A decision by the Florida Public Service Commission to reject a request by Florida Power & Light (FPL) to raise rates by $1.3 billion last week has prompted the company to suspend activities on several major projects in the state’s energy infrastructure—including a new nuclear plant. The company said the state’s denial of its request was “further evidence of a deteriorating regulatory and business environment.”

The projects, which the company said are worth some $10 billion over the next five years, include development of two new nuclear reactors at Turkey Point, modernization of the Riviera Beach and Cape Canaveral plants, and numerous projects to improve generation, transmission, and distribution.

The PSC unanimously (PDF) rejected the company’s request to raise its base rates 30%, allowing an increase of only $75.4 million, Commissioner Nathan Skop cited the downturn in the economy, saying, “Utilities are just going to have to make do in these difficult economic times.”

“This decision was about politics, not economics, and unfortunately it comes at a time when our state urgently needs jobs and investment,” said FPL Group Chairman and CEO Lew Hay in a statement issued after the decision last week. “In addition, the decision will likely increase customer costs and diminish reliability over the long term because the commission failed to recognize the true cost of providing reliable service to customers.”

The PSC’s decision also reinforced investor perceptions that the regulatory climate in Florida had continued to deteriorate and “is increasingly hostile to investors,” Hays said. “Investments have to be made in the expectation [Hay’s emphasis] of fair regulatory treatment. By the time we ask for rate recovery, the money—in this case billions of dollars—already has been spent and sunk. Absent confidence in fair regulatory treatment, we believe providers of capital will be more reluctant to invest.”

The PSC’s move comes despite its official acceptance in March 2008 of the need for two new AP1000 nuclear reactors at FPL’s existing Turkey Point nuclear power plant, near Homestead, Fla.

FPL said that though it had suspended operations, it would continue to work with the Nuclear Regulatory Commission on its combined construction and operating license application for the new units, which it had submitted to the federal body in June 2009.

But the state’s attorney general told the Miami Herald that the state’s decision had nothing to do with construction of a new nuclear plant, and that FPL had already been given approval to have its nuclear costs reimbursed by customers. The newspaper noted that the PSC’s 10-month rate case review had been plagued by controversy, including allegations of corruption by commissioners and by a staff lobbyist

Sources: Florida PSC, FPL, Miami Herald, POWERnews