Florida just approved the largest electric rate increase in history. Here's how it happened.

Florida Power & Light won permission last week to raise electricity rates by $7 billion over the next four years. Here's why it's so big, how FPL pulled it off, and who should be held accountable.

Photo credit: Don Ramey Logan

This is Seeking Rents, a newsletter and podcast devoted to producing original journalism — and lifting up the work of others — about Florida politics, with an emphasis on the ways that big businesses and other special interests influence public policy in the state. Seeking Rents is produced by veteran investigative journalist Jason Garcia, and it is free to all. But please consider a voluntary paid subscription, if you can afford one, to help support our work. And check out our video channel, too.

Florida Power & Light, the monopoly power company that has long had a stranglehold on state politics, just got permission to raise electricity rates — again.

An obscure state agency in Tallahassee last week approved FPL’s plan to increase electricity rates by a cumulative $7 billion — at least — over the next four years. Most of the corporation’s roughly 12 million customers across Florida will experience an immediate increase to their monthly electric bill beginning in January, with further rate hikes to follow.

It is the largest electric rate increase in American history, according to opponents who have vowed to fight it in court.

“Based on our research, by total cumulative revenue increase, it is the largest rate increase in United States history for a vertically integrated electric utility,” said Bradley Marshall, an attorney with the environmental group Earthjustice.

This is a big deal. Between this and a $5 billion rate increase FPL won in 2021, the average FPL customer will wind up paying hundreds of dollars more each year for electricity than they were five years ago.

But it’s also a bit intimidating. Utility rate regulation is about as deep-in-the-weeds as it gets in state government. And it’s all handled by an obscure agency called the Public Service Commission that doesn’t face nearly the same kind of scrutiny as the Governor’s Office and Legislature.

So I thought it’d be worth using this space to take a closer look at FPL’s latest rate hike, with a focus on three points in particular:

• Why is this increase so big?

• How did FPL pull it off?

• And who, ultimately, should be held accountable?

Let’s start with the first question.

Why is FPL’s rate increase so big?

As you might imagine, there is a lot that goes into setting rates for a company as big and complex as Florida Power & Light, which oversees an electrical empire of more than a dozen power plants, dozens of solar arrays, and more than 90,000 circuit miles of transmission lines. The final rate plan that FPL submitted to the PSC is nearly 2,000 pages long.

But we’re going to focus on one especially important piece. It’s called the “return on equity,” or ROE for short. You can think of it kind of like FPL’s profit margin.

Remember: FPL is, like other electric utilities in Florida, a regulated monopoly.

That means it has parts of Florida entirely to itself where the company operates largely free of competition. If you live in FPL’s territory — which covers most of Florida’s east coast, some of the west coast, and much of the Panhandle — you have no choice but to buy your electricity from FPL.

Florida Power & Light’s service territory. (Source: NextEra Energy Inc. 2024 10-K)

But it also means that FPL can’t just charge you whatever it wants. The company’s rates must be approved by a state body called the Public Service Commission, which is run by five PSC commissioners.

As part of this regulatory structure, FPL is entitled by law to earn a “reasonable rate of return” on the money that its shareholders invest building and maintaining all the infrastructure goes into producing and distributing electricity.

And FPL’s new rate deal includes an unusually high ROE — the highest in the nation, outside of Alaska.

Specifically, the agreement allows FPL to earn a return on equity of 10.95 percent. (Well, technically, it allows FPL to earn within a two-point range between 9.95 percent and 11.95 percent. But we usually talk about utility ROEs in terms of the midpoint.)

This is part of a broader pattern with Florida’s Public Service Commission, which has approved generous ROEs for all four of the state’s investor-owned utilities: FPL, Duke Energy Florida, Tampa Electric Co., and Florida Public Utilities.

In fact, research produced by Walmart — yes, that Walmart, the giant retailer that also happens to be one of the nation’s largest consumers of electricity — found that Florida’s four private power companies are allowed to earn ROEs that all rank among the 10 highest in the country.

That’s out of more than 75 vertically integrated utilities altogether. (Vertically integrated means that they generate, transmit and distribute electricity to customers.)

Florida has approved four of the top 10 highest ROEs for vertically integrated utilities in the country. (Adapted from research produced by Walmart Inc.)

FPL’s return on equity of 10.95 percent is also more than a percentage point higher than the nationwide average ROE approved for all vertically integrated utility companies last year, which was 9.85 percent. That’s according to the Office of Public Counsel, a little state agency that’s sort of like a law firm that represents the public whenever one of the big investor-owned power companies comes looking to raise electricity rates.

A small change in ROE has a big impact on rates. A single percentage point increase to the ROE for FPL’s shareholders equals roughly $500 million — half a billion dollars — extracted from FPL’s customers.

