ML20010B547
| ML20010B547 | |
| Person / Time | |
|---|---|
| Site: | Saint Lucie  |
| Issue date: | 03/24/1978 |
| From: | FEDERAL ENERGY REGULATORY COMMISSION |
| To: | |
| Shared Package | |
| ML20010B546 | List: |
| References | |
| ER78-19, NUDOCS 8108170202 | |
| Download: ML20010B547 (257) | |
Text
{{#Wiki_filter:_. Volume No. 10 OFFICIAL STENOGRAPHEP.S' REPORT EEFORE THE c- FEDERAL ENERGY REGULATORY COMMISSION SUBJECT In the Matter of: FIDRIDA PCWER & LIGHT COMPANY CCC'GT NCS . ER78-19 ER78-81
- k. ;
Held at Washington, D. C.
-Friday, March 24, 1978 i
c 1742 PAGES TO L Columbia Reporting Company cmc AL arPcs Eas 3c0 Ss /:::in stasz; s.7 TA5}Cf GTON, D. C. 20004 8108170202 810810 - PDR ADOCK 05000389 :tspuo::= sse aoso N PDR _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _ - . _ _ _ - - - - - - - - - - - - )
3
^
(FERC - FLORIDA POWER & LIGHT COMPANY, CCCKET NOS. ER78-19 & ER78-81, Friday, March 24, 1978 at Washington, D. C.. Volume No. 2 10) O 3 ESE15EEE 4 FITNESS DIRECT CROSS. REDIRECT RECROSS S I 1492 1661
$ 5 l Gordon T. C. Taylor 0
t i j 6 Lloyd L. Williams (Resumed) 1703 1737 1739 E z ' 9 E 7l PREPARED *ESTIMONY OF - d w S David A. Springs . . . . . . . . . . . . . . . . . . . . . p a g e -16 8 9 9 Harry W. Wright .....................page 1697 10 1 d Rate Schedule SR and SR-1 .............page 1487
@ 11 '
EXHIBITS IDENTIFIED IN EVIDENC 5 12 b 47 - letter from the City of Vero Beach 1664 1665 I 13 5 signed by John V. Little. City 3 14 Manager, to Mr. H. C. Luff, Assistant a General Manager. Orlando Utilities
" Commissicn, dated March 18, 1977 15 48 - letter from Orlando Utilities 1684 3.686 16 Commission dated August 6, 1976, 17 to Mr. John R.' Kelly 1
49 - Florida Power & Light Company, 1707 1708 i ?. 18
- d. $ billing statement for interchange 19 se rvice , City of Homestead, _
hd GA December 1977
!! 20 ,
si 45 21 RECESS: ( {$ 22 MORNING - 16 76 23
-( )
25 l l
i SAGER 1485 v1 1 3EFORE THE P.DERAL ENERGY REGULATORY COMMISSION ' O ,
----------------x 3 i l In the Matter of: : Docket Nos. ER78-19 4 : ER73-81 R F.,ORIDA POWER & LIGHT COMPANY :
2 : 4 5 2 ----------------x 2 i 8 6 i i
- a z 1 S 7 Hearing Room F 5
a FERC
" 825 North Capitol Street Washington, D.C.
9 Friday, March 24, 1973 - d The above entitled matter came on for further hearing, o C 11 j j pursuant to adjournment, at 9:30 a.m. x o 12 i BEFORE:
, , a: ' I < 13 CURTIS L. WAGNER, Presiding Administrative Law Judge 5 ! 2 l 3 14 -
c APPEARA'TCES : l u i 15 ' (As heretofore noted) x 16 17 l ii 7. 18 i$ 19 l t $ m.*a? \ =5
, EE 20 45 l t
3j 21 t 22 l r 23
.O 25 1
1
i l v1 i, '492 I
, I
- t i P RESIDING JUDGC - Is there any objection'to the admission
'i 2{
- into evidence of these two ra' e schedules?
~
a l Hearing none, they are admitted into evidence. I 4 j S i MR. HALL: The fuel adjustment clause and tax adjustment
=
0 5 ! y clause that were applicable to both of these rate schedules are a 6l E i not attached, Your Honor, but I don't believe for the purpose z C 7. ' 5 of this hearing they are relevant. I 8 PRESIDING JUDGE: Are there further praliminary matters? i 9 I - (No response)- d P RESIDING JUDGE : By agreement of the parties we are o e ~l i [ going to begin with Dr. Taylor this norning in order to give 5 12 S Mr. Guttman time to go over yesterday 's testimony before 1
= x
< 13 '
E continuing the cross-examination. 2 3 14 a , So I guess that brings us to Dr. Taylor, o 15 l ' Ycs, Dr. Taylor is the Staff witness. i MR. SHAPIRO: 16 Whereupon, 17
! GORDON T. C. TAYLOR l
,l 3: la
^
was called as a witness, and having been duly sworn, was
- s. 8n
- 'u ^9
, /
jn l examined and_ testified as follows:
=a sj 20'! PRESIDING JUDGE: Please be seated and give your full M5<
2'^ A3 name and address to the reporter. 22 THE WITNESS: Gordon T. C. Taylor. My address is 825 Nort.L. o,
~~! Caoitol Street, Washington, D. C. 20426.
i o,!
\ ~* l DIRECT EXAMINATION I
~5 ! 3Y MR. SHAPIRO:
i I n
i ,
, 2 1493 1-G Are you the sane Gordon T. C. Taylor who filed direct I
2 ( )' - Lastin Ty in this case on behalf of the Staff? o l A Yes. 1 , . 4 Do you have any additions or corrections to make to g 4 ! ? 5 that testimony? a l 6 Yes, I have corrections on roughly 22 pages. y A , z 7 On paga 11 at line 13, correct the spelling of the word h G i J g 8 i " schedule". 9 At page 17, line 35, at the end of the line add a quotation , 10 mark. d . U
$ 11 Page 21, line 2, at the beginning of the line, add an A
e e o 12 open parenthesis.
- w e x~
$ 13 Page 25, I have five corrections: -
m 1 2
! 3 14 On line 1, after the word "as" add the words ." base load.'
i O j u 15 On line 3, at the end of the line, add "per kiih." . ,a ' On line 4, delete the word "the." 17 From the word " largest" delete the letters "st." And
\ 18 after that word add the words " base load."
j l f"h. 4 < a 19 On line 5, before the word "if" insert an open parthensis. ! Eg ! m . Ei
! jj 20 And on line 6, replace the last letter with a closed
-g
@+
, !$ 21 parenthesis.
