FPL president: Rate increase needed for more fuel savings

Florida Power & Light Co. President Eric Silagy shot back Wednesday at critics who have said the utility has minimized the impact of its proposed 16 percent base rate increase by emphasizing low natural gas prices and the total bill.

"When people say this rate case isn't about fuel, my response is ‘Baloney,'" Silagy said during a meeting with The Palm Beach Post's editorial board."It is a lot about fuel."

The company's investments in technology have reduced the amount of fuel it uses to operate its power plants and trucks. The $5.5 billion in fuel savings since 2001 is the result of improved efficiency, not lower natural gas prices, Silagy said.

Base rate charges customers pay have enabled Juno Beach-based FPL to invest in such new power plants as the West County Energy Center 3 in Loxahatchee. The $1 billion Cape Canaveral Next Generation Clean Energy Center, on track to begin generating power in June 2013, will save more than $1 billion in fuel over its 30-year life, Silagy said.

The typical FPL residential bill is down 13 percent, and the typical FPL business bill is down 14 percent compared with 2006, Silagy said.

Currently, a 1,000-kilowatt hour residential customer's monthly FPL bill is $94.62. Under FPL's proposed base-rate increase of $5.23 in January and another $1.86 in June, the base rate would rise by $7.09 in 2013. Offset by lower fuel costs and other changes in the bill, the net increase would be $1.41, or 5 cents a day. The Florida Public Service Commission is scheduled to hear the $690.4 million rate case for 10 days beginning Aug. 20. It is expected to vote on the proposal in November.

Since the company filed its rate case in March, Florida Public Counsel J.R. Kelly, who represents ratepayers, and such other intervenors as the Florida Retail Federation have pointed out that without a base rate increase, the typical customer bill would decrease about $3 a month.

At a customer hearing in suburban West Palm Beach in June, Kelly said, "This case is not about fuel. This case is about FPL's request for a 16 percent increase in your base rates.

"Whatever FPL pays for fuel, you pay for fuel. Natural gas prices are low right now. No one — not me, and not FPL — can predict what natural gas prices will do next year," Kelly said.

Silagy said customers have told FPL what they care about is the total bill. FPL has the lowest residential customer bill of Florida's 55 utilities. Compared with the state average of $125.70 for 1,000 kilowatt hours, the FPL customer is saving $373 a year.

Kelly is calling for a $253 million decrease in FPL's base rates, which would come mostly from a reduction in the company's profit (known as return on equity or profit) to a midpoint of 9 percent. Its current rate is 10 percent, and FPL is asking for an 11.5 percent profit.

Wednesday, Silagy said a 9 percent profit would be the nation's lowest for an electric utility.

"J.R. wants us to have the lowest, why?" Silagy said, adding that a poorly performing utility in another state was punished by being given a low profit. FPL is one of the nation's highest-performing utilities.

In pre-filed testimony, Office of Public Council witness J. Randall Woolridge, a Pennsylvania State University Finance professor, recommends either 8.5 percent or 9 percent profit depending on other factors.. Woolridge said the utility industry is low risk.

On Wednesday, Kelly said, "That is what our cost of capital expert recommends is a fair and reasonable return. In the Gulf Power case we recommended 9.25. Gulf does not have as strong a capital structure."

"They are given a monopoly area to operate in. They are required to provide safe and reliable service. They have the right to recoup prudent and reasonable incurred expenses and earn a fair and reasonable rate of return on their investments," Kelly said of FPL.

"I am not looking to punish anybody," Kelly said. "We stand behind our testimony that we filed."