Court Opinion

ID: 4153240
Source: CourtListenerOpinion
Date Created: 2017-03-16 15:05:57.297598+00
Date Added: 2024-06-11T14:33:46.195209
License: Public Domain

Supreme Court of Florida
                                   ____________

                                   No. SC16-141
                                   ____________

                    CITIZENS OF THE STATE OF FLORIDA,
                                 Appellant,

                                         vs.

                            ART GRAHAM, etc., et al.,
                                  Appellees.

                                 [March 16, 2017]

LEWIS, J.

       This case is before the Court on appeal from a decision of the Florida Public

Service Commission relating to the rates or service of a public utility providing

electric service. We have jurisdiction. See art. V, § 3(b)(2), Fla. Const.

                FACTUAL AND PROCEDURAL BACKGROUND

       Florida Public Utilities Company (FPUC) is an investor-owned electric

utility located in Fernandina Beach, Florida. FPUC does not generate its own

electricity, but instead relies solely on wholesale purchase power agreements with

other electric utilities.
      Our discussion begins on August 29, 2014, when FPUC entered into a

settlement agreement with the Office of Public Counsel (OPC) in resolution of its

then pending petition for an increase in base rates. In re Application for Rate

Increase by Fla. Pub. Utils. Co. (Settlement Agreement Order), Order No. PSC-14-

0517-S-EI, at 1, 2014 WL 4960917 (Fla. P.S.C. Sept. 29, 2014). Section I of the

settlement agreement prohibits FPUC from increasing its base rates thereafter until

at least December 31, 2016.1 Further coloring that prohibition, Section VI of the

settlement agreement, entitled “Other Cost Recovery,” specifically delineated what

costs FPUC might seek recovery of through other mechanisms, such as the

Commission’s fuel clause proceedings:

            Nothing in this agreement shall preclude the Company from
      requesting the Commission to approve the recovery of costs that are:

      1. The relevant provision provides in pertinent part:

      I. Term
             a. This Agreement will take effect upon Commission approval
      and shall be implemented on the date of the meter reading for the first
      billing cycle of November 2014 (“Implementation Date”) and
      continue at least until the last billing cycle of December 2016. The
      base rates, charges and related tariff term sheet terms and conditions
      established as a result of this Agreement will continue beyond
      December 2016 unless and until changed by Commission Order. The
      period from the Implementation Date through the last billing cycle in
      December 2016 may be referred to herein as the “Minimum Term”.

             b. The Parties agree that no increase or reduction in base rates
      shall be sought by the Parties during the Minimum Term unless other
      terms of this Agreement allow.

                                        -2-
      (a) of a type which traditionally and historically would be, have been,
      or are presently recovered through cost recovery clauses or
      surcharges, or (b) incremental costs not currently recovered in base
      rates which the Legislature or Commission determines are clause
      recoverable subsequent to the approval of this settlement. Except as
      provided in this Agreement, it is the intent of the Parties in this
      Paragraph VI that FPUC not be allowed to recover through cost
      recovery clauses increases in the magnitude of costs, incurred after
      implementation of the new base rates, of types or categories
      (including but not limited to, for example, investment in and
      maintenance of transmission assets) that have been traditionally and
      historically recovered through FPUC’s base rates.

In re Application for Rate Increase by Fla. Pub. Utils. Co., Docket No. 140025-EI,

Document No. 04856-14 (Aug. 29, 2014) (emphasis added). On September 29,

2014, this settlement agreement was unanimously approved by the Commission.

See generally Settlement Agreement Order, No. PSC-14-0517-S-EI, at 1, 2014 WL
4960917 (“Having reviewed the Settlement and the pleadings, and heard argument

of counsel, we find that the Settlement is in the best interests of FPUC’s ratepayers

and hereby approve it.”). Further, the Commission’s Order incorporated by

reference the entire settlement agreement and thereby adopted its terms as its

policy. Id. at 3.

      About one year later, on September 1, 2015, FPUC petitioned the

Commission for approval of its fuel adjustment and purchased power cost recovery

factors for the period of January 2016 through December 2016. In pertinent part,

and contrary to the settlement agreement, FPUC’s petition sought to recover costs

associated with constructing a new interconnection with Florida Power & Light

                                        -3-
Company (FPL). Specifically, FPUC sought to initially recover $107,333 in

depreciation expense, taxes other than income taxes, and a return on investment

associated with the $3.5 million dollar cost of its interconnection project.

According to FPUC’s petition, the FPL interconnection “will result in [FPUC]

being better situated in terms of negotiating a new power purchase agreement for

[its] Northeast Division to follow [its] current agreement.” Indeed, at the time,

FPUC had a purchased power agreement with which it purchased power

exclusively from Jacksonville Electric Authority (JEA) to serve its Northeast

Division, which encompasses its customers on Amelia Island. FPUC’s agreement

with JEA is set to expire on December 31, 2017. Thus, with construction of the

FPL interconnection, FPUC asserts that it will increase its potential providers from

one to two, and presumably give it a basis to negotiate a more favorable price for

its purchased power, the savings from which will be passed on to its customers in

the form of lower rates.

      Despite the stated altruistic intentions of this proposed project, the OPC

objected to FPUC’s petition. In relevant part, the OPC asserted that the costs

associated with the FPL interconnection were among the types of costs barred by

the provisions of the settlement agreement quoted above. Likewise, the

Commission’s staff prepared a memorandum in which it recommended that

FPUC’s petition be denied due to the settlement agreement’s provisions. During a

                                         -4-
subsequent hearing, a commissioner questioned staff about the settlement

agreement’s effect and suggested it prohibited FPUC’s request. Nevertheless, the

Commission ultimately voted to reject the staff’s recommendation and approved

the recovery of the entire FPL interconnection costs, contrary to the terms of the

settlement agreement. The dissent simply ignores this information and materials

submitted by the Commission’s own staff and OPC.

      Despite the prior objections and discussions concerning the settlement

agreement’s application to the FPL interconnection, such consideration and

analysis were conspicuously missing from the Commission’s order with regard to

the FPL interconnection costs. In re Fuel & Purchased Power Cost Recovery

Clause with Generating Performance Incentive Factor (Order Below), No. PSC-15-

0586-F0F-EI, at 11-15, 2015 WL 9450334 (Fla. P.S.C. Dec. 23, 2015).

Specifically, the order only addressed and analyzed the settlement agreement’s

effect on the entirely separate issue of FPUC’s ability to recover legal and

consulting fees associated with the project, not the entire construction costs. Id. at

13-14. This factor is also ignored by the dissent. Instead, the only analysis offered

by the Commission that related to construction of the transmission interconnection

centered on the reliability enhancements and the potential savings to customers:

             All parties agree that the proposed interconnection with FPL
      will result in improved system reliability for Amelia Island. Nor is
      there disagreement that interconnection with FPL will offer wholesale
      power purchase options not currently available to FPUC when its

                                         -5-
       wholesale power agreement with JEA expires in December 2016.[2]
       The disagreement rests with the OPC’s conclusion that [Commission]
       Order No. 14546 prohibits cost recovery until cost savings are
       received by ratepayers. We do not read Order No. 14546 that
       restrictively.

