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Club v. Brown

Supreme Court of Florida

May 17, 2018

SIERRA CLUB, Appellant,
JULIE IMANUEL BROWN, etc., et al., Appellees.


          Joshua Smith, Staff Attorney, Oakland, California, Diana A. Csank and Julie Kaplan, Staff Attorneys, Sierra Club, Washington, District of Columbia, for Appellant

          Keith C. Hetrick, General Counsel, Samantha M. Cibula, Attorney Supervisor, and Rosanne Gervasi, Senior Attorney, Florida Public Service Commission, Tallahassee, Florida, for Appellee Florida Public Service Commission

          J.R. Kelly, Public Counsel, Patricia A. Christensen, Associate Public Counsel, and Charles J. Rehwinkel, Deputy Public Counsel, Office of Public Counsel, The Florida Legislature, Tallahassee, Florida, for Appellee Citizens of the State of Florida

          Stuart H. Singer of Boies Schiller Flexner LLP, Fort Lauderdale, Florida; and John T. Butler, Assistant General Counsel - Regulatory, and María José Moncada, Senior Attorney, Florida Power & Light Company, Juno Beach, Florida, for Appellee Florida Power & Light Company

          Robert Scheffel Wright and John Thomas LaVia III of Gardner, Bist, Bowden, Bush, Dee, LaVia & Wright, P.A., Tallahassee, Florida, for Appellee Florida Retail Federation

          John S. Mills and Courtney Brewer of The Mills Firm, P.A., Tallahassee, Florida, for Amicus Curiae City of South Miami

          Deb Swim of Debra Swim, Attorney, PLLC, Tallahassee, Florida, for Amicus Curiae League of Women Voters of Florida, Inc.

          LEWIS, J.

         This case is before the Court on appeal from a decision of the Florida Public Service Commission (the Commission), relating to the rates or service of a public utility providing electric service.[1] Specifically, Sierra Club, Appellant, challenges the Commission's decision in In re Petition for Rate Increase by Florida Power & Light Co., Order No. PSC-16-0560-AS-EI, 2016 WL 7335779 (Fla. P.S.C. Dec. 15, 2016) (the Final Order), which approved a nonunanimous settlement agreement between certain parties.[2] We have jurisdiction. See art. V, § 3(b)(2), Fla. Const.; § 366.10, Fla. Stat. (2017). For the following reasons, we hold that the Commission applied the appropriate standard of review in the Final Order, and competent, substantial evidence supports that decision.


         In March 2016, FPL made three filings with the Commission: (1) a petition for a base rate increase and a limited-scope adjustment (the Rate Petition); (2) depreciation and dismantlement studies; and (3) a petition for approval of FPL's storm-hardening plan. One month later, FPL filed a petition to modify and continue its asset optimization incentive mechanism. In May 2016, the Commission consolidated these four dockets for discovery and hearing (collectively the Rate Case). After adjustments, FPL revised its request in the Rate Petition to the following: (1) an increase in rates and charges sufficient to generate additional total revenues of $826 million in 2017; (2) a subsequent revenue increase of $270 million in 2018; and (3) a $209 million limited-scope adjustment for the Okeechobee Clean Energy Center effective on its commercial in-service date, which was scheduled for 2019. In the Rate Petition, FPL requested a rate of return on equity (ROE) within a range of 10.5 to 12.5 percent, with a midpoint of 11.5 percent.

         Nine intervenors, including Sierra Club, participated in the Rate Case.[3]After discovery, the Commission held an evidentiary hearing from August 22 to September 1, 2016 (the August Hearing). In total, the Commission identified 167 issues in its prehearing order to be addressed at the August Hearing. On appeal, Sierra Club only challenges one of those issues-was "FPL's replacement of its peaking units reasonable and prudent?" During the August Hearing, thirty-five witnesses testified and over 800 exhibits were entered into evidence.