I f 22 On page 27, line 6, correct the spelling of the word l 23 " integrates." ()- 24 On page 31, there are two corrections: 25 At line 23, after the word "regarding," insert the words I 1
v3 1494 1
"the exerci'se of."
( On line 23, replace the word "a" with the word " third" 3 7 (co==al. 4 Or page 36, line 17, replace the word " wheeling" with
+ 5 the phrase " transmission on another utility's transmission E 6
- G system."
z C 7 MR. HALL: Excuse me, I think the lines are off from the 5 d 8
" line numbers on that page.
t . 9 i THE WITNESS: It is page 36, line 17, the word " wheeling" 10
- o in the sentence that reads "When a utility needs wheeling.'"
i u s e 1^1
- And the correctien is to replace the word " wheeling" with x
o 12 i b the phrase " transmission on another utility's transmission. i / 's % 13 0 < ~ 3 system." ! 2 i 3 14 o MR. HALL: I'm sorry, I am getting behind, because my u , 15 l page-doesn't say any of what he just said, Your Honor. i 16 PRES DING JUDGE: Off the record. (Disedssion off the record) i iZ 18 On the record, m;[ FRESIDING JUCGE: r . " 2" 19
$d. THE WITNESS: Page 40, line 26, after the word "in" insert l
I !! 20 j gg the phrase "FP &L 's exis, ting wholesala . " . m2 a* 21 x3 Page 41, line 8, after the word " integrated" insert the l 22 word " producing." i 23 And, at the end of that same line, line 8, delete the l 4 sO word."direce1y.- 25 Page 54, there are two corrections:
i e i v4 1495 l
. 1 At line 25, change the word "three" to the word "two."
, 2 And on line 39, change the word "my" to the word "any."
- i o '
l On page 64, I answered a different question than was asked, 4i so the question at the top of page 64 at line 2, Jhould delete g i
?
, 5 \
% i the words "the acquisition" and replace those two words with n
- 2 6I 2 l the phrase " evaluating the effect of FP&L's proposed limitations z
9 7
? on the availability of wholesale power (question marki."
m E 8 On page 65, at line 40, "GT-3" should be changed to 9 '
"GT-4."
10 d Page 66, line 8, "GT-4" should be "GT-3." O C l'^ E f At line 10, "GT-3" should be "GT-4." r ' e o 72
^
w Line 12, "GT-3" should be "GT -4 . " c l 12
^"
$ i Line 15, "GT-4" should be "G,T -3 . "
2 I a 1
^ '4 i y And line 16, "75" should be "76."
U 15 MR. HALL: It is no wonder I get mixed up with all these
'6
^
exhibit number, if you get mixed up wirh them. 17 l THE WIT'ESS : Page 76, line 43, after the word " network" l s '. ^8 i 1 qg j insert a period and delete the rest of the sentence that appears s i SL 19 ;
"d l on lines 43 and 44.
=z. !
== 20 t ij Then looking above that to the two sentences beginning G5#
A3 21 on line 37, they have to be changed to reas as follows: 22
; "Within FP &L's operating area one other utility also 23 I provides full requirements bulk power to other distribution utilities and to their own distribution cenrers. This supolier i
25 1' J is Jacksonville Electric Authorityf which supplies full
I I v5 1496
,l I
requirements to the City of Jacksonville Beach, Green Cove 2 Springs, and to its own distribution network."
~
Page 73, line 15, change "Peninsu'a" to " Peninsular." . 4
@ Page 85, there are two changes:
e 4 5 3 At line 29 delete the words "instead of."- la 6 [9 On line 30, af ter the word " monopoly" inset the word "powey . ' 7 5 Page 91, at line 36, the word ' wiggle" Staff informs me d 8 should be "W-R-I-G-G-L-E." 9 On page 92, line 4, after the word "portest" there should , 10
- o. be a comma.
e , 1 z Pave 113, there are two changes: g e o 12 i At line 10, after t*te word "at" insert "a rate not to e
< 13- -
E exceed." 2 3 14 1 o And one line 20, after the word " power" insert the word u 15
" supply."
'6
~
Page 122, line 30, add to the end of the line after the 17 comma the phrase ""FP&L only wculd." ir ^8 1 And on line 31, at the end of the line add a cemma after vj ] EM 19 go the word "necessary". ,
-z 1 55 20
#1 On page 123, above the first question, above the first G5
$5 line, add the title heading " Restrictions on Nuclear Access."
22 i' Finallyy on page 128, line 6, the number "19" should be t 22 e the number "10." 24 s BY MR. SHAPIRO: 25 Dr. Taylor, with the exception of the corrections ; G L
i v6 1497 l' noted, if the same questions were asked of you today, would CE) your answers be the same? 3 A Yes, they would. 4 MR. SHAPIRO: I hand the reporter a copy of Dr. Taylor's e o 3 testimony, Your Honor. 8
~ e f
C 7 PRESIDING JUDGE : The reporter is directed to copy into E the record at this coint the prepared direct testimony of d 8
" Dr. Taylor consisting of 137 pages.
9 (THE PREPARED DIRECT TESTIMONY OF GORDON T . C. TAYLOR, id 8, IS AS FOLLOWS:) 0 17-z 5 2 o 12 x
< 13 5
1 3 14 O U 15 16 17 iZ 18
- d. $ '
$4 19 G9 55 z: 20 11 45 R$ 21 i, 22 23
,() 24 25
_ __ __ _ i 1 _ . . _ _ . . _ . . _ . . _. ..._.-...__ . ___ ______._. 1408 i i UNITED STATES OF .OERICA BEFORE THE
; ,- FEDER.AL ENERGY REGULATORY COMMISSION In the Matter of Florida Power & Light Company ER78-19 (?hase I) and ER78-81 Prepared Direct Testimony of Gordon T. C. Taylor Federal Energy Regulatory Cc==ission February 1978
'. 1. Q. Would you please state your name and address? 2.
- 3. A. My name is Gordon T. C. Taylor. My business
- 4. address is 825 North Capitol St., N. E., Washington, D.C.
