FPL Fuel Adjustment FAQs

1. 1. Why did FPL ask for an increase in its fuel adjustment charge?

Already-skyrocketing fuel prices exacerbated by concerns in global market due to events and uncertainties around the world have increased the prices we pay for fuel used to generate electricity.

FPL will need to recover approximately $6.5 billion in fuel costs in 2006. This adjustment covers 2005 fuel expenses that were not recovered through customer bills in 2005 (approximately $700 million) and our projected 2006 fuel costs (approximately $5.8 billion).

2. Why does it seem like my bill is always going up?

What’s happening to fuel prices from events 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 percent – saving our customers approximately $4 billion. That has helped to offset somewhat the rising fuel costs. As well, with the company’s latest rate agreement announced in August 2005, the benefits of the earlier rate reduction agreements have been extended through at least 2009 and base rates will remain flat through mid-2007.

3. How much have fuel prices risen?

The price of residual oil – what FPL burns in its power plants to make electricity – has increased 392%, from $9.96 per barrel in 1999 to $49.00 in 2006. The price of natural gas has increased 380%, from $1.81 per million BTUs in 1999 to $8.68 in 2006. Crude oil, from which residual oil is refined, has also climbed sharply.

4. How much of my bill goes for fuel?

Fuel makes up 54 percent of a residential monthly bill (excluding taxes and franchise fees) in 2006, double what it did in 1999 – while the base rate portion of your bill, over which FPL has more control, has declined by 15 percent since then.

5. Are these fuel increases going to continue every year?

The price of fuel varies according to the stability of world market conditions.

Over the years, fuel charges on your bills have gone up and down. These costs are reviewed annually by the Florida Public Service Commission (PSC) and if we’re spending less on fuel than projected, the money is refunded to customers with interest. If we’re spending more, the fuel charge is increased to collect the difference. Our customers pay only for the fuel used to generate electricity for their use – no more, no less.

6. What is the impact on me?

Beginning in January 2006, the fuel adjustment amounted to a 19 percent increase for a 1,000 kWh residential bill, excluding municipal taxes and franchise fees. If residential customers use the same amount of electricity as they did in 2005, most are seeing an increase of 19 to 28 percent.

Small and medium business customers are seeing electric bills increase between 22 and 30 percent due to higher fuel prices, and large commercial and industrial customer bills are up between 29 and 41 percent, reflecting the fact that fuel makes up a larger portion of their bills. The new fuel adjustment factors went into effect Jan. 5, 2006.

7. What are you at FPL doing about high fuel costs?

We’re taking action NOW. Our efforts to mitigate the volatility of fuel costs and lessen their impact on our customers are focused in five primary areas:

First, we’re investing in a diverse supply of fuels to generate electricity at our power plants – natural gas (45 percent), nuclear (19 percent), purchased power (17 percent), oil (14 percent) and coal (5 percent).

Second, FPL makes maximum use of nuclear generating units to provide as much low-cost power as possible. Nuclear is our lowest cost fuel source. We’ve recently extended the original 40-year licenses of our nuclear units to operate for an additional 20 years and we’re taking steps toward building a new nuclear plant in Florida.

Third, coal or purchased power accounts for nearly one-fourth of your electricity. Coal is a low cost fuel, large supplies are available here in the U.S. and technology has made some coal-burning power plants cleaner than ever before. FPL has partial ownership in coal-fired units at St. Johns River Power Park in Jacksonville and in the Scherer Power Plant in Georgia. In addition, we purchase coal-fired power through standing contracts and spot purchases when it’s economically available.

Fourth, we use a strategy called fuel hedging – purchasing some of our fuel in advance at pre-set prices -- as a method of providing some level of protection against increases in fuel prices. Using this strategy, we’ve saved our customers nearly $1 billion from 2002 through 2005

Fifth, we’re making our power plants as efficient as possible. We’ve improved the efficiency of FPL’s fossil-fueled power plants by 12% since 1999, so you get more electricity per unit of fuel.

8. Why doesn’t FPL promote conservation to offset burning so much oil and gas?

We do! In fact, FPL is recognized as an industry leader in giving customers more control over their energy consumption. Customers are encouraged to visit www.FPL.com to take advantage of an energy survey and other tips to help reduce the amount of energy consumed in their home or business. In partnership with our customers, our energy management and conservation programs have helped defer the building of the equivalent of 10 medium-sized power plants over the past two decades – an amazing feat!

9. Are FPL’s power plants running as efficiently as possible?

FPL operates some of the most efficient and best performing power plants in the nation; they’re well run and well maintained. Due to efficiency improvements, our non-nuclear generators have become approximately 12 percent more fuel efficient from 1999 through July 2005. As well, the availability of FPL’s fossil power plants to produce electricity has been among the very best in the industry.

10. What changes might I see in my bill concerning the fuel clause?

As stated earlier, the fuel charge to customers is quite a bit higher this year than last year. But as an incentive for households to reduce discretionary electric usage, a two-tiered fuel adjustment clause has been adopted for residential customers. It provides for a lower adjustment factor (5.841 cents per kWh) for customers who use 1,000 kilowatt-hours a month or less. Called a residential inverted fuel adjustment charge, it recognizes that there is a certain level of electric consumption required to maintain a standard level of household services. Conversely, usage above 1,000 kilowatt-hours is more likely to represent discretionary usage. Charging a higher rate for usage above 1,000 kWh (6.841 cents per kWh) provides an incentive for households to reduce discretionary power use. In simple terms, it means that the first 1,000 kWh of electric power used each month is less expensive than the power used in excess of 1,000 kWh.

Another change is that your bill now shows the exact dollar amount you pay for the fuel we use to generate the power you consume each month... It used to be that an individual customer’s fuel usage was represented on the bill in cents per kilowatt hour of usage only.

11. What can I do to help control my electric usage?

FPL is encouraging all customers to take advantage of the company’s industry-leading energy conservation programs. Conservation is important for three main reasons:

• First, it will help you gain control over your use of electricity. A kilowatt-hour not used is one you don’t pay for.
• Second, it reduces our use of natural gas and fuel oil. If customers use less electricity, we need less of these fuels to generate part of that electricity.
• Third, it can help to defer the need to build costly new generating plants.

Two great tools available to customers to help them make smart energy choices are our energy surveys for home and business. FPL’s Online Home Energy Survey and Business Energy Evaluation can provide your home or business, respectively, with an energy efficiency analysis tailored to your own situation. In both cases, you’ll receive specific recommendations on how to better manage your energy consumption.

A complete listing of energy saving tips can be found at www.FPL.com and in the monthly bill inserts that are included with customers’ bills.

12. What is FPL doing to promote the use of renewable energy for Florida?

FPL believes that alternative energy sources are a worthy pursuit and can help us gain control over the problem of high oil and natural gas costs. In an effort to expand the diversity of our fuel mix, FPL buys renewable energy from waste-to-energy plants, such as facilities that harness methane gas from landfills, and biomass waste, such as sugar cane and wood chips. While we have plans to build a modest solar field in Florida and may build a wind power demonstration project, larger scale solar and wind power sources in Florida are not viable. Solar facilities are very land intensive and work well in remote mountain regions or deserts, but are not as feasible in a heavily populated, high growth state like Florida where land prices are at a premium. In addition, Florida, although nicknamed the Sunshine State, has too much cloud cover to make solar power a large part of the energy mix. Finally, wind power requires sustained wind speeds not often found in Florida. Despite these realities, however, we’re continuing to explore new advances in wind, solar and even ocean current technologies with the hopes that they and other renewable technologies will play a larger role in Florida power generation in the future.

13. Why is FPL so dependent on natural gas for fuel when the price has risen so much?

The use of natural gas is part of the company’s successful strategy to be a clean energy provider by harnessing primarily clean and renewable fuels. Using natural gas to produce electricity further supports our voluntary commitment to better manage our impact on global warming. While 45 percent of the electricity we produce is generated using natural gas as fuel, FPL still maintains a well diversified portfolio of fuels, including mainly nuclear, oil and some coal. It should be noted that today’s combined-cycle natural gas-fired generating units are highly efficient, since they generate more electricity from a smaller amount of gas than older gas-fired generators.

14. With costs as high as they are, is electricity still a good value?

Yes. Electricity remains the most economic resource for providing the basic necessities of life. For those customers that use 1,000 kilowatt-hours monthly – roughly $3.60 a day beginning January 1, 2006 – electricity cools your home, keeps food cold, cooks family meals, washes and dries clothes and provides a host of entertainment options for the whole family. And compared to customers in many other areas of the country, FPL customers pay less for electric service.