Second Leg of the 'Big W'

Oct. 06, 2009 5:06 AM ETFPL-OLD, DIA, SPY, QQQ, FCNCA, FRP, MAA, SPG, VNO, DUK7 Comments
Roger S. Conrad profile picture
Roger S. Conrad

Florida Governor Charlie Crist is running for US Senate in 2010--and darned if he’s going to let power utilities’ need for capital during a recession stand in his way.

On Thursday, Crist effectively fired two long-standing members of the Sunshine State’s Public Service Commission, replacing them with wholly inexperienced former editorial page editor David Klement and Benjamin Stevens, the chief financial officer for the Pensacola Sheriffs’ Office.

It doesn’t take PhD in political science to get the message here: Florida utility regulators will, in Crist’s words, “put consumers first”--i.e., reject the pending rate hike requests from FPL Group (NYSE: FPL) for $1.3 billion and Progress Energy (NYSE: PGN) for $500 million or else.

Equally obvious is that Crist is responding to political pressure in a state hard hit by recession, where many residents want utilities to feel their pain. That’s par for the course during recession. And, even in a worst case, neither FPL nor Progress is likely to be hurt much in the near term.

The same day Crist was making his power move, FPL’s unregulated NextEra Energy Resources unit announced the purchase of 184.5 megawatts of wind power capacity from Babcock & Brown Power [Australia: BBP] for $352 million.

NextEra already contributes more than half of FPL’s overall profit and, fueled by mandates in 33 states to use renewable energy, is projected to grow to two-thirds of next year’s earnings.

Crist’s move will almost certainly make rate cases more contentious in Florida, and by extension make it more difficult for companies to recover regulated utility investment. FPL’s response, however, will likely be to simply to cut costs and deploy capital at NextEra. That will keep its earnings and balance sheet healthy. Similarly, Progress Energy will now be more likely to invest in the Carolinas, where regulation is still considerably less political.

This article was written by

Roger S. Conrad profile picture
Roger Conrad has been providing value to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger Conrad founded and ran the Utility Forecaster and Canadian Edge newsletters before leaving to form his own publishing company. During his almost 30-year tenure at Utility Forecaster, Hulbert Financial Digest routinely ranked the publication as one of the best investment newsletters. Roger Conrad is a regular contributor to, is an independent trustee of Miller/Howard High Income Equity Fund and the author of Power Hungry: Strategic Investing in Telecommunications, Utilities and Other Essential Services. Although he spends a good deal of time in front of a Bloomberg terminal or reading 10-K and 10-Q reports, he’s also an avid outdoorsman and baseball fan.

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