Customers in Florida unsold on bigger utility

South Florida Sun-sentinel

Lou Barry has seen his Florida Power & Light Co. bill soar because of hurricane-related surcharges and adjustments for higher fuel costs. So when parent FPL Group Inc. announced its planned $11.5 billion acquisition of Baltimore's Constellation Energy Monday, he wondered whether he's in effect paying for it.

"Are they going to give me free electric?" Barry, 68, of Boynton Beach, Fla., asked rhetorically. "If they've got the money to pull off a merger, then why are they taking money from me to pull themselves out of debt from the hurricane?"

Baltimore, with its long history of seeing its leading corporations acquired, views anything that looks like more of the same with a jaundiced eye. But Florida residents aren't overjoyed to be on the other side, either.

FPL executives defend the deal as something that will not directly cost ratepayers, since it will be paid for in stock, and will provide utility consumers with a better-balanced portfolio of power plants. FPL chief executive Lewis Hay III, who will lead the combined company, said Monday that there will be benefits for utility customers. "This transaction is primarily about building a bigger and better company," he said.

The companies said the merger would generate savings of $200 million to $250 million, but consumer advocates doubt whether ratepayers will see any of that.

"We take all the risk as the ratepayer," said Mike Bedley, a partner of Davie, Fla.-based APEX Power Services Corp., an energy consultant for business.

FPL Group's strong finances were partly the result of Florida Power & Light's ability to charge customers for the estimated $1.2 billion in hurricane repair costs incurred the past two years, said attorney Mike Twomey, president and founder of Florida Utility Watch, a consumer group.

The surcharge for last year's four-hurricane toll, which went into effect this year and will last through 2007, is $1.68 for 1,000 kilowatt-hours - a household's typical monthly usage. An additional surcharge to cover the rising cost of fuel will increase a typical residential monthly bill by $14 next year, the utility said.

"From their customers' perspective, it's been one whammy against their pocketbook after another," Twomey said.

Harold McLean, Florida's public counsel, lost his battle this year before the Florida Public Service Commission to make shareholders pay for any hurricane recovery costs. "Shareholders should have shared some of the risk. We didn't prevail," he said.

Claude Lewis of Vero Beach, Fla., was unhappy about Florida Power & Light before the deal was announced. His home lost power for nearly a week after Hurricane Wilma hit Oct. 24, and he's one of a chorus of people calling on the company to spend more on maintenance or to bury the lines.

Three-quarters of the utility's 4.3 million customers lost power during that storm, which hit land as a Category 3 and weakened to a Category 2 within two hours, according to the National Weather Service. Some residents' electricity was out for more than two weeks.

The company estimates that Wilma toppled 7,000 to 10,000 utility poles, at least as many as all four hurricanes knocked over last year.

"Their merger will just make them bigger and they'll probably be less responsive to their customers," said Lewis, 67, a retired restaurateur. "I don't think bigger is better."

But McLean said the merger shouldn't hurt consumers in his state. They may even benefit from Baltimore Gas and Electric Co. utility trucks getting to Florida more quickly to help restore power after a hurricane, he said.

"Nothing will change for the customers of Florida Power & Light," McLean said.

Even if the combined companies had a downturn, he said, "the regulatory process prevents them from raising their electric rates."

The deal is subject to approval by Maryland regulators but not by officials in Florida, though FPL said it would present details to the Florida Public Service Commission.

"The PSC has limited jurisdiction over securities transactions," McLean said. "It's just a case of state law being different."

Unlike in the last failed FPL bid for a company, Entergy Corp. in New Orleans, FPL executives will have no windfall from the merger. Hay said all executive team members have waived change-of-control payments. FPL and its top executives were sued by shareholders after collecting $62 million in payouts even though the deal with Entergy fell through in 2001.

Eileen K.W. Cudney, executive director of the Broward League of Cities, whose member communities were particularly hard-hit by Wilma's disruptions, said local leaders aren't keen to criticize FPL because - like Constellation - the company is very active in civic affairs. But the October hurricane and extra charges seem to have sapped the goodwill FPL has carefully amassed. There are calls for task forces, for legislative intervention, for refuse-to-pay-your-bill protests.

The company defends its maintenance record, though Karen Vissepo, a spokeswoman for Florida Power & Light, said officials are investigating ways to strengthen the system in the face of stronger and more frequent hurricanes.

Dave Parker, a utility analyst who works at Robert W. Baird & Co.'s Tampa office, doubts the company could have prevented Wilma's damage with more maintenance. The hurricane uprooted road signs and traffic lights, too, he said.

"I think a lot of times the knee-jerk reaction is, 'Let's find the scapegoat,'" he said.

But Jim Naugle, mayor of Fort Lauderdale, who says "some of these poles look like they were from the old telegraph company," is running out of patience. He said city leaders might simply buy the local electrical infrastructure from FPL when the franchise expires in 2009 and hire someone else to run the system.

He's not upset about the merger, though - far from it.

"Maybe there's some greater intelligence in Baltimore that can help folks in Florida straighten things out," he said yesterday, laughing sadly. "Things can only get better."

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