Aug. 10--Excessive or necessary? That's the question when it comes to Florida Power & Light Co.'s request for a 12.5 percent rate of return on equity.

The rate of return -- or profitability to shareholders -- is a major issue in the Juno Beach-based company's rate hike hearing that begins Aug. 24 before the Florida Public Service Commission in Tallahassee.

As FPL tries for the second time this decade to raise its base rate -- last set in 1985 -- the utility that serves 4.5 million customer accounts in 35 counties from northeast Florida to Miami contends it needs $1.3 billion more per year.

That would pay for upkeep, continued efforts to find more efficient fuel and keep the Fortune 500 company competitive as an investment.

The return on equity is part of the base rate, a key component of the non-fuel charges FPL targeted for the increase. Rate of return on equity is generally defined as the measure of profit relative to the investment of stockholders. Neither base rate nor return on equity are broken out on power bills.

FPL only needs a 9.5 percent rate, J. Randall Woolridge is expected to tell state regulators. That is appropriate based on market conditions and the utility's low-risk profile, according to the Pennsylvania State University professor's prefiled testimony, which he was not able to elaborate on when contacted.

The company's current return is 10.7 percent, according to a July 13 report filed with the Florida Public Service Commission.

Recent regulatory decisions around the country have resulted in equity returns averaging 10.29 percent, said J.R. Kelly, Florida Public Counsel, among those intervening in the case on behalf of consumers.

As for the rate of return, it's needed to fund $16 billion in new capital over the next five years for projects such as the West County Energy Center, increased nuclear plant capacity, plant modernizations at Cape Canaveral and Riviera Beach, and strengthening the system, FPL spokeswoman Jackie Anderson said.

FPL officials argue the 12.5 percent return on equity will lower the company's cost of debt. "When we save on financing, customers save on their bill," Anderson said.

Anderson said the rates customers pay are not set solely on the equity return. They are based on the total rate of return, which in FPL's proposal is 8 percent, the second lowest of the four major investor-owned utilities and less than the 8.29 percent approved for Tampa Electric Co. earlier this year.

The rate increase would be FPL's first since 1985, although some costs that were once in the base rate are now billed separately.