Hearings today and Friday in Tallahassee will show how far the state will go to protect the interests of utility customers. Critics want the Florida Public Service Commission to find that a contract between the Tampa Electric Co. and a corporate affiliate inflates the cost of power produced by local coal-burning plants. The PSC should question this contract and the loose way utilities are reimbursed for their pass-through costs.
Last year, Tampa Electric signed a five-year contract with a corporate affiliate, TECO Transport, to ship coal from the Midwest to two Tampa Bay area plants. The contract, which began Jan. 1 and runs through 2008, continues a 40-year-old delivery arrangement between the two sister companies. Tampa Electric and TECO Transport are subsidiaries of the same parent, TECO Energy.
A group of consumer advocates, industrial customers and competitors has challenged the contract, charging TECO gave its sister company a sweetheart deal that was not open to true competition and overcharges for the cost of transporting coal. The contract gave TECO Transport the ability to "meet or beat" a competing delivery price. Critics say the process was stacked to discourage other companies from bidding, thus keeping the price artificially high, benefitting the parent corporation. They also are calling for money earned on "backhaul" trips once the coal is off-loaded to be credited against the coal-delivery costs that are passed onto ratepayers.
TECO defends the contract, saying it is a cost-saving and stable way to ensure reliable coal supplies. The company is right that there is intangible value in having strong ties with a supplier so critical in the energy-production chain. TECO and its opponents give widely varying estimates of how much the contract has saved or cost, rendering the figures made public practically meaningless. The utility weakens its credibility by insisting that key details in the case be kept confidential. Earlier this month, the PSC staff issued a preliminary finding, rejecting key TECO arguments. It said the utility used a "restrictive" bidding process, "did not adequately evaluate" two competing bids and may have, as a result, caused coal-delivery costs to "overstate the market prices" for such services.
But separate from the cost argument are other, more practical, concerns. TECO has called its bid solicitation "sufficient," a term suited to describe minimum, not maximum, effort. The utility also said it was not obligated to seek competitive bids. Does the company not seek the most competitive prices when it buys goods and services from other vendors, or does this attitude only apply when it comes to trading with corporate affiliates? Monopoly utilities, of all businesses, have an obligation to keep prices as low as possible - that's the regulatory tradeoff for captive customers. It also is reasonable that ratepayers share in "backhaul" earnings when that business is generated by return trips made in the course of deliveries for a regulated service.
The commission hearings this week may focus on TECO's coal shipping contract, but the issues are broader. If, as TECO says, the complaint is a guise for rail carriers to grab its affiliate's business, then should policymakers examine the value of diversifying the ways coal deliveries are made? TECO has good reason for wanting to keep TECO Transport healthy and capable to ship. If this is the best and cheapest option, fine. The average person doesn't care who ships the coal, only that the charge factoring into their bill reflects the true cost of providing power service. The commission needs a better way to determine these delivery costs. A good start, in this case, would be rolling back the secrecy and inviting more competition from would-be coal deliverers.
