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Shivers from Florida's Sunbelt shift

By Ron SchererBusiness and financial correspondent of The Christian Science Monitor / January 15, 1981



Miami

Break out the blankets. The temperature hit 32 degrees here Tuesday morning, and Floridians turned up their thermostats. As a result, the Florida Power & Light Company got overheated.

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Demand for power surged to 10,500 megawatts, a winter record for the utility, pushing FP&L past its peak generating capacity. The result was a series of rolling blackouts as the utility's load operators tried to prevent a collapse of the entire system.

That the blackouts should even occur says something about the state of electrical supply in the state of Florida: It's skating on very thin reserve margins.

One reason for the blackouts, says an FP&L spokesman, Anthony F. Bruns, is a temporary shutdown of a 775- megawatt nuclear generating station. A main cause of the power shortage, however, is the continued growth of the Sunbelt, particularly in south Florida, and the inability of the utility to add new generating capacity to meet this demand. "The peaks in power demand are coming in beyond our projections," Mr. Bruns said.

Every year FP&L adds 100,000 new customers.

"Since we have no natural resources here," the spokesman said, "the primary form of home energy usage is electricity." Unfortunately for Floridians, the summers have been hotter than normal and the winters colder than normal.

At the same time, the utility is limited in its options to supply that electricity. It can try to buy power from utilities in Georgia. But his option is limited because of the lack of high-power transmission lines between the two states and the fact that when it's cold in Florida, it's colder in Georgia. Still, the state would prefer to exercise this option when feasible, because Georgia power can be cheaper than power produced on a reserve unit that is oil-fired. FP&L hopes to have additional transmission lines installed in 1982.

Another alternative is for the state to try to become selfsufficient in electrical production.

To become self-sufficient is a very tough proposition, however. The nuclear option, which now provides 26 to 28 percent of the utility's power, is not politically popular. And natural gas, which provides about 19 percent of the generating capability, is available only on a limited basis.

That leaves only oil. Oil-fired generators supply 50 to 51 percent of the utility's electricity. FP&L buys some 40 million barrels of oil a year, making it one of the largest consumers of oil in the country. At current prices, it will spend over $1.25 billion on oil this year.

Because of this reliance on oil -- almost all of it bought at world prices -- Florida consumers pay just about the highest electric rates in the country.

So far the utility has not done much with coal. It set up a test project that involved burning a coal-and-oil mixture, but it has no plans to build a plant using this technology. Two coal-fired plants are scheduled for completion in 1987 and 1989. FP&L has also contracted with Tampa Electric Company, starting in 1985, to buy power generated by a coal-fired plant that is under construction. But for the most part the utility has not acted to convert its plants to coal.

One inhibiting factor, its chairman, Marshall McDonald, points out, is money. It would cost $10 billion to build enough coal-fired plants to replace the current crop of oil burners. Another problem is real estate. There isn't enough room at FP&L's plants to store the coal.

So far, attempts at using alternative energy sources have met with less than favorable results. A windmill set up near Miami Beach proved that "there is not enough wind in Florida on a consistent basis to make it economically viable," Mr. burns said. Solar generation of power is still years away.

Faced with high fuel bills, FP&L's customers have begun to conserve. The kilowatt-hour use per customer declined in 1979, compared with 1978, and officials suspect it may have declined somewhat again last year. As a result of this saving, the utility's growth rate has slowed to 3.5 percent a year, compared with an earlier projected 6 percent rate. This compares with an earlier projected 6 percent rate. This compares with a 2 percent growth rate for utilities on a national basis.

In some respects, Florida Power & Light is in better shape than a lot of other utilities. Merril Lynch, Pierce, Fenner & Smith Inc., the brokerage house , notes that the Florida Public Service Commission has a "favorable" attitude toward the utilities. Besides authorizing what Value Line Investment Survey terms a "reasonable" return on FP&L common stock, the commission has also allowed the cost of construction work in progress to be included in the rate base. This has helped to ease the cash crunch many other utilities have felt when building new facilities.

The commission has also changed the fuel-adjustment clause for the utility. In the past there was a two-month lag before higher fuel costs could be passed along. With sharply rising oil prices, this ate into earnings. In fact, in 1979 earnings dropped from 1978 in part because of the lag time in getting higher rate increases. Under the new method, FP&L estimates the price of oil for a six-month period and charges accordingly.