As Hurricane Matthew bore down on South Florida last week, Florida Power & Light’s executives agreed to back off the $1.3 billion rate increase it was seeking for the next four years and instead signed off on a $811 million settlement.
The deal, signed by FPL CEO Eric Silagy and the lawyer who represents the public in rate cases, J.R. Kelly, must be approved by the state’s Public Service Commission. If regulators agree, FPL would start charging customers $400 million in additional base rates beginning in January and at least $411 million in additional rate increases over the remaining three years of the settlement.
After the first year, rates would rise $211 million in 2018, and another $200 million in 2019, when a new power plant in Okeechobee comes on line. The monthly increase at the end of the four years for a customer that uses 1,000 kilowatt hours a month would be would be about $9.48, starting with $5 more next year. It is less than the $13.23 increase the company initially projected.
But these may also not be the only increases customers see in their electric bills. FPL is barred from seeking any other rate increases until 2021 under the settlement, but the plan allows regulators to increase the company’s rates for other projects.
For example, the company would be allowed to petition to build as much as 1,200 megawatts of new solar generation and charge customers for the investment, but FPL would have to demonstrate that the solar projects are cost effective.
“After months of negotiations, we are pleased to have reached a fair, long-term agreement with the Public Counsel and major customer advocacy groups,’’ Sarah Gatewood, FPL spokesperson, said in an emailed statement.
Kelly, who initially opposed FPL’s record rate request and instead argued that the company should be required to reduce base rates, said the settlement was his best chance at getting a good deal for customers in the face of the pro-utility regulatory board.
“At the end of the day, it's got pain on all sides, which generally means it's a pretty good settlement,’’ he said.
Also joining the settlement is the South Florida Hospital and Healthcare Association and the Florida Retail Federation. Not joining the deal were other parties who opposed the rate increase including the Sierra Club, the Florida Industrial Power Users Group and the federal executive agencies, which include the military.
Environmental advocates have reservations about the proposal.
"Solar is Florida's home-grown energy resource and it is a better deal for Floridians than FPL's dangerous over-reliance on natural gas," said Sierra Club Florida Director Frank Jackalone, whose group intervened in the case. "We are pleased to see that FPL will not receive a blank check from their ratepayers for constructing dirty, expensive and unnecessary gas plants. While we are also pleased to see additional solar on the table, significant legal flaws remain. It's a strong start but we're taking the time we need to fully evaluate the proposal before moving forward."
“The proposed settlement ensures that FPL will continue to earn huge profits,’’ said Susan Glickman, executive director of the Southern Alliance for Clean Energy. “They made over $1.6 billion last year in profit and with this agreement, they will earn about $1.6 billion again next year. Customers should know FPL uses those profits to bankroll anti-consumer efforts like the deceptive Amendment 1 campaign to make it harder for homes and businesses to have solar on their roof.”
She said that while the proposal to allow for 1,200 megawatts of solar distribution “is a good thing” the proposed settlement does not mention customer-owned rooftop solar.
Under the plan, FPL shareholders will be able to earn higher profits from the monopoly utility. The company currently is allowed to earn a return on equity — or shareholder profits — within a range of between 9.5 percent and 11.5 percent. The new range will be 9.6 percent and 11.5 percent.
If the amount of revenue the company has to return to shareholders dips below 9.6 percent, FPL will be able to ask for a new rate case to charge customers more money. If the shareholder profits are above 11.5 percent, the PSC can ask for the rate case to order the company to lower its profit structure.
In June, FPL reported to regulators that it was earning an 11.5 percent ROE. FPL initially asked to increase the allowed range of profit to no lower than 10.5 percent ROE and no higher than 12.5 percent ROE, including an incentive bonus that rewards the company for “good performance.”