OREANDA-NEWS. Fitch Ratings views Florida Power & Light's (FPL) settlement with three intervenors in its base rate proceeding as constructive and supportive of the company's credit quality.

Fitch currently rates FPL's Long-Term Issuer Default Rating 'A'/Stable Outlook.

The settlement provides for a cumulative $811 million retail base rate increase (as compared to the rate increase request of $1.3 billion) over the four-year period, January 2017 - December 2020, which is comprised of a $400 million base rate increase beginning Jan. 1, 2017, $211 million beginning Jan. 1, 2017, and $200 million coinciding with the commercial operation date of the Okeechobee power plan (likely mid-2019). The rate increases are based on an authorized Return on Equity (ROE) of 10.55%, which is modestly above the current authorized ROE of 10.5%. The authorized ROE has a range of 9.60% - 11.6%; earned regulatory ROE below 9.60% allows FPL to seek retail base rate relief while earned ROE above 11.6% could cause any party to seek a review of FPL's retail base rates.

The settlement also permits FPL to implement base rate increases on investments associated with installation of up to 300 MW of solar generation capacity annually over 2017 - 2020; the solar investments would be subject to a cost cap of $1,750/kw. Any unused megawatts can be carried forward to subsequent years. Given FPL parent's, Nextera Energy, Inc., leadership position in renewables, continued decline in cost of solar installation (already sub $2,000/kw for utility-scale solar in many regions of the U. S.), Fitch does not see the cost cap on solar investments as a limiting factor for FPL to grow its regulated capex and earnings. FPL will also implement a 50 MW battery storage pilot program.

The settlement also allows FPL to amortize up to $1.0 billion of depreciation reserve surplus plus any excess depreciation reserve surplus remaining under the 2012 Rate Order so as to earn a regulatory ROE between 9.60% - 11.6%. FPL's prior rate orders have carried a similar feature that has allowed the utility to consistently earn close to the upper band of its allowed ROE range.

The recovery mechanism on storm restoration costs remains largely unchanged from what is in place today for FPL. The future storm restoration costs can be recovered by a surcharge not to exceed $4 for every 1,000 kilowatt-hour of usage on residential bills during the first 12 months of cost recovery. Any additional costs would be eligible for recovery in subsequent years. Per this settlement, if storm restoration costs were to exceed $800 million in any given calendar year, FPL could request an increase to the $4 surcharge.

The settlement has been entered into with three key intervenors - the Office of Public Counsel, the South Florida Hospital and Healthcare Association and the Florida retail Federation. The settlement is subject to the approval by the Florida Public Service Commission in order for rate increases to take effect.