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FPL Notifies Regulators 2005 Oil, Gas Costs Going 14.5% Above Estimates

Florida Power & Light (FPL) has notified Florida regulators it will show a significant under-recovery of fuel costs for power generation this year due to escalating natural gas and fuel oil prices. It proposed spreading the cost recovery payments of $579 million over the next two years to spread out the burden on ratepayers who also will see increased fuel costs for 2006.

The total to be recovered includes $571 million or 14.5% of the originally estimated $3.9 billion total fuel and net power costs for 2005, plus $7.7 million in final cost under-recovery in 2004, the company said in a filing last week. The utility's new total for fuel costs to serve its 4.3 million customers through 2005 is $4.49 billion. The estimates are based on actual costs through July and estimates for the rest of the year. The Florida Public Service Commission requires notification in advance of the utility's next annual September filing if it appears actual costs will go 10% or more above actual customer payments.

Adding half the under-recovery to expected 2006 increases in pass-through costs will mean an increase of between $1.5 and $2 billion to be collected in 2006, FPL estimated. It will raise residential bills next year by as much as 12% to 16%. Commercial and industrial customers could see increases of 15% to 19% and 23% to 27%, respectively, because fuel makes up a larger portion of their bills. FPL said it would file next month to adjust the amount customers will pay for fuel for 2006.

The utility said its fuel oil cost projections for 2006 are approximately 50% higher than they were in 2005. Natural gas costs could be 30% higher next year, the company said. FPL's generation mix includes 37% natural gas, 21% nuclear; 18% oil, 18% purchased power and 6% coal. However, since much of the purchased power is generated by natural gas the company's use of natural gas for power actually amounts to more than 50%.

Natural gas costs in 2005 are currently projected to be $305 million (11.5%) higher than the original filing. The utility said its unit cost of natural gas in 2005 is expected to be $7.80 per MMBtu or $.63 (8.7%) higher than the $7.18 per MMBtu included in its estimate last year. Residual oil costs are currently projected to be $153.7 million (20%) higher than the original filing. The unit cost of residual oil in the estimated/actual period is $6.77 per MMBtu or $1.78 (35.6%) higher than the $4.99 per MMBtu included in the original filing.

The purchased fuel cost makes up about 44% of the electricity bill for residential customers.

FPL executives blamed the worldwide increase in fuel costs. "What is happening to fuel prices from events around the country and around the world has been a tremendous frustration to all of us at FPL who have worked so hard to keep our operating costs down in order to keep bills low. Since 1999, we've been able to reduce our base rates by 15% or approximately $4 billion. That has helped to somewhat offset the rising fuel costs," said Armando Olivera, president of FPL.

FPL works to minimize the volatility of fuel costs through its fuel diversity and by maximizing use of nuclear power and coal. Coal prices have gone up far less than oil or natural gas. The company also employs what it called a fuel hedging strategy which consists of locking in a fixed price for some of its supplies. The strategy will have saved its customers more than a half billion dollars through the end of 2005, FPL said.

The utility also has spent more than $2.3 billion since 1999 to re-power older, less efficient generating units and build new, state of the art natural gas-fired units in order to improve fuel efficiency and get more electricity from smaller quantities of natural gas.

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