Rate deal gets monkey off utility's back
The decision by Central Florida's largest investor-owned electric provider signals the company's need to put the politically rancorous rate case behind it and seek some stability amid a regulatory environment in Florida that couldn't be more unhinged.
And Progress got some concessions too, namely the regulatory monkey off its back and a key reduction in certain expenses that will help improve its performance come earnings time.
Let's take a look at the politics at play in the background of this deal.
The agreement announced Monday gives Progress several years of certainty when it comes to its financial future rather than face what is sure to be the continued wild unpredictability of the Public Service Commission, which sets electric rates.
For most of the past year, since Progress requested the rate increase from the PSC, the state board has been besieged by allegations of ethical lapses, dramatic changes in leadership orchestrated by Gov. Charlie Crist and political back-stabbing.
At the center of the matter is just how much influence utilities, including Progress, wield over the PSC and the Legislature, which controls who serves on the commission. To be sure, the utilities as eager check writers during campaign season always seem to have their say and, in many cases, their way.
But the fervor over entanglements between Florida Power & Light executives and lobbyists and PSC staff carried the debate over influence to new heights, and Progress Energy was along for the ride.
It all started when a PSC lobbyist admitted he attended a Kentucky Derby party at the home of an FPL executive last year as the utility also sought a record rate increase. From there, a new level of scrutiny fell on the utilities' too-close ties with the body that regulates them.
FPL's request for a $1.3 billion-a-year base rate increase was also denied in January, but there are no such settlement talks in the works for it, a company spokesman said.
Crist's most recent appointments to the PSC were instrumental in defeating the utilities' attempts to raise prices, and so last month the Senate punished Crist by refusing to confirm the two, effectively firing them.
Now, with two additional PSC commissioners up for reappointment — including outspoken Chairwoman Nancy Argenziano — as many as four out of five commissioners could be gone by next year. The fact that a new governor will take office in January further complicates matters.
That's a lot of unpredictability at a time when Progress faces other obstacles in Florida. Not only is the company losing customers as Florida's population boom went bust, but routine maintenance on a nuclear plant has turned into what will likely be a year of expensive downtime and repairs after a defect was discovered in the wall that encases the reactor. In addition, it has slowed its timetable for building a new nuclear plant in Levy County as costs for it continue to balloon.
The agreement, which still must be approved by the PSC, carries some important protections for the company, such as allowing it to ask for new rate increases if its return on equity falls below a certain point and allowing it to reduce its expenses related to depreciation, which will increase its net income each quarter. That will make it easier for the company to attract investors and borrow money.
It's no wonder Progress wanted to settle.
Beth Kassab can be reached at email@example.com or 407-420-5448. Read her blog at OrlandoSentinel.com/thebottomline.