Posts Tagged ‘Florida’

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How to avoid violating Florida’s price gouging law

November 2, 2010

Michael Giberson

For a while now Exxon-Mobil Corporation has been seeking clarification from the State of Florida, Department of Agriculture and Consumer Services (DACS) on just how the state’s price gouging law is applied. (Some background in this post from a year ago.) The company wants to know what it needs to do to comply with the law, or possibly, if the burden of the law will be excessive, whether it should exit the state.  The Florida DACS refused to answer Exxon’s request at first, citing procedural grounds, but on review a court has directed the agency to answer two questions: (1) whether the law applies to wholesale exchange, and (2) whether a regional price index is sufficient to reflect national or international trends in prices.

Florida’s price gouging law seeks to prohibit charging a price that “represents a gross disparity between the price of the commodity … and the average price at which that commodity … was rented, leased, sold, or offered for rent or sale in the usual course of business during the 30 days immediately prior to a declaration of a state of emergency, and the increase in the amount charged is not attributable to increased costs [due to] … national or international market trends.”

Historically the law has been enforced against retailers, but at least since receipt of investigatory subpoenas from DACS last year Exxon has been interested in how the law may be applied to wholesalers.  In addition, Exxon stated in its request to DACS that traditionally it has relied upon the Gulf Coast Regional Platts Index as a guide to changing costs, but it wonders whether or not this regional index can be taken to reflect “national or international market trends.”

State price gouging laws frequently employ language prohibiting “unconscionable” or “grossly excessive” price increases, and only sometimes do the laws clarify the distinction between price increases that are grossly excessive and price increases which are merely excessive under the law.  So far the Florida DACS has been unwilling to clarify how the law may apply to Exxon and other wholesale marketers, but with the recent court decision at least some greater clarity should emerge.

Posted in Economics, Energy markets, Regulation | Tagged , | 3 Comments »

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NERC, FERC, and FRCC agree on 2008 Florida blackout

March 10, 2010

Michael Giberson

From a NERC press release:

The North American Electric Reliability Corporation (NERC), the Federal Energy Regulatory Commission (FERC), and the Florida Reliability Coordinating Council (FRCC) have reached an agreement regarding the role of the FRCC Reliability Coordinator in the February 26, 2008 power outage that left nearly one million homes and businesses in the state without electricity…. Under the agreement, FRCC will pay a $350,000 civil penalty, to be split equally between the United States Treasury and NERC.

The agreement closes a joint NERC-FERC investigation into FRCC’s part in the event. Funds received by NERC will be used to offset its operating expenses, which are otherwise collected through allocations to load-serving entities in the U.S. and Canada.

The agreement is available at: http://www.nerc.com/files/Order_FRCC_Settlement_03052010.pdf.

The agreement contains a summary of the events leading to the Florida blackout:

4.  On February 26, 2008, portions of the lower two-thirds of the State of Florida experienced a loss of load event more commonly referred to as the Florida Blackout. The event led to the loss of 22 transmission lines, 4,300 MW of generation, and 3,650 MW of customer service or load.

5.  The event originated at the Flagami Substation on the FPL system when a field engineer was diagnosing a piece of BES transmission equipment that had previously malfunctioned. In the process, he disabled two levels of protection on equipment energized and connected to the BES and a “fault” (short circuit) occurred that resulted in transmission outages in the vicinity of the fault as well as generation and distribution outages across portions of the southern two-thirds of the state. The disabling of protection introduced the potential for much more significant contingencies within the FRCC footprint, but the operator fulfilling the RC function was not informed that any protection had been disabled and therefore could not and did not operate the system recognizing these contingencies.

6. At the time of the event, the FPL System Operator was also acting as the RC. Immediately after the event, he delegated his RC responsibilities to a NERC-certified operator present in the control center, but who was not involved in operations that day. The original operator maintained responsibility for the FPL system. The new operator performing the RC function then had to assess the extent of the impacted load and canvass the system operators state-wide in order to initiate restoration. During the event, when issuing directives, the RC operators did not use the three-step communication process, direct-repeat-acknowledge. Nonetheless, restoration of the system occurred in a relatively reliable and expeditious manner.

In October 2009, Florida Power and Light was assessed a $25 million civil penalty for its role in the blackout and agreed to make several improvements to systems and practices affecting reliability.

Posted in Electricity, Regulation | Tagged , , , | Comments Off

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Is Florida agency price gouging or just charging what the market will bear?

November 30, 2009

Michael Giberson

Last year thousands of Florida consumers called the state to complain about price gouging on gasoline after Hurricane Ike.  This year, hoteliers, gas stations, and other business owners are saying they are being price gouged by the Florida Department of Transportation.  The issue: the fee the state charges business owners who wish to appear on the blue gas, food, and lodging signs near interstate highway exits.  The state plans to increase the charges from $1,000 to a maximum of $2,500 in rural areas and $5,000 in urban areas.

“When you increase 300 and 400 percent, that’s a form of price gouging. We consider this economy to be a hurricane, truly the worst disaster that we’ve seen in the economy since our lifetime,” said Hemant Patel, Treasurer with the Asian American Hotel Association. “We understand a level of fair playing, we understand a 10 percent increase, 15 percent increase, which is fair to business and we understand the economy, but to have it 300 and 400 percent, that’s no different than me charging my hotel rates by 300 percent when we have a disaster in our area.”

According to the story:

Officials from Florida’s Department of Transportation said state lawmakers adjusted the program earlier this year so they could generate more revenue for the state’s Transportation Trust Fund. Moving forward, DOT officials will review each interchange, each year, and adjust the prices accordingly based on traffic, population, market conditions, demand, and the cost of the program.

The director of “Right of Way” for the Transportation department said, “If you think of these as advertising value, these are still the best advertising value.”

Some policy activists argue that government should be run “more like a business.” With the focus on boosting revenue, this policy change appears to be an example of what that slogan entails. But revenue maximization probably ought not be the sole goal of state policy.

  • Note, for example, the government is a business that has the capability to regulate the competition.  The more restricted the ability to install private billboards (or present other forms of information for travelers), the higher the value of appearing on the state’s blue roadside signs.  We wouldn’t want the state to maximize its revenue by excessive clamping down on other advertising.
  • More generally, policy changes by the state acting as a vendor should consider more than just private costs and benefits to the state and business owners.  The factors to be considered in adjusting rates mentions the “cost of the program,”  which probably just refers to the state’s program expenses.  But, in the ideal, the state should encompass consideration of the net costs (or benefits) to travelers and other “third parties” from constraining advertising in the way the blue highway signs do.
  • And, realizing that it is fallible in its assessments, the state may want to err on the side of permissiveness in its restrictions on alternative sources of roadside information.

With the rise of location-aware smart phones and internet-aware navigation systems, the state’s little blue signs will slowly diminish in value — useful to consumers lacking smart phones (a smaller and smaller group), consumers in cell phone “dead zones,” and to all consumers during emergencies which disrupt communications services.

Perhaps the state is just trying to grab some extra revenue from the program while it can, before technology renders it mostly meaningless.

Posted in Energy markets, Regulation, Telecom | Tagged , , | Comments Off

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