The Next Boom Got Busted in Florida

Florida is a state with great promise, a great location, but sometimes a bipolar political climate.  And the ‘Ugly Florida’ is on a rampage of late pushing aside the fun and tech savvy Florida so often portrayed in its brand messaging.  The latest temper tantrum by Ugly Florida was the one-two punch from the newly reconstituted Florida Public Service Commission rejecting most of the rate increase requests from Florida Power & Light and Progress Energy.

The FPSC ruling in FPL’s rate case allowed only a $75.5 million revenue increase compared to the $959 million requested this year an additional $427 million increase in 2011. Adding risk to injury, the FPSC also suspended revenue from customers for a storm repair reserve fund reducing its own staff recommendation by $50 million. FPL had sought $150 million a year for the fund that only has $215 million in it—hardly enough to pay for damage from even one tornado. Spreading the pain around like one of those Florida tornados, the Florida Commission also shut out Progress Energy (PGN) request for a $500 million rate increase saying that increasing utility bills at a time when consumers are being hurt by the recession was wrong.

What’s going on?

Politics, Fear of Backlash, and Terror in the Political Class!

The political class is running scared in Florida, and they should.  Governor Charlie Crist is running for US Senator and it seems everybody else is running for Governor.  Crist started the ugly Florida phase by dumping several members of the FPSC and replacing them with political storm troopers to give him more political cover and a ‘man of the people’ image.  The Governor’s image is being hurt by incumbency, the impacts of the recession, Florida seniors rising fury over health care reform, and the business community worry over policies like self-insuring against hurricanes that make Florida a much riskier place to do business.

Florida’s investor owned utilities are a well run group and they are not accustomed to being woodshedded.  So in response to the Commission’s order, FPL suspended investments in Florida worth about $10 billion over the next five years and called a halt to efficiency and reliability projects, as well as building new nuclear reactors and uprating its Riviera Beach and Cape Canaveral plants. This will cost Florida thousands of jobs—good jobs and is a shot across the eyebrows of politicians.

“What part of DO NOT SCREW THIS UP, don’t you understand?”

Both Standard & Poor’s and Fitch credit rating agencies put FPL on credit watch with negative implications saying that the FPSC’s lower-than-expected rate decision combined with the State’s crummy economic outlook “impede the ability of the company to achieve credit metrics that support current ratings”. These actions remind the politicians that bad decisions do have consequences and lower credit ratings for utilities raise the cost of debt just like for consumers.  In this case affecting the cost of more than $11 billion of debt securities and thus are the cruelest rate increase of all because neither ratepayers, the company nor Florida get anything of value from it.

So what?

So investment in Florida’s energy infrastructure will take a little longer and cost more, maybe much more.  Florida’s economy has a steeper climb out of the recession and the best stimulus of all private capital invested in real projects that create real jobs will now go elsewhere—or just go away.

Florida politicians seeking populist cover now own the problem of the Florida economy with nowhere to hide and better not wait for the Obama Administration to bail them out.  Enterprise Florida will fight back quietly but ruthlessly to get these politicians on the right track by starving them of campaign contributions.

FPL’s unregulated business is one of the nation’s leaders in clean and renewable energy with plenty of places to do business these days and so its focus can be on growing shareholder earnings and value outside the Sunshine state.  Progress Energy can hunker down and focus on its Carolina business.  Soon, perhaps sooner that the FPSC thinks, it will be hauling these companies back to rate court and “ordering them to build” to meet an expected energy shortage when the inevitable recovery materializes.

One more thing, Florida politicians better pray for good weather because there is not enough money in the state’s “rainy day fund” for anything more than damage from spring run-off.