             Therefore, we find that the interconnection with FPL and the
       consulting and legal fees associated with the development and
       enactment of projects designed to reduce fuel rates to FPUC’s
       customers, costs associated with the development and negotiations of
       power supply contracts, and costs to consultants engaged in
       performing due diligence in review and analysis of the Renewable
       Energy Agreement between FPUC and Rayonier shall be recovered
       through the fuel cost recovery clause.

Id. at 15.
       Left without an explanation as to why FPUC’s petition was approved over

its objections without consideration and application of the terms of the settlement

agreement, the OPC has now appealed the Commission’s order. This review

follows.

                                    ANALYSIS

       When reviewing an order of the Commission, this Court affords great

deference to the Commission’s findings. S. All. for Clean Energy v. Graham, 113
So. 3d 742, 752 (Fla. 2013) (noting that this Court has repeatedly held that “[t]he

Commission’s orders, and concomitant interpretations of statutes and legislative

       2. As noted previously, the record indicates that FPUC’s wholesale power
purchase agreement with JEA actually expires in December 2017. This appears to
be a scrivener’s error in the Commission’s order.

                                        -6-
policies that it is charged with enforcing, are entitled to great deference” (quoting

Crist v. Jaber, 908 So. 2d 426, 430 (Fla. 2005))). “Commission orders come to this

Court clothed with the presumption that they are reasonable and just.” W. Fla.

Elec. Coop. Ass’n, Inc. v. Jacobs, 887 So. 2d 1200, 1204 (Fla. 2004) (citing Gulf

Coast Elec. Coop., Inc. v. Johnson, 727 So. 2d 259, 262 (Fla. 1999)). Moreover,

“[t]o overcome these presumptions, a party challenging an order of the

Commission on appeal has the burden of showing 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.” S. All. for

Clean Energy, 113 So. 3d at 752 (citing Jacobs, 887 So. 2d at 1204).

      In this case, the OPC contends that the Commission departed from the

essential requirements of law by failing to explain why it did not consider and

apply the settlement agreement. Furthermore, the OPC contends that the

settlement agreement bars FPUC’s petition in this case. We agree with the OPC on

both contentions.

      As an initial matter, however, FPUC and the Commission contend that the

issue of the settlement agreement was waived and not properly before the

Commission. We find these contentions to be meritless at best. Not even the

dissent attempts to support this meritless position. It is glaringly obvious that the

settlement agreement was adequately presented to the Commission.

                                         -7-
      First, the OPC properly raised the issue in its prehearing statement prior to

the Commission’s waiver deadline:

      Recovery of costs associated with transmission lines are not fossil-
      fuel-related costs. Transmission costs are traditionally and
      historically recovered through base rates, not the fuel clause.
      Additionally, FPUC’s request to recover these costs in the fuel clause
      violates the Company’s rate case stipulation pursuant to Order PSC-
      14-0517-S-EI. Further, FPUC’s argument that the transmission costs
      should be recovered as 2016 fuel costs should be rejected as the
      opportunity for potential “fuel savings” will not occur in 2016 because
      the current Purchase Power Agreement . . . does not expire until 2017
      and this plant will not go into service until the end of 2017.

(Emphasis added.) Second, following a hearing in which one of the FPUC

witnesses discussed the settlement agreement during cross-examination, the

Commission staff prepared a detailed analysis in which it reasoned that OPC’s

objection was correct and recommended denying FPUC’s request:

             Finally, FPUC has argued that the FPL interconnection is not
      prohibited by the settlement agreement because it will allow FPUC to
      reduce the price of its wholesale purchased power. For FPUC
      reducing the price of purchased power is the equivalent of reducing
      the price of fossil fuels for the other IOUs. FPUC argues that Order
      No. 14546 applies to purchased power as well as fossil fuels and
      should be used here to allow recovery of the FPL interconnection
      costs. FPUC dismisses the plain language of Section VI of the
      settlement agreement which does not allow recovery of “investment in
      and maintenance of transmission assets that have been traditionally
      and historically recovered through FPUC’s base rates” on two
      rationales. First, Exhibit A to the settlement agreement entitled
      “Planned Capital Improvements” covering the period 2016-2019 does
      not list the FPL interconnection project. Second, the prohibition
      against recovery of transmission projects in the settlement agreement
      applies only to “investment in, or maintenance of, existing
      transmission.”

                                        -8-
            Staff agrees with FPUC that if the provisions of Order No.
     14546 are not applied to purchased power, there is very little guidance
     as to what is recoverable in terms of purchased power through the fuel
     clause. Certainly, this is the first instance in which FPUC, the only
     non-generating electric utility in the state, has requested recovery of a
     transmission asset through the fuel clause. However, staff does not
     agree that the explicit terms of the settlement agreement should be
     dismissed summarily.

            The settlement agreement does not state that the prohibition
     against recovery of transmission costs through the fuel clause is
     limited to the projects listed on Exhibit A. In its joint motion with
     OPC for approval of stipulation and settlement, FPUC stated that
     “FPUC will use all reasonable infrastructure projects, consistent with
     those outlined in demonstrative Exhibit A, attached to the Agreement,
     in order to maintain the reliability of its electrical system.” The joint
     motion also reiterated that “The Company may continue to seek
     recovery of costs through recovery clauses, but cannot seek recovery
     of costs that the Company has traditionally and historically recovered
     through base rates.” Given the language in its motion, the fact that the
     FPL interconnection was not included on Exhibit A does not support
     the conclusion that its costs are exempt from the settlement
     agreement’s specific prohibition against the recovery of transmission
     costs through the fuel clause. Nor does the motion’s or the settlement
     agreement’s prohibition against recovery through the fuel clause
     contain any language limiting prohibited transmission projects to
     existing projects. FPUC has cited no specific provision of the
     settlement agreement to support this contention nor is there any
     testimony or record evidence to support it.

            Witness Cutshaw agreed that transmission rate base costs were
     normally recovered through base rates and that the proposed FPL
     interconnection was part of a transmission asset. While there may be
     potential savings associated with the project, the plain language of the
     settlement agreement prohibiting recovery of capital costs of
     transmission projects does not support recovery of these costs through
     the fuel adjustment clause.

(footnotes omitted) (record citations omitted).

                                       -9-
      Finally, the settlement agreement and the staff’s analysis occupied nearly the

entirety of the Commission’s deliberations concerning FPUC’s request:

            Commissioner Edgar: Thank you, Mr. Chairman.

