Second in a series
FPL is a monopoly. But it's supposed to be a regulated monopoly. Why did it get the largest rate hike in history?
In October 2021, the Florida Public Service Commission (PSC) approved the largest rate increase in Florida Power and Light (FPL) history. In November, FPL received approval for an additional $800+ million charge to customers due to surging natural gas prices. Combined, FPL residential customers have started paying nearly 20% more for electricity service starting in January 2022. FPL isn’t a threadbare smalltown provider, its parent company NextEra Energy is the world’s largest utility, and made more than $3.5 billion dollars last year. Why are Floridians being forced to pay for such a large price increase for essential electricity?
We Depend on Electricity to support a modern lifestyle
From lights to TV to hot water to iPhones, we rely on electricity to support our modern lives. To supply electricity throughout the state, Florida has divided up its customers into “service territories” and granted private monopolies to Investor Owned Utilities (IOUs). FPL is Florida’s largest Investor Owned Utility. Since IOUs have no market competitors, the idea is the Public Service Commission will perform oversight to ensure “quality and reliability” and “fair and reasonable rates”, while providing the IOU’s “an opportunity to earn a fair return on investments.”
Monopolies have broad powers to make decisions, subject to PSC approval, about investments in generation, grid maintenance, and how to structure electricity pricing for different classes of customers. This includes customer-owned generation like rooftop solar. Ultimately, the Public Service Commission is accountable to the elected Florida Legislature, which can create laws and guidance to direct utility practices and set goals in the public interest. What public interest is achieved by a FPL transferring customers’ money to shareholders at a rate 50% higher than a typical market return?
Changes to PSC governance
This system is designed to provide checks and balances that deliver reliable electricity at reasonable prices. But the system is dependent on the PSC being independent and representing the interests of captive customers.
Since 1979, the 5 PSC Commissioners are no longer elected by all Florida voters, but instead are appointed by the Governor and confirmed by the Florida Senate. The reality is that Florida has had Republican governors since 1999 and Republicans have controlled the Florida Senate since 1995. This means PSC Commissioners have only needed Republican support to obtain office. In turn, FPL and other monopoly utilities have directed the majority of their campaign donations to GOP candidates. This has created a classic example of regulatory capture, a form of corruption where the regulatory body prioritizes the interests of the utility over the consumers who have no choice but to purchase electricity from the monopolies.
The Situation has evolved to look like this:
- All customers of FPL (and the other Investor-Owned Utilities) must pay the utility that controls their service area for electricity.
- The utility makes political donations to gain favor with politicians as well as helping their preferred candidates gain office.
- In office, politicians appoint regulators favorable to utility interests and viewpoints (in this case, to the Florida Public Service Commission) and kill or water down legislation that would negatively impact those interests.
- The utility keeps ironclad control over customers and profits allowing the cycle of political contributions and regulatory capture to continue.
This leads back to the beginning of this post, why did FPL receive the largest rate increase in history? The answer is the regulatory capture of the Public Service Commission to rubber stamp utility spending plans and regulations on customers. Economic corruption is bad for your bank account, but what if that corruption spreads to our electoral system, to the very core of our democracy? Is the money you pay for electric service (an absolute necessity) being used to fund politicians — including those with whom you disagree? Or even subvert democracy? See our next post to find out.