Two days after state regulators slashed Progress Energy Florida's profit margin, the company's disappointed CEO stopped by the St. Petersburg Times to warn a lower rate of return will force the electric utility to rethink "how we run our business in Florida."
Is this an opening salvo by a once malleable Florida Public Service Commission? The agency on Monday unanimously rejected a $500 million-a-year base rate increase sought by Progress Energy Florida, the state's second-largest power company. The PSC set Progress Energy's profit level at 10.5 percent — down from the 11.25 percent recommended by the PSC staff.
A sure 10.5 percent profit margin in a recession is hardly a hardship. But the utility says the difference between that and a 12.5 percent rate is $100 million.
"If you look at the mood of the public today, consumers in the state do not want to pay for it," Progress Energy Florida chief Vinny Dolan told the Times. Still, he said the loss of funds could hurt service quality by his electric utility whose standards aim to keep it in the top 25 percent of the industry.
Could this jeopardize the planned nuclear power plant in Levy County? Progress Energy Florida still wants the plant but says it will now review all of its projects.
Dolan's meeting was part saber rattling, part lamentation and an acknowledgment the days of rubber-stamped PSC rate hikes may be ending.
As an encore, the PSC on Wednesday rejected Florida Power & Light's proposed 12.5 percent rate of return, dropping it to 10 percent.
The PSC actions bugged Wall Street. Credit rating agency Fitch Ratings put Progress Energy Florida on its "Rating Watch Negative" saying the rate decision "increases regulatory risks in a state that had formerly been considered among the most constructive for electric utilities." Other analysts panned Gov. Charlie Crist for politicizing the process after he named new PSC commissioners just before the rate votes.
As gutsy as this week's PSC decisions appear, they alone do not signal a wholesale shift of regulatory attitude. Progress Energy Florida and FPL have deep pockets and ways to mitigate the effects of PSC decisions. Each utility can come back this year and seek a brand new rate increase.
Curiously, the hometown newspaper in Raleigh, N.C. — where Progress Energy Florida's parent company is headquartered — chose a more sweeping look at the PSC's rate denial in Florida. Progress Energy entered Florida in 2000 by buying St. Petersburg's Florida Power Corp.
Stated Raleigh's News & Observer: "A decade after its gamble to expand beyond the Carolinas, Progress Energy's failure to win a rate increase in Florida underscores the Raleigh power company's continued frustrations in the Sunshine State."
Dolan, while new to the company's CEO seat in Florida, may have to do some explaining to the Carolina bosses. After all, North Carolina in 1988 granted that state's Progress Energy a whopping 12.75 rate of return — one of the highest approved profit margins among utilities nationwide. That's why, the Raleigh newspaper explains, the Carolina utility is careful not to seek a rate change.
It's already sitting on a golden egg. But it makes Progress Energy Florida's rate defeat all the more vexing. This isn't the end of the story.
Robert Trigaux can be reached at email@example.com.