             Looking at 4A and 4B, both together and separately, I find 4A
      in particular to be, once again, maybe one of those issues where we’re
      in a bit of a box due to the hearing process. Not a complaint but just
      kind of, you know, the process is what the process is required to be.
             From the record evidence what we have in 4A before us is cost
      recovery for a project by FPUC that is—the testimony says will be an
      improvement to the transmission for that small transmission and
      distribution utility, that will reduce the price of wholesale purchased
      power, that it will save fuel costs, and that it is in the public interest.
      That is my understanding of the testimony. If anybody disagrees, I
      certainly am open to discussing that. But yet it is being
      recommended, and I understand the reasons why, for not recovery for
      costs through the fuel clause even though, again, the project is
      intended to have fuel savings.
             There is the complicating factor of the settlement agreement in
      the last rate case that we approved, and I do believe that the settlement
      agreement was in the public interest as we voted at that time. But,
      Commissioners, I would just ask if there are thoughts or if there are
      discussions about the staff recommendation on this item.

            Chairman Graham: That question was to staff?

            Commissioner Edgar: No, it was to my colleagues.

            Chairman Graham: Commissioner Brown.

             Commissioner Brown: Well, I—thank you, Mr. Chairman. I
      looked at this issue. I actually highlighted this one specifically
      because I remember the testimony of the witness, and it was an
      important project, an integral project. Unfortunately the utility is
      hamstrung, hamstrung by the settlement agreement, which I believe
      reads that specifically this type of cost recovery is not allowed under
      clauses and it cites investment and maintenance of transmission
      assets.

                                        - 10 -
       Staff, that settlement agreement is part of the record, and what
is the expiration date of that agreement?

      Ms. Brownless: The minimum term of the settlement
agreement ends on December 31st, 2017.

      Commissioner Brown: 2017.

      Ms. Brownless: 2016. I’m sorry.

       Commissioner Brown: 2016. So could the utility file
testimony in the next year’s fuel docket to recover costs associated
with this item?

      Ms. Brownless: Yes, ma’am.

       Commissioner Brown: Okay. And not be prohibited under the
settlement agreement?

      Ms. Brownless: Yes.

      Commissioner Brown: Okay. Those are really my only
thoughts.

    Chairman Graham: Okay. I would still entertain a motion.
Commissioner Edgar.

       Commissioner Edgar: Thank you, Mr. Chairman.
       Then I would move that we disagree with—reject the staff
recommendation on Item 4 and approve recovery of the costs for the
interconnection between FPL’s substation in FPUC’s northeast
division through the fuel recovery clause. That’s my motion. My
thinking on that is I do believe that it will have cost savings in fuel for
the customers moving forward.

      Chairman Graham: Okay. We have the Edgar 2 motion moved
and seconded. Is there any further discussion on that motion? Seeing
none, all in favor, say aye. Any opposed? All say aye.

      (Vote taken.)

                                  - 11 -
              Thank you. All opposed? Any opposed? Seeing none, you
        have approved that motion.

(Emphasis added.)

        Therefore, we cannot see how this issue was not properly raised before the

Commission. Accordingly, to the extent the Commission held the issue waived,

we reverse.

        Turning to the merits, we hold that the Commission departed from the

essential requirements of law by failing to adequately address application of the

settlement agreement to the FPL transmission interconnection costs.

        Section 120.68(1)(a), Florida Statutes, provides: “A party who is adversely

affected by final agency action is entitled to judicial review.” § 120.68(1)(a), Fla.

Stat. (2016). “ ‘Agency action’ means the whole or part of a rule or order, or the

equivalent, or the denial of a petition to adopt a rule or issue an order. The term

also includes any denial of a request made under s. 120.54(7).” § 120.52(2), Fla.

Stat. (2016). Guiding judicial review in this context, section 120.68(7) provides in

part:

              (7) The court shall remand a case to the agency for further
        proceedings consistent with the court’s decision or set aside agency
        action, as appropriate, when it finds that:
              ....
              (d) The agency has erroneously interpreted a provision of law
        and a correct interpretation compels a particular action; or

              (e) The agency’s exercise of discretion was:

                                        - 12 -
             1. Outside the range of discretion delegated to the agency by
      law;
            2. Inconsistent with agency rule;
            3. Inconsistent with officially stated agency policy or a prior
      agency practice, if deviation therefrom is not explained by the agency;
      or
            4. Otherwise in violation of a constitutional or statutory
      provision;

      but the court shall not substitute its judgment for that of the agency on
      an issue of discretion.

§ 120.68(7), Fla. Stat.

      These provisions ensure that agency action is the product of due process

rather than arbitrary and uneven in its application, as well as in reviewable form for

courts to enforce that due process. In the heavily referenced case of McDonald v.

Department of Banking & Finance, 346 So. 2d 569 (Fla. 1st DCA 1977),3 the First

District Court of Appeal carefully articulated the principles that require agency

action to be set aside when insufficiently explained:

      Section 120.57 requires agency explanation of its discretionary action
      affecting a party’s substantial interests, and Section 120.68 subjects
      that explanation to judicial review.

             Section 120.57 proceedings, in which the agency’s nonrule
      policy is fair game for a party’s challenge both in the public and in his
      private interest, concludes [sic] by a final agency order which
      explicates “policy within the agency’s exercise of delegated
      discretion,” explains any deviation from “an agency rule, an officially

      3. Superseded on other grounds by statute, § 120.54(1)(a), Fla. Stat. (Supp.
1996), as recognized in Dep’t. of Highway Safety & Motor Vehicles v. Schluter,
705 So. 2d 81 (Fla. 1st DCA 1997).

                                        - 13 -
      stated policy, or a prior agency practice,” and, in a “licensing”
      proceeding such as this one, “state[s] with particularity the grounds or
      basis for the issuance or denial” of the license. Sections 120.57(1)(b)
      9, 120.57(2)(a) 1 and 2, 120.60(2), 120.68.

             Judicial review proceedings under Section 120.68 similarly
      press for crystalization [sic] of agency discretion. The court’s
      responsibility is to allow the agency full statutory range for its
      putative expertise and specialized experience. But, to the extent that
      agency action depends on nonrule policy, Section 120.68 requires its
      exposition as a credential of that expertise and experience.
      [D]isplaced findings of [a] hearing officer . . . lessen in probative
      force as the “facts” blur into opinions and opinions into policies, and
      the Department’s power to substitute findings based on record
      evidence correspondingly increases. But the Department’s duty of
      exposition also increases. The final order must display the agency’s
      rationale. It must address countervailing arguments developed in the
      record and urged by a hearing officer’s recommended findings and
      conclusions or by a party’s written challenge of agency rationale in
      informal proceedings, or by proposed findings submitted to the
      agency by a party. See also Reporter’s Comments on Proposed
      Administrative Procedure Act, p. 20 (3/9/74):

            “Three due process checks to prevent arbitrary agency
            action are the requirements that reasons be stated for all
            action taken or omitted, that reasons be supported by ‘the
            record’, and that specific judicial review procedures
            allow the courts to remedy defects of substance.”