- 5. 20426.
6.
- 7. Q. What is your present employment?
8.
- 9. A. I ma a staff economist and Acting Director of the
- 10. Division of Econocics, Office of Regulatory Analysis,
- 11. Federal Energy Regulatory Cocmission, U. S. Depart =ent cf
- 12. Energy.
- 13. c
- 14. Q. Would you please su=narize your educational back-
- 15. ground?
16. ,'. 17. A. I attended Whit =nn College for two years and then
- 18. transferred to the University of Washington in Seattia
- 19. where, in 1962, I received a B.A. degree in economics. In
- 20. 1966, I earned the M.A. degree in economics at the University This graduate work was supported lI 21. of California at Berkeley.
- 22. in part by a Ford Foundation fellowship. Subsequently, I
- 23. received a Ph.D. dissertatien fellowship free the National
- 24. Center for Air Pollution Control in the U.S. Decartment I 25. of Health, Education, and Welfare. My disserta' tion, d( s 26. entitled, "An Economic Analysis of Governmental Air Quality
- 27. Controls," is concerned with the control of mobile and l
- 28. staticnary air pollutant sources including electric z
1499
, m 1. generating plants. In 1973, I was awarded the Ph.D. degree rd
\ 2. in economics, also from the University of California at
- 3. Berkeley.'
- 4.
- 5. Since joining the FPC I have attended the NARUC
',. 6. Regulatory Studies Program at Michigan State University and
- 7. the course on Pubile Utility Regulation at the University
- 8. of Maryland.
9.
. 10. Q. Is there an area of specialization within economics
- 11. which deals specifically with antitrust issues?
- 12. ~~
- 13. A. Yes, this area of specialization or field in
- 14. economics is called Industrial Organization. Economists
- 15. specializing in Industrial Organization study the effect of
- 16. various types of market structures (e.g., competitive or
- 17. monopolistic) on the conduct cf firms and on the economic
( 18. performance of these markets. Endustrial Organization is
- 19. applied Price Theory. Price Theory (or Microeconomics) is
- 20. applied to analyze market problems and anticompetitive -
1
- 21. situations in order to identify the need for antitrust
- 22. enforcement.
23.
- 24. Q. Have you scudied either Price Theory or Industrial
- 25. Organization?
26. i
- 27. A. Yes, I studied both fields as'an undergraduate and
- 28. then in graduate school. In graduate school I studied
- 29. Industrial Organization with Professor J. S. Bain who is
! 30. considered one of the major founders of Industrial Organica-
- 31. tioc as a separate area of specialization within economics.
! 32. I first studied the Northern California Water Industry with
- 33. Professor Bain in a course and then worked under his super-
- 34. vision in a research proj ect on the San Francisco-Bay Area
- 35. Petroleum Industry. Subsequently, he supervised the research
- 36. for my Ph.D. dis'sertation and was the Chairman of my
- 37. Dissertation Cocmittee.
- 38. '
i 39. Q. Would you please outline your teaching experience? l 40.
- 41. A. Between 1964 and 1967, while in graduate school, e 42. I was a Teaching Assistant and then Head Teaching Assistant
! 43. at the University of California at Berkeley for the Princi-
- 44. ples of Economics course. From 1967 to 1969, I was an
- 45. Acting Instructor at Berkeley and taught Microeconomic
- 46. Theory. Then from 1969 to 1974, I was first Instructor,
- 47. then Assistant Professor, and finally Acting Department l
- 48. Chairman, in the Department of Economics at the University
- 49. of Maryland, Baltimore Ccunty Campus. I caught Public
- 50. Finance, Environmental Economics, and Microeconomic Theory.
. . . - =- - - - - . .
1500
- 1. I also had teaching experience while performing k'>] 2. military service. Between 1961 and 1969 I served in the
- 3. U.S. Coast Guard Reserve including six months of Active 4 Duty and over seven years of Reserve Duty. While on Active
- 5. Duty, I was a student at the U. S. Naval Training Center
- 6. (San Diego) and completed, as Honor Graduate, the Electri-
- 7. cian's Class "A" School. Af ter two years of Reserve Duty,
- 8. I was awarded a Direct Cocmission to the rank of Ensign and
- 9. I completed my eight years of service at the rank of
- 10. Lieutenant. As an officer I had responsibility for my '
- 11. reserve unit's Engineering Training curriculum and taught
- 12. shipboard electric systems. '
13.
- 14. Q. Would you please surmnrize your other professional
- 15. experience?
16.
- 17. A. In 1962, I was an Industrial Engineer at the Boeing
- 18. Airplane Company in Seattle and I worked on facilities
- 19. planning. In 1965, I was an economist for the Bank of
- 20. California in San Francisco and co=pleted analyses _qf_two-
- 21. potential branch bank locations. In addition, I developed a
- 22. newsletter for the bank which aralyted West Coast economic
- 23. growth and business activities. In 1967, I was a consultant 24 to Arthur D. Little, Inc. and helped prepare the San
- 25. Francisco Tax Study. In 1970, I served as a consultant to
- 26. the Baltimore Planning Council and prepared an analysis,
- 27. Priority Criteria for Seweraze Facilities, which established
- 28. a method for selecting proj ects su'oj ect to Federal cost-
- 29. sharing.
30.
- 31. In 1973, as a consultant to the Economic Analysis -
- 32. Division in the U. S. Environmental Protection Agency (EPA) ,
- 33. I prepared a chapter of the Air Strategy Study entitled 34 " Sulfur Oxide Emission Taxes as a Supplement to Regulations."
- 35. Also in 1973, I served as a consultant to the Water Programs
- 36. Branch in the Office of Planning and Evaluation at the EPA.
- 37. I wrote the chapter entitled the " Benefits of Water Quality
- 38. Enhancement" for the Economics of Clean Water, a report to ,
- 39. Congress.
40.
- 41. In 1974, as a consultant to the EPA's Washington
~
- 42. Environmental Research Cented I helped to analyze the
- 43. Northern Great Plains Resource Program with regard to facili-44 ties siting and to socio-economic impacts. Moreover, I
. 45. contributed to the Agency's critique of the AEC's Nuclear
- 46. Fast Breeder Reactor Program Draft Environmental I= pact
- 47. Statement. In addition, I served as a consultant to the
- 48. Energy Task Force in ene Office of Research and Development
- 49. at EPA. I worked with the Fossil Fuel and Nuclear Fuel
(~,s) 50. Groups developing research and demonstration projects for 2
s .i_.._.. , 1501
- 1. program to achieve national self-sufficiency in energy 0 2.
