Florida avoided Texas-sized electricity disaster

What happened the last two weeks in Texas was almost enough to forgive Florida Power & Light for a decade of making the Public Service Commission its latest acquisition.

Most of the state gets electricity from FPL, a large, well-run company that is part of an even larger, well-run company, Juno Beach-based NextEra Energy. How large? Last fall, NextEra had a higher market value than ExxonMobil.

Over the last decade, FPL has used those financial resources to modernize many plants, converting oil-based generators to cleaner-burning natural gas. The latest, in Dania Beach, will start operating next year. FPL’s monthly bills are low, compared to the industry average.

In many ways, Florida is lucky to have FPL. But Florida is luckier to have the regulated monopoly system under which FPL operates.

That system all but removes competition for large utilities. In return, utilities in this growing state benefit from a growing customer base and can develop long-range plans. Economies of scale can make operations more efficient, thus reducing costs. The supply of electricity becomes reliable and affordable.

The system, however, depends on the “regulated” being in balance with the “monopoly.” In Florida, the regulators are the five members of the Public Service Commission and the commission’s staff.

Utilities get to earn a specified profit called return on investment. Commissioners set that profit range when utilities file for rate hearings, usually every three or four years.

If the utility is making more than regulators approved, the company must return money to customers. If profit is below the approved range, the company can get more from customers.

The goal is to incentivize utilities to upgrade the power grid — the system that brings electricity from a generating plant to your home — without overcharging. That profit makes up the main share of a homeowner’s monthly bill. Utilities don’t get to profit off fuel costs.

In contrast, two decades ago, Texas broke up the utilities. Customers choose from among companies that compete solely based on price. Deregulation, however, provides no incentive for companies to improve the grid and to build new plants.

When frigid temperatures hit Texas, that system crashed. The grid couldn’t handle demand. Officials at the Electric Reliability Council of Texas, which operates most of the grid, said emergency shutdowns barely prevented what could have been months-long power failures.

Texas had been warned. In 2011, after a cold snap caused rolling blackouts, the Federal Energy Regulatory Commission urged the state to “winterize” the grid. Texas’ politicians said they didn’t need the federal government’s help. Oops.

Texas also has been proud of keeping its grid separate from those that supply areas east and west of the Mississippi River. The state thus could not “buy” power from other sources during emergencies, as utilities in Florida can do. Oops again.

J.R. Kelly is Florida’s former Public Counsel. He represented customers before the Public Service Commission. Kelly regularly angered FPL with arguments that the company’s proposed rates were too high. Yet Kelly believes that a well-run regulated monopoly is the best system.

Until 2010, Florida had one of the most well-run. The Public Service Commission balanced the interest of FPL with that of customers.

Examples: The commission rejected FPL’s plan for a coal plant in Glades County. The commission ruled that FPL should pay one-third of the cost to strengthen the grid after the 2004 and 2005 hurricane seasons. The company had cut back on maintenance, wrongly anticipating that Florida would deregulate power about when Texas and California did.

In the last decade, though, FPL has become even more of a political player. Govs. Rick Scott and Ron DeSantis have appointed compliant commissioners, and FPL has gotten its way almost every time. The company goes to the commission next month for a new rate hearing.

Unlike Texas, however, Floridians aren’t facing sudden, five-figure bills. Hypocritical politicians aren’t clamoring for regulation after opposing it. The attorney general and a U.S. senator aren’t taking heat for abandoning the state during a crisis.

Thanks to those in Florida who didn’t make the mistake that Texas did. Now put more of the regulation back in regulated monopoly.

By Randy Schultz