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Details emerge about cost of FPL settlement to customer bottom line

State regulators said today they will wait until the completion of Florida Power & Light’s rate case before they officially take up the four-year settlement offer between the company and the state’s largest utility users. 

PSC Chairman Ron Brise said he will announce a schedule for addressing the proposal on Monday. The agreement would set the base rate for FPL’s 4.6 million utility customers between January 2013 and December 2016 and cost customers an estimated $3.4 billion, according to preliminary numbers from the state's consumer advocate.

Preliminary numbers by FPL indicate the rate increase would amount to a net increase of about $4.21 a month by 2016 for the average customer who uses 1,000 kilowatt hours a month, said Mike Sole, FPL spokesman. That number could be higher, or lower, if fuel costs shift, however. 

FPL presented the offer last week, just days before two weeks of technical hearings were set to begin before the Public Service Commission on Monday. The proposal was designed to force the commission to consider an alternative to the one-year $690 million base rate increase they are now considering and, in turn, allow the company to avoid coming back to have its earnings reviewed in a full rate case by state regulators for another four years.

The state’s consumer advocate, J.R. Kelly, however, says FPL’s projected numbers for what it would cost the average customer are unreasonably low and wants the PSC to reduce customer costs by $253 million beginning next year.

Instead, Kelly, who is director of the Office of Public Counsel, believes that FPL joined with the Florida Industrial Power Users Group, South Florida hospitals and military bases in the state to reach the deal because it guarantees them $800 million more than they were asking for in their original rate case request. He said it also allows the large utility users to either lower or freeze their bills at the expense of other customers.

FPL disagrees with his assessment and believes the settlement will save customers money and denies there will be a cost shift. FPL argues that it needs the rate increase to maintain a stable revenue stream and argues that the settlement is a good deal for customers because the company was going to be able to recover the costs of building its new plants anyway. Once the plants are in operation, FPL says, the company will operate more efficiently and its expenses will be less. 

“The reality is it will not cost customers more,’’ Sole said. “By dealing with this once, we are going to save customers money.”

In his formal response to the PSC, Kelly called the settlement a “mutually self-enriching exercise in wishful thinking that bears no relationship to the public interest.’’

He told The Miami Herald that his “back of the envelope calculations” show that it could be many times higher than the $4.21 a month for average customer bills that FPL projects. 

For starters, Kelly refuses to speculate that fuel costs will offset the increases in the base rates, as FPL does. “If fuel prices go up, they’re not going to turn around and lower the other part of the bill,’’ he said. “I look strictly at the base rates – because that’s all we’re talking about here.”

Here’s Kelly’s math:

  • FPL's original request was to raise $690 million from customers starting in 2013. If that continues through 2016, the total collected would be $2.6 billion. ($2 billion over four years beginning in January 2013 and $606 million over 3.5 years beginning in June 2013.)
  • By contrast, the settlement would increase the base rate by $3.4 billion over four years between January 2013 and December 2016:
    • $1.5 billion beginning in January 2013
    • Another $606 billion beginning in June 2013 to pay for the new plant opening in Cape Canaveral
    • Another $575 million beginning in mid 2014 to pay for the new Rivera Beach power plant
    • Another $113 million beginning in mid 2016 to pay for the new Port Everglades power plant. 

The PSC’s role is to balance the needs of utility companies, which operates as monopolies and are shielded from competition, with the needs of the customers.

But Kelly sees only trouble ahead if regulators sign off on FPL’s request. “Let’s assume the economy turns around by 2016 and Florida’s economy is back on track, they may not need the revenue they will get for the Everglades plant but customers will still have to pay it,” he said.

Sole said that without the settlement, the company will have to return to the PSC again in 2014.

“The settlement allows for a four-year solution instead of a one year solution -- which I do believe all folks benefit from,’’ he said. 

He said the suggestion that the company’s strategy was to “throw a rate case together to pursue a settlement is completely wrong.”

Kelly disagreed that FPL should be entitled to a base rate increase just because it has modernized its power plants. FPL president Eric Silagy testified this week, for example, that over a period of 20 years, FPL added 8000 megawatts of generation and, during that time, agreed to rate reductions.

Kelly prefers to put the burden on FPL to come back and ask permission to raise rates in the future, rather than allow put the burden on regulators to order the company back in if it believes it is exceeding the profit levels allowed in the settlement.

“Just as FPL won’t guarantee how much natural gas will cost one year from now, they don’t know what the economy will be in four years,’’ Kelly said.“We believe that the settlement will allow them to recover hundreds of millions of dollars more.”