HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: CS/HB 821 Renewable Energy Cost Recovery
SPONSOR(S): Energy, Communications & Cybersecurity Subcommittee, Yeager
TIED BILLS: IDEN./SIM. BILLS: SB 1162
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Energy, Communications & Cybersecurity 18 Y, 0 N, As CS Walsh Keating
Subcommittee
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. Generally, 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, subject to PSC approval, to recover through rates the
costs of RNG and hydrogen purchases and the costs of specified capital investments in RNG and hydrogen
fuel infrastructure projects. The bill provides factors for the PSC consider when reviewing such purchases and
infrastructure projects for approval and provides standards for approval. Under the bill, the PSC must
determine the appropriate mechanism for recovery of approved infrastructure project costs, which may include
an existing or new mechanism.
The bill requires the PSC, beginning January 1, 2025, to annually submit a report to the Governor, the
President of the Senate, and the Speaker of the House of Representatives that includes specified information
related to approved infrastructure projects.
The bill provides that the provisions related to cost recovery for RNG and hydrogen fuel infrastructure projects
will be repealed on June 30, 2028, unless reviewed and saved from repeal by the Legislature. Public utilities
may continue to recover the costs of projects approved before this date.
The bill does not appear to impact state or local government revenues or expenses.
The bill provides an effective date of July 1, 2023.
This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives .
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FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Current Situation
Rate Setting for Public Utilities
The Public Service Commission (PSC) has broad jurisdiction over the rates and service of public
(investor-owned) electric and natural gas utilities in Florida.1 Under this broad grant of authority, and
through more specific grants of authority in Chapter 366, F.S., the PSC sets rates for such utilities
through various mechanisms, each of which is established in a separate administrative proceeding:
Base rates (set for electric and natural gas utilities)
o Adjusted as needed in a general rate case, conducted through a formal evidentiary
hearing for electric utilities and either a formal or informal proceeding for natural gas
utilities.2
o Designed to recover most operations and maintenance expenses, depreciation expense
(recovery of capital investment over time), and a return on capital investment.
Fuel and purchased power cost recovery charges (set for electric utilities only)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover the costs of fuel and the energy component of wholesale power
purchases.
o By PSC order, may include recovery of certain capital investments, including a return on
investment.
Purchased gas adjustment charges (set for natural gas utilities only)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover the costs of wholesale natural gas purchases.
Capacity cost recovery charges (set for electric utilities only)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover costs of the capacity component of wholesale power purchases.
o By statute, may include recovery of certain costs related to development of new nuclear
power plants, including a return.3
Environmental cost recovery charges (set for electric utilities only)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover costs to comply with government-mandated environmental
standards.
o By statute, may include recovery of certain capital investments, including a return on
investment.4
Storm protection plan cost recovery charges (set for electric utilities only)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover costs to implement PSC-approved storm protection plans.
o By statute, may include recovery of certain capital investments, including a return on
investment.5
Energy conservation and efficiency cost recovery charges (set for electric and natural gas
utilities)
o Adjusted annually through a formal evidentiary hearing.
o Designed to recover costs of implementing PSC-approved energy conservation and
efficiency programs.
1See, e.g., ss. 366.01, 366.04(1), 366.041, 366.05(1), and 366.06, F.S.
2 A natural gas utility or a public electric utility whose annual sales to end -use customers amount to less than 1,000 gigawatt hours may
request that the PSC process the utility’s petition for rate relief using an informal “proposed agency action” procedur e. S. 366.06(4),
F.S.
3 S. 366.93, F.S.
4 S. 366.8255, F.S.
5 S. 366.96, F.S.
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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.
Generally, 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 The
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.
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production cost of green hydrogen must significantly decrease for it to be competitive with more mature
carbon-based pathways of energy production.15
Some alternative methods of producing hydrogen, mainly grey hydrogen16 and blue hydrogen,17 use
methane or coal to power the production process.18 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.19, 20 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. 21
As noted above, the PSC authorized FPL, as part of a comprehensive rate case settlement in 2021, to
implement a green hydrogen pilot project. 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 authorized the PSC to
approve cost recovery for the purchase of RNG by natural gas public utilities, even if pricing exceeds
the current market price of natural gas, if the PSC deems the purchase to be reasonable and prudent. 24
In 2021, Peoples Gas Company announced an agreement with Alliance Dairies to build, own, and
operate a facility on the dairy’s property in Trenton, Florida, to produce 105,000 MMBtu 25 of RNG.26, In
2023, FPU Renewables LLC, a subsidiary of Florida Public Utilities Company, announced plans to
construct, own, and operate an RNG facility at Full Circle Dairy in Madison County, Florida. The project
will capture and clean methane from manure generated by cows, producing 100,000 average MMBtu of
RNG annually.27
Effect of the Bill
15 Id.
16
Grey hydrogen is traditionally produced from methane that is split with steam into carbon dioxide and hydrogen.
17 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.
18 Despite the colorful names used for the different ways hydrogen is produced, the gas itself is invisible to the h uman eye. National
Grid, Energy Explained – Hydrogen Colour Spectrum , https://www.nationalgrid.com/stories/energy-explained/hydrogen-colour-spectrum
(last visited Mar. 19, 2023)
19
Rachel Meidl & Kenneth Medlock, The Advanced Carb on Economy: A Sustainab le 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).
20 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.
21
Florida Public Service Commission, Agency Analysis of HB 821, p. 2 (Mar. 14, 2023).
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 – Renewab le 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.
25 A British thermal unit (Btu) is the amount of heat required to increase the temperature of a po und of water by one degree Fahrenheit
at a specific temperature. MMBtu is the abbreviation for one million British thermal units. It is a common unit to measure he ating content
and the value of a fuel.
26 Peoples Gas, Media Center, Peoples Gas and Alliance Dairies Partnering to Bring Florida Renewab le Natural Gas,
https://www.peoplesgas.com/mediacenter/2021/Peoples-Gas-and-Alliance-Dairies-Partnering-to-Bring-Florida-Renewable-Natural-Gas/
(last visited Mar. 22, 2023).
27 PRNewswire, Chesapeake Utilities Corporation to Develop its First RNG Facility in Florida, https://www.prnewswire.com/news-
releases/chesapeake-utilities-corporation-to-develop-its-first-rng-facility-in-florida-301751834.html (last visited Mar. 22, 2023).
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The bill allows electric and natural gas public utilities, subject to PSC approval, to recover through rates
the costs of RNG and hydrogen purchases and the costs of specified capital investments in RNG and
hydrogen fuel infrastructure projects.
Purchases of RNG and Hydrogen Fuel
The bill provides that a public utility contract for the purchase of RNG or hydrogen fuel, with pricing
above the current market value of natural gas, is eligible for cost recovery if the PSC finds that the
contract provides net benefits to the public utility and its customers and is therefore in the public
interest. In making this determination, the PSC may consider the contract’s impact on:
The overa