To be clear, an inflated ROE isn’t the only unsavory element of FPL’s new rate deal. The package also includes a provision that could permit the company to take money it already collected from customers to cover future tax bills and use that cash instead to further pad shareholder profits. It’s very similar to the another controversial accounting mechanism that FPL got embedded into its last rate deal, too.

But the ROE is the chief flashpoint. It’s “the big kahuna,” as Public Service Commissioner Gabriella Passidomo Smith put it during last week’s PSC hearing on FPL’s rate plan.

“I don’t love this ROE,” Passidomo Smith added.

And yet she voted for it anyway. As did each of the other four commissioners who lead Florida’s Public Service Commission.

Which brings us to the second question:

How did FPL pull this off?

This, to me, is the most insidious part of the way this whole deal went down.

In a normal rate case, a utility company presents a plan to the Public Service Commission, which can though go through it piece-by-piece and make adjustments as warranted.

FPL did something different. After opening a new rate case and presenting an initial rate plan to the PSC, the company had the proceeding halted midway through so it could negotiate directly with some of the groups who had joined the case in opposition to the original proposal. A few weeks later, the company presented a revised rate plan to the PSC — in the form of a settlement agreement that had been hashed out entirely in secret.

That’s important because the PSC cannot make adjustments to a settlement agreement. It can only vote the agreement up or down. (This is basically the same strategy Republican leaders in Tallahassee used to sneak a shady land deal into this year’s state budget.)

What makes this so ugly is that FPL negotiated this settlement agreement almost exclusively with a few very large commercial and industrial customers. The parties who signed on to this deal included Walmart, gas-station chains Circle K, RaceTrac, and Wawa, and an outfit called the Florida Industrial Power Users Group — which is a front group for a handful of large corporations like mining firm Mosaic Co. and grocery giant Publix Super Markets.

Advocacy groups representing residential customers — who compromise 89 percent of FPL’s customers — were largely absent from these settlement negotiations.

In fact, both the Office of Public Counsel and five consumer groups who had also joined the FPL rate case all asked the Public Service Commission to reject the deal.

(Update: A commenter raised a good question about why the big customers would sign on to this settlement agreement. One reason is that it includes discounts for large companies during peak energy usage periods, according to the Tampa Bay Times.)

During last week’s hearing, several PSC Commissioners claimed they would have preferred to make some changes to FPL’s final rate plan — like bringing down that exceptionally high ROE — if only their hands hadn’t been tied by the settlement agreement.

“In and of itself, I don’t love this ROE,” Passidomo Smith said during the hearing. “But evaluating a proposed ROE cannot be reviewed in a vacuum, and neither can a single component of the settlement agreement.”

“The reality is that I like a lot of the provisions in the settlement,” added a second PSC commissioner, Andrew Giles Fay. “And there are definitely some that give me heartburn.”

“I don’t love everything that’s in the current settlement agreement in front of us,” said a third commissioner, Mike La Rosa, a former Republican state lawmaker who now serves as the PSC chairperson. “There are certain elements that don’t motivate me. But there are some that do.”

But forced to cast an up-or-down vote, all five PSC commissioners sided with FPL and Walmart over the Office of Public Counsel and the consumer groups.

Which gets us to the third question:

Who, ultimately, is accountable here?

Sure, the five Public Service Commissioners are technically the ones who approved FPL’s rate hike.

But everyone in Tallahassee knew that these PSC commissioners were going to do whatever FPL wanted them to do. Public-interest groups have been warning for more than a decade now that Florida’s Public Service Commission has been utterly captured by the companies it is supposed to regulate.

Besides, PSC commissioners are appointed. The true responsibility rests with the elected officials installed them.

That starts with Gov. Ron DeSantis, who personally appointed all five of the current PSC commissioners.

The reality is that if Ron DeSantis wanted to stop this rate increase from happening, he could have by using his bully pulpit to call the company out — and to put the same kind of public pressure on PSC commissioners as he has on drag queens, university professors, and twenty-something television reporters.

But Florida hasn’t had a governor willing to fight a Florida Power & Light rate increase since Charlie Crist did more than 15 years ago.

That said, Ron DeSantis isn’t solely to blame here. Some of the responsibility also falls on the Florida Senate, which must confirm every PSC appointment.

And Florida senators — Republicans and Democrats alike — have overwhelmingly supported Ron DeSantis’ choices for the PSC.

In fact, I went back to check the Senate votes on the five curreent PSC commissioners — the five people who just cleared the way for the largest electric rate increase in history.

Two were approved 40-0. Another was approved 36-0. And two were approved 35-1.

This isn’t necessarily over. Opponents have vowed to appeal FPL’s new rate deal to the Florida Supreme Court, where some justices have been surprisingly skeptical of the PSC’s work.

The Florida Senate, meanwhile, will have soon have a chance to vote on Ron DeSantis’ next round of PSC picks.