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My Turn
Other Views from Those in the Know
Rick McAllister
President and CEO, Florida Retail Federation
FPL’s Rate Request Asks For Too Much

Florida Power & Light Co. customers should make their voices heard on the company’s request for higher electricity rates by attending the Florida Public Service Commission’s public hearings.

The Florida Retail Federation is representing customers opposing the increase, and we would like to respond to some of the points raised by the utility.

A $690 million rate hike is not necessary for FPL to continue generating healthy profits. In its public statements attempting to justify the rate increase, FPL accurately points out the many good investments the company has made in our state’s energy infrastructure. We appreciate these investments, and believe that current rates will allow FPL to continue providing the safe and reliable service we have come to expect.

According to its filings, FPL’s present rates give the company at least $10.4 billion a year in revenue, even assuming a pessimistic sales outlook. That estimate includes about $1.2 billion in profit, which is one of the key issues at stake in the rate case.

During these hearings, customers should pay attention to the term “return on equity,” which is another way of saying “profit.” FPL is seeking an “adjustment” to its return on equity. In fact, this adjustment is a request for a substantial increase in the profit FPL can take from its captive customers.

We believe that FPL is asking for an excessive profit – 11.5 percent after taxes, which is about 18.7 percent before taxes. Allowing FPL its current after-tax return of 9 percent is more than enough, and probably generous, since FPL is a monopoly provider of electricity. Maintaining FPL’s return on equity at 9 percent would reduce the requested increase by nearly half, about $340 million a year.

Of course, FPL will make even more money if it sells more electricity. In Florida, with a growing population, most other utilities are expecting sales to go up next year. In contrast, FPL has based part of its requested rate hike on projections that it will sell less electricity in 2013 than in 2011.

Sales projections matter. We estimate that a 1 percent increase in FPL’s annual sales generates about $44 million in additional base rate revenue. That means FPL’s “need” for a base rate increase would be reduced by a comparable amount, and we believe that FPL has understated its projected sales by more than that.

FPL is entitled to recover fuel costs dollar-for-dollar, and any reduction in fuel costs must be passed back to customers. So, if the PSC were to deny the requested base rate hike, customer bills would go down by the amount of the lower fuel costs. Fuel costs go up and down, but a base rate increase is very likely forever.

To put the proposed increase in perspective, let’s look back to FPL’s last rate case, which it filed in 2009. FPL asked for increases of more than $1.25 billion a year. Then, as now, the Florida Retail Federation challenged the company’s request. The Public Service Commission determined that FPL was entitled to increases of only $76 million a year. Since then, FPL has continued to enjoy very high profits and substantial increases in the company’s stock price.

As a monopoly provider of electricity in some of the nation’s largest markets, FPL has a good thing going. As a regulated utility, it has a duty to offer safe and reliable service at the lowest possible cost. FPL’s captive customers, both residential and commercial, should not be asked to pay more.

Rick McAllister is president and CEO of the Florida Retail Federation.

by Dr. Radut.