Florida Power & Light has suspended work on an estimated $10 billion in projects -- including the controversial expansion of Turkey Point nuclear plant – after state regulators rejected the utility's proposed rate hike.
The Public Service Commission voted Wednesday to deny FPL's request for a $1.27 billion base rate hike. Instead, the PSC approved an increase of just $75 million. FPL officials said the PSC decision increases the company's risk, could boost costs for borrowing money for projects and may result in layoffs at the company.
FPL halted a conversion of FPL's Riviera Beach and Cape Canaveral power plants from oil to natural gas and put two new reactors at Turkey Point on hold – except for the process of applying for permits. FPL officials say they plan to make final decisions on the moves by late June.
Regulators said the utility passes most of its costs to customers through charges other than base rates and the commission typically allows utilities to bill customers for new power plants that are needed.
Crist had opposed FPL's rate hike and appointed two outsiders to the five-member commission last year after some critics said it was too "cozy" with utilities.
Since then, the commission rejected FPL's proposal for a $1.5 billion natural gas pipeline, required the utility to beef up energy conservation goals and all but rejected the utilty's base rate increase. When asked last year about investors' concerns that Florida is moving away from a state that's considered utility friendly, Crist shot back, "To one that's people friendly?"
But more regulation doesn't sit well with investors – whose money helps fund most major utility projects. That means the utility's cost of borrowing money for them rises, costing customers more.
"The regulatory climate in Florida continues to deteriorate and is increasingly hostile to investment.," FPL Group Chairman Lew Hay said.
Shares of FPL Group closed Friday on the New York Stock Exchange at $50.55,. The price compares to highs and lows over the past year of about $60 and just under $42.
FPL Group's strong credit ratings – higher than those of most utilities in Florida – were put under review this week by Standard & Poors and Fitch Ratings, firms that evaluate the financial strength of companies. Analysts said that despite automatic cost-recovery mechanisms that public utilities unlike other industries enjoy, the commission's decision may scare some potential investors away.
"There will be some skepticism by investors," said BMO Capital Markets Analyst Michael Worms.
Under state law, FPL can ask the commision to reconsider the rate hike decision, appeal to the state Supreme Court or ask for another base rate hike as early as 60 days after telling regulators it plans to request one. "We have not ruled out any of our options," said FPL Spokesman Mayco Villafana.
The projects FPL is suspending include:
Building two new nuclear generators at Turkey Point, which cost up to $18 billion and power about 1 million homes with relatively cheap, reliable energy.
Converting its Riviera Beach and Cape Canaveral power plants from oil to natural gas to make them more energy-efficient. The upgrades are estimated to cost $2.4 billion combined.
Submitting its proposal for a $1.5 billion natural gas pipeline to boost Florida's supply of the fuel.
The utility said the projects would have created 20,000 jobs, including about 500 directly and thousands of others for contractors and vendors. FPL Contractor Zachry Holdings in San Antontio said the move affects 2,000 construction jobs and Siemens Energy in Orlando said 250 engineering and other jobs are affected.
FPL, could still move forward with the Turkey Point, Cape Canaveral and Riviera Beach projects since the commission has already approved the need for them.
"Given FPL's high equity ratio and relatively strong financial position…it should have no problem to borrow for the capital projects this commission has already approved," Commissioner Nathan Skop said while weighing the rate hike Wednesday. Andrew Maurey, a commission employee, said each drop in a rating for a company can in a "worst-case scenario" cause the long-term borrowing rate to rise 0.5 to 1 percent.
Information from the Associated Press was used to supplement this report.