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After months of controversy, PSC to decide FPL's rate request

TALLAHASSEE — After spending 10 months and $5 million on a public relations campaign, Florida Power & Light's push to win a $1.3 billion increase in electric rates comes down to a single vote on Wednesday.

To make the decision, the five-member Public Service Commission will wade through a thicket of financial data and economic projections — but the background will be pure politics.

Gov. Charlie Crist, who opposes the rate increase, recently reconfigured the panel by replacing two members with "new blood." The commission has faced a series of embarrassing revelations of close relations with the utilities it regulates, with a lobbyist resigning and other staff members reassigned.

Now the panel tackles a key decision for FPL with much at stake for consumers: up to a 30 percent increase in base electric rates. If commissioners approve the company's request, the average customer bill would rise $8.55 — from $42 a month for 1,000 kilowatt hours of electricity to $50.85. In 2011, the base rate for those average bills would go up another $2.72 to $53.57.

But in 2010, the rate increases would be offset by a decline in fuel costs that would actually reduce average bills by $6. There are no guarantees the savings would continue after that.

The Office of the Public Counsel, which represents the public before the PSC, argues that FPL should reduce its rates, not increase them. And PSC staff analysts have recommended the company get only $357 million more a year.

"FPL's overall request is a conglomeration of extreme positions and excessive demands — all of which FPL pursues at a time when customers are experiencing severe economic hardships," wrote J.R. Kelly, the public counsel who advocates for the public in his final brief.

Since FPL is a regulated monopoly, the state determines what it charges customers. FPL argues that raising rates now means customers will save money later.

"This is the fundamental logic of the rate case: up-front capital investments pay off in the form of lower costs and more reliable service over time," wrote John Butler, FPL's lead lawyer in the final brief filed in the case.

FPL says it deserves the rate increase because it has the lowest rates in the state, has a proven record of investing in projects that save customers money, and needs cash now to invest $16 billion over five years to make existing plants more fuel efficient. Among the projects: updating aging power plants, investing in clean and renewable energy, and strengthening power lines.

But opponents of the rate increase — including the attorney general, South Florida hospitals and the state's largest industrial users — agree with Kelly, saying that FPL's request is an attempt to "shift the risk of future uncertainty from shareholders to retail customers."

They say $15 billion in revenue from the company's 4.5 million customers is enough to make the investments FPL needs without layoffs. And, they argue, because the PSC has already allowed the company to keep $2 billion from depreciation costs for existing power plants, FPL should be lowering customer bills.

During public hearings on FPL's request, the company told regulators that its previous strategy of absorbing the costs of new power plants through growth is no longer an option in today's economy. FPL's Chief Executive Officer Armando Olivera warned that if FPL doesn't get the rate increase, layoffs will follow.

"We can't spend money that we don't have so we absolutely have to, at minimum, slow down," he told the Miami Herald editorial board last month. "We will have to shut down some of the projects we have been developing and that also will mean loss of jobs."

Kelly, the public advocate, doesn't buy the argument.

"Based upon the evidence presented, we just don't believe the idea they will have to discontinue all of these projects," he said.

Kelly believes that if FPL is forced to lay people off it won't be because the company loses the rate case but because demand for power has already been dropping.

"You've got a lot of houses that are empty today that were not empty one or two years ago," he said.

Olivera told the PSC that since the company's last rate case in 1985, customer growth and careful management made it possible to invest $26 billion in new power plants, transmission lines and other system improvements while still providing $6 billion in customer savings. But, he told the St. Petersburg Times editorial board, the company doesn't expect those kinds of growth rates to return for another decade.

"We went into the rate case thinking we have a great story to tell and frankly didn't see how the messaging would get so completely messed up along the way," Olivera said in the Miami Herald editorial board meeting.

FPL didn't expect to be on the defensive for so long when it filed the rate case in March 2009. During nine public hearings, it lined up speakers to offer positive comments on the company's performance and laud its top-notch national rankings in reliability, clean energy, and service.

The company also forged alliances with Crist, hiring lobbyists close to the governor as consultants, including lobbyist Brian Ballard, former chief of staff George LeMieux, and former solicitor general Chris Kise.

But problems set in on the first day of the rate case in August. PSC legislative lobbyist Ryder Rudd admitted that he had attended a Kentucky Derby party at the home of FPL vice president Ed Tancer. He resigned in September.

Then a new controversy emerged when the Herald/Times showed that top aides to commissioners had given their private Blackberry messaging codes to FPL officials, allowing the exchanges to bypass the public records system. Records of text messages showed that top aides to some regulators were friends of FPL lobbyists.

Investigations by the Florida Department of Law Enforcement and the state attorney determined there was nothing illegal in the message exchange, but the controversy spawned calls for reforms. Now, both the PSC and legislators are considering requiring all communication between PSC staff and utilities to be made public.

Also, two sitting commissioners, Matthew Carter and Katrina McMurrian, were up for reappointment. A legislatively controlled nominating committee recommended them along with four others but Crist picked the only two with no ties to the PSC or the utilities industry: David Klement and Benjamin "Steve'' Stevens. The commission then postponed a November vote on the rate case until both were on board in January.

In the face of the continuing controversies — which Olivera called "one of the most challenging periods for FPL'' — the company upped its public relations efforts. In October, it hired the Washington, D.C.-based public relations firm Ketchum and mounted a campaign to fix its image, including hiring former Attorney General Bob Butterworth as an adviser.

After questions were raised last fall about salaries and bonuses awarded to 400 top FPL's executives, and commissioners challenged whether customers should pay for operating two executive airplanes and a helicopter, FPL agreed to pull the aviation costs from its rate request. It also agreed to reduce the portion of the executive pay package paid by customers from $72 million to $37 million.

FPL also launched image-enhancing TV ads and lined up support from community leaders, unions and politicians including former Gov. Jeb Bush. The company even conducted a secret campaign to investigate PSC commissioners and post negative comments about them and the governor on the Internet.

Since then, the PSC staff has rejected most of FPL's argument for a rate increase but accepted several key points.

For example, the staff agreed with FPL that the company should be allowed to keep the same debt-to-equity ratio that it currently has. FPL now has 59 percent of its revenues coming from investor dollars, or equity, and the rest from borrowed money.

But the staff rejected FPL's argument that it should be allowed to keep 12.5 percent of its profit to compensate shareholders and instead recommended 10.75 percent, allowing FPL to request another rate increase if profits dropped below 9.75 percent.

The PSC staff also recommended that FPL be required to return $314 million to customers in 2010 and reduce bills another $500 million over the next four years to return excessive money it collected for power plant costs.

The commission will weigh all the arguments when it makes its decision and, once the base rate is decided, the panel will determine what percentage will be paid by residential and commercial customers. New rates would take effect in March.

The commission will vote on a similar request for a $500 million increase in base rates for Progress Energy of Florida on Monday.

If the rate increase isn't enough to keep FPL profitable, the company has the option to ask the PSC for another rate increase.

Olivera said the experience has not been easy. "I can see why both my predecessors never actually wanted to go through a rate case," he said.

Mary Ellen Klas can be reached at meklas@MiamiHerald.com

After months of controversy, PSC to decide FPL's rate request 01/08/10 [Last modified: Friday, January 8, 2010 7:22pm]
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