3. supplies.
- 4. Later in 1974, I was a consultant to the Office of
- 5. Economic I= pacts in the Federal Energy Administration. I
- 6. analyzed crude oil price controls and exploration incentives,
- 7. and worked on establishing the level cf price controls for
- 8. unleaded gasoline.
9. t 10. Q. When did you join the staff of the Cocmission and
- 11. what are your current responsibilities?
12.
- 13. A. In July 1974, I joined the Federal Power Commissiod'~
- 14. staff as an Industry Economist in the Office of Economics.
- 15. In May 1976, I was m.de the Assistant to the Chief of the
- 16. Office. In February 1977, I was appointed Acting Chief of
- 17. the Office's Division of Econcmic Studies and, in July.1977,
- 18. I was' appointed Chief of that Division. In October 1977
- 19. when the U. S. Department of Energy was created, the organi-
- 20. =ational names changed. I am now Acting Director, Division _
- 21. of Economics, Office of Regulatory Analysis, Federal Energy
- 22. Regulatory Cocnission, U. S. Department of Energy.
23. 24 A primary responsibility of the Division is to
- 25. advise the Commission and to assist the Office of Opinions
- 26. and Reviews (00R) in their preparation of draft opinions and
- 27. orders for consideration by the Commission. I have advised
- 28. the Commission on economic, financial, and regulagory issues
- 29. concerning the regulation of natural gas producers and pipe-
- 30. lines, electric utilities, hydroelectric projects, and oil
- 31. pipelines. The Division also prepares expert testimony for
- 32. hearings. 33.
- 34. In addition, the Division prepares studies on
- 35. economic and regulatory issues. For the Section 80(c) Study
- 36. prepared by the U. S. Water Resources Council uncer Puolic
- 37. Law 93-251, I co-authored a report, " Options for the
- 38. Discount Rate." For the new National Power Survey, I helped <
- 39. to prepare the chapter " Future Electric Growth." I have
- 40. prepared chapters on the " Economy of the River Basin" for
- 41. the Kern River Basin Appraisal Reoort and for the Pit River x 42. Basin Appraisal Report. Also, I co-authored and filed
- 43. public comments on the Commission Rulemaking, Annual Charges
- 44. for Use of Most Government Lands, RM75-ll. I have been the
- 45. commission's representative to the Economics Committee of the
~
- 46. U.S. Water Resources Council. During the last two years,
- 47. I participated in a national research effort on peak load
- 48. pricing, the Electric Utility Rate Design Study, en Task
- 49. Force 5 - Peak Loac Ratemaking. This stucy was sponsored jointly by the Edison Electric Ins citute and the Electric
[ 50.
. . a . . . . - . - - - . . - - ,
. _ - . 3 . :. .. .
l 1502 5-r^g 1. Power Research Institute at the request of the National (J 2. Association of Regulatory Utility Commissioners. Finally, I
- 3. have prepared sections of several Environ = ental Impact 4 Statements for hydroelectric and natural gas pipeline projects <
5.
^ 6. Q. Have you prepared testimony concerning anticompeti-
- 7. tive issues in the electric power industry?
8.
- 9. A. Yes. I have filed testimony on anticocpetitive
- 10. issues in four cases and two of these concerned the activities
- 11. of the Florida Power & Light Company.
- 12. -
- 13. In Florida Power & Light Company, ??t Docket No.
- 14. E-9574, FP&L filed an application to acquire the municipal
- 15. electric system of the City of Vero Beach. I offered te ~ -
- 16. cony concerning F?&L's anticompetitive conduct and the poten-
- 17. tial loss in competition under the proposed merger.
18.
- 19. In Florida Power & Light Co=pany, FPC Docket No.
- 20. ER77-175, FP&L filed a wheeling (transmission) race,sphedule '
- 21. for the delivery to the City of New Smyrna Beach of the
- 22. City's entitlement in Florida Power Corporation's Crystal
- 23. River No. 3 Nuclear Plant. My testimony addressed the
- 24. restrictive and unjust nature of the rate schedule and the
- 25. relationship of this rate schedule to F?&L's market
- 26. behavior.
27.
- 28. In Boston Edison Company, FERC Docket Nos. ER76-90
- 29. and ER76-588, wholesale electricity customers alleged a
- 30. " price squeeze." I offered testimony that an anticocpetitive
- 31. effect would occur under price discrimination.
- 32. ,
- 33. In Otter Tail Power Company, ??C Docket Nos.
- 34. E-8152 and ER77-5, otter Tail filed a wheeling (transmission)
- 35. tariff and a supplemental power (i.e. , partial requirement)
- 36. tariff as required by the U.S. Suprece Court in Otter Tail
- 37. Power Cocuany v. United States 410 U.S. 366 (1973). My
- 38. testimony analyzed whether Otter Tail's proposed rate level c
- 39. and terms and conditions properly reflected the court!s
- 40. order to correct anticompetitive Sherman Act violations.
- 41. -
~
- 42. Q. Have you testified in other cases?
43.
- 44. A. Yes, I have testified at the request of the U.S.
- 45. Nuclear Regulatory Commission (NRC) before the NRC's Atomic
- 46. Safety and Licensing Board on the "need for power" issue for 47, the licensing of two nuclear plants. I testified on my
- 48. proj ections of growth in electricity consumption in each of
- 49. the service areas of the four applicant companies and in the
- 50. two-state reliability area as a whole. These dockets were:
(])
s . 1503 () 1. Portland NRC Docket General Nos. ElectricSIN 50-514 Company,
'and ST et al.,
S 5DT515 2.
- 3. Pebble Springs Nuclear Plant, Units 1 and 2.
4
- 5. Puget et al.,
NRCSound Docket&Nos. LightSTN Comeany, 50-522 ind YTN 50-523 6.
- 7. Skagit Nuclear Power Projects, Units 1 and 2.
8.
