Editorials

On FPL's rate hike request, allow more time for economic rebound

Florida Power & Light makes a fairly strong case for a rate increase -- up to a point. A typical residential FPL customer would only spend a mere nickel a day extra, or $1.41 a month. Florida's largest power company already charges the lowest electrical rates among the state's 55 utilities, and that would not change.

The typical 1,000-kilowatt hour customer currently pays about $96 a month while the statewide average for that amount of electricity stands at $125.

The utility also asserts that residential bills have actually fallen by about 13 percent since 2006, certainly noteworthy when food, gasoline and health care costs have been rising.

A commendable corporate citizen, FPL has been converting oil-fired power plants to natural gas, thereby reducing reliance on foreign oil and sparing the environment by burning the cleaner fuel. Remarkably, the utility's oil consumption plunged from 40 billion barrels in 2001 to less than 600,000 this year.

Lower fuel costs must be passed along to customers by law. The company estimates those savings at $5.5 billion since 2001.

FPL is now asking the Florida Public Service Commission to approve a base rate increase of $7.09 a month on that typical residential customer. But with additional fuel cost decreases, the net increase on a bill drops to $1.41.

This all sounds reasonable on the surface, but things turn sideways in light of other facts in the case.

The PSC is traveling around the state to hold public hearings and collect comments. In Sarasota last week at the first such meeting, they mostly heard outrage.

Overall, the base rate increase would provide FPL with an additional $690.4 million annually. While the cost to residential customers is small, major industrial, school and government consumers would suffer big blows to their budgets.

With a wobbly state economy, this would be a severe setback for large employers and taxpayers. Would this worsen the unemployment picture and stifle growth?

School districts have been slashing budgets for years now, and additional spending pressures will be difficult to bear. At the Sarasota PSC hearing, a Charlotte County School Board member estimated the FPL rate increase would drain about $276,000 out of education spending.

But the most objectionable aspect to this is FPL's proposal to boost the rate of return to investors to 11.25 percent with an additional 0.25 percent should its residential rates remain the lowest. In this era of rock-bottom interest rates, that's high.

Investors should be satisfied with the currently authorized 10 percent dividend, still a handsome profit considering the state of the economy. But FPL counters that argument by noting the 10 percent margin is the lowest rate of return on equity for any electric utility in the state, with Gulf earning 12 percent and TECO 11.25 percent.

But FPL's customer base of 4.6 million homes, businesses and other consumers dwarfs other utilities, providing unmatched revenues.

The utility maintains the higher profit margin is vital to attract investors and provide revenue as the company spends $9 billion on power plant construction and other infrastructure over the next three years. FPL expects to add 100,000 new customers in 2013 alone, and the company's new $1 billion Cape Canaveral plant will be operational by the middle of the year.

We're not convinced investors require a heftier rate of return on such a strong company as FPL, not in this market. The Public Service Commission should deny this part of the request.

The base-rate portion will be a difficult decision for the PSC, weighing consumer concerns against corporate issues with the state's economy as a backdrop. It would be judicious of FPL to either delay the request a year or stretch the time frame for implementation over a longer period, giving consumers a break during still tough times. School districts and other public entities are still reeling from the recession and need more time to recover, as do many companies.

IF FPL forges ahead, the PSC should show that restraint in its ruling.

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