             Failure by the agency to expose and elucidate its reasons for
      discretionary action will, on judicial review, result in the relief
      authorized by Section 120.68(13): an order requiring or setting aside
      agency action, remanding the case for further proceedings or deciding
      the case, otherwise redressing the effects of official action wrongfully
      taken or withheld, or providing interlocutory relief.

McDonald, 346 So. 2d at 583-84 (footnote omitted) (citations omitted).

                                       - 14 -
      While the Commission correctly notes that McDonald is distinguishable

because in that case there was an insufficiently explained deviation from a hearing

officer’s findings of fact, the overriding principles of McDonald cannot be

disregarded on minute distinctions in the agency procedural posture. Indeed, the

McDonald principles have been extended to other contexts.

      For instance, OPC refers this Court to Seminole Electric Cooperative, Inc. v.

Department of Environmental Protection, 985 So. 2d 615 (Fla. 5th DCA 2008), in

which the Fifth District set aside agency action that disregarded a stipulated

evidentiary record and proposed order with sparse explanation. Specifically, “the

order did not acknowledge or mention the systematic analysis in DEP’s Staff

Analysis Report, the other agency reports, the PSC’s Determination of Need, other

portions of the extensive stipulated record, or the detailed findings of fact set forth

in the statutorily authorized stipulated proposed final order.” Id. at 621. In setting

aside the order, the Seminole Electric court rearticulated the principles of general

law that had been codified in a statute requiring compliance with stipulations in the

Electrical Power Plant Siting Act context:

             As a general rule, and absent a showing of fraud,
      misrepresentation or mistake, stipulations are binding on the parties
      who enter them, including administrative agencies participating in
      administrative proceedings and the courts. See, e.g., Gunn Plumbing,
      Inc. v. Dania Bank, 252 So. 2d 1, 4 (Fla. 1971); McGoey v. State, 736
So. 2d 31 (Fla. 3rd DCA 1999); EGYB, Inc. v. First Union Nat’l Bank
      of Fla., 630 So. 2d 1216 (Fla. 5th DCA 1994); Sunshine Utils. of
      Central Fla., Inc. v. Florida Public Serv. Comm’n, 624 So. 2d 306,

                                         - 15 -
      310 (Fla. 1st DCA 1993); Sanders v. Bureau of Crimes Comp., 474
So. 2d 410, 411 (Fla. 5th DCA 1985); see also Doyle v. Dep’t of Bus.
      Regulation, 794 So. 2d 686, 692 (Fla. 1st DCA 2001) (an agency’s
      stipulation in an administrative proceeding cannot be “simply set
      aside as not supported by evidence” by the agency head in a final
      order). Consistent with this general law, the Siting Act now expressly
      authorizes the parties in a Siting Act case to proceed by stipulation
      when no issues are contested and requires the Secretary to “act upon
      . . . the stipulation of the parties . . . .”

Id. at 621-22 (quoting § 403.509(1)(a), Fla. Stat. (2006)).

      Other contexts in which an agency has insufficiently addressed its action

include orders ignoring precedent on point, binding letters resulting from informal

proceedings, and deviations from recommended penalties. See, e.g., Nordheim v.

Dep’t of Envtl. Prot., 719 So. 2d 1212, 1214 (Fla. 3d DCA 1998) (holding that

agency’s failure to consider its own precedent was an abuse of agency discretion

that was “inconsistent with officially stated agency policy or a prior agency

practice,” not explained by the agency, and in violation of section 120.68(6)(e)3.,

Florida Statutes); Gen. Dev. Corp. v. Div. of State Planning, 353 So. 2d 1199,

1210-11 (Fla. 1st DCA 1977) (extending McDonald rule to binding letters obtained

after informal proceedings and remanding for further explanation of the agency’s

decision); see also, e.g., Cartaya v. Dep’t of Bus. & Prof’l Reg., 919 So. 2d 611

(Fla. 3d DCA 2006) (remanding for further explanation the Real Estate Appraisal

Board’s acceptance of administrative law judge’s findings of fact but rejection of

                                        - 16 -
recommended penalty without any explanation as required by section 120.57(1)(l),

Florida Statutes).

      Applying those principles, we find first the Commission departed from the

essential requirements of law here by acknowledging OPC’s contention that the

settlement agreement applied, but failing to address the terms of the settlement in

its analysis. Specifically, in its final order the Commission recognized that OPC

had raised the settlement agreement:

             However, OPC [and the other objecting parties] all take the
      position that the rate case stipulation and settlement agreement
      entered into between OPC and FPUC on August 29, 2014 and
      approved by this Commission in Order No. PSC-14-0517-S-EI, issued
      on September 29, 2014, prohibits the recovery of costs associated with
      the FPL interconnection through the fuel clause.

Order Below, No. PSC-15-0586-F0F-EI, at 11-12 (footnote omitted) (record

citation omitted). The order then went on to quote the same paragraph of the

settlement agreement upon which OPC bases its claim. See id. at 12.

      However, despite introducing the settlement agreement issue, the order did

not perform any analysis of the settlement agreement issue with regard to the

transmission interconnection project. See generally id. at 12-16. Instead, the

Commission skipped to the merits of the fuel clause recovery rather than

addressing whether the specific terms of the settlement agreement precluded such a

recovery. See id. at 15. Specifically, the order only analyzed the enhanced

                                       - 17 -
reliability, enhanced negotiation posture, and effect of future, non-

contemporaneous savings that would result. See id.

      Strangely, the Commission did analyze the settlement agreement in detail

with regard to the separately requested consulting and legal fees that were

expended in connection with the transmission interconnection project:

             OPC argued that the settlement agreement precludes FPUC
      from seeking recovery in the fuel clause of its legal and consulting
      fees as does Order No. 14546. It is OPC’s position that FPUC is
      barred from seeking recovery in the fuel clause for the cost of types or
      categories that have traditionally and historically been recovered
      through FPUC’s base rates. In addition, OPC argued that the base rate
      freeze provision in the settlement agreement also prohibits FPUC
      from recovering these costs through cost recovery clauses.

             OPC contended that consulting and legal generation-related
      costs have traditionally and historically been recovered through base
      rates for both FPUC and other electric utilities. OPC acknowledged
      that FPUC was allowed recovery through the fuel clause of its legal
      and consulting fees associated with the issuance and evaluation of
      RFPs for purchased power agreements. However, it is OPC’s
      contention that generic legal and consulting activities have not been
      specifically identified and allowed to be recovered through the fuel
      clause.
             ....
             As the starting point of our analysis, we disagree with OPC that
      FPUC has not “traditionally and historically” recovered consulting
      and legal fees through the fuel clause. In Docket Nos. 060001-EI,
      070001-EI, 080001-EI, 090001-EI, 10001-EI, 110001-EI, 120001-EI,
      130001-EI, and 140001-EI, legal and consulting fees associated with
      fuel-related work were included in FPUC’s true-up filings which we
      approved without objection. Further, in Order No. PSC-05-1252, we
      approved the recovery of fees for Christensen and Associates related
      to the preparation and evaluation of a RFP for purchased power for its
      Northwest Division. In Order No. PSC-05-1252, we cited the fact that
      FPUC was a small, non-generating, investor-owned electric utility that

                                        - 18 -
      did not have the resources internally to prepare an RFP and evaluate
      responses. Because FPUC has “traditionally and historically”
      recovered these types of costs through the fuel clause, we find that the
      terms of the settlement agreement do not apply and do not prohibit
      recovery through the fuel clause at this time.