- 9. I have testified regarding the Utility Program of
- 10. the proposed National Energy Act in hearings before the
- 11. Subcommittee on Energy and Power,-Cocmittee on Interstate
- 12. and Foreign Commerce, U. ST~ House of spresentatives.
L3.
- 14. In Blandin Paper Company, et al., FPC Docket No.
- 15. E-7671, et al., the Commission concucted a Headwater Benefits
- 16. Investigations of the Upper Mississippi River. I testificd
- 17. on the payment of interest on unpaid headwater benefits
- 18. charges. --
19. In Ncrthern States Power' Company, FEC Docket No. _ X ~~ 20.
- 21. P-108, the U;..S. Departments of Interior and Agriculture
. 22. proposed federal takeover of NSP's expired license for the
- 23. Chippewa Proj ect. I testified on the National Economic
- 24. Development benefits and costs of federal takeover under the
- 25. U. S. Water Resources Council's'Princiales and Standards for
- 26. Planning Water and Related Land Resources. In accition, I
- 27. testifiec on the payment of annual charges under relicensing.
28.
- 29. In Virginia Electric Power Company, FPC Docket No.
- 30. P-2716, Vepco applied for a license for the Bath County
- 31. Pumped Storage Proj ect. I testified on the potential effects
- 32. of peak load pricing en electricity consumption.
33, 34 In Sierra Club v. Nebraska Public Power District,
- 35. FPC Docket No. E-8492, and Nebraska Public Power District,
- 36. FPC Docket No. F-1835, NPPD applied to use the water of its
- 37. Sutherland Hydroelectric Project for cooling its Gerald c
- 38. Gentlecan Steam Generating Station. I testified on the ..
- 39. socio-economic i= paces of constructing and operating the
- 40. coal-fired plant, and en the, potential effects of peak load
- 41. pricing on electricity consu=ption.
42.
- 43. In El Paso Alaska Company, et al., FPC Docket No.
- 44. CP75-96, et al., there were conceting auplications to con-struct an Iliska Natural Gas Tr'nsportation System to bring
~
E 45. a
- 46. natural gas from Alaska's North Slope.to the " lower 48
- 47. states." I testified on the. cocparative financial impacts
- 48. from Titernative oiceline routes on both the Alaska State
. '([)
- 49. gover. ent and on'the local govern =ents along the routes
- 50. throug. laska.
n.., w. ,, - .,- ,n__g-,-, - n ,>,_,,,m,., m_ ,,----,,n ,,,,,,,-,,,,.,n ,,,w ,,,,,.,e, - - , , , , , -
'y . u.-
1504 7-
- 1. Q. How is your testimony organized?
2.
- 3. A. My testimony is organized into five sections:
4.
- 5. Page
- 6. Section Subject 7.
8.
- 9. 1. Statement of Issues, Purpose of 8
., 10. the Testi=ony, and Summary
, 11. of Conclusions
- 12. -
- 13. 2. ~~ Analytic Concepts Needed in an
- 14. Economic Analysis of Ccmpeti-
- 15. tion in the Electric Power Industry 16 16.
17.
- 18. 3. Relevant Product and Geographic
- 17. Markets and the Structure of
- 20. the Electric-Power-Indu's~try 21.
in-Fr$rfda 56 22.
- 23. 4. Conduct of the Florida Power and l 24. Light Company in the Relevant
- 25. Product and Geographic Markets 84 26.
- 27. 5. Conclusions and Remedies 132
, 28. . 29. 30.
- 31. -
- 32. Q. Are there any exhibits that accompany your
- 33. testimony?
34.
- 35. A. Yes. There are 87 exhibits contained in 3
- 36. volumes that accompany my prepared testi=ony. Volumes
- 37. 1 and 2 are exhibits that I also submitted in FP&L
.13 . Docket No. E-9574, and Volume 3 contains the docu=ents
- 39. Staff obtained from FP&L in this proceeding which were c
- 40. meant to update the discovery in the earlier case.
41.
- 42. My exhibits do not always appear in the testimony-
- 43. in sequential nu=erical order.
44. 45. 46. 47. 48. 49. p 50.
1505
- 1. Statcesnt of Issues, Purcoso of the ^
Testimony, and Su=marv of Conclusions
- 1. Q. What are the issues here in the Florida
- 2. Power and Light Company combined dockets, Nos. ER78-19
(])
, 3. (?hase I) and ER78-817 5.
- 5. A. The Florida Power and Light Company (FP&L) has
- 6. on file with the Cocmission an FPC Electric Tariff,
- 7. First Revised Volume No. 1, under which it is selling firm power to ten wholesale customers. FP&L calls this 8.
- 9. its SR-1 tariff. Some of the ten wholesale customers
- 10. served under the SR 1 tariff receive full electric power
- 11. requirements fran FP&L and some receive only partial 12 ._ requirements. Of the ten wholesale customers, three
- 13. are municipals (Homestead, New Smyrna Beach, and Starke)
- 14. and seven are cc -ops (Lee County, Clay, Peace River,
- 15. Glades, Okefenoke, Florida Keys, and Suwannee Valley).
16.
- 17. - Ancther =unicipal, Ft. Pierce, has asked to be
- 18. served under the filed SR-1 cariff and FP&L's alleged
- 19. refusal to do so is now che subject of another Commission 20, investigation-under-FP&L, Docket No. EL78-4.
21.-
- 22. In the first docket here, FP&L ER78-19, FP&L
- 23. proposes to:
24
- 25. a) separate the SR-1 tariff into two parts :
26.
- 27. 1. SR-2 would be for full requirements
- 28. firm service:
29.
- 30. 2. PR would be for partial requirements
- 31. ,
firm service. 32.
- 33. b) limit the availability of these two tariffs
- 34. to specified customers:
35.
- 36. c) increase the rate (s).
37.
- 38. In the second docket, FP&L ER78-81, FP&L would exercise
- 39. its new li=itations on the availability of *he tariff <
- 40. and terminate service to the City of Homestead.
41.
- 42. The Commission phased the first docket, ER78-19.
I
- 43. Phase I concerns the reasonableness of the tariff
- 44. availability provisions and was combined with the
- 45. termination of service to Homestead in the second docket, i 46. ER78-81. The availability provisions and service termina-
- 47. tion are the subj ect of my testimony. Phase II of ER78-19
- 48. will consider the rate level in a separate hearing.
49.
- 50. Q. Would you please descrite the availability
)
/
s -
. - . . '. .. . . - - . . . .. .--..h... ...
1506
- 1. limitations that FF&L proposes?
(]) 2.
- 3. A. Yes. First, however, FP&L's interchange
- 4. service agreements must be outlined. Although not at issue
- 5. explicitly in either docket here, it is necessary
- 6. to understand FF&L's interchange agreements in order
. . 7. to croperly evaluate FP&L's proposed availability
- 8. lim'i tations on the wholesale tariff.
9. !** 10. FP&L now offers two types of interchange
- 11. agreements: full service and partial service. Partial service includes emergency power and scheduled maintenance 12.
- 13. power. Full service adds onto partial service, economy
- 14. energy and firm power. A wholesale customer is required
- 15. to have at its disposal enough of its own generating
- 16. capacity to meet its peak demand in order to qualify
- 17. for full service under an FP&L interchange agreement.
- 18. This limitation on the availability of full interchange
-19rservice is a necess ry part of the contextual back-
- 20. ground for evaluating the wholesale tarir: limitations.
21,
- 22. It may also be useful to state the availability
- 23. limitations placed on the current tariff, SR-1. Apparently
- 24. there are none written into the tariff. It purportedly
- 25. makes wholesale power service available in all territorias
- 26. served by FP&L without restrictions. The SR-1 tariff
- 27. appears to be equally available to existing or new
- 28. wholesale power customers who want partial or full
- 29. requirements bulk power regardless of whether they have
- 30. interchange agreements with FF&L.
31.
- 32. In its supplemental filing here in ER78-19,
- 33. FF&L separates the SR-1 tariff into two separate rates ,
- 34. SR-2 and PR, and procoses to limit the availability
- 35. of service under both. The new rate schedules and
- 36. their limitations are:
37.
- 38. SR-2 (Full recuirements) <
39.
- 40. 1. Available only to existing wholesale
- 41. customers..
42.
- 43. 2. Not available:
44.
- 45. (a) to customers with full inter-change agreements with FP&L 46.
- 47. (i.e., self-sufficient systems) 48.
- 49. (b) to customers eligible for the
(~s e-) 50. PR tariff.
N 2_._. . . _ ... . _ _ . . _ 1507 PR (Partial recuirements)
)
- 3. 1. Available only to existing partial
- 4. requirements customers.
' 5.
- 6. 2. Not available to self-sufficient
, 7. systems.
8.
- 9. The City of Homestead is self-sufficient but is now a
- 10. partial requirements customer buying wholesale power under the SR-1 tariff. Under the proposed limitations, 11.
- 12. Homestead could neither continue as a partial require- -
- 13. ments customer because it is self-sufficient in 14 generating capacity, nor could it buy SR-2 power
- 15. because it has a full interchange agreement with FF&L.
16.
- 17. Q. Would you please set forth the specific issues
- 18. raised by the proposed limitations on the availability
_- 19. of service that need to be addressed? 20.
- 21. A. In its order setting these dockets for hearing
- 22. (December 30, 1977), the Commission Listed the allega-
- 23. cions of the intervening Florida Cities and Florida
- 24. Cooperatives. In the Pre-hearing conference held
- 25. subsec.uently, certain of these issues , and other issues
- 26. raisec by staff, were designated by the Administrative
- 27. Law Judge as properly the subject of the expedited
- 28. hearing here on the tariff availability limitations:
- 29. Whether FP&L's tariff is anticompetitive
- 30. (A)
- 31. in its effect because it would: (1) force
- 32. abandonment of service to Homestead;
- 33. (2) limit wholesale service to a limited class of customers; and (3) exclude 34.
- 35. service availability to municipals with 36, adequate generation but with a desire
- 37. to purchase firm power services for
- 38. their economic benefit; 39.
- 40. (3) Whether the tariff's bar on service to
- 41. new customers is anticompetitive in its
- 42. effect; -
- 43. Whether FP&L's denial of full interchange
- 44. (C)
- 45. service to any system purchasing wholesale
\. 46. power is anticompetitive in effect;
- 47. Whether refusal to sell wholesale power
- 48. (D)
- 49. to systems having. full interchange service
- 50. is anticompetitive in its effect;
(])
= . . - . .
. . ~ _ . - - . . . .e 1308
- 1. (E) Whether FP&L's refusal to sell firm
(]) 2. power to customers at 69 kv or below
- 3. unless they electri'cally isc14te the
- 4. sections of their systems served by
- 5. FP&L is anticompetitive in its effect; 6.
Whether the refusal of FP&L to sell
. 7. (F)
- 8. wholesale power to Ft. Pierce is
- 9. anticompetitive in its effect; 10.
- 11. (G) Whether FP&L's denial of firm wholesale
- 12. power service under the SR-2 rate schedule
- 13. to utilities for which the PR rate scheGdle ~
- 14. is applicable is unduly discriminatory
- 15. and anticompetitive in its effect;
- 16. .
- 17. (H) Whether FP&L's PR tariff availability
- 18. - limitations should be allowed-to deny
- 19. standby and emergency service; 20.
- 21. (I) Whether F?&L has a shortage of generating
- 22. capacity which would make some sort of
- 23. limitation on wholesale service availability
- 24. necessary; 25.
- 26. (J) Whether FP&L has developed a curtailment
- 27. plan to accompany its projected limitations
- 28. on service availability.
29.
- 30. Q. What is the purpose of your testimony?
31.
- 32. A. The purpose of my testimony is to analyze: che
- 33. economic effect of FP&L's division of its single whole-
- 34. sale tariff into separate partial and full requirements
- 35. rate schedules; the limitations or restrictions on
- 36. the availability of these rate s chedules; and the
- 37. attempted termination of wholesale service to the
- 38. City "of Homestead. <
39. 40.
- 41. ~
~ 42. 43. 44.
. 45.
46. 47. L8 . 3:) '!: I 2_ _ _ . _ . _ _ _ _ _
s .
~
_ _ . _ _ _1 1509 4'i 1. Q. Would you please summarize your conclusions before
~# 2. explaining your analysis in ietail?
- 3. Yes. Summarizing, my conclusions are:
- 4. Ac 5.
