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Citizens v. Graham

ELR Citation: 46 ELR 20095
Nos. SC15-95 et al., (Fl., 05/19/2016)

The Florida Supreme Court held that the state's public utility commission exceeded its statutory rate-setting authority when it allowed an electric company to use customer money to recover costs incurred investing in a shale gas operation in Oklahoma. The company asserted that its ownership interest in the project would operate as a long-term physical hedge against the market volatility of natural gas used to provide electric service to its customers. It also claimed that the project would benefit its customers by providing natural gas at a lower cost than market prices. The commission agreed, allowing the company to recover its costs through the rates charged to consumers. But the court ruled that cost recovery is permissible only for costs arising from the “generation, transmission, or distribution” of electricity. Here, the shale gas operation does not constitute generating, transmitting, or distributing electricity in Florida as the meaning of those terms are plainly understood. Rather, the exploration, drilling, and production of fuel falls outside the purview of an electric utility as defined by the state legislature. Nor can the project be deemed a “a long-term physical hedge.” Hedging involves locking in a future price to avoid the adverse effects of price fluctuations, yet the shale gas operation does not involve a certain quantity of fuel for a certain price. As such, whether a utility's advance cost recovery of speculative capital investments in gas exploration and production is in the public interest is a policy determination that must be made by the legislature.