Florida Power & Light and Florida Power Corp., which have fought the prospect of competition at every stop, are now actively working on a way to allow competitors equal access to the transmission grid they have built, owned and, until now, operated at great advantage to their companies.
Why? Part of the answer is that federal regulators practically forced them to do it. The Federal Energy Regulatory Commission is fervently trying to level the field for the only competitive energy market allowed in Florida, wholesale electricity. It wants to end the pricing advantage companies that own their transmission lines have given themselves at the expense of competitors. FPL and Florida Power have different motives for complying, but since March the two utility giants have led an effort to create an independent organization to manage and profit from the sale of transmission.
Known generically as a regional transmission organization, the model receiving wide support in Florida would merge the transmission networks of FPL, Florida Power and Tampa Electric, which cover the state's most populated perimeter, and combine them with the transmission lines of Seminole Electric and the Municipal Power Agency, which crisscross the center. The organization would be run as a for-profit company, known as a transco. It would operate independently from the utilities, selling them access to transmission at a single, statewide rate.
Florida utilities resisted the national trend toward consolidating transmission networks for years until two things happened: FERC strongly suggested in December that every major utility in the nation submit a plan for a regional transmission organization by Oct. 1, and Florida Power entered into a merger agreement with Carolina Power & Light that required FERC approval.
"We thought it would help to take the issue off the table," explains Vinnie Dolan, director of regulatory affairs for Florida Power Corp. He has led Florida Power's effort to find a compromise that most of the stakeholders in Florida can support, and he hopes FERC is watching.
The discussion has led to a mixed approach. FPL's proposal could lead to a wholesale revamping of its rate base by state regulators. The company would transfer its transmission assets off the retail books regulated by the PSC into passive shares of the transco regulated by FERC. The transco shares would be held by stockholders, not ratepayers, and their sale could raise capital to build new transmission lines in Florida and, potentially, other states.
For a company with sagging stock prices and merger rumors, the proposal offers FPL promise. The utility maintains an ownership interest in the transmission company, albeit passive; the transco raises capital to meet the transmission shortage in Florida and acquire the assets of other utilities or other transmission operators, and the company expands its reach to prepare for a competitive marketplace.
"If we're successful in doing this on the schedule we have, it may well be the first independent transco in the country, and the model could grow and serve the same function in other regions," predicts Paul Evanson, FPL president.
But state regulators are not too pleased with FPL's plan. For starters, since transmission accounts for 15% of the rates retail customers pay FPL, the Public Service Commission would lose control over that piece of business. "They would continue to be collecting retail rates to pay for transmission that is no longer under retail jurisdiction," says Bob Trapp, the PSC's director of policy analysis and intergovernmental relations.
Trapp is also concerned that Florida utilities may follow the national trend and divest their generation assets at a loss, returning nothing to the ratepayer. Under the transco model, FPL also could "decide to sell its passive ownership of the transco, which they say they plan to do over time, and the ratepayers will get none of that," he says. "To me, the commission has lost all its opportunity unless we take some action on the front end and preserve the allocation of those gains."
By contrast, Florida Power appears to be taking the most conservative route in its journey to become part of Carolina Power & Light. It has proposed transferring operation of the transmission grid to the transco but retaining ownership of the assets. In return, the transco would collect revenue from Florida Power's transmission but only return to the company the amount it receives from wholesale transmission now. "It's our intent to keep our assets in our regulated company," Dolan explains, "although we may revisit that down the road."
A third alternative has been offered by the municipal utilities, which are joined with independent operators such as Calpine, Constellation, Duke Energy, Disney and Tampa Electric Co. They propose leasing their transmission assets to the transco in exchange for cash.
In the short run, the debate is somewhat academic. The move to a regional transmission operation will not affect much of the electricity coursing through the state from the large utilities. It benefits municipal utilities that rely on the large companies to transmit much of their power and it helps wholesalers, such as the scattering of merchant power plants that are only allowed to operate small peaking plants in Florida. But, as FPL notes in its first-quarter report, transmission has the potential to be a "future growth vehicle."