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FPL Agrees to Freeze Rates Through 2012

Florida Power & Light would freeze its base rates for two years under an agreement reached with customer representatives now awaiting regulatory approval.

The agreement, announced by FPL Friday, would lock rates until the end of 2012, as well as holding the company’s return on equity, or profit margin, at 10 percent. It would give FPL the power to ask the Public Service Commission to raise rates if the company’s ROE dips below nine percent, while the consumer groups can initiate a rate proceeding if return on equity rises above 11 percent.

As part of the deal, FPL, which serves South Florida and much of the Atlantic Coast, will drop its requests that the PSC reconsider parts of its rejection of the company’s request for a $1.25 billion rate increase earlier this year and won’t appeal the overall decision.

FPL had asked the PSC to adjust the amount of working capital it said would be left after a fuel recovery refund. The company also requested adjustments to projected revenue related to the rejection of a late payment charge and asked for a review of the company's executive incentive compensation package.

Instead, the PSC will now have to approve the agreement at its Aug. 31 meeting. FPL president Armando Olivera said Friday that it was a fair deal.

“We think this agreement is in the best interest of all of the parties involved, especially our customers,” Olivera said in a statement. “Our typical residential customer bill is already the lowest of all 55 utilities in the state of Florida, and with this agreement, base rates will remain flat until 2013. We appreciate the willingness of those who represent Florida’s electric consumers to work with us on an agreement that will help provide financial stability for customers and the company alike.”

“Today’s agreement is a reasonable compromise that will still enable us to maintain high-quality service for our customers,” Olivera concluded.

While base rates will be frozen, bills still could fluctuate as the power company, the state’s largest, passes on changes in fuel and other costs.

Rick McAllister, president of the Florida Retail Federation, which was one of the customer representatives with whom FPL reached the settlement, also said it was a good deal.

The groups, he said, “have come to an agreement that we believe is good for customers. It forestalls rate increases for a couple years and there’s no rate increase immediately. We’re hoping that the (PSC) will listen to the settlement agreement and act accordingly.”

However, McAllister said he would like to see more agreements between consumer groups and the utility companies, and for longer.

“We need a better process for understanding the real utility needs in Florida and for consumers to get involved,” he said. “It’d be much better if the consumer groups worked with power companies to figure out what our utility needs are and how we can get there considering what the consumer can afford.”

Among the possibilities, McAllister said, is sharing the cost of infrastructure among power companies in the interest of improving the state’s power grid. Friday’s deal is good, but still a long way off from that, McAllister said.

“This is a negotiated settlement for the immediate future, not 10 years from now or 20 years from now,” he said. “That’s how we need to be thinking, with a good combination of renewable, nuclear and fossil fuels.”

Another intervener, Attorney General Bill McCollum’s office, said Friday that the agreement would forestall customers from paying for a new unit at FPL’s facility in Palm Beach County.

“The agreement stipulates that the cost of construction for FP&L’s West County Unit 3 will be offset by the decrease in fuel costs associated with the plant so FP&L customers will not see any increase in their bills for construction costs of the plant during this time,” McCollum said in a statement.

Other parties to the settlement agreement were the Office of Public Counsel, the Florida Industrial Power Users Group, the South Florida Hospital and Healthcare Association, the Federal Executive Agencies and Associated Industries of Florida.

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