- 6. 1. The production, transmission, and distribution of
- 7. electric power are distinct and separable functions in the
- 8. vertical structure of the electric power industry.
- 9. Florida Power and Light Company (FP&L) is one of the
- 10. 2.
- 11. nation's largest vertically integrated investor-owned
- 12. utilities; it sells bulk power, transmits bulk power, and
- 13. sells retail power in eastern and southern Florida which
- 14. is its operating area.
15.
- 16. 3. Independent _ municipal and cooperative electric utili- c
- 17. ties exist in FP&L's operating area and most are isolated
- 18. within this area.
- 19. It is national economic policy to protect and enhance
- 20. 4.
- 21. competition as reflected in the nation's antitrust laws.
22.
- 23. 5. Competition is possible and desirable in the regulated
- 24. electric power industry.
25.
- 26. 6. Retail electric power and bulk electric pcwer includin5 27.
transmissionaretherelevantproductmarketsforanalyzin)
- 28. the issues in these two dockets: ER78-19 (Phase I) and
'29 . ER78-81.
30.
- 31. 7. The actual geographic market relevant for analyzing
- 32. the retail power market is FP&L's operating area in eas-
- 33. tern and southern Florida. The actual' geographic The whole-potential
- 34. sale bulk power market is the same area.
35, bulk power market is a larger area, but the potential
- 36. retail market is 12 .
....,2
- 37. ..
FP&L dominates transmission in the actual burc power
- 38. 8. "
- 39. geographic market. FP&L also dominates the suppl: of
- 40. relatively low cost or economic bulk power (partlybecausg
- 41. of its ownership of nuclear plants) in the relevant whole-
- 42. sale geographic market. .FP&L dominates the supply of
- 43. power at retail in the relevant actual geographic retail
- 44. market. FP&L has monopoly power in bulk power, transmis-
- 45. sion, and retail power in the relevant geographic markets.
- 46. _
- 9. FP&L exercises its monopoly power in the relevant
'[-
4 49; bulk power, transmission, and retail power markets. m, ds.J 50.
_.__,.i _ . , , ._ . . . _ . . _- ........2- _ . . . 1510
- 1. 10. If existing municipal.and cooperative wholesale custo-(]) 2 mers of FP&L in FPAL's operating area were no longer able
- 3. to serve, FP&L would take over and serve at retail.
- 4. 11. FP&L has. applied to purchase the municipal electric . .
- 5. Until recently, FP&L haf
~
- 6. system of the City of Vero Beach.
7. refused to wheel power to the City of Vero Beach from - 8, other bulk power producers and has refused to sell bulk or : 9, wholesale power to vero Beach.
- 10. 12. FP&L has attempted to purchase other municipal utili-
- 11. ties in its operating area.
12.
- 13. 13. FP&L now holds about 165 30-year franchises from muni-14, 15.
cipalities to serve at retail.
- 16. FP&L has insistec on 30-year The franchises to those muni-17, 14. effect of such long cipalities it serves at retail.
18. 19, term franchises is to foreclose the retail market to
- 20. potential competitors.
- 21. 15. FP&L is in competition with its municipal wholesale
- 22. castomers for the franchisa to serve the muni ipalities 23.
24, at retail.
- 25. 16. FP&L now sells bulk power in its operating area in 26.
'7. competition with other bulk power suppliers (e.g., munici-pals and cooperatives).
28.
- 29. 17. With minor exceptions, FP&L will sell transmission
- 30. services only under a tying arrangement in which a whole-
- 31. sale customer can obtain transmission only if that custo-
- 32. mer also agrees to buy bulk power only from FP&L. Thus,
- 33. FP&L uses its transmission monopolf power as a lever to
- 34. obtain monopoly power in the bulk power market.
35. 36.
- 18. In the proposed SR-2 tariff, FP&L would impose.anothes tying arrangement. FP&L would require or tie a retail 37.
38, 39. franchise to full requirements wholescie service, the tyit 40, prcduct; FP&L wculd only sell bulk power and transmission: (excep(
- 41. services to captive franchise distribution centers
~
- 42. to seven existir.g cooperative wholesale customers).
43.
- 44. 19. FP&L of fers only a single partial requirements whole-45.
sale tariff'and does not unbundle it into separate peak
- 46. load and base load rates.
47. 48, 20. FP&L's proposed tariff restrictions are an exercise C 49, monopoly power which will severely thwart future attempts s
- 50. by communities (municipalities) to establish new municips t)
~ ,,
.>. . % . . a. . <_ . t -. ;
)
_ 14 _ 1511 ; (]) 1. utilities after FP&L's 30 year retail tranchises expire.
- 2. The new municipal utilities wculd have to anter all three
- 3. production levels in the industry simultaneously (distri-4 bution, transmission, bulk power production) instead of
- 5. just distribution.
. 6.
. . 7. 21. FP&L has a wholesale bulk power tariff on file with
- 8. the EERC but has refused to serve selected customers under
- 9. it.
10. 11, 2_. FP&L has filed a restrictive " point to point" wheeling
- 12. transmission rate schedule for New Smyrna Beach (ER77-175)
- 13. but the rate is based on the cost of FP&L's entire trans-
- 14. mission system.
15.
- 16. 23. FP&L refuses to file a tariff for general wheeling on
- 17. its system. ,
18.
- 19. 24. FP&L has a policy of refusing to form a power pool to
- 20. benefit all utilities and customers in Florida.
21.
- 22. 25. FP&L presents no evidence of a shortage of generating
- 23. capacity. FP&L's documents indicate an excess of generatin<
- 24. capacity.
25.
- 26. 26. An alleged shortage of generating capacity by FP&L is 27 not a basis for denying new municipals bulk power services
- 28. When FP&L serves at retail, it necessarily also is selling
- 29. both bulk power and transmission services. A new municipal
- 30. would simply replace an FP&L retail franchise; thus, the
- 31. same generating capacity already in use would still be
- 32. available to supply bulk power at wholesale.
33.
- 34. 27. In the event of a capacity shortage, FP&L should file
- 35. a curtailment plan that treats its wholesale and retail
- 36. customers equally in order to avoid imposing thetnduly
- 37. discriminatory availability limitations in the tariff on
- 38. the wholesale customers alone. c 39.
