Saying it delayed a rate increase as long as possible, Gulf Power Co. on Monday began trying to convince state regulators that customers should pay an additional $93.5 million a year for electricity, reports Jim Saunders of the News Service of Florida.
Top executives told the state Public Service Commission that Gulf has not received a base-rate increase in nearly a decade and needs to collect more money to continue upgrading its Northwest Florida system.
“We asked for what we thought we needed,” Gulf President and Chief Executive Officer Mark Crosswhite told the commission on the first day of a week-long hearing. ” We didn’t pad it.”
But attorneys for consumers and business groups argued that Gulf far overstated the need to raise rates, contending that the utility had only justified a $16.2 million hike.
“Gulf simply doesn’t need any more than that to continue providing safe, reliable and adequate service,” said Robert Scheffel Wright, an attorney for the Florida Retail Federation, which often becomes involved in utility issues.
Gulf’s request likely will be the first of three major rate cases that the Public Service Commission will consider during the coming year. Florida Power & Light and Progress Energy Florida in early 2012 are expected to seek increases in base rates — the billions of dollars that flow to utilities each year to cover many of their day-to-day costs.
Base-rate cases involve myriad details of utility financing. But looming over the Gulf case are questions about how much customers should be required to pay amid tough economic times, an issue that was raised during earlier public hearings in the Panhandle.
“One of the themes we seemed to hear (was), ‘This is just bad timing,’ ” Commissioner Lisa Edgar said as she questioned Crosswhite about money-saving steps the utility has taken.
Base rates make up part of customers’ electricity bills, along with costs for such needs as power-plant fuel and environmental compliance.
Gulf earlier this year proposed a $93.5 million base-rate increase. That total has increased to about $101 million because of a shift of costs from the environmental-compliance part of customers’ bills. But because it is a shift, Gulf says the bottom-line impact on customers would be $93.5 million.
Currently, a Gulf residential customer who uses 1,000 kilowatt hours a month of electricity pays $127.16. That number will drop slightly to $125.80 in January because of lower fuel and environmental costs. But if the PSC approves Gulf’s base-rate proposal, the customer bill would jump to $133.46 in April.
Utilities commonly use 1,000 kilowatt hours as a benchmark, though many customers use more power than that each month. After the hearing this week, the commission could make a decision as early as February about whether to approve Gulf’s proposal.
Attorneys for consumers and business groups criticized the proposal on a series of grounds Monday. For example, they targeted money that the company wants to use for employee bonuses and money that would go toward purchasing 4,000 acres in Escambia County for a possible future nuclear-power plant.
While Gulf says it is justified in seeking money for the land purchase, state Associate Public Counsel Joe McGlothlin said the company has not taken initial regulatory steps for a nuclear plant.
“In this case, the cart is about a city block in front of the horse,” said McGlothlin, whose office represents consumers in utility issues.
Perhaps the biggest issue during the hearing will be how much money Gulf should be able to earn through base rates. The company is seeking an 11.7 percent return on equity, a common measure of profitability, but opponents say that number should be limited to 9.25 percent.
Vicki Gordon Kaufman, an attorney for the Florida Industrial Power Users Group, a business group that includes heavy users of electricity, described the 11.7 percent proposal as “pretty shocking.”
But Gulf officials said they need to offer returns that will attract investors to help finance costly improvements in the company’s electric system. Chief Financial Officer Scott Teel said Gulf’s return on equity dropped from 12.75 percent in 2007 to 9.5 percent in 2010 and has continued to sink this year.
Crosswhite said the utility has taken steps to hold down costs and is concerned about financially strapped customers’ ability to pay for electricity. But he said he also has concerns about being able to provide adequate service if the company does not receive a base-rate increase.
“We tried to push this case off as long as we could,” Crosswhite said.