Id. at 13-14 (footnotes omitted). Thus, the Commission’s consideration and

specific discussion of the settlement agreement as applied to one set of costs but

not the other major request is bewildering at best.

      Having determined that the Commission failed to perform its duty to explain

its reasoning, we reach a juncture at which we may remand the issue to the agency

or simply resolve the entire matter. See § 120.68(6)(a), Fla. Stat. (“The court may:

1. Order agency action required by law; order agency exercise of discretion when

required by law; set aside agency action; remand the case for further agency

proceedings; or decide the rights, privileges, obligations, requirements, or

procedures at issue between the parties; and 2. Order such ancillary relief as the

court finds necessary to redress the effects of official action wrongfully taken or

withheld.”). Due to the pure legal questions presented, we elect to resolve this

matter today.

      We begin by recognizing that the term “fuel clause” is a misnomer because

the fuel clause is not a particular provision, but rather “a regulatory tool designed

to pass through to utility customers the costs associated with fuel purchases.” In re

Petition by Fla. Power & Light Co. to Recover Scherer Unit 4 Turbine Upgrade

                                        - 19 -
Costs Through Envtl. Cost Recovery Clause or Fuel Cost Recovery Clause

(Scherer Unit 4), No. PSC-11-0080-PAA-EI, at 6, 2011 WL 339538 (Fla. P.S.C.

Jan. 31, 2011). Its purpose “is to prevent regulatory lag . . . [which] has

historically been a problem for utilities because of the volatility of fuel costs.” Id.

As the Commission has further recognized, regulatory lag “is not as much of a

problem, however, when expenses, such as capital improvements, and operations

and management costs, can be planned for and included in base rate calculations.”

Id. (emphasis added). The dissent ignores this important aspect. Nevertheless, the

Commission has on occasion allowed recovery of some capital type costs through

the fuel clause. In 2011, the Commission issued Scherer Unit 4 in which it

recounted the fuel clause’s purpose and application with regard to capital costs:

              In 1985, we amended the fuel clause process to better describe
      those items that would be recoverable under the fuel clause. Prior to
      the August 1985 fuel hearing, we instructed the parties and our staff to
      “provide information necessary for the Commission to be able to
      consider at the August 1985 fuel adjustment hearing whether the
      utilities were passing appropriate fixed and variable costs associated
      with fuel receipts through their fuel adjustment clauses.” Order No.
      14546 approved a stipulation between OPC, FPL, TECO, Gulf, and
      FPC (now PEF) after a workshop exploring the issue. The policy
      outlined in Order No. 14546 consisted of two essential points
      regarding the scope and application of the fuel adjustment clause:

             1. When similar circumstances exist, the Commission
             should attempt to treat, for cost recovery purposes,
             specific types of fossil fuel-related expenses in a uniform
             manner among the various electric utilities. At times,
             however, it may be appropriate to treat similar types of
             expenses in dissimilar ways.

                                         - 20 -
      2. Prudently incurred fossil fuel-related expenses which
      are subject to volatile changes should be recovered
      through an electric utility’s fuel adjustment clause. The
      volatility of fossil fuel-related costs may be due to a
      number of factors including, but not necessarily limited
      to: price, quantity, number of deliveries, and distance.
      Except as noted below, these volatile fossil fuel-related
      charges are incurred by the utility for goods obtained or
      services provided prior to the delivery of fuel to the
      electric utility’s dedicated storage facilities. (Dedicated
      storage facilities mean storage facilities which are used
      solely to serve the affected electric utility.) All other
      fossil fuel-related costs should be recovered through base
      rates.

       Order 14546 then discussed the parties’ specific applications of
the articulated policy, including, for example, the description of
“invoiced fuel charges.” It was determined that invoiced fuel charges
should include all price revisions and adjustments relating to volume
and quality of fuel. After discussing several specific applications of
the policy, the parties agreed that our policy on fuel clause recovery
should be flexible enough to cover some items that would normally go
through base rates, and we approved that position. We discussed this
fuel clause exception to base rate recovery as follows:

      In addition to stipulating to the foregoing applications of
      policy, the parties also recommended to the Commission
      that the policy it adopts be flexible enough to allow for
      recovery through fuel adjustment clauses of expenses
      normally recovered through base rates when utilities are
      in a position to take advantage of a cost-effective
      transaction, the costs of which were not recognized or
      anticipated in the level of costs used to establish the
      utility’s base rates. One example raised was the cost of
      an unanticipated short-term lease of a terminal to allow a
      utility to receive a shipment of low cost oil. The parties
      suggest that this flexibility is appropriate to encourage
      utilities to take advantage of short-term opportunities not
      reasonably anticipated or projected for base rate

                                 - 21 -
      recovery. In these instances, we will require that the
      affected utility shall bring the matter before the
      Commission at the first available fuel adjustment hearing
      and request cost recovery through the fuel adjustment
      clause on a case by case basis. The Commission shall
      rule on the appropriate method of cost recovery based
      upon the merits of each individual case.

       In Order No. 14546 we approved the stipulation of the parties
and adopted them as our own. We found that the stipulated provisions
(including the fuel clause exception to base rate recovery), were an
appropriate extension of the policy established by Order No. 6357.
As a result of the policy determinations, we made two lists. One list
included charges properly considered in the computation of the
average inventory price of fuel. The other list contained items that
were more appropriately considered in the determination of base rates.
It should be noted that each item on the lists was a shortened reference
to the detailed description of the types of costs discussed earlier in the
Order.
       ....
       As Order No. 14546 states, recovery may be allowed for:

      Fossil fuel-related costs normally recovered through base
      rates but which were not recognized or anticipated in the
      cost levels used to determine current base rates and
      which, if expended, will result in fuel savings to
      customers. Recovery of such costs should be made on a
      case by case basis after Commission approval.

We find that the appropriate interpretation of this section of Order No.
14546 is that capital projects eligible for cost recovery through the
Fuel Clause should produce fuel savings based on lowering the
delivered price of fossil fuel, or otherwise result in burning lower
price fuel at the plant. We note that the order discusses a “cost
effective transaction,” and gives as an example, “the cost of an
unanticipated short-term lease of a terminal, to allow a utility to
receive a shipment of low cost oil.” (Order No. 14546, p. 3) This
example clearly connects fuel savings to a project that lowers the
delivered price of fossil fuel (i.e., the input price). Similarly, in Order
No. PSC-95-1089-FOF-EI, issued on September 5, 1995, we approved

                                  - 22 -
      FPL’s purchase of 462 high capacity aluminum rail cars for delivery
      of coal to Plant Scherer, a capital project that lowered the delivered
      price of fuel. The purchase of the rail cars enabled FPL to obtain
      favorable transportation rate savings from railroad companies that
      exceeded the recoverable cost of the purchase. That capital
      investment provided FPL customers an estimated $24 million in fuel
      savings, in the form of reduced fuel costs to FPL’s customers, by
      lowering the delivered price, or input price, of coal.

