T&D World Magazine

Florida PSC Approves FPL's Fuel Cost Adjustment for 2006 Bills, Reflecting Volatile Global Fuel Costs, Hurricane Impacts in the Gulf

The Florida Public Service Commission, the regulatory authority that oversees costs customers pay for electricity, has approved Florida Power & Light Company's request for a fuel cost adjustment on customer bills beginning in 2006.

The adjustment reflects the extraordinary expenses for fuel used to generate electricity during a period of skyrocketing global energy costs compounded by the impact of major hurricanes this summer on natural gas and oil production and distribution in the Gulf of Mexico.

The adjustment will result in an increase of $16.99 - or 19 percent - on a typical 1000 kWh monthly residential electric bill. That bill will increase from the current $91.62 to $108.61. Commercial and industrial customer bills will increase from 30 percent to 41% since fuel makes up a larger portion of their bills. The increase will be reflected in customer's bills beginning Jan. 1, 2006.

FPL's total fuel costs to be recovered in 2006 will exceed $6.5 billion dollars. The total fuel adjustment is composed of the projection for fuel costs in 2006 and fuel costs for the first nine months of 2005 that were not collected through the 2005 adjustment.

"Just as you go to a gas station to fill your vehicle, FPL buys fuel from fuel providers to power our power plants and just like you are paying higher prices, we are paying higher prices for the fuels we use to generate electricity on your behalf," said Armando Olivera, FPL president. "We are committed to seeking ways to produce electricity at the lowest possible cost for our customers."

FPL makes no profit on fuel used to generate electricity. FPL buys only the fuel required to serve customers and meet their electricity consumption needs -- a 30 percent increase in consumption per household since 1985. Because fuel prices are a direct pass through, FPL customers will never pay a penny over what the company pays to cover its fuel costs. And, if fuel prices should once again recede, the fuel price portion of the electric bill - which will be more than half of a customer's bill in 2006 - would be reduced.

FPL has taken a number of actions to mitigate the fuel price volatility on customer bills:

While FPL cannot control factors driving world fuel prices, the company has taken a number of aggressive actions to mitigate the volatility of these extraordinary fuel costs and their impact on customers. Without these efforts, fuel prices would be even higher.

  • FPL is a firm believer in the value of fuel diversity to help stabilize fuel costs as well as to maintain and improve overall system reliability. FPL's generation mix includes nuclear (21%), coal (6%), purchased power (18%), oil (18%) and natural gas (37%).
  • FPL makes maximum use of its nuclear generating units to provide as much low cost power from these non-oil and gas-fired units as possible.
  • While coal prices have been increasing as well, coal prices are far less than oil and natural gas and subsequently FPL has been maximizing its use of the limited coal-fired generation that it owns and increasing coal-fired power purchases whenever possible.
  • By taking advantage of the dual-fuel capabilities of a number of its generating units - that is, a number of plants can burn either oil or natural gas or a combination of both - FPL can take advantage of whichever of these fuel sources is least costly at any particular time.
  • FPL also employs a strategy called fuel hedging -- supported by the PSC -- as a method of providing some level of protection against volatility in fuel prices. Through its hedging strategy started in 2002, FPL will have saved its customers more than a half billion dollars by end of 2005. The company expects that its hedging activities will provide significantly greater savings to customers in 2006.
  • FPL's non-nuclear power plant fleet is 12 percent more efficient than just five years ago because FPL has spent more than $2.3 billion to re-power older, less efficient generating units and build new, state-of-the-art natural gas-fired units in order to improve fuel efficiency - they now take less fuel to produce the same amount of electricity.
Since 1999, FPL has been able to reduce base rates by 15% or approximately $4 billion. With the company's latest rate agreement announced in August, the benefits of those earlier rate reduction agreements have been extended through 2009. These agreements and the savings and refunds they provide have helped to offset somewhat the impact of the rising fuel costs on customers during this period of skyrocketing fuel price increases.
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