FPL seeks $518 million in fuel cost recovery

Florida Power & Light Co., a unit of FPL Group Inc., said it will seek to recover $518 million in higher than projected fuel costs to produce electricity this year. After accounting for an offsetting refund, residential electric rates could increase by about 13 %/ kw-hr, the company said. FPL said it is studying ways to limit the increase to 9%, including asking the Florida Public Service Commission (PSC) to spread the increase over 2 years rather than the standard 1-year recovery period.

Aug 25th, 2000


Florida Power & Light Co., a unit of FPL Group Inc., said it will seek to recover $518 million in higher than projected fuel costs to produce electricity this year.

After accounting for an offsetting refund, residential electric rates could increase by about 13 %/ kw-hr, the company said. FPL said it is studying ways to limit the increase to 9%, including asking the Florida Public Service Commission (PSC) to spread the increase over 2 years rather than the standard 1-year recovery period.

FPL said it will file with the commission in September for permission to recover the expense in customer bills beginning Jan. 1, 2001.

The company noted the cost of oil used to generate electricity has more than doubled since the first quarter of 1999, and since January 2000, oil prices have risen 44%/bbl. Officials also pointed out natural gas prices have climbed 77% since January 2000. And with the onset of winter, the company warned natural gas prices may increase further as demand for heating fuel increases.

PSC Director of Electric and Gas Joe Jenkins said so are as he knows the company has not hedged its fuel purchases in the financial markets, but there is no prohibition against doing so.

"I don't know why they couldn't do it," he said, noting there are obvious pros and cons to such a strategy. Avista Corp. blamed second quarter losses on a rogue trader, while San Diego Gas & Electric Co.'s failure to fully utilize its hedging authority is part of an investigation into why its customers' bills have nearly doubled from last year.

An FPL spokesman says the company does a "a limited amount of short-term hedging-less than a month." In the past, he says, FPL's ability to switch between fuel and natural gas helped the company hedge its fuel costs. But with oil and natural gas prices both in record territory, that strategy isn't effective today.

In a statement, FPL Pres. Paul Evanson said company employees who have "worked so hard to keep customers' bills low" find it "very disturbing to incur these extraordinary and uncontrollable fuel costs. Both oil and natural gas prices have gone through the roof and are remaining at levels beyond what energy analysts had predicted.''

About $75-$100 million from a revenue-sharing agreement reached with the PSC and Florida Office of the Public Counsel in April 1999 will be used to help offset the impact of the $518 million in higher fuel costs, the company said.

"Since 1985, we have reduced our base rates�which don't include fuel costs�by 10% Evanson said.

At the end of 1999, nuclear power accounted for 27% of FPL's electricity generated, oil and natural gas each made up 25%, and purchased power and other resources totaled 23%.

FPL and Entergy Corp. reported July 31 they reached an agreement merge, creating the nation�s largest electric utility holding company and largest producer of power in a stock-for- stock $27 billion deal, including debt.

The combination of the two electric companies is billed as a merger of �equals��no stock price premium for either company was part of the deal. FPL serves 3.8 million customer accounts in Florida.

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