Id. at 6-9 (footnotes omitted).

      With the purpose of the fuel clause in mind, we conclude that the

Commission erred as a matter of law in determining that the construction type

costs associated with the actual construction of the physical structure for the

transmission interconnection are recoverable through the fuel clause pursuant to

Order No. 14546. Unlike the dissent, if we were to allow recovery of these capital

construction costs through the fuel clause simply because they may result in

savings and are loosely linked to fuel and purchased power through transmission

lines, the fuel clause exception would finally totally swallow whole the rule that

capital costs should be recovered through base rates because they can be subject to

adequate planning.

      Indeed, in this very case the testimony of FPUC witnesses suggested that

FPUC simply chose to pursue recovery through the fuel clause as a matter of

convenience, rather than any necessity borne of unforeseen volatility. Moreover,

tellingly, FPUC had always recovered costs for transmission assets through base

rates on prior occasions. Only after a settlement agreement freezing base rates was

                                        - 23 -
in place did FPUC for the first time seek to recover transmission asset capital

construction costs through the fuel clause.

      We do not believe that the fuel clause is an end-all-be-all of cost recovery,

but rather its history suggests its use should be limited to facilitating recovery of

costs related to fuel and power purchases that are volatile, rendering them less than

ideal for a base rates case. Today’s case is certainly not the first example of

utilities seeking to recover for items that are more properly base rate costs through

the fuel clause in a practice that has become alarmingly frequent. Just recently we

reexamined the contours of the fuel clause in reversing a commission order

approving cost recovery of “ ‘exploration expense, depletion expense, operating

expenses, G & A, taxes, transportation costs and a return on the unrecovered

investment, including working capital’ for investments in the exploration, drilling,

and production of natural gas in the Woodford Shale Gas Region in Oklahoma.”

Citizens of State v. Graham, 191 So. 3d 897, 899 (Fla. 2016). The project was

characterized as “a long-term physical hedge.” Id. at 901. In that case we

reaffirmed the purpose of the fuel clause as a mechanism for addressing the

volatility of fuel prices between ratemaking proceedings:

            The fuel cost adjustment clause is a cash flow mechanism to
      allow utilities to recover costs for unanticipated changes in fuel costs
      between ratemaking proceedings. See Gulf Power Co.[ v. Fla. Pub.
      Serv. Comm’n, 487 So. 2d [1036, 1037 (Fla. 1986)] (“Fuel adjustment
      charges are authorized to compensate for utilities’ fluctuating fuel
      expenses. The fuel adjustment proceeding is a continuous proceeding

                                         - 24 -
      and operates to a utility’s benefit by eliminating regulatory lag.”).
      The mechanism also permits utilities to recover actual costs of
      financial derivatives and physical hedges that help prevent price
      shocks from volatile fuel costs. However, regulated utilities through
      the fuel clause do not earn a return on money spent to purchase fuel.
      Likewise, while the costs of hedging contracts are pass-through costs,
      utilities through the fuel clause do not earn a return on the cost of
      hedging positions purchased.

Id. at 901. We rejected the “long-term physical hedge” characterization,

concluding that the project was rather a “guaranteed capital investment,” and

therefore, rejected recovery through the fuel clause:

             Permitting advance recovery of FPL’s investment in the
      Woodford Project’s exploration and production of natural gas will not
      pay for the costs of actual fuel. It will provide recovery, instead, for
      investment, operation, and maintenance and operation of assets that
      will provide access to an unknown quantity of fuel in the future. It is
      impossible to know what the costs of the natural gas will be until it is
      actually produced. There is more uncertainty from this investment
      rather than less. Therefore, it cannot be characterized as a physical
      hedge.
             ...
      The monies spent on the Woodford Project are not a mere pass-
      through, like other fuel expenses, because FPL will earn a return on its
      capital expenditures. Accordingly, the Woodford Project is a
      guaranteed capital investment for FPL; it is not a hedge to stabilize
      fuel costs.

Id. at 902. Ultimately, we concluded that recovery through the fuel clause was

“overreach.” Id. The dissent would reach back to invalidate this reasoning and

overturn its substance.

      Similarly, the Commission once approved recovery of security infrastructure

costs through the fuel clause. However, recognizing its overreach, the

                                        - 25 -
Commission correctly proceeded to repudiate that decision in Scherer Unit 4, a

later fuel clause proceeding, noting that it was “a unique circumstance.” Scherer

Unit 4, No. PSC-11-0080-PAA-EI, at 9, 2011 WL 339538. The Commission went

on to explain that “we believe the appropriate policy going forward is to restrict

capital project cost recovery through the Fuel Clause to projects that are ‘fossil

fuel-related’ and that lower the delivered price, or input price, of fossil fuel.” Id. at

10. While that statement of the policy going forward in 2011 was a step in the

right direction, this case and the hedging case both exemplify why the fuel clause

proceedings must comport with serving their historical purpose of adjusting for

volatile costs associated with fuel.4 We cannot support the dissent’s attempt to roll

back the policy to that expressed in a 1974 order.

      For this reason, we believe that the settlement agreement in this case,

approved by the Commission and incorporated by reference, more precisely

reflects the Commission’s fuel policy with regard to the delineation of those capital

      4. We also note that FPUC has referred us to the other fuel clause
proceedings in which the Commission approved recovery of capital costs, such as
the purchase of rail cars for the delivery of coal as noted above. While some of
those circumstances may present close calls with regard to the appropriateness of
recovery through fuel clause proceedings, certainly the costs associated with
construction of brick and mortar facilities, installation of transmission lines, and
other machinery intended to be used in perpetuity, all of which are subject to
rigorous planning, present a decisively inappropriate basis for recovery of costs
through fuel clause proceedings.

                                         - 26 -
costs recoverable through base rates and those recoverable through fuel clause

proceedings. The relevant provision of the settlement agreement provides:

      VI. Other Cost Recovery

             Nothing in this agreement shall preclude the Company from
      requesting the Commission to approve the recovery of costs that are:
      (a) of a type which traditionally and historically would be, have been,
      or are presently recovered through cost recovery clauses or
      surcharges, or (b) incremental costs not currently recovered in base
      rates which the Legislature or Commission determines are clause
      recoverable subsequent to the approval of this settlement. Except as
      provided in this Agreement, it is the intent of the Parties in this
      Paragraph VI that FPUC not be allowed to recover through cost
      recovery clauses increases in the magnitude of costs, incurred after
      implementation of the new base rates, of types or categories
      (including but not limited to, for example, investment in and
      maintenance of transmission assets) that have been traditionally and
      historically recovered through FPUC’s base rates.

