This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h0821a.ECC
DATE: 3/20/2023
HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 821 Renewable Energy Cost Recovery
SPONSOR(S): Yeager
TIED BILLS: IDEN./SIM. BILLS: SB 1162
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Energy, Communications & Cybersecurity
Subcommittee
Walsh Keating
2) State Administration & Technology
Appropriations Subcommittee
3) Commerce Committee
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.
Currently, the fuel required by public utilities to provide service in Florida is purchased from competitive
providers in an open market. These purchases, if deemed prudent by the PSC, are passed through to utility
customers with no markup for profit to the utility. With one exception for a pilot project, public utility investments
in fuel production projects are not included in the rates of electric or natural gas public utilities.
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 allows electric and natural gas public utilities to recover through rates:
The costs of contracts for the purchase of RNG and hydrogen, with pricing above the current market
value of natural gas, if the PSC finds that the contract promotes the development or use of renewable
energy resources in the state and provides fuel diversification.
Prudently-incurred costs for RNG and hydrogen fuel infrastructure projects, including but not limited to:
o Capital investment in projects necessary to prepare or produce RNG and hydrogen fuel for
pipeline distribution and usage;
o Capital investment in facilities, including pipelines, necessary to inject and deliver RNG and
hydrogen fuel throughout this state;
o RNG and hydrogen fuel storage facilities;
o Operation and maintenance expenses associated with any such RNG and hydrogen fuel
infrastructure projects; and
o An appropriate return on investment consistent with the return allowed for other utility plants
used to provide service to customers.
The bill provides for cost recovery of prudent infrastructure project costs through an appropriate mechanism
administered by the PSC.
The bill does not appear to impact state or local government revenues or expenses.
The bill provides an effective date of July 1, 2023.
STORAGE NAME: h0821a.ECC PAGE: 2
DATE: 3/20/2023
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.
1
See, 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” procedure. 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: h0821a.ECC PAGE: 3
DATE: 3/20/2023
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.
Currently, the fuel required by public utilities to provide service in Florida is purchased from competitive
providers in an open market. As noted above, public utilities recover their fuel costs through one of two
mechanisms; electric public utilities recover their fuel costs through fuel and purchased power cost
recovery charges, and natural gas public utilities recover their wholesale natural gas costs through
purchased gas adjustment charges. The PSC determines the prudence of a utility’s fuel costs largely
by determining whether the utility contracted for fuel on reasonable terms based on what was known or
should have been known by purchasers in the market at that time. These costs are passed through to
utility customers with no markup for profit to the utility.
With one exception, public utility investments in fuel production projects are not included in the rates of
electric or natural gas public utilities. In 2021, the PSC approved a comprehensive Stipulation and
Settlement Agreement to resolve a pending proceeding to set base rates for Florida Power & Light
Company (FPL). Among other things, the settlement authorized FPL to implement a “Green Hydrogen”
7
pilot project to evaluate how its combustion turbine units operate with a hydrogen fuel mix and learn
how a hydrogen fuel production facility can be effectively used on-site with combustion turbine units.
The project uses energy from a solar-powered facility to convert water into green hydrogen through
electrolysis, which will then be burned as fuel in a nearby FPL natural-gas powered generator. The
settlement allowed FPL to include in its base rates estimated costs of $65 million for the project.
8
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.
9
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.
10
Hydrogen
Hydrogen can be produced using a process called electrolysis, which splits water into hydrogen and
oxygen.
11
When renewable energy is used as the source of electricity to power an electrolyzer,
12
the
resulting hydrogen can result in zero greenhouse gas emissions
13
and is referred to as green hydrogen.
Electrolyzers range in size, varying from small appliance-sized units to larger-scale central production
facilities that can be tied directly to renewable forms of electricity production to power the unit.
14
6
Ss. 366.041(1) and 366.06(1), F.S.
7
See Hydrogen, below.
8
Order No. PSC -2021-0446-S-EI, issued December 2, 2021, in PSC Docket No. 20210015.
9
S. 366.91, F.S.
10
S. 366.91(2)(e), F.S. The term also includes waste heat from sulfuric acid manufacturing operations and electrical energy produced
using pipeline-quality synthetic gas produced from waste petroleum coke with carbon capture and sequestration.
