Florida Power & Light

A thriving economy and healthy population growth in the Sunshine State make FPL one of the fastest-growing electric utilities in the nation. Besides continued strong electric usage growth, FPL added an average of 107,000 new customer accounts in 2004 — the most since the late 1980s and a 2.6 percent increase over the previous year. To maintain reliable electric service, FPL continues to add power lines and other electric facilities to deliver power to customers, including the homeowners at this Boynton Beach subdivision. Jeff LaChance, apprentice trainee

Serving a fast-growing state

During an extraordinary year, Florida Power & Light Company demonstrated once again why it is so widely regarded as one of the nation’s outstanding electric companies.

Despite an unprecedented series of devastating hurricanes that swept through its service area (see Restoring Power, Restoring Lives: Outstanding Response), FPL continued to achieve the high levels of performance that are a hallmark of the organization. At the same time, the ongoing customer growth that has set the utility apart from virtually all of its peers — and made it one of America’s largest providers of electricity — continued to accelerate.

FPL added an average of 107,000 new customer accounts in 2004, the most since the late 1980s and a 2.6 percent increase over the previous year. Although the hurricanes clearly had a dampening impact on customer growth during the later part of the year, the company is optimistic that the effect will be moderate and not affect long-term growth. Florida ’s population continues to increase at a greater rate than any other large state.

In addition, Florida created the most jobs in the nation in 2004. Although the state’s population is 6 percent of the nation’s population, it created 12 percent of the new jobs during the year.

Since the beginning of 2002, the year in which FPL’s current rate agreement went into effect, FPL has increased its electric generating capacity by more than 2,300 megawatts, at a cost of over $1.2 billion, and invested more than $1.9 billion in power delivery facilities. This has allowed the company to meet the energy demands of nearly 300,000 additional customer accounts while maintaining an adequate reserve margin for all FPL customers.

In 2004, expansion projects at FPL’s Martin and Manatee power plants continued on track for completion later this year, adding 1,900 megawatts of generating capacity, or enough power to serve about 400,000 customers.

The company also received approvals to build a 1,150-megawatt natural gas-fired power unit at its existing Turkey Point site south of Miami. This will help FPL meet the rapidly increasing demand for electricity in Southeast Florida . Construction began in March 2005 with a projected 2007 completion. Beyond that date, growth forecasts indicate that FPL will need to add the equivalent of three 1,150-megawatt power plants over the next five years.

For many years, FPL’s industry-leading energy management and conservation programs have helped defer the building of new power plants. Over the past two decades, more than 1.7 million customers have participated in these programs, reducing electricity demand by more than 4,300 megawatts, or the equivalent of 10 medium-sized power plants.

Growth, higher costs drive FPL to seek increase in base rates

Continued and long-term growth in FPL’s service area will require not only extensive investments in new generation, but in the utility’s power delivery system as well. Siting new plants and gaining approvals for additional transmission routes, particularly in well-established and highly populated areas, will present challenges.

Generating resources are currently being added at three times the rate of previous years, and capital expenditures for power delivery are expected to average approximately $700 million a year going forward. In addition, although its costs are significantly below the industry average, the company is facing higher operating costs and making significant investments to maintain its nuclear units in top shape.

FPL’s revenue sharing agreement with the Florida Public Service Commission ends Dec. 31, 2005 . In January 2005, the company notified the Commission that it intends to seek an increase in its retail base rates and initiate what would be — barring a negotiated settlement — its first full base rate case since 1984. During the rate case, the PSC staff and commissioners will examine in depth FPL’s operations and revenue needs. A final decision on FPL’s request for a base rate increase is expected in November 2005. If approved, it would be the first increase in FPL’s base rates in more than 20 years.

*Represents compound annual growth rate through periods shown. Industry source: Energy Information Administration

The current residential base rate is 16 percent lower than when base rates were last increased in 1985. Since that time, FPL has added approximately 1.6 million customers and spent more than $17 billion in capital investments. Since 1999, base rates have been reduced twice, providing savings to customers totaling nearly $4 billion, including revenue sharing refunds. The reductions were possible due largely to FPL’s increased productivity and more efficient operations, which has allowed the utility to establish itself as a low-cost provider of high quality electric service.

FPL’s successful cost-management efforts have enabled it to maintain costs well below the industry average. In 2004, even as expenses continued to rise in such areas as insurance and security requirements, the company’s operating and maintenance (O&M) costs of 1.24 cents per retail kilowatt-hour were slightly lower than the previous year and were approximately 31 percent below the industry average. Over the next several years, however, FPL expects increased upward pressures on O&M expenses, along with smaller incremental gains in productivity, while customer growth and energy usage continue to rise.

As a result, after many years, FPL believes an increase in retail base rates now is necessary to ensure that it can continue to provide reliable, cost-effective electric service at levels its customers have come to expect and that are consistent with the company’s past record of performance.

In other PSC-related activities, FPL received regulatory approval in late 2004 to adjust the fuel clause portion of its bill to match more accurately the costs of fuels used to produce its electricity. Since 1999, the fuel costs passed on to customers by FPL, with no profit added, have more than doubled. The increase, which went into effect in January of 2005, raised a typical FPL residential bill by about four percent.

To help prevent dependence on a single fuel and further stabilize fuel costs, FPL utilizes a diverse fuel mix. In addition to using a high percentage of clean-burning natural gas, a large portion of the company’s electricity comes from its nuclear plants, which are free from greenhouse gas emissions. This helps make FPL one of the nation’s cleanest electric utilities.

FPL’s focus on improving customer satisfaction was reflected by high scores in residential and business surveys conducted in 2004. The J.D. Power and Associates’ Electric Utility Customer Satisfaction Study™ of the nation’s largest electric utilities placed FPL tied for second in the Southern region in overall customer satisfaction. This marked the fifth consecutive year that the company ranked above the industry average. Uzell Freeman, customer service training associate

To lessen the impact that high oil and gas prices have on customers’ bills, FPL may choose the lower-cost fuel at plants with switching capabilities and make economic purchases of power from lower-cost coal-based units of other power producers. FPL issued a request for proposals in 2004 to bring a new source of natural gas to Florida . The natural gas would be delivered via underwater pipeline from a liquefied natural gas (LNG) terminal located offshore. This would help meet Florida ’s growing demand for clean natural gas and deliver a new reliable source of production with added supply security.

Following the three hurricanes, FPL spent approximately $1 billion repairing and rebuilding its system. Of that amount, $109 million is expected to be covered by insurance on our nuclear plants and approximately $354 million was paid from FPL storm reserve funds, leaving a deficiency of an estimated $536 million. In January 2005, the PSC approved a monthly storm surcharge to be added to customers’ bills to allow recovery of the storm reserve fund shortfall. The final determination of the surcharge rates and the collection period will be made by the PSC during hearings in April 2005. The current surcharge for residential customers is $2.09 per 1,000 kilowatt-hours used and varies for commercial and industrial customers depending on the classification of their service.

A strong operating performance in an unforgettable year

FPL’s 2004 operating performance was outstanding; quite an achievement considering that a good portion of the year was dominated by the effects of an unforgettable hurricane season.

The operating performance of FPL’s nuclear division continues to be among the best in the industry. The World Association of Nuclear Operators rates industry performance for nuclear plants, and FPL’s WANO rating of 95.6 for its four nuclear units was comparable to the previous year and above the most recent national average of 91.9. Another notable achievement was the successful replacement of the Turkey Point unit 3 reactor vessel head. Kathy Getty, senior nuclear analyst

Although virtually all of the company’s electric plants experienced some storm damage, their availability to produce power remained high. The 93.7 percent availability of FPL’s fossil power plants was just under the company’s best ever and a best-in-class performance. Indicative of the utility’s fossil power plant performance, the Sanford plant was included in the Power Magazine list of top 12 power plants in 2004.

The nuclear plant availability of 87.5 percent was lowered by two refueling outages during the year, one of which was an extended outage due to the replacement of the Turkey Point unit 3 reactor vessel head. The successful replacement was the first of several significant capital projects being undertaken by the nuclear division. In 2005, the reactor vessel heads at Turkey Point unit 4 and St. Lucie unit 1 are scheduled to be replaced.

FPL’s decision to be pro-active on this issue has allowed it to move to the front of the industry line and order new reactor heads for all four of its nuclear units.

The World Association of Nuclear Operators rates industry performance for nuclear plants, and FPL’s WANO rating of 95.6 for its four nuclear units was comparable to the previous year and above the most recent national average of 91.9.

Industry source: FERC Form 1

In addition to its impressive power plant performance, FPL also received high marks during 2004 for its transmission control operations. A team of North American Electric Reliability Council (NERC) and Federal Energy Regulatory Commission (FERC) representatives who performed an assessment of the utility’s transmission control operations recommended that several FPL practices be considered as “best practices” for other NERC members.

Since launching an aggressive program in 1997 to improve electric reliability, FPL has achieved outstanding results. The annual average amount of time customers are without power has been reduced by nearly 50 percent, and the frequency and duration of outages have declined as well. Excluding hurricane-related outages, the average number of minutes that FPL customers were without power during 2004 was about half that of the most recent industry average.

The company also has focused on improving customer satisfaction, and this was reflected by high scores in residential and business surveys conducted in 2004. The J.D. Power and Associates’ Electric Utility Customer Satisfaction Study™ of the nation’s largest electric utilities placed FPL tied for second in the Southern region in overall customer satisfaction. This marked the fifth consecutive year that the company ranked above the industry average. FPL also scored well in the J.D. Power and Associates customer satisfaction survey of midsize businesses, improving to fourth best in the Southern region.