rates, Inc. v. Gary F. Clark, etc.) is published on Counsel Stack Legal Research, covering Supreme Court of Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Floridians Against Increased Rates, Inc. v. Gary F. Clark, etc., (Fla. 2023).

Opinion

Supreme Court of Florida ____________

No. SC2021-1761 ____________

FLORIDIANS AGAINST INCREASED RATES, INC., Appellant,

vs.

GARY F. CLARK, etc., et al., Appellees.

____________

No. SC2022-0012 ____________

FLORIDA RISING, INC., et al., Appellants,

September 28, 2023

COURIEL, J.

We have for review a decision of the Public Service

Commission relating to rates charged by Florida Power & Light Company (FPL) for the provision of electric service. 1 We find that

the Commission has not supplied a basis for meaningful judicial

review of its conclusion that the settlement agreement at issue

“provides a reasonable resolution of all issues raised, establishes

rates that are fair, just, and reasonable, and is in the public

interest.” So we remand this case to the Commission for an

explanation of its decision consistent with the governing law as set

forth in our case law and reiterated here. 2

1. We have jurisdiction. See art. V, § 3(b)(2), Fla. Const.; see also § 366.10, Fla. Stat. (2023).

2. Appellants raise other arguments in opposition to the Commission’s approval of the settlement agreement. These arguments include challenges to the Commission’s statutory authority to approve various pieces of the settlement agreement: the Storm Cost Recovery Mechanism; the Reserve Surplus Amortization Mechanism; the Asset Optimization Incentive, which includes the monetization of renewable energy credits; a corporate tax adjustment; the Solar Base Rate Adjustment mechanism (SoBRA); a construction incentive for solar generation sites constructed pursuant to SoBRA; and cost recovery related to the Green Hydrogen Pilot Program and a consummation payment FPL made to Jacksonville Electric Authority concerning the retirement of a coal- fired power generation unit. To the extent any of these challenges to the Commission’s statutory authority is preserved, none gives us a reason to set aside the order under review.

-2- I

The Commission approved a settlement agreement among FPL

and seven parties that intervened in this matter. The settlement

agreement, which took effect in January 2022, permits FPL to

increase rates annually for (at least) four years and offer the same

rate schedules throughout its service area. 3 It allows FPL to

increase its base rates and service charges such that FPL could

generate an additional $692 million in revenue in 2022 and an

additional $560 million in revenue in 2023. It also allows for

incremental increases in rates related to the construction of certain

solar projects; rates are estimated to increase by $140 million in

both 2024 and 2025.4 The settlement agreement authorizes an

3. Gulf Power Company was merged into FPL in January 2021. The settlement agreement allows FPL to offer the same rate schedules to all post-merger customers. But because it will at first be more expensive for FPL to service customers residing in pre- merger Gulf Power service areas, the settlement agreement allows FPL, for five years, to apply transition riders to the bills of those customers and a corresponding transition credit to the bills of customers in pre-merger FPL service areas.

4. When this case was before the Commission in August 2021, a witness predicted that, as a result of all the rate increases authorized in the settlement agreement, a typical 1,000-kWh residential bill for customers serviced by FPL before the merger with

-3- equity-to-debt ratio of 59.6%, 5 and a return on equity (ROE) 6

between 9.7% to 11.7%, with a midpoint of 10.6%. 7 It further

Gulf Power would rise from $101.70 in January 2021 to $107.78 in January 2022 and would be $115.34 by January 2025.

5. A utility company finances its operations with both shareholder investment (equity) and debt. The equity-to-debt ratio describes a company’s capital structure by explaining how much of its financing comes from shareholder investment and how much comes from borrowing. See Sierra Club v. Fed. Energy Regul. Comm’n, 867 F.3d 1357, 1376 (D.C. Cir. 2017). Typically, the more an electric utility company’s financing comes from equity, the higher its rates will be, as equity investors often require a higher rate of return than creditors, or debt investors, do. Id. at 1376-77. In this case, the requested ratio provides that 59.6% of FPL’s financing will come from equity, and 40.4% will come from debt.

6. Return on equity is the rate of return that a shareholder receives on an investment in the company. See Sierra Club v. Fed. Energy Regul. Comm’n, 38 F.4th 220, 229 (D.C. Cir. 2022). Courts have said that companies in this regulated industry can expect a rate of return to shareholders comparable to the rates offered by similar companies in the industry, and that the authorized rate of return should be high enough to allow the company to maintain its financial health and attract additional capital investment. See Fed. Power Comm’n v. Hope Nat. Gas Co., 320 U.S. 591, 603 (1944). By establishing both a midpoint and range, “the commission is acknowledging the economic reality that a company’s rate of return [on equity] will fluctuate in the course of a normal business cycle.” United Tel. Co. of Fla. v. Mann, 403 So. 2d 962, 967-68 (Fla. 1981).

7. If the average 30-year U.S. Treasury Bond yield rate is at least 50 basis points greater than the yield rate on August 10, 2021, the date the settlement agreement was filed with the Commission, for any period of six straight months, then FPL is authorized under the settlement agreement to increase its ROE range to 9.8% to 11.8%, with a mid-point of 10.8%. An increase in

-4- provides that FPL can charge a minimum base bill of $25.00 to

residential customers and certain business customers with low

energy usage.

The settlement agreement authorizes increased investment in

FPL’s power generation facilities, transmission and distribution

systems, and several pilot programs for electric vehicles (EV) and

renewable energy. It includes the expansion of SolarTogether, an

additional solar program to the one mentioned above, which

allocates newly built solar capacity to different customer classes

and allows customers to subscribe to a portion of this capacity in

exchange for a credit funded by the general body of ratepayers. It

permits FPL to adopt new depreciation timelines and continue using

the Reserve Surplus Amortization Mechanism (RSAM). 8

the ROE range and midpoint resulting from the implementation of this provision would not, under the terms of the settlement agreement, result in a corresponding increase in base rates.

8. A depreciation reserve surplus occurs when a company collects a higher amount than needed to cover depreciation expenses given new information revealing that an asset, like a plant, has a longer-than-expected service life. According to one witness, with the RSAM, FPL can use its depreciation reserve surplus to “absorb changes primarily in cash revenues and

-5- Additionally, FPL can adjust rates incrementally if costs change

because of a named tropical system or its successor, like a

hurricane, or a permanent change in federal or state corporate tax

rates. And FPL is allowed to share in the savings that result from

an expanded version of its asset optimization program. The

settlement agreement also extends, from ten years to twenty, the

time over which FPL can recover the cost of certain retired assets.

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