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Making 'cents' of the proposed FPL Rate Hike
• Should consumers shoulder corporate profits?
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Saturday,
July 11, 2009
Florida, Power & Light (FP&L) is one of five investor-owned utilities (IOUs) in Florida. IOUs are state-regulated monopolies that exist to make a profit for their stockholders while serving the public. Similar to any other publicly traded company, FP&L raises operating capital through stock sales, taxable bonds and operating revenues.
Of the five IOUs that serve Florida, FP&L is the largest, serving approximately 4.2 million customers, or roughly 62 percent of customers served by the five IOUs (click on investor-owned utility map under files to the right).
Other companies providing Floridians with electricity include municipally-owned power utilities and cooperatives, both of which, on average, charge their customers more than we pay FPL for our power. However, the majority of Americans believe that publicly-owned utilities are more concerned about the environment, offer lower rates, allow more control over utility operations, and have better service than private power companies such as FP&L, reports the Florida Municipal Electric Association website.
The reason for raising FP&L’s base rate hike for the first time since 1985, says FP&L Corporate Communications VP, Tim Fitzpatrick, is to shape FP&L stocks into a more lucrative investment for shareholders or, more simply put, to increase company profits. Fitzpatrick says FP&L needs $16 billion over the next five years to continue delivering reliable service and to meet customer’s needs.
Since FP&L first announced their request for a rate hike earlier in the year, irate customers and public officials have gathered in numbers to speak out against FP&L’s base rate hike at public customer service meetings sponsored by the power company in Broward, Miami Dade and Palm Beach counties.
In addition, Florida’s Public Counsel, the state Attorney General, the Florida Industrial Power User’s Group and the Florida Retail Federation have all filed their objections to the rate hike with the Florida Public Service Commission (FPSC), the state-run regulatory commission that oversees utility rates.
Arguments for or against the FP&L base rate hike are philosophical at best. As consumers, should we bear the brunt of making FP&L stock a more attractive investment? The answer is yes, because without selling power to consumers, FP&L would have no shareholders. However, should consumers be held accountable for FPL company profits in the form of a base rate hike?
Probably not, and for good reason.
Florida Light & Power is one of two principal subsidiaries of publicly-traded FPL Group Inc. The other is NextEra Energy Resources, a renewable energy powerhouse responsible for recent FPL Group gains. In January 2009, prior to the company’s formal request to raise rates, the company announced that they nearly doubled their net income in fourth-quarter 2008 to $408 million – or $1.01 per share – up from $224 million (56 cents a share) in the year-ago period. Adjusted earnings for the stock went from 72 cents to 90 cents a share and last quarter revenue from $3.68 billion to $4 billion. Not bad for recessionary times.
Profits rose again in first-quarter 2009. This time, more than 45 percent over a year earlier, reports Wall Street Journal’s MarketWatch.
At their current rate of profitability, it would seem as though FP&L could certainly raise the $16 billion they need over the next five years without a base rate hike. In fact, looking at FPL Group Financial Highlights 2007-2008 you’ll see that the company has performed incredibly well over a short period of time, despite a decline in energy sales, diminishing FPL customer accounts and a recession.
In a recent letter to shareholders, FPL Group Inc. CEO, Lewis Hay III, boasted how FPL Group has outperformed 84 percent of companies in the S&P Utility Index and 85 percent of companies in the S&P 500 Index, as measured by shareholder return over three-year, five-year and ten-year periods. Doesn’t sound much like a company hurting for profits. Check out the FPL Group Inc. performance graph.
Will the Florida Public Service Commission give FP&L their rate hike? Probably. If for no other reason FPSC commissioners more than likely have FP&L stock buried deep within their investment portfolios, which is what all of us should have purchased after Wilma – lots of FP&L stock (kudos to those of you that did). Click here to see Wall Street gains posted by FPL Group Inc. after the storm.
Customer service hearings regarding the FP&L rate hike are over, but you can still speak out by writing to the Florida Public Service Commission at Office of Commission Clerk, 2540 Shumard Oak Boulevard Tallahassee, FL 32399-0858, or by faxing the FPSC at 1-800-511-0809.
You can also email FPSC commissioners at contact@psc.state.fl.us.
A final vote on whether to award FP&L a base rate hike of roughly 30 percent is expected by the FPSC on November 19, 2009.
In addition, feel free to write, fax, call or email Florida Senators and State Representatives by clicking here.
You're familiar with the adage “If you can’t beat ‘em, join ‘em.”
You may want to consider purchasing a few shares of FP&L stock in the near future. It’ll help offset the impending rate hike.
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