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TECO's offer misses the point

Published Aug. 28, 2005

The Tampa Electric Co. is evading the point with its offer to settle a pricing dispute. Having claimed for months that it pays a fair price for coal deliveries to its plants _ a cost passed on to customers _ TECO now has offered to rebid the contract. The reversal comes after staff to the Public Service Commission found the existing contract seriously flawed. The PSC, which must approve any settlement, has no good reason to bite. Regulators already have a plan on the table for making coal prices more competitive.

Last year, Tampa Electric signed a five-year contract with TECO Transport for the carrier to deliver coal from the Midwest to two Tampa Bay area plants. Critics charge the deal, which began Jan. 1 and runs through 2008, inflates the price of power for customers, because the long arrangement between the sister companies is largely immune from competition. Hearings in recent months have borne that out. TECO showed little interest in bidding the contract, limited the ability of others to bid and reserved the right for TECO Transport to "meet or beat" any competing offer. "By its restrictive terms and conditions," the PSC staff wrote in a finding Aug. 26, TECO's request for bids "was not sufficient to determine the market price for coal transportation."

The staff recommended an approach that balanced the need to better determine the transport market while giving TECO some long-range surety on reimbursement rates. Both sides agree that the existing "benchmark" rate _ a market measure regulators use to determine if TECO's rates are reasonable _ should be replaced with something that more accurately reflects current market conditions. The staff's primary recommendation is that the PSC open TECO Transport's books to see what the carrier charges nonaffiliated companies for water-borne hauling. Regulators would also have a better idea what the company might earn on "backhaul" trips _ the return trip carriers make once the coal is unloaded. If TECO makes money on backhauls created by work for a regulated utility, then some of those proceeds should help offset power rates.

The commission is scheduled to consider the matter Tuesday, but the course proposed by the staff is better for the public than TECO's settlement offer. While the company made some concessions, it did not repeal TECO Transport's "meet or beat" clause. What good is TECO's offer to rebid the contract and to make the bid less restrictive if ultimately a corporate affiliate can undercut the competition? TECO officials, incredibly, downplay the anticompetitive effect of "meet or beat." But the staff chronicled its chill on the market, saying it gave TECO's sister "extraordinary advantage over any prospective bidders." The company has said "meet or beat" might be negotiable, but why should the state dicker on a point so central to drawing more bidders into the process _ the only way, after all, of gauging the market and fixing true, reasonable transport rates?

TECO's offer is a cosmetic fix that does little to change the underlying problems with the hauling rates its customers pay. If TECO Transport offers such a good deal, then it faces nothing but vindication should the PSC adopt the staff approach for fostering competition.