11
Id.
12
The process of electrolysis uses an electrolyzer, which is a system that uses electricity to break water into hydrogen and oxygen.
Cummins, Inc., Electrolyzers 101: What They Are, How They Work, and Where They fit in a Green Economy,
https://www.cummins.com/news/2020/11/16/electrolyzers-101-what-they-are-how-they-work-and-where-they-fit-green-economy (last
visited Mar. 18, 2023).
13
Office of Energy Efficiency & Renewable Energy, Hydrogen Production: Electrolysis, U.S. Department of Energy,
https://www.energy.gov/eere/fuelcells/hydrogen-production-electrolysis (last visited Mar. 18, 2023).
14
Id. STORAGE NAME: h0821a.ECC PAGE: 4
DATE: 3/20/2023
Some alternative methods of producing hydrogen, mainly grey hydrogen
15
and blue hydrogen,
16
use
methane or coal to power the production process.
17
Another alternative method of producing hydrogen,
turquoise hydrogen, uses methane through the process of pyrolysis, which creates a reaction to
generate hydrogen and solid carbon, which means that there are no carbon dioxide emissions
associated with the reaction.
18, 19
The vast majority of hydrogen is currently produced using fossil fuels, mostly natural gas. Overall, less
than 0.7% of current hydrogen production utilizes renewable energy.
20
The production cost of green
hydrogen must significantly decrease for it to be competitive with more mature carbon-based pathways
of energy production.
21
In 2022, the Legislature created a sales tax exemption for the purchase of
certain machinery and equipment used in the production and handling of green hydrogen.
22
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.
23
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 authorizes 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.
24
The law does not indicate what the PSC must consider in determining the reasonableness and
prudence of an above-market RNG purchase.
15
Grey hydrogen is traditionally produced from methane that is split with steam into carbon dioxide and hydrogen.
16
Blue hydrogen production follows the same process as grey hydrogen production, but also includes the technology necessary to
capture the carbon dioxide produced when hydrogen is split from methane.
17
Despite the colorful names used for the different ways hydrogen is produced, the gas itself is invisible to the human eye. National
Grid, Energy Explained – Hydrogen Colour Spectrum, https://www.nationalgrid.com/stories/energy-explained/hydrogen-colour-spectrum
(last visited Mar. 19, 2023)
18
Rachel Meidl & Kenneth Medlock, The Advanced Carbon Economy: A Sustainable Hydrogen Pathway, Rice University’s Baker
Institute for Public Policy, Jun. 22, 2021, p. 3, available at https://www.bakerinstitute.org/media/files/files/ec39c09c/bi-brief-062221-ces-
carbonecon-4.pdf (last visited Mar. 18, 2023).
19
When utilizing pyrolysis to produce turquoise hydrogen, the reaction does produce a solid carbon by-product that can be used in
applications ranging from construction to farming. Id.
20
Florida Public Service Commission, Agency Analysis of HB 821, p. 2 (Mar. 14, 2023).
21
Office of Energy Efficiency & Renewable Energy, supra note 13.
22
S. 23, ch. 2022-97, Laws of Fla., codified at s. 212.08(7)(ppp), F.S.
23
Office of Energy Efficiency & Renewable Energy, Alternative Fuels Data Center – Renewable Natural Gas Production, U.S.
Department of Energy, https://afdc.energy.gov/fuels/natural_gas_renewable.html (last visited Mar. 18, 2023).
24
Ch. 2021-178, Laws of Fla., codified at s. 366.91(2)(f) and (9), F.S. STORAGE NAME: h0821a.ECC PAGE: 5
DATE: 3/20/2023
Effect of the Bill
The bill allows electric and natural gas public utilities to recover through rates:
The costs of contracts for the purchase of RNG and hydrogen, with pricing above the current
market value of natural gas, if the PSC finds that the contract promotes the development or use
of renewable energy resources in the state and provides fuel diversification.
Prudently-incurred costs for RNG and hydrogen fuel infrastructure projects, including but not
limited to:
o Capital investment in projects necessary to prepare or produce RNG and hydrogen fuel
for pipeline distribution and usage;
o Capital investment in facilities, including pipelines, necessary to inject and deliver RNG
and hydrogen fuel throughout this state;
o RNG and hydrogen fuel storage facilities;
o Operation and maintenance expenses associated with any such RNG and hydrogen fuel
infrastructure projects; and
o An appropriate return on investment consistent with the return allowed for other utility
plants used to provide service to customers.
