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FPL reaches rate case settlement

Florida Power& Light Co. reached a rate settlement Oct. 6 with keyintervenors, agreeing to lower proposed rate increases and ROE from its originalrequest, but including a provision to add more than 1 GW of utility-scalesolar.

The NextEraEnergy Inc. subsidiary filed for approval Oct. 6 of a stipulationand settlement signed by the Office of Public Counsel, the South FloridaHospital and Healthcare Association and the Florida Retail Federation.

Under the settlement, FPL would receive a retail baserevenue increase of $400 million beginning in 2017, $211 million beginning in2018 and $200 million when its planned 1,723-MW combined-cycle comes online, expected in mid-2019. FPL would also see the midpoint of itsallowed return on equity rise slightly to 10.55%, within a range of 9.60% to11.60%.

FPL's originalrate filing in March sought an increase for the midpoint of its ROErange to 11.5%, from the current 10.5% level. The utility also requested an$866 million increase in 2017, a $262 million increase in 2018 and a $209million increase in 2019 when Okeechobee comes online, for a $1.34 billiontotal revenue increase. At that time, some analysts questioned whether a request for an 11.5%ROE was realistic and warned that the Florida Public Service Commission couldbe tempted to lower the utility's ROE.

FPL later revised its request to an increase of $826 millionin 2017, $270 million in 2018 and $209 million in mid-2019 when Okeechobeecomes online.

Under the settlement, FPL would also receive base rateincreases associated with the addition of up to 300 MW annually of new solargeneration in each year from 2017 through 2020, and can carry forward anyunused MW to subsequent years. The utility agreed to an installed cost cap forthe solar facilities of $1,750/kW.

Additionally, FPL can amortize, over the term of theproposed settlement, up to $1 billion of depreciation reserve surplus, plus anyremaining depreciation reserve surplus remaining under its at the end of 2016.This condition would only apply so long as FPL amortizes enough reserve toremain within the 9.6%-to-11.6% ROE range.

For storm recovery, under the latest settlement, costs canbe recovered beginning 60 days from the filing of a recover petition, but are cappedat no more than $4 per 1,000 kWh of usage on residential bills for the firstyear. Additional costs could be recovered in subsequent years, and in the eventof storm restoration costs topping $800 million, FPL can petition for anincrease to the surcharge.

The parties to the rate settlement have asked regulators torule on it to allow enough time for new rates to take effect beginning Jan. 1,2017. (Docket No.160021-EI)

Reacting to the settlement, UBS Securities LLC analystJulien Dumoulin-Smith described it as above Wall Street expectations. "We see the deal as better than we and manyon the Street had feared, with its authorized ROE having been the key concernfor many months," Dumoulin-Smith wrote in an Oct. 7 note. "We thinkthe deal would allow for its ROE to increase, which could buck the trend we'veseen elsewhere nationally." With depreciation reserves to beestablished at approximately $1.7 billion on Jan. 1, 2017, UBS sees FPL ashaving the ability to earn at the top end of its ROE range if it manages costswell.

UBS also noted thatthe settlement's solar component is the largest national rate base solarprogram, at 1,200 MW over the 2017-2020 timeframe. UBS maintained its"buy" rating for NextEra and increased its price target to $143 from$140. Mizuho Securities USA Inc. analyst James von Riesemann also characterizedthe rate settlement terms as constructive, leaving a "buy" rating onNextEra shares and $138 price target.