TALLAHASSEE — The state's largest electric companies say it's time to raise your rates.
After nearly 25 years without increasing basic rates for electricity, Progress Energy and Florida Power & Light have asked state regulators to charge customers about 30 percent more. That's a $13.83 for 1000 kilowatt hours per month increase for Progress Energy customers and, for FPL customers, it's a $9.71 increase in 2010 and about $12.40 in 2011.
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.
But to public advocates, the attorney general and the state's largest commercial users of electricity, asking consumers to pony up more money in the worst economy since the Great Depression 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 commission 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 St. Petersburg-based Progress Energy Florida to cut its $500 million rate request from an annual increase to a $35 million decrease, and FPL to replace its $500 million request with a $364 million annual drop in rates.
The problem, opponents say, is that the commission 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.
Add-on charges now account for 56 percent of every Progress Energy Florida bill and include the cost of complying with environmental regulations and conservation, fuel, hurricane repairs and, most recently, financing a nuclear power plant.
"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.
"We are not insensitive to the impact of price on our customers," said Jeff Lyash, former president and chief executive of Progress Energy's Florida operations who was recently promoted to executive vice president for corporate development. But the rate hike 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.
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.
The issue of executive compensation will come to a head at a separate hearing Tuesday, when the commission staff faces off with lawyers from both FPL and Progress. The commission wants the companies to justify the compensation in light of the proposed rate hike. The companies argue that making the documents public will reveal trade secrets to competitors.
One likely flash point: The public counsel argues that none of the $47 million in incentive bonuses set aside by Progress should be financed by customers.
The commission already has ruled on a similar rate hike request by Tampa Electric Co. TECO sought a $228.2 million annual rate increase; the public counsel and attorney general recommended a $38.6 million reduction. The commission staff found middle ground, recommending a $76.7 million rate hike — but the commission approved a $104.3 million hike.
Opponents of the Progress and FPL rate hikes 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, chief executive of the Florida Retail Federation, which seeks a rate reduction. "It's the Public Service Commission, not the power service commission."
In nine recent public hearings the commission held to assess Progress Energy Florida's quality of service, customers lashed out at the proposed rate hikes.
At a July 16 hearing, Elaine Granata of Clearwater complained of Lyash's $420,000 salary and hundreds of thousands more in stock awards and told commissioners that Progress Energy Florida's rate request was greedy.
"When a company has been given the privilege of being the only company providing electricity to consumers, they have a moral, ethical and spiritual obligation to do more with less," she said.
In addition to executive compensation, the commission will sort out:
• Return on equity. If Progress Energy Florida's rate request is approved, it will allow for an annual 12.5 percent return on equity, or profit level. Progress argues that it needs $20 billion over the next 10 years to construct its new nuclear power plant and another $2 billion to make improvement to its existing power plants.
Attorney General Bill McCollum has joined the public counsel in calling for a 9.75 percent return on equity. The public counsel's expert witness argues that in 2007 and 2008, Progress reported earnings of 9.7 percent while financing a $2 billion construction program.
Documents prepared by McCollum's office note that Progress reported a recent profit of 9.6 percent "at the same time many businesses are just trying to survive."
• Depreciation. The state allows utility companies to depreciate their power plants and repay themselves for the cost of building, repairing and replacing them. But technology has allowed companies to keep their plants operating longer than expected, so the companies have "over-collected" depreciation costs.
The public counsel believes that Progress has accumulated more than $850 million in excessive depreciation.
Mary Ellen Klas can be reached at meklas@MiamiHerald.com.