May 9, 2006

Florida Power’s Bid to Sell Hurricane Bonds May Be Scaled Back

By Darrell Preston, Published in Bloomberg News / BusinessWire

— Florida Power & Light Co.’s bid to sell $1.72 billion of bonds backed by customer charges to cover hurricane costs was reviewed by regulators, who recommended the utility sell a third less debt than the company requested.

Staff of the Florida Public Service Commission recommended the company issue about $1.13 billion in debt to recover costs incurred from hurricane damages in 2004 and 2005, and to build a reserve for future losses.

“We are certainly disappointed with the staff recommendation in light of the evidence presented to the commission and its staff,” Florida Power said in a prepared statement from spokesman Jim Davison. “These costs are not otherwise recovered through any other charges.”

The commission’s recommendations may be changed or modified when the commission votes on a final order May 15. The order will determine how much of a surcharge Florida Power customers will pay to cover payments on the hurricane bonds. The utility is unable to get insurance for its distribution system and must borrow to rebuild.

Juno Beach, Florida-based Florida Power, which serves about 4.4 million people, would collect an extra $1.58 per thousand kilowatts of electricity over the bonds’ 12-year life if the commission grants its full request.

‘Sharing of Costs’

Florida Power said in its statement that it “only asked to recover costs associated with restoring power to our customers as safely and quickly as possible.” The commission staff said the commission can “require a sharing of costs” between the company and its customers for rebuilding lines and poles after hurricanes.

“It seems the staff came to a reasonable recommendation after hearing the evidence,” said Harold McClean, who as public counsel represented ratepayer in hearings on the utility’s request last month. “The commission will be free to decide what it wants.”

Last year Florida’s lawmakers became the first in the U.S. to approve legislation allowing utilities to sell bonds to cover hurricane repair costs. States in hurricane-prone regions including Louisiana and Mississippi are considering similar bond programs.

Bonds backed by a guarantee that regulators will set customer charges high enough to repay the debt typically carry the highest ratings. U.S. states have sold $30 billion of such bonds in the past few years, mostly for utilities in deregulated states to recover investments made before the market was opened.

Commissioners also must decide whether to compel the utility and its financial adviser and underwriters to certify that they sold the bonds at the lowest possible interest rate, as was required for similar utility-bond deals in Texas and New Jersey.

The staff recommended that the commission adopt a “lowest-cost” standard, and that the commission and its financial adviser play an active role in overseeing the bond sale to obtain the lowest possible cost.

—Editor: Williams

To contact the reporter on this story: Darrell Preston in Dallas at (1) (214) 954-9454 or dpreston@bloomberg.net.
To contact the editor responsible for this story: Beth Williams (1) (212) 318-2307 or at bewilliams@bloomberg.net.