      Thus, in accord with the historical purpose of the fuel clause proceedings,

the plain language of the settlement agreement specifically prohibits FPUC from

recovering through cost recovery clauses an increase in costs related to investments

in transmission assets: “Except as provided in this Agreement, it is the intent of the

Parties . . . that FPUC not be allowed to recover through cost recovery clauses

increases in the magnitude of costs, incurred after implementation of the new base

rates, of types or categories (including but not limited to, for example, investment

in and maintenance of transmission assets) that have been traditionally and

historically recovered through FPUC’s base rates.” (Emphasis added.) The

evidence in the record plainly supports the notion that the costs at issue here are

                                        - 27 -
“investment in . . . transmission assets” as the interrogatories and testimony of

FPUC’s witnesses demonstrate that the entire expense is related to construction of

structures. Furthermore, although FPL is the entity constructing the structures,

FPUC will be actually paying for and reimbursing FPL and retaining all ownership

and responsibilities over the structures. FPUC’s testimony further indicated that

FPUC plans to recover future costs associated with this project through base rates.

Consistent with that intention, an FPUC witness testified that FPUC does not

currently recover its own transmission costs through the fuel clause. The dissent

conflates the types and categories of costs with the amount of costs.

      Moreover, the contrary understandings of the settlement agreement are not

persuasive. First, FPUC contends that recovery of the transmission

interconnection costs is authorized by the sentence immediately preceding the one

prohibiting such a recovery. That sentence provides:

             Nothing in this agreement shall preclude the Company from
      requesting the Commission to approve the recovery of costs that are:
      (a) of a type which traditionally and historically would be, have been,
      or are presently recovered through cost recovery clauses or
      surcharges, or (b) incremental costs not currently recovered in base
      rates which the Legislature or Commission determines are clause
      recoverable subsequent to the approval of this settlement.

As previously explained, an FPUC witness testified that FPUC does not currently

recover its own transmission costs through the fuel clause. Similarly, Commission

                                        - 28 -
staff concluded in its memorandum that transmission interconnection costs are not

historically or traditionally recovered through the fuel clause:

             First, the only transmission costs that FPUC has historically
      recovered through the fuel clause are those of JEA and Gulf Power
      embedded in its current wholesale power purchase agreements with
      both parties. None of FPUC’s own transmission costs have ever been
      recovered through the fuel clause. Nor have any other [investor-
      owned utility] transmission costs been “historically” or “traditionally”
      recovered through the fuel clause. It should also be noted here that
      one of the benefits of the FPL interconnection testified to by witness
      Cutshaw is that the interconnection will significantly improve the
      reliability of service to Amelia Island. However, capital
      improvements to enhance service reliability have neither
      “historically” nor “traditionally” been recovered through the fuel
      clause.

(Record citations omitted.) Furthermore, the contention that the recovery sought is

of the type historically and traditionally recovered through the fuel clause is belied

by the Commission’s own discussions of prior capital cost recoveries through the

fuel clause as “case by case” and its subsequent labeling of that process as the “fuel

clause exception to base rate recovery.” Scherer Unit 4, No. PSC-11-0080-PAA-

EI, at 7 (emphasis added). Indeed, the Commission in its brief indicates that this

clause applies to expenses as a flexibility valve for costs “normally recovered

through base rates.” For the same reasons, we cannot agree that the costs at issue

constitute “incremental costs not currently recovered in base rates.”

      Second, the Commission’s contention that the settlement agreement no

longer applies because FPUC’s earnings fell below 9.25% also appears to be a

                                        - 29 -
misreading of the settlement agreement’s plain language. This contention fails

because, as we have explained, the settlement agreement merely reflects the correct

application of the Commission’s fuel clause policy. Moreover, the contention

similarly fails as a matter of contract. While it is true that the record indicates

FPUC’s earned return on equity fell to 4.79%, the settlement agreement did not

necessarily become void upon that reduction in earnings, but merely allowed

FPUC to file a base rate case earlier than agreed upon by the parties to the

settlement:

             Notwithstanding Paragraph II-Return on Equity and Equity
      Ratio, the Parties agree that, in the event that [FPUC’s] earned return
      on common equity falls below 9.25% during the Term on an FPUC
      earnings surveillance report stated on a thirteen-month average actual
      Commission adjusted basis, [FPUC] may file a Petition for Rate
      Increase with the Commission.

(Emphasis added.) In this case, FPUC has not filed for a base rate increase, but has

instead pursued recovering the costs for the transmission interconnect through a

fuel clause proceeding. The dissent would simply open the door to continuous

requests for additional money under the fuel adjustment clause.

      Therefore, the contrary understandings of the settlement agreement’s

language both lack persuasion and overlook the fact that the settlement agreement

                                         - 30 -
merely rearticulates in a more accurate manner the existing Commission fuel

clause policy.5

                                   CONCLUSION

         Therefore, ultimately, we reverse the order below on several grounds. First,

we hold that the Commission departed from the essential requirements of law by

failing to properly consider and address the settlement agreement with regard to

FPUC’s petition for the recovery of costs associated with the transmission

interconnection project. Second, we hold that the Commission erred in concluding

that such construction capital expenditures are capable of recovery through fuel

clause proceedings. Finally, we hold that the settlement agreement did apply in

this case and prohibited FPUC from petitioning the Commission for recovery of

those costs through the fuel clause proceedings. We therefore reverse the order

below and remand for the entry of an order dismissing and denying FPUC’s

petition for fuel adjustment recovery for the FPL transmission interconnection

costs.

         It is so ordered.

       5. The Commission also contended that the settlement agreement could not
be raised in this case because it provides that “[t]he Parties further agree that this
Agreement shall have no precedential value in any proceeding before the
Commission nor shall any Party assert same.” However, as discussed above, in
relevant part the settlement agreement did nothing more than rearticulate existing
fuel policy concerning recovery of capital costs.

                                         - 31 -
LABARGA, C.J., and PARIENTE, and QUINCE, JJ., concur.
POLSTON, J., concurs in result.
CANADY, J., dissents with an opinion.
LAWSON, J., did not participate.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.

CANADY, J., dissenting.

      Because I disagree with the majority’s interpretation of the settlement

agreement as prohibiting FPUC from recovering the costs of the FPL

interconnection through the fuel clause, and I would conclude that competent,

substantial evidence supports the Commission’s determination that the costs of the

FPL interconnection may be recovered through the fuel clause, I dissent.

      The settlement agreement entered into by FPUC and OPC, and approved by

the Commission, provides, in pertinent part:

      Except as provided in this Agreement, it is the intent of the Parties . . .
      that FPUC not be allowed to recover through cost recovery clauses
      increases in the magnitude of costs, incurred after implementation of
      the new base rates, of types or categories (including but not limited to,
      for example, investment in and maintenance of transmission assets)
      that have been traditionally and historically recovered through
      FPUC’s base rates.

