June 7, 2006

Florida Power Asks Regulator to Reconsider Hurricane Bond Order

By Darrell Preston

FPL Group Inc.’s Florida Power & Light Co., which won approval to sell bonds backed by customer charges to pay for hurricane costs, wants a state regulator to revise language in documents governing the sale to eliminate requirements the utility said it may not be able to meet.

Florida Power won the right on May 15 to sell $1.13 billion of hurricane recovery bonds from the Florida Public Service Commission, less than the company’s request of $1.72 billion. While the company doesn’t plan to challenge the reduction, it took issue with parts of the financing order, including a requirement that the bonds be structured in such a way as to eliminate all credit risk.

“This isn’t about money,” spokesman FPL spokesman James Davison. “We’re hoping to change some things in the order that we think could be problematic.”

The request, which will be reviewed by the commission, isn’t expected to affect the utility’s plans to bring the bonds to market in August, said Kevin Bloom, commission spokesman. Florida Power needs the funds to cut debt incurred to rebuild after hurricanes in 2004 and 2005.

Juno Beach, Florida-based Florida Power wants to be the first U.S. utility to sell bonds backed by a ratepayer charge to repay costs of rebuilding after hurricanes. Texas, Mississippi and Louisiana are planning similar hurricane bonds, which offer top ratings and lower costs. Utilities in hurricane-prone states can’t obtain insurance to repair power lines, transformers and other equipment damaged by storms, so they borrow to rebuild and turn to regulators to recover costs.

Reconsideration Requested

At least $30 billion of bonds backed by ratepayer charges have already been sold to help utilities recover investments before utility deregulation and to pay for costs of installing pollution control equipment.

Florida Power filed a motion for reconsideration yesterday with the Tallahassee-based commission. The motion said several aspects of the order authorizing the bonds “create significant uncertainty and unduly and unnecessarily constrain the bond issuance process.”

The company said most of the requirements it wants reconsidered were added after the commission voted on the order, some of which “impose obligations on FPL that simply cannot be met,” according to the motion. For example, the company challenged a requirement that the bonds be structured to eliminate credit risk.

“We think the Securities and Exchange Commission will take a dim view of some of the things in the order,” said Davison.

Adviser Role

The motion also challenges language in the May 31 order that results in “elevating” the commission’s financial adviser to a status above that of other members of the bond team. The adviser is given responsibility by the final order that goes beyond what is allowed by state law and the order originally approved by the commission, FPL said.

The financial adviser and top underwriter are required to certify that the bonds were sold at the lowest possible cost, a recommendation that came from the commission’s staff based on testimony from the adviser, Joseph Fichera, chief executive of Saber Partners in New York, about “best practices” for ratepayer-backed bonds. Fichera declined to comment.

“We’re going to consider the questions,” raised by the motion, said Bloom. “I don’t expect it to delay the bond sale. We are proceeding apace.”

Florida Power last month said it might ask the commission to reconsider the amount of debt it could sell to recover costs because the decision was based on “faulty analysis and selective reading of evidence.”

–Editor: Williams.

To contact the reporter on this story:
Darrell Preston in Dallas at (1)(214) 954-9454 or at dpreston@bloomberg.net.

To contact the editor responsible for this story:
Beth Williams (1) (212) 318-2307 or at bewilliams@bloomberg.net.