House of Representatives Staff Analysis: PCS for HB 683 Energy Infrastructure Investment (2024)

Summary

A House of Representatives staff analysis of the PCS for HB 683, Energy Infrastructure Investment, sponsored by the Energy, Communications & Cybersecurity Subcommittee and dated 1/27/2024. It describes how the Public Service Commission sets rates for investor-owned electric and natural gas utilities in Florida and summarizes Florida law on renewable energy and renewable natural gas. The analysis states that the bill authorizes the PSC to create an experimental mechanism to facilitate investment in energy infrastructure, consistent with part of the storm protection plan cost recovery structure. The PSC must propose a rule no later than October 31, 2024, and the bill takes effect July 1, 2024. The section directory lists an amendment to s. 366.075, F.S., and the fiscal analysis reports no impact on state or local government revenues or expenditures.

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                                  HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #:     PCS for HB 683 Energy Infrastructure Investment
SPONSOR(S): Energy, Communications & Cybersecurity Subcommittee
TIED BILLS:       IDEN./SIM. BILLS:

  REFERENCE                                                   ACTION                  ANALYST            STAFF DIRECTOR or
                                                                                                         BUDGET/POLICY CHIEF

  Orig. Comm.: Energy, Communications &                                               Bauldree           Keating
     Cybersecurity Subcommittee

                                               SUMMARY ANALYSIS
The Public Service Commission (PSC) has broad jurisdiction over the rates and service of public (investor-
owned) electric and natural gas utilities in Florida. The PSC sets rates for these utilities through various
mechanisms to allow the utilities to recover their legitimate costs of providing service, including a return on the
utility’s prudent capital investments.

Renewable natural gas (RNG) is the gaseous product of the decomposition of organic matter, processed into a
pipeline-quality gas that is fully interchangeable with conventional natural gas. Primary sources of RNG include
landfills, livestock operations, and wastewater treatment facilities. Hydrogen fuel is produced predominantly
from natural gas but can also be produced, at a greater cost, by electrolysis powered by renewable energy.

The bill provides that the PSC may create an experimental mechanism to facilitate investment in energy
infrastructure consistent with the legislature’s intent to promote renewable energy and the definition of
“renewable natural gas.” Thus, it appears that the bill authorizes the PSC to create an experimental
mechanism to promote investment in renewable natural gas infrastructure.

The bill does not appear to impact state or local government revenues or expenditures.

The bill provides an effective date of July 1, 2024.




This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives .
STORAGE NAME: pcs0683.ECC
DATE: 1/27/2024
                                                           FULL ANALYSIS

                                                   I. SUBSTANTIVE ANALYSIS

    A. EFFECT OF PROPOSED CHANGES:
         Current Situation

         Rate Setting for Public Utilities

         The Public Service Commission (PSC) has broad jurisdiction over the rates and service of public
         (investor-owned) electric and natural gas utilities in Florida.1 Under this broad grant of authority, and
         through more specific grants of authority in Chapter 366, F.S., the PSC sets rates for such utilities
         through various mechanisms, each of which is established in a separate administrative proceeding:

                 Base rates (set for electric and natural gas utilities)
                        o Adjusted as needed in a general rate case, conducted through a formal evidentiary
                            hearing for electric utilities and either a formal or informal proceeding for natural gas
                            utilities.2
                        o Designed to recover most operations and maintenance expenses, depreciation expense
                            (recovery of capital investment over time), and a return on capital investment.
                 Fuel and purchased power cost recovery charges (set for electric utilities only)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover the costs of fuel and the energy component of wholesale power
                            purchases.
                        o By PSC order, may include recovery of certain capital investments, including a return on
                            investment.
                 Purchased gas adjustment charges (set for natural gas utilities only)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover the costs of wholesale natural gas purchases.
                 Capacity cost recovery charges (set for electric utilities only)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover costs of the capacity component of wholesale power purchases.
                        o By statute, may include recovery of certain costs related to development of new nuclear
                            power plants, including a return.3
                 Environmental cost recovery charges (set for electric utilities only)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover costs to comply with government-mandated environmental
                            standards.
                        o By statute, may include recovery of certain capital investments, including a return on
                            investment.4
                 Storm protection plan cost recovery charges (set for electric utilities only)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover costs to implement PSC-approved storm protection plans.
                        o By statute, may include recovery of certain capital investments, including a return on
                            investment.5
                 Energy conservation and efficiency cost recovery charges (set for electric and natural gas
                  utilities)
                        o Adjusted annually through a formal evidentiary hearing.
                        o Designed to recover costs of implementing PSC-approved energy conservation and
                            efficiency programs.

1See, e.g., ss. 366.01, 366.04(1), 366.041, 366.05(1), and 366.06, F.S.
2 A natural gas utility or a public electric utility whose annual sales to end -use customers amount to less than 1,000 gigawatt hours may

request that the PSC process the utility’s petition for rate relief using an informal “proposed agency action” procedur e. S. 366.06(4),
F.S.
3 S. 366.93, F.S.
4 S. 366.8255, F.S.
5 S. 366.96, F.S.

STORAGE NAME: pcs0683.ECC                                                                                                           PAGE: 2
DATE: 1/27/2024
           As required by law, the PSC sets base rates to allow utilities to recover their legitimate costs of
           providing service (not otherwise recovered through another cost recovery mechanism), including a
           return on the utility’s prudent capital investments (“rate base”). 6 In each rate case, the PSC sets a
           “reasonable” rate of return on equity for each utility to apply to its rate base. This rate is typically
           applied to the utility’s investments that the PSC allows to be recovered through cost recovery
           mechanisms other than base rates.

