Utility regulators reject FPL profit-making requestby Dara Kam | January 13th, 2010
The Public Service Commission dealt another blow to Florida Power & Light, this time unanimously rejecting a 12.5 percent return on equity sought in its $1.2 billion-a-year rate hike request.
The panel again went lower than their staff recommended, setting the return on equity – the amount of profit for shareholders – at 10 percent. PSC staff had recommended 10.75 percent.
FPL says it needs the higher return to allow it to borrow more cheaply to make investments in future projects.
But Commissioner Nathan Skop said this morning that the company already has other methods to recoup costs for construction and investment in power generation.
The commission has already slashed the staff’s recommended $357 million-a-year rate hike by more than half, cutting to nearly a tenth of what FPL had originally sought.
Commissioner Nathan Skop said the company could earn more than the 10 percent allowed if it “tightened its belt” elsewhere. The company also has very little risk because it is a geographic monopoly. And FPL also has a favorable debt-to-equity ratio, Skop said.
Finally, the bulk of what FPL charges its customers – more than 60 percent – come from other sources than the base rate, Skop said.
“Looking at that and looking at the current economic situation…utilities are just going to have to make due in these difficult economic times,” Skop said.
FPL says it needs the higher profit rate in part because the economy is continuing to deteriorate and it is getting more difficult to borrow money.
“In the midst of our rate proceeding, our ROE was 10.7% (May 2009) and since that time our ability to earn a fair rate of return on equity has continued to deteriorate. Our position is that the Commission should authorize 12.5% as the return on common equity. Granting FPL’s requested return on equity will appropriately take into account overall utility industry risks, as well as FPL’s need to invest $16 billion (investments) to provide service over the next five years. Granting FPL’s common ROE is critical to maintaining FPL’s financial strength and flexibility and will help FPL attract the large amounts of capital that are needed to service its customers,” FPL spokesman Mayco Villafana said in an e-mail this morning.