Florida regulators reject smaller electric rate increase than requested by Progress Energy

By Bill Kaczor, AP
Tuesday, January 12, 2010

Fla. regulators reject Progress Energy rate hike

TALLAHASSEE, Fla. — State regulators 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 commission also will vote Wednesday on a $1 billion rate increase being sought by Florida’s biggest electric company, Florida Power & Light.

The rate decisions are coming on the heels of allegations the commission and its staff have been too cozy with utilities the panel regulates. That’s resulted in legislative proposals ranging from a ban on off-the-record communications with utilities to going back to the election, instead of appointment, of commissioners.

Both proposed increases drew opposition from Gov. Charlie Crist and other politicians. They’ve called the requests excessive particularly at a time of economic distress for consumers.

“The decision of the commission basically reflects matching being fair to the rate payers and the company but also appreciating the economic realities that exist today,” said Commissioner Nathan Skop.

Commissioner David Klement agreed, saying “We’ve done justice to all parties.”

Company president Vincent Dolan said in a statement that he realizes there’s never a good time to raise rates but the commission’s decision will set back Progress Energy’s efforts to improve its aging plants and facilities.

“The decision will mean a more expensive and less reliable system for Florida customers,” Dolan said. “We may see an increased cost of capital and a reluctance of investors to put capital at risk in the Florida market.”

The vote was the first major decision for the five-member panel’s two newest commissioners, both appointed by Crist. In doing so, Crist passed over two incumbents, saying he wanted to give the panel some “new blood.”

The commission last year also agreed to delay both rate cases at Crist’s request until each of his new appointees, Klement and Ben “Steve” Stevens, had taken office.

Stevens, a certified public accountant and bar owner from Pensacola, was sworn in last week. Klement, a former journalist and university administrator from Bradenton, joined the commission in October. Neither has ties to utilities nor prior experience regulating them.

Commission staffers had recommended only a $48 million rate increase, or about a tenth of what Progress requested. The company’s proposal would have increased base rates by $9.66 a month for a residential customer using 1,000 kilowatt hours, which is about average for a small home.

The staff has recommended FPL should get $357 million — about a third of that company’s proposal, which would raise the 1,000 kilowatt hour rate by $8.55.

Progess Energy serves more than 1.6 million homes, businesses and other customers in central and north Florida. FPL has 4.5 million customers in South Florida and along the state’s east coast.

The commissioners voted on dozens of preliminary issues before setting Progress Energy’s annual revenue increase at zero.

The most significant decision was to allow only a 10.5 percent return on equity, or profit margin, instead of 11.25 percent recommended by staffers and 12.54 percent sought by Progress.

That change alone reduced the staff proposal by $38.7 million.

The commission, by a 3-2 vote, also agreed to halt further collections of about $6 million a year from customers for a reserve fund to cover future storm damage repairs.

Staffers told the panel the company can seek a post-storm surcharge to cover costs that exceed what it has collected until now. Also, money in the fund can be used for other purposes, but the company cannot charge customers again to replace those dollars if they are needed for storm repairs.

Those two decisions and some smaller adjustments brought the new revenue figure down to $5.8 million. Rather than approve a small rate increase to cover that amount, the commission voted 4-1 to deduct it from the company’s nearly $700 million depreciation surplus.

Chairwoman Nancy Argenzenio opposed that move. She wanted the entire surplus paid back to customers.

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