           The PSC is also authorized to establish certain experimental rates.7

           Renewable Energy

           Florida law provides that it is in the public interest to promote the development of renewable energy
           resources to help diversify fuel types for electric production, minimize the volatility of fuel costs,
           encourage investment within the state, improve environmental conditions, and make Florida a leader in
           new and innovative technologies.8 The law defines renewable energy as energy produced from a
           method that uses one or more of the following fuels or energy sources: hydrogen produced or resulting
           from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean
           energy, and hydroelectric power.9

           Renewable Natural Gas

           Renewable natural gas (RNG) is the gaseous product of the decomposition of organic matter,
           processed into a pipeline-quality gas that is fully interchangeable with conventional natural gas. Primary
           sources of RNG include landfills, livestock operations, and wastewater treatment facilities. 10

           In 2021, the Legislature added the term “renewable natural gas” to Florida law and defined it as
           “anaerobically generated biogas, landfill gas, or wastewater treatment gas refined to a methane content
           of 90 percent or greater which may be used as a transportation fuel or for electric generation or is of a
           quality capable of being injected into a natural gas pipeline.” The legislation authorized the PSC to
           approve cost recovery for the purchase of RNG by natural gas public utilities, even if pricing exceeds
           the current market price of natural gas, if the PSC deems the purchase to be reasonable and prudent. 11

           Effect of the Bill

           The bill provides that the PSC may create an experimental mechanism to facilitate investment in
           energy infrastructure consistent with the legislature’s intent to promote renewable energy and the
           definition of “renewable natural gas.” Thus, it appears that the bill authorizes the PSC to create an
           experimental mechanism to promote investment in renewable natural gas infrastructure. Under the bill,
           the experimental mechanism must be consistent with part of the structure set forth in current law for
           storm protection plan cost recovery.12, 13


6
    Ss. 366.041(1) and 366.06(1), F.S.
7 S. 366.075, F.S.
8 S. 366.91, F.S.
9 S. 366.91(2)(e), F.S. The term also includes waste heat from sulfuric acid manufacturing operations an d electrical energy produced

using pipeline-quality synthetic gas produced from waste petroleum coke with carbon capture and sequestration.
10
   Office of Energy Efficiency & Renewable Energy, Alternative Fuels Data Center – Renewab le Natural Gas Production, U.S.
Department of Energy, https://afdc.energy.gov/fuels/natural_gas_renewable.html (last visited Jan. 27, 2024).
11 Ch. 2021-178, Laws of Fla., codified at s. 366.91(2)(f) and (9), F.S.
12 Section 366.96(7), F.S., provides that after the PSC approves a util ity’s transmission and distribution storm protection plan,

proceeding with actions to implement the plan shall not constitute or be evidence of imprudence. Furthermore, this section pr ovides that
The PSC shall conduct an annual proceeding to determine the utility’s prudently incurred transmission and distribution storm protection
plan costs and allow the utility to recover such costs through a charge separate and apart from its base rates, to be referre d to as the
storm protection plan cost recovery clause. If the PSC determines that costs were prudently incurred, those costs will not be subject to
disallowance or further prudence review except for fraud, perjury, or intentional withholding of key information by the publi c utility. S.
366.96(7), F.S.
13 Section 366.96(8), F.S., provides that annual transmission and distribution storm protection plan costs may not include costs

recovered through the public utility’s base rates and must be allocated to customer classes pursuant to the rate design most recently
approved by the PSC. S. 366.96(8), F.S.
STORAGE NAME: pcs0683.ECC                                                                                                         PAGE: 3
DATE: 1/27/2024
       Under the bill, the PSC may decide if the experimental mechanism is conducted in an annual
       proceeding. The PSC must adopt rules to implement and administer the provisions of the bill and
       propose a rule as soon as practicable, but no later than October 31, 2024.

       The bill provides an effective date of July 1, 2024.

   B. SECTION DIRECTORY:
       Section 1: Amends s. 366.075, F.S., relating to experimental transitional rates.

       Section 2: Provides an effective date.


                        II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT

   A. FISCAL IMPACT ON STATE GOVERNMENT:

       1. Revenues:
           None.

       2. Expenditures:
           None.

   B. FISCAL IMPACT ON LOCAL GOVERNMENTS:

       1. Revenues:
           None.

       2. Expenditures:
           None.

   C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
       None.

   D. FISCAL COMMENTS:
       None.


                                                III. COMMENTS

   A. CONSTITUTIONAL ISSUES:

       1. Applicability of Municipality/County Mandates Provision:
          Not applicable. This bill does not appear to affect county or municipal governments.

       2. Other:
          None.

   B. RULE-MAKING AUTHORITY:
       The bill requires the PSC to propose and adopt a rule to implement the bill within a specified timeline.

   C. DRAFTING ISSUES OR OTHER COMMENTS:

STORAGE NAME: pcs0683.ECC                                                                                 PAGE: 4
DATE: 1/27/2024
       None.


                            IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES
   Not applicable.




STORAGE NAME: pcs0683.ECC                                                 PAGE: 5
DATE: 1/27/2024


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