In re Fuel & Purchased Power Cost Recovery Clause with Generating Performance

Incentive Factor, Order No. PSC-15-0586-FOF-EI at 12, 2015 WL 9450334 (Fla.

P.S.C. Dec. 23, 2015). The majority incorrectly concludes that this language

“specifically prohibits FPUC from recovering through cost recovery clauses an

                                        - 32 -
increase in costs related to investments in transmission assets,” such as the FPL

interconnection. Majority op. at 27.

      The majority erroneously reads the phrase “increases in the magnitude of

costs” to mean “additional costs.” Contrary to the majority’s interpretation, the

plain language of the agreement does not prohibit the recovery of “an increase in

costs related to investments in transmission assets.” Instead, the agreement

prohibits “increases in the magnitude of costs”—that is, an increase in the amount

of those costs already existing at the time the settlement agreement was adopted.

Thus, while the agreement prohibits cost recovery through the fuel clause for

increases in the magnitude of costs that are already being recovered through

FPUC’s base rates—such as enhancement, modification, or maintenance of

transmission assets accounted for in the base rates—it does not prohibit cost

recovery through the fuel clause of entirely new costs related to investments in

transmission assets, such as the FPL interconnection. Since the costs of the FPL

interconnection are not included in FPUC’s base rates, these costs do not constitute

an “increase in the magnitude of costs” for an asset already being recovered

through base rates but rather an entirely new cost. We must avoid an interpretation

of the agreement that would render the words “magnitude of” superfluous. See

Equity Lifestyle Props., Inc. v. Fla. Mowing and Landscape Serv., Inc., 556 F.3d
1232, 1242 (11th Cir. 2009) (“We must read the contract to give meaning to each

                                       - 33 -
and every word it contains, and we avoid treating a word as redundant or mere

surplusage ‘if any meaning, reasonable and consistent with other parts, can be

given to it.’ ” (quoting Roberts v. Sarros, 920 So. 2d 193, 196 (Fla. 2d DCA 2006))

(applying Florida law).

      I also disagree with the majority’s conclusion “that the Commission erred as

a matter of law in determining that the construction type costs associated with the

actual construction of the physical structure for the [FPL] interconnection are

recoverable through the fuel clause pursuant to Order No. 14546.” Majority op. at

23. The Commission allows for purchased-power costs to be recovered through

the fuel clause based upon its finding that “[p]urchased power is nothing more than

a substitute for power generated.” In re Gen. Investigation of Fuel Adjustment

Clauses of Elec. Cos., Order No. 6357 at 7, 1974 WL 331861 (Fla. P.S.C. Nov. 26,

1974).

      In Order No. 14546, the Commission stated that its policy for allowing cost

recovery through the fuel clause should

      be flexible enough to allow for recovery through fuel adjustment
      clauses of expenses normally recovered through base rates when
      utilities are in a position to take advantage of a cost-effective
      transaction, the costs of which were not recognized or anticipated in
      the level of costs used to establish the utility’s base rates.

In re Cost Recovery Methods for Fuel-Related Expenses, Order No. 14546, 85

F.P.S.C. 7:67, 7:69, 1985 WL 1090146 (Fla. P.S.C. July 8, 1985). Also in Order

                                       - 34 -
No. 14546, the Commission enumerated ten fuel-related cost items that are

properly considered for recovery through the fuel clause, the tenth of which applies

to the costs of the FPL interconnection:

      10. Fossil fuel-related costs normally recovered through base rates
      but which were not recognized or anticipated in the cost levels used to
      determine current base rates and which, if expended, will result in fuel
      savings to customers. Recovery of such costs should be made on a
      case by case basis after Commission approval.

Id. at 7:71. The Commission has since identified this tenth enumerated fuel-related

cost item as the “fuel clause exception to base rate recovery.” In re Petition by Fla.

Power & Light Co. to Recover Scherer Unit 4 Turbine Upgrade Costs Through

Envtl. Cost Recovery Clause or Fuel Cost Recovery Clause, Order No. PSC-11-

0080-PAA-EI at 7, 2011 WL 339538 (Fla. P.S.C. Jan. 31, 2011).

      In the order on appeal, the Commission cited to previous orders in which it

applied the “fuel clause exception to base rate recovery” to various proposed base

rate capital costs for which recovery through the fuel clause was requested. In re

Fuel & Purchased Power Cost Recovery Clause with Generating Performance

Incentive Factor, Order No. PSC-15-0586-FOF-EI at 11 & n.11, 2015 WL
9450334 (Fla. P.S.C. Dec. 23, 2015); id. at 11 n.11 (citing, e.g., In re Petition to

Recover Capital Costs of Polk Fuel Cost Reduction Project Through the Fuel Cost

Recovery Clause, by Tampa Elec. Co., Order No. PSC-12-0498-PAA-EI, 2012
WL 4482022 (Fla. P.S.C. Sept. 27, 2012) (granting in part and denying in part

                                         - 35 -
recovery through the fuel clause of certain capital project costs to convert a power

plant from oil- and propane-fired to natural gas upon finding that the project will

produce fuel savings by burning a lower priced fossil fuel); In re Petition for

Prudence Determination Regarding New Pipeline Sys. by Fla. Power & Light Co.,

Order No. PSC-13-0505-PAA-EI, 2013 WL 5870547 (Fla. P.S.C. Oct. 28, 2013)

(approving recovery through the fuel clause of certain long-term transportation

contracts for the delivery of natural gas through a new pipeline system upon

finding that the contracts were projected to save up to $450 million over the term

of the contracts when compared to the next most cost-effective proposal)).

      Further, the Commission received evidence establishing that the FPL

interconnection will directly benefit FPUC’s customers by providing an estimated

$2.3 million in savings in future purchased-power costs and that the costs

associated with the FPL interconnection project were not anticipated and have not

been recovered in FPUC’s base rates. Thus, the Commission did not err as a

matter of law in allowing FPUC to recover the costs of the FPL interconnection

through the fuel clause, and there is competent, substantial evidence in the record

to support the Commission’s determination that allowing cost recovery for the

interconnection through the fuel clause comports with the Commission’s existing

policy under the “fuel clause exception to base rate recovery.” I therefore would

affirm the Commission’s order.

                                        - 36 -
An Appeal from the Florida Public Service Commission

J.R. Kelly, Public Counsel, Charles J. Rehwinkel, Deputy Public Counsel, Patricia
A. Christensen, Associate Public Counsel, and Stephanie A. Morse, Associate
Public Counsel, Office of Public Counsel, Tallahassee, Florida,

      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

Kenneth B. Bell, Mary E. Keating, and Lauren V. Purdy of Gunster, Yoakley &
Stewart, P.A., Tallahassee, Florida,

      for Appellee Florida Public Utilities Company

                                      - 37 -