For RNG and hydrogen fuel infrastructure projects, the bill allows cost recovery through an appropriate
mechanism administered by the PSC. The bill provides that the costs of these infrastructure projects
deemed prudent by the PSC are not subject to disallowance or further prudence review except for
fraud, perjury, or intentional withholding of key information by the public utility. The bill also provides
that, for purposes of cost recovery for these infrastructure projects, RNG may include a mixture of RNG
and natural gas.
The bill provides an effective date of July 1, 2023.
B. SECTION DIRECTORY:
Section 1. Amends s. 366.91, F.S., relating to renewable energy.
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. See Fiscal Comments.
2. Expenditures:
None.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR: STORAGE NAME: h0821a.ECC PAGE: 6
DATE: 3/20/2023
Public utilities that are permitted by the PSC to recover the costs of RNG or hydrogen fuel infrastructure
projects will expand the base upon which they earn a return on investment. Owners of assets from
which RNG may be produced will realize additional revenue streams.
To the extent that the cost to produce and transport renewable natural gas from an RNG infrastructure
project is more expensive over a project’s lifetime than the production and transport of natural gas from
other sources would have been, customers of public utilities will pay higher rates than they would
otherwise have paid. To the extent that the cost to produce and transport hydrogen fuel from a
hydrogen fuel production infrastructure project is more expensive over a project’s lifetime than the cost
of fuel it replaces (e.g., natural gas), customers of public utilities will pay higher rates than they
otherwise would have paid. The bill does not require a showing of net benefits to utility customers.
D. FISCAL COMMENTS:
If new RNG or hydrogen fuel infrastructure projects are subject to local property taxes, the bill may
create additional revenues for the local government jurisdictions in which those facilities are located, if
sited within Florida.
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not Applicable. The bill does not appear to affect county or municipal governments.
2. Other:
None.
B. RULE-MAKING AUTHORITY:
The bill does not authorize or require agency rulemaking.
C. DRAFTING ISSUES OR OTHER COMMENTS:
Currently, the fuel required by public utilities to provide service in Florida is purchased from competitive
providers in an open market. The PSC determines the prudence of a utility’s fuel costs largely by
determining whether the utility contracted for fuel on reasonable terms based on what was known or
should have been known by purchasers in the market at that time. These costs are passed through to
utility customers with no markup for profit to the utility. Fuel production by a public utility is not required
for the utility to provide service to its customers.
The bill allows a public utility to recover through customer rates its prudently-incurred costs for certain
fuel production infrastructure, expanding the types of investments upon which a monopoly utility may
earn a return through customer rates. The bill does not provide guidance for the PSC in determining
whether projects of this type, which have not previously been approved for cost recovery
25
– aside from
one green hydrogen pilot project included as part of a comprehensive rate case settlement – are
prudent. To the extent that a project is not expected to result in benefits to customers, it is not clear
whether the PSC may consider other factors that would allow it to make a prudence determination.
As drafted, the bill does not require that RNG or hydrogen infrastructure projects be sited within Florida
or that the fuel produced by such projects be used in the provision of utility services in the state. The bill
also does not place any limits on the volume of RNG or hydrogen fuel infrastructure projects for which
25
In 2016, the Florida Supreme Court overturned a PSC order approving cost recovery, including a profit, for an electric utility’s
participation in a joint venture to produce natural gas in another state, finding that the PSC’s authority to set rates extends only to costs
arising from the generation, transmission, or distribution of electricity in the state and that whether “cost recovery of speculative capital
investments in gas exploration and production by an electric utility is in the public interest is a policy determination that must be made
by the Legislature.” Citizens of the State of Florida v Art Graham, 191 So. 3d 897, (Fla. 2016). STORAGE NAME: h0821a.ECC PAGE: 7
DATE: 3/20/2023
cost recovery may be approved by the PSC. While it may be assumed that the PSC will consider these
criteria in a prudence review, the bill could be clarified to indicate whether these criteria apply.
IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES