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FPL rate hike request generates criticism

BY MARY ELLEN KLAS
Herald/Times Tallahassee Bureau

After nearly 25 years without increasing basic rates for electricity, Florida Power & Light and Progress Energy have asked state regulators to charge customers about 30 percent more beginning in January. That's a $9.71 rate hike for 1000 kilowatt hours per month for FPL customers in 2010 and about $12.40 in 2011. And it's a $13.83 per month increase for Progress customers.

The companies say the existing system is maxed out and demand is growing. They want to expand, repair and construct generating plants -- which will take years, and cash -- so they want to start collecting money now.

``We are not insensitive to the impact of price on our customers,'' said Jeff Lyash, president of Progress Energy. But the rate increase is needed, he said, because the company has run out of capacity in the existing system and costs have gone up for clean air regulations, greenhouse gas legislation and inflation.

But to public advocates, the attorney general, and the state's largest commercial users of electricity, electric bills have gone up and asking consumers to pony up more money in the worst economy in a century is bad business and terrible timing. They want rates reduced instead.

``We don't think that's fair and reasonable, especially in today's economic times,'' said J.R. Kelly, the state's public counsel whose office represents customers before the Public Service Commission. The PSC regulates utilities.

In hearings that begin Tuesday, opponents will argue that these regulated monopolies accumulated sturdy profits, paid their executives substantial salaries and captured millions of dollars more by extending the life of their existing power plants -- at the same time they've been charging customers more.

As a result, Kelly is asking Juno Beach-based FPL to cut its rate request from a $1.3 billion annual increase to a $364 million annual decrease. He is also asking St. Petersburg-based Progress Energy to replace its requested $500 million increase with a $35 million annual drop in rates.

SOFTENING THE BLOW

FPL proposes to soften the hit of its $1.3 billion rate increase by breaking it into two parts: $1 billion kicking in on Jan. 1, 2010 and the remaining $300 million on Jan. 1, 2011. It also predicts that drops in fuel costs, which have been declining in the past year, would offset the increase, softening the impact on electric customers.

FPL estimates an average bill will decrease slightly in the first year.

``While we of course understand the difficult economy, it's important to remember that customer bills are going to go down in 2010 and we have a responsibility to invest in the electrical infrastructure for the future,'' said Mark Bubriski, FPL spokesman.

The problem, opponents say, is that the PSC has allowed the utilities to pass on the cost of their expenses directly to customers with a host of add-on charges that used to be included in the base rate.

Regulators approved these add-on charges without requiring the power companies to go through the intense scrutiny of a rate case, the process that requires them to justify every expense and every charge.

RISING ADD-ONS

Add-on charges now account for 58 percent of every FPL bill and include the cost of complying with environmental regulations and conservation, fuel, hurricane repairs and, most recently, financing nuclear power plants.

In October 1985, FPL was charging $48 per month for 1,000 kilowatt hours for its base rate and $35 for add-ons. This year, the base rate is $42 and add-ons are $65, or $24 a month more than they were 24 year ago.

``What matters is the total bill,'' said Charlie Beck, deputy public counsel.

The utility companies say they don't have any control over the pass-through costs and they shouldn't have to hold an elaborate rate hearing every time fuel costs change. They also say they don't make a profit on the add-on fees.

Hearings to determine the rates will begin Aug. 24 for FPL and Sept. 1 for Progress. Regulators will determine the new rates by December.

At the hearings, commissioners will sort through how much profit the companies should be allowed to earn, how much money they should be able to keep from accounting loopholes that allow them to charge consumers for depreciating assets, and how much in salary and bonuses the companies should be allowed to award their top executives.

COMPENSATION ISSUE

The issue of executive compensation will come to a head at a separate hearing Tuesday, when the PSC staff faces off with lawyers from both FPL and Progress.

The PSC wants to ask the companies to justify the compensation in light of the proposed rate increase.

The companies argue that making the documents public will reveal trade secrets to competitors.

One likely flash point: An expert witness hired by the public counsel found that half of the money FPL set aside as incentive bonuses for its top officers is based on the company's stock earnings and customers should not have to pay for that.

The PSC has already ruled on a similar rate increase request by Tampa Electric Company. TECO sought a $228.2 million annual rate increase; the public counsel and attorney general recommended a $38.6 million rate reduction. The PSC staff recommendation found middle ground, recommending a $76.7 million rate increase -- but the PSC approved a $104.3 million increase.

Opponents of the FPL and Progress rate increases worry that the TECO case may be a sign that the five-member commission appointed by Gov. Charlie Crist may not side with them.

``I'm concerned that there are not as many pro-consumer commissioners on that commission as there need to be,'' said Rick McAllister, CEO of the Florida Retail Federation which seeks a rate reduction.

``It's the Public Service Commission, not the power service commission.''

FUEL COSTS

FPL's plan to use lower fuel costs to offset its rate increases troubles opponents, who argue the money should be returned to customers this year when fuel prices have dropped and, they say, the fuel costs could rise by 2011.

FPL spokesperson Mark Bubriski acknowledged there's no guarantee fuel charges will decline after 2010, but he noted that FPL has saved customers $3 billion in fuel costs since 2003 alone. He said that FPL customers now pay about $25 less per month than customers of other Florida utilities.

Beck, of the public counsel's office, argues that if FPL were not asking for a rate increase, the lower fuel costs next year would guarantee a drop in customer bills. He argues that FPL should lower its base rate by $4.50 per month for 1,000 kilowatt hours and use its existing profits to finance its growth and expansion.

In addition to executive compensation, the PSC will decide return on equity and depreciation costs.