Hurricane Wilma and Its Effect on FPL Company

This year holds a record by the amount of the storms and hurricanes – there were more than 25 storms and more than 14 hurricanes, which hold their own names, and which ruined many houses, killed many people and brought many problems and afflictions to the world community.

Many companies became insolvent, others incurred enormous expenses; people lost their homes and families, communications were broken down too (including Miami International airport). Hurricane Wilma was the 3rd this year identified as a hurricane of the 5th category (the winds peed was more than 260 km/h) and damaged the most United States of America, Cuba and Mexico (USA declared that the damage from Wilma’s destructions can total 9 billion dollars). The approximate amount of deaths equals to 60 (USA – 35, Haiti – 12, Mexico – 8, Cuba – 4 and Jamaica – 1) . Commonly, strong hurricanes destroy the cities’ infrastructure, including power and water supply. Wilma was not the exclusion and it left more than 3 million people without power in Florida for 3 or 4 weeks.

This paper is devoted to the research of Wilma’s effect on the Florida power supply and its provider – Florida Power and Light company. This company belongs to FPL group as its subsidiary, which year revenues make up over $10 billion and operates within 26 states.

It’s not a secret for anybody that FPL incurred large expenses because Wilma destructed approximately 10 thousand concrete power poles from about 1 million, which were designed to “stand up to winds of 119 mph” , caused more than 2 hundred substations out of order and left 75 percent of FPL consumers without power (3.2 million people out of 4.2). The most affected counties are the following: Miami-Dade (over 950 thousand), Broward (over 860 thousand), Palm-Beach (over 660 thousand), Lee (over 190 thousand) and Collier (over 165 thousand). Other counties suffered too but not so significantly. For this reason FPL officials seriously discussed the possibility of removing power supply underground but this measure was recognized as economically inefficient because it can result in price growth on power supply for Florida population up to 50 percent. So underground infrastructure can not be taken seriously and FPL company claimed that they will analyze the situation and make a decision on improving the safety and the reliability of its service. In 2004 there was also a large amount of hurricanes and storms affected Florida’s power supply chain but Wilma’s destructions were the largest from the whole FPL’s history. FPL has a good experience of restoring its poles but this time it faced a huge problem. Nobody expected such damage from Wilma hurricane.

Restoration process

So how Florida Power and Light company dealt with the consequences of a hurricane?

Of course restoration works began immediately and among other steps there was a toll-free phone number establishment for receiving complains from the consumers. It is a very rational decision because 3 million people were interesting when they will have the opportunity to use their electrical appliances – refrigerators, microwave ovens, laundry washers, computers an so on. People did not even have the opportunity to charge their mobile phones. During the restoration process it was a common situation when people from the same street received electricity not on the same day because their houses used different substations and some people even became panic-stricken.

Another good decision adopted by FPL is developing a restoration map and placing it on their website. This map allowed people to find their county, get to know when the restoration works in their county will be finished and make a complaint if some lines were not restored on time for some reasons. But the one thing which FPL’s team may not taken into consideration that most of their clients do not have the opportunity to turn on their PC’s or notebooks and access FPL’s website via the Internet. There was other useful information on the website placed also – such as how to check if your house was not connected to the supply change while other houses down the street already connected.

The restoration works included the exposure of broken poles, wires, substations and removal of their malfunctions. Of course it took much time, efforts and costs but within 4 weeks and a half FPL finished restoration of its poles and substations, and now all its consumers have light in their houses.

Economic and social effects of hurricane Wilma on Florida Power and light company

FPL group reported its 3rd quarter earnings on 4th November, 2005. Many people and organizations (especially FPL’s investors) were waiting for this report because this report can include a part of expenditures related to the restoration works after hurricane Wilma. So FPL reported $339 million ($0.87 per share) of net income, including "net unrealized after-tax loss of $56 million associated with the mark-to-market effect of non-qualifying hedges.". This loss decreased earnings per share from $1.01 down to $0.87. But company stated that hurricane’s resulted only $0.02 per share loss and that hurricane Wilma’s costs are not included in this quarter report. An interesting fact that the losses of FPL company can be much more significant because general accepted accounting principles allow to share losses within several periods and thus it would not be a great surprise that the 4th quarter 2005 and 1st (may be in 2nd too) 2006 earnings reports would contain million dollars of "net unrealized after-tax loss."

Moreover, FPL can not calculate all the expenditures concerned with hurricane Wilma and its destructions so fast (within a month or even a quarter). Unofficially, restoration costs assessed up to $200 million. Nevertheless, the 3rd quarter results in 2005 are better than the same of 2004 and company’s CEO claims that the FPL group’s earnings meet the satisfaction criteria. The CEO presumes that despite such losses the FPL group will fulfill the plan and its earnings will reach $2.5 per share for the year 2005. Additionally, 3rd quarter results are better than 2nd quarter and company relates it to favorable weather conditions.

So FPL’s investors still do not know how much losses caused hurricane Wilma and how it will affect their income this year. But the fact is that FPL’s emergency fund was completely exhausted within the period. Of course company will try to fulfill the expenditures by including some fee into their consumers’ accounts, receiving some insurance money or receiving some State subsidy from the government. Of course all these events make certain instability on the main world stock exchanges.

Moreover, these events caused many protests, investigations and demands for payments. Some people insist that FPL can not fulfill its social liabilities and provide quality power supply and thus there were suggestions to break FPL’s monopoly on the Florida market; politicians offer to check other vital industries if they are ready to face such trials as FPL did. So on account of a serious outage FPL is under a strong pressure from the side of society, investors and the government now.

People sue the company and their amount grows from day to day. Consequently if the court will decide that FPL has to compensate damages and losses to the plaintiffs it, probably, can become bankrupt because if all those people and organizations suffered from the outages would bring an action against the FPL the amount of refunds can be estimated in billions. The possibility of numerous suits is quite high because the main newspapers and reporters unleashed a scandal already and the society is anxious about this issue. Many people complained that FPL did not adequately response to their appeals during the year – many poles were not in perfect condition and needed a repairing and thus there could much less damage. Of course it is not fair to consider FPL to be completely liable for enormous outage. But it is the fact that company neglected several complaints and is responsible for the damage which could be avoided.

From the report it is known that about 10 thousand poles were damaged out of 1 million and this caused 75 percent outage. So it can be concluded that the most important poles were damaged while this is intolerable. I think that the most important elements of infrastructure must be fortified and stable enough because power supply is vital for modern society – hospitals, airports, factories, schools etc can not operate without power supply. Obviously, FPL was not ready to face such a disaster as Wilma hurricane, which forced the company’s business on the knees, and it has to think about such consequences and make necessary decisions to avoid future problems. The society rightly expects serious actions to be taken from Florida Power and Light company, and no break-power in future.

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