Earlier this year, Florida Power & Light Company presented regulators with an audacious request: allow the company to drill for natural gas in Oklahoma and transfer the financial risk — estimated at $750 million a year— to the utility’s 4.7 million Florida customers.
A subsidiary of NextEra Energy, which is in the process of acquiring Hawaiian Electric Industries in a $4.3 billion deal, the Florida utility contended that the natural gas exploration would ultimately help lower customer bills. But the plan has sparked opposition from the editorial boards of some of the state’s newspapers, as well as Florida’s Office of Public Counsel, which advocates on the behalf of ratepayers.
“They are a very, very well run company, but they do ask for a lot and they like to push the envelope,” said J.R. Kelly, Florida’s public counsel, who said his office may appeal to the Florida Supreme Court if commissioners grant the utility’s request.
NextEra Energy’s eagerness to own and operate energy resources — whether it be natural gas, solar or wind farms — is likely what enticed the company to agree to buy Hawaii’s electric utilities serving Oahu, the Big Island and Maui County, analysts and energy experts say. After all, the potential for investment in Hawaii is substantial and NextEra has the expertise and track record to execute the projects.
Hawaii is not only moving toward developing the infrastructure to begin importing liquefied natural gas, but it’s moving aggressively toward its goal of developing more renewable energy, which is expected to entail more wind and solar farms, geothermal on the Big Island, cutting-edge grid improvements and possibly undersea cables.
“They are going to want to build it themselves, especially the utility-scale solar,” said Charles Fishman, an analyst for Morningstar who specializes in energy and regulated utilities. “The way you make money in the utility business is to invest.”
NextEra executives are tightlipped about their business plans for Hawaiian Electric, saying they are open to a model in which the utility purchases energy from third-party developers, as well as a model in which the company owns and develops those resources.
“This is not a case of cookie cutter solutions,” said Eric Gleason, president of NextEra Energy Transmission, who is a playing a lead role in the Hawaii utility transaction. “This is a case of Hawaii’s needs requiring Hawaii solutions.”
The prospect of Hawaiian Electric being bought by NextEra, a heavyweight in the energy world, has prompted mixed reactions. News of the sale set off a “horse race” among companies angling to gain approvals to develop Hawaii’s natural gas infrastructure ahead of NextEra, according to one energy insider. And it’s raising alarm among the state’s rooftop solar industry, concerned that the company will focus more on developing utility-scale solar projects that it can profit off of than aiding the adoption of more rooftop solar that doesn’t benefit the utility’s bottom line.
But NextEra’s heft and expertise is also spurring optimism about the company’s ability to drive down Hawaii’s electricity rates, bring greater efficiencies to the management and operation of the utility and lend its substantial technical expertise to help the state integrate increasing amounts of renewable energy into its electric grids at a faster pace.
“NextEra has a tremendous depth of skill and engineering,” said Jeff Kissel, the former CEO of Hawaii Gas. “The thing we need most is energy-efficient solutions in Hawaii. That is the easiest way to save fuel. NextEra knows what works and doesn’t work.”
NextEra Energy is a major player in the energy sector, with big investments in transmission lines, natural gas, nuclear energy and wind farms throughout more than two dozen states and Canada. To a lesser degree, the company has holdings in coal, hydro, solar and oil.
Headquartered in Juno Beach, Florida, NextEra earned $1.9 billion last year on revenues of $15.1 billion, according to the company’s financial reports.
NextEra’s two main subsidiaries are Florida Power & Light Co., one of the country’s largest utilities, and NextEra Energy Resources.
The Florida utility boasts consumer rates that are 25 percent below the national average, and it has won many awards. NextEra ranked first in the utility industry category for eight years in a row in Fortune’s “World’s Most Admired Companies.” Fortune has also ranked the company high for innovation, social responsibility and quality of products and services.
Paul Patterson, an analyst for Glenrock Associates, said that NextEra could bring a host of operational improvements to Hawaiian Electric.
“This is not a case of cookie cutter solutions. This is a case of Hawaii’s needs requiring Hawaii solutions.” — Eric Gleason, president of NextEra Energy Transmission
“I think they saw the opportunity to provide size, scale and scope that could assist Hawaiian Electric to execute on its plan to provide lower cost, environmentally acceptable power to the state,” he said. “And they run a very efficient utility . . . They can probably bring efficiencies to Hawaii.”
NextEra is also familiar with the Hawaii market, having staked out renewable energy projects in the islands for a couple of years. The company secured a contract in October with Hawaiian Electric Co. for a 15-megawatt solar farm in Waianae that’s currently being reviewed by the PUC.
It has also spent more than $10 million in pre-development costs for Hawaii’s undersea cable project, aimed at bringing renewable energy from the neighbor islands to Oahu. Open bidding on the project is currently on hold as the PUC deliberates on whether the cables are in the public’s best interest.
Buying the utility could be easier than negotiating with Hawaiian Electric over the energy projects.
Kyle Datta, a general partner at Honolulu’s Ulupono Initiative, which invests in renewable energy, said that NextEra’s size should also allow the company to borrow money at cheaper rates than Hawaiian Electric, which has struggled in recent years to maintain a healthy bond rating. (The Ulupono Initiative was founded by Pierre and Pam Omidyar. Pierre Omidyar is the CEO and publisher of Civil Beat.)
But whether NextEra will be able to get what analysts say the company wants — the chance to develop and own energy projects in Hawaii — will in large part come down to Hawaii’s regulators.
NextEra’s Florida Power & Light Co. has a reputation for easily gaining approvals from its Public Service Commission, the equivalent of Hawaii’s PUC.
Earlier this month, Florida regulators approved proposals to gut Florida’s energy-efficiency goals and end its solar rebates by the end of 2015, “giving the investor-owned utilities virtually everything they wanted” the Tampa Bay Times reported.
The lobbying effort by Florida Power & Light, Tampa Electric and Duke Energy was viewed by some as an aggressive attempt to weaken the rooftop solar market, which has eroded the utilities’ customer bases.
Florida Power & Light’s current request to develop natural gas has also sparked controversy.
Whether NextEra will wield that type of political power in Hawaii remains to be seen.
“They keep arguing that this is a wonderful program and that in the long run it will save ratepayers money,” said Kelly, Florida’s public counsel. “Well, put your money where your mouth is. If you think this is a great program for ratepayers, then you assume the risk of the program. But they are unwilling to do that.”
Kelly said that Florida’s Public Service Commission will likely approve the utility’s request later this month to pass on the costs of natural gas exploration in Oklahoma to ratepayers.
Florida Power & Light has a history of contributing heavily to political campaigns. This past election cycle, the company donated a combined $1.2 million to Florida Gov. Rick Scott’s re-election bid and the state’s Republican Party, according to Reuters.
Whether NextEra will wield that type of political power in Hawaii remains to be seen. State PUC Chair Hermina Morita declined to comment for this report.
In recent months, Hawaii’s PUC has scolded Hawaiian Electric Co. for lacking vision for its future business model and questioned the utility’s attempts to invest in renewable energy projects, going so far as to reject a solar project that it wanted to develop at its Kahe power plant.
But the PUC has also approved two solar projects proposed by the Kauai Island Utility Cooperative, suggesting that the PUC isn’t singularly opposed to the idea of a utility developing energy projects.
“The open question for the PUC to determine . . . is whether NextEra as the owner of the former HEI regulated assets can enter the renewable energy business and own renewable generation as a utility in a similar manner that they allowed KIUC to be the developer and owner of renewable generation,” said Datta.
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