         Through the Rate Case, FPL sought to recover costs for its Peaker Replacement Project (the Peaker Project). Sierra Club intervened to challenge the prudence of the Peaker Project, arguing that it was unreasonable, unnecessary, and more expensive than renewable alternatives. The Peaker Project, which FPL had completed in 2016, consisted of replacing forty-four of FPL's forty-eight gas turbine (GT) peaking units with seven combustion turbine (CT) peaking units. As a result, FPL replaced smaller 1970s vintage GTs with newer, larger, and more fuel-efficient CTs. Both the GTs and CTs run on natural gas.[4] The CTs require auxiliary power for starting purposes and FPL retained four GTs for the black-start capability. The engines of the replaced GTs were originally designed in approximately 1958 for Boeing aircraft. Correspondingly, manufacturers no longer fabricate these types of units; thus replacement parts for the GTs are difficult to obtain. On one occasion, when a GT torque converter failed, FPL was forced to simply retire the unit rather than employ a manufacturer to reverse engineer the replacement part due to the high cost and twelve-month lead time.

         Peakers are actually "reliability units, " serving two important functions for FPL: meeting heightened customer demand and providing power when a utility loses base load generation. FPL deploys its peakers during peak demand-the single hour of highest energy usage per day each year.[5] Yet meeting peak demand is not the only function of peakers. FPL also utilizes these units outside of summer and winter peak demand periods during emergencies such as extreme weather, unusual demand, or equipment failures. Importantly, peakers must be brought online quickly-within fifteen or thirty minutes. For these reasons, FPL cannot use solar power for its peaking units.

         The total cost of the Peaker Project was $725.6 million. Of the Rate Petition's 2017 revenue request, the Peaker Project accounted for $92 million of that rate increase. Nevertheless, according to FPL estimates, the Peaker Project will result in $203 million in net customer savings, partly due to the CTs' lower emissions and better heat rate.

         Throughout the Rate Case, several parties continued to explore the possibility of a settlement. On October 6, 2016, FPL and three intervenors-OPC, SFHHA, and FRF (collectively the Signatories)-executed a settlement agreement. This settlement resolved all outstanding issues in the Rate Case, including the issue related to the prudence of the Peaker Project. FIPUG took no position on the settlement; Walmart and FEA did not oppose it. Conversely, Sierra Club, AARP, and the Larsons opposed the settlement agreement.

         In the settlement agreement, FPL made various concessions from its revised Rate Petition: (1) a 2017 revenue increase of $400 million (down from $826 million); (2) a 2018 revenue increase of $211 million (down from $270 million); and (3) a $200 million limited-scope adjustment effective on the in-service date of the Okeechobee unit (down from $209 million). Further, the ROE midpoint was set at 10.55 percent within a 9.6 to 11.6 percent range (down from an 11.5 percent midpoint within a 10.5 to 12.5 percent range). In total, the settlement agreement represented a total revenue increase of about $2 billion less than FPL's original Rate Petition. Finally, the minimum term of the settlement agreement runs from January 1, 2017, until December 31, 2020.

         The settlement agreement covered additional terms that are not directly relevant in this case. Two of the terms concerned renewable energy: (1) the authorization for FPL to construct up to 1200 megawatts (MW) of solar power generation by the end of 2021 with costs recoverable upon the unit in-service date if they are cost-effective through the Solar Base Rate Adjustment (SoBRA); and (2) the requirement that FPL implement a fifty MW battery storage pilot program with no cost-effective restriction. The settlement agreement was in the form of a "black box" resolution; thus the parties agreed on the total cost of service, but did not specifically assign amounts to line items or costs.

         After the parties filed the settlement agreement, the Commission reopened the record, affording an opportunity for participants to provide supplemental testimony and exhibits, conduct discovery, and address the terms of the settlement agreement not discussed at the August Hearing. Thus the Commission scheduled another hearing for October 27, 2016 (the October Hearing). The Commission determined that the "sole issue to be decided in this hearing [wa]s whether the Settlement Agreement dated October 6, 2016, is in the public interest and should be approved."

         At the October Hearing, five witnesses testified. Subsequently, the Commission reconvened to consider the settlement agreement. After deliberation, the Commission unanimously approved the settlement agreement in its entirety. The Commission later memorialized its findings and conclusions in the Final Order. Specifically, the Commission stated that its "standard for approval of a settlement agreement is whether it is in the public interest." The Commission found "that taken as a whole the settlement provides a reasonable resolution of all the issues raised in the consolidated dockets." Finally, it found "that the Settlement Agreement establishes rates that are fair, just, and reasonable and is in the public interest."

         This appeal follows.


         Principally, this dispute centers upon whether the Commission properly applied its public interest standard in considering and approving the settlement. Sierra Club contends that it was necessary to independently apply a prudence standard to the Peaker Project individually; whereas, the Commission asserts that it correctly applied its public interest standard to the settlement agreement as a whole. As demonstrated below, we agree with the Commission.

         Our Standard of Review

         "[W]hen reviewing an order of the Commission, this Court affords great deference to the Commission's findings." Citizens of State v. Fla. Pub. Serv. Comm'n (Citizens I), 146 So.3d 1143, 1149 (Fla. 2014). "Commission orders come to this Court clothed with the presumption that they are reasonable and just." W. Fla. Elec. Coop. Ass'n v. Jacobs, 887 So.2d 1200, 1204 (Fla. 2004). "To overcome these presumptions, a party challenging an order of the Commission on appeal has the burden [to] show[] a departure from the essential requirements of law and the legislation controlling the issue, or that the findings of the Commission are not supported by competent, substantial evidence." Crist v. Jaber, 908 So.2d 426, 430 (Fla. 2005). "We will not overturn an order of the PSC because we would have arrived at a different result had we made the initial decision and we will not reweigh the evidence." Gulf Power Co. v. Fla. Pub. Serv. Comm'n, 453 So.2d 799, 803 (Fla. 1984).

         Although the Commission is afforded leeway in its proceedings, deference cannot be accorded if the Commission exceeds its authority. United Tel. Co. of Fla. v. Fla. Pub. Serv. Comm'n, 496 So.2d 116, 118 (Fla. 1986). As the threshold issue, we must first establish the grant of legislative authority to act since the Commission derives its power solely from the Legislature. Id. Therefore, "[w]hether the PSC has the authority to act is a question of law, which is subject to de novo review." Citizens of State v. Graham (Citizens II), 191 So.3d 897, 900 (Fla. 2016); see also § 120.68(7)(d), Fla. Stat. (2017). This issue involves the Commission interpreting section 366.06(1), Florida Statutes (2017), which it is tasked with enforcing; therefore, its interpretation "is entitled to great deference and will be approved by this Court unless it is clearly erroneous." BellSouth Telecomm., Inc. v. Johnson, 708 So.2d 594, 596 (Fla. 1998).[6]

         The Commission's Appropriate Standard

         Pursuant to section 366.06(1), Florida Statutes, the Commission "shall have the authority to determine and fix fair, just, and reasonable rates that may be requested . . . by any public utility for its service." Id. § 366.06(1). As part of these base rate cases, utilities may seek to recover costs for capital investments in power-generating facilities. See Citizens of State v. Graham (FPUC), 213 So.3d 703, 716-17 (Fla. 2017); Citizens II, 191 So.3d at 900-01; Citizens of State v. Fla. Pub. Serv. Comm'n, 435 So.2d 784, 785 (Fla. 1983). Section 366.06 details the Commission's procedures for ratemaking, and it expressly contemplates cost recovery for utility investments:

The [C]ommission shall investigate and determine the actual legitimate costs of the property of each utility company, actually used and useful in the public service, and shall keep a current record of the net investment of each public utility company in such property which value, as determined by the [C]ommission, shall be used for ratemaking purposes and shall be the money honestly and prudently invested by the public utility company in such property used and useful in serving the public, less accrued depreciation . . . .

§ 366.06(1), Fla. Stat. It is from this statute that the Commission derives its prudence standard, which it applies to ensure that the recovered costs result from prudent investments. See S. All. for Clean Energy v. Graham (SACE), 113 So.3d 742, 749-50 (Fla. 2013); Fla. Power & Light v. Beard, 626 So.2d 660, 662 (Fla. 1993). Within a rate case, the Commission applies this prudence standard to the individual investment projects for which a utility is seeking cost recovery. SeeBeard, 636 So.2d at 662; Shevin v. Yarborough, 274 So.2d 505, 509-10 (Fla. 1973). Here the Commission acknowledges that it would have been proper to ...

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