FPL Says It May Have To Reevaluate RTO Plans

In the wake of recent concerns expressed by Florida Public Service Commission (FPSC) staff related to Florida Power & Light Co.'s (FPL) participation in GridFlorida, a regional transmission organization (RTO) being formed by FPL and several other Florida utilities, FPL on Friday said that it may have to take a second look at its RTO plans.

The worries voiced by FPSC staff were included in a broader recommendation by the staff that the commission launch a base rate proceeding into the utility's future rates. FPSC staff has recommended to the commission that it require FPL to submit minimum filing requirements (MFRs) related to the base rate proceeding by August 15 and has asked the FPSC to consider its recommendation on May 15. FPL said its current rate agreement will remain in effect until April 15, 2002.

GridFlorida is made up of FPL, Tampa Electric Co. and Florida Power Corp. FERC in late March issued an order provisionally granting GridFlorida RTO status and the RTO is scheduled to become operational by the end of the year.

In a copy of the staff's recommendations obtained by NGI, FPSC staff argue that one of the most significant changes that has occurred since FPL's last rate case is FPL's proposed participation in GridFlorida. FPSC staff said that the planned implementation of GridFlorida in December 2001 calls for the RTO's rates to be filed with the Federal Energy Regulatory Commission in October of this year. FPL has told FERC it intends to divest all of its transmission assets to GridFlorida and the utility will pay the RTO's rates determined by FERC for transmission service to both its wholesale and retail ratepayers.

FPSC staff asserted that there are a number of issues raised by this decision. For starters, the staff focused on the prudence of the company's subjecting its retail and wholesale load to GridFlorida. Staff noted that up until now, the FPSC has been foreclosed from addressing whether FPL's decision to voluntarily participate in forming an RTO is prudent, cost effective and in the best interests of the utility's ratepayers. The FPSC staff pointed out that under FERC's Order 2000, which lays the groundwork for the formation of RTOs, the order clearly states that the formation of an RTO is voluntary. "One might suspect that FPL succumbed to the threat, real or imagined, that the FERC would not have approved the now defunct FPL-Entergy merger without the merging parties specifically addressing their participation in an RTO," staff wrote. However, even if this were the case, that does not justify imposing unnecessary or imprudent costs on FPSC jurisdictional ratepayers, staff opined.

Along with issues of prudence, FPSC staff further asserted that FPL's decision to promote a separate, for-profit RTO and transfer its transmission assets to GridFlorida raises a number of questions related to the costs, benefits and potential impact on ratepayers. Among other things, the report notes that GridFlorida's stakeholders have already conceded that there will be winners and losers once the RTO is operational due to cost-shifting. Staff at the FPSC argued that the filing of MFRs by FPL is needed to identify the extent to which the utility will experience increased costs, or decreased costs, associated with cost-shifting. A fully allocated cost of service study is needed in order to determine how such cost-shifts will impact upon different retail rate classes, the staff added.

Another area of concern for FPSC staff relates to rates. Specifically, the staff noted that retail rates that currently include a cost component to recover transmission facility costs must be reconciled with the removal of transmission costs from regulated books and the imposition of new wholesale transmission rates charged FPL by GridSouth. But rates charged by the RTO are likely to be higher than embedded transmission costs, the staff continued. If the rates charged under the FERC tariff exceed the amount currently recovered through bundled base rates, FPL has indicated it may seek to collect the difference through some form of automatic cost recovery clause, according to the staff's recommendation. The staff said that one possible option to allow the FPSC to maintain oversight of the transmission costs included in retail rates is to unbundle base rates and specifically identify the cost associated with transmission.

A spokesperson for FPL told NGI Friday that in light of the concerns voiced by FPSC staff on the company's participation in GridFlorida, FPL "may have to re-evaluate" its plans related to the RTO. But the spokesperson did not offer any additional comments as to what such a review might entail.

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