- 40. 28. FP&L's refusal to sell wholesale power under its pro-41, posed tariff to the City of Homestead is unduly restric-
- 42. tive and anticompetitive'in its effect.
43. 44, 29. FP&L's refusal to sell wholesale power under its exist
. 45. ing sR-1 tariff cr under its proposed SR-2 and PR whole-
- 46. sale tariffs is unduly restrictive and anticompetitive in
- 47. effect.
48 .
- 43. 30. Limitations on the availability of wholesale service r3 based on whether a utility has some or all of the generati (J 50.
's ._
x _ __. . ~1 1512 l
)
j
- 1. capacity needed to meet its load is unduly discriminatory 1 73 and anticompetitive in effect. l
(_J 2. 3.
- 4. 31. Limitations on the availability of ait er the SR-2 or PR ,
- 5. wholesale rates based on whether a utility has some or all
- 6. of the generating capacity needed to meet its load is
. 7. unduly discriminatory and anticompetitive in its ef fect.
8.
- 9. 32. Limitations on the availability of the 3R-2 or PR
- 10. wholesale rates based on the type of interchange agree-
- 11. ment a utility has with FP&L is unduly discriminatory and
- 12. anticompetitive in its effect.
13.
- 14. 33. FP&L's proposed limitations on the availability of its
- 15. SR-2 and PR wholesale tariffs should be rejected in their
- 16. entirety.
- 17. .
- 18. 34. FP&L's denial of full interchange service to any
- 19. system purchasing partial requirements wholesale power
- 20. is unduly restrictive and anticcmpetitive in its effect.
21. 22, 35. F?&L's refusal to sell power under its wholesale
- 23. c471ff to =/ stems having full interchange service is
- 24. unduly restrictive and anticompetitive in its effect.
25.
- 26. 36. FP&L's denial of standby and emergency service
- 27. under the PR tariff is unduly restrictive and anti-
- 28. competitive in its effect. -
29. 30. 31. 32, 33. 14 t i 35. 36. l 37. 38. 39. 60. 41.
- 42. / .
43. 44.
~
65.
- 1. 6.
47. AB. 49. l (') U 50.
s . s
.>. . _ . a . . . - . = . . - . . - - .- - .- - --
1513
- 2. Analytic Concepts Needed in an Ecenomic Analysis of Competition in the Electric
(]) Power Industry
- 1. Q. In general, what are the economic costs of -
- 2. a reduction in competition?
- 3.
- 4. A. A reduction in competition may result in
- 5. inefficiency and higher costs. Economists believe
- 6. that competition is the best means our society has
- 7. to encourage and discipline producers to be efficient
- 8. and to provide high quality service at the lowest
- 9. possible cost. Professor Alfred E. Kahn in his book
- 10. The Economics of Regulation, Vole =e 1, states that:
11.
- 12. " Competition will weed out the inefficient
- 13. and concentrate production in the efficient;
- 14. it will determine, by the objective test '
- 15. of market survival, who should be permitted
- 16. to produce; it will force producers to be
- 17. progressive and to offer customers the
- 18. services they want and for which they are
- 19. willing to pay; it will assure the alloca-
- 20. tion of labor and other inputs into the
- 21. lines of production in which they will make
- 22. the maxi =un contribution to total output."
- 23. (page 18 ; footnote omitted) 24
- 25. Competition applies continucus pressure on firms
- 26. to achieve the lowest costs and prices and to improve the
- 27. quality of their products. In order to compete success-
- 28. fully firms must pursue technological innovations. When-
- 29. ever an alternative source of supply is withdrawn from
- 30. the market, this reduces competition; the market pressures
- 31. for good performance on the remaining firms are reduced.
- 32. Without this pressure, firms may not achieve the lowest
- 33. costs, be as efficient, or advance as rapidly technol-l
- 34. ogically.
l 35.
- 36. Therefore, a competitive market structure is
- 37. important for achieving the national goals as reflected
- 38. in our antitrust laws of an efficient economy providing
- 39. products at the lowest possible cost. If competing firms
- 40. are either hamstrung er driven from the market by the
- 41. antico=petitive conduct of a large firm with monopoly
. 42. power, then competition will be suppressed to the
- 43. detriment of our national goals. If FP&L's proposed
- 44. selective restrictions on customers to whom it will
- 45. sell low cost bulk power are approved, they could 3 46. artifically escalate the power costs of both FP&L's s) 47. actual cocpetitors and FP&L's potential competitors.
- 48. The existing municipal and cooperative utilities in
- 49. FP&L's operating area are in actual competition with
- 50. FP&L to serve at retail. -Any municipality or community
s . 1514 17 - f3 1. now served by FP&L could create their own publicly-(_) 2. owned utility and, therefore, FP&L also faces these
- 3. potential competitors Restrictions on the avail.
4 ability of wholesale power would have two effects.
- 5. First, it would inflate the cost of power to the
- 6. retail customers whom F?&L would otherwise serve if
- 7. their current distributor is driven out by FPSL's
- 8. restrictive provisions. Second, it would erect a
- 9. formidable barrier to apotential =unicipal planning. j
- 10. not to renew FP&L's retail distribution franchise
- 11. in some community. This added barrier is created
- 12. because the new municipal could not purchase bulk
- 13. power but' would have to ju=p into bulk power production 14 at the same moment it entered electricity distributien.
15.
- 16. If a new municipal takes over in_ an existing
- 17. ??LL franchise area, F?&L would still have the same - l
- 18. generating capacity it was using to supply that retail l
- 19. load. Therefore, any restricticns on availability to
- 20. potential wholesale customers based on a shortage in l
- 21. power generating capacity are patently artificial.
22.
- 23. Q. F.as the F?C previously recognized the economic 24 value of maintaining and increasing competitien in the
- 25. regulated electric utility industry?
- 26. .
I 27. A. Yes, the Commission in its Central Maine Order, ! 28. issued May 25, 1976, stated on page 13 that: l 29. I
- 30. "In any analysis of public interest
- 31. considerations, due weight must be
- 32. given to the facts that devotion to
- 33. competition is our fundamental economic 34 policy. Federal Maritime Commission v.
- 35. Seatrain Lines, All U.S. 726 723 (1973) ll
- 36. and that "the public interest is dis-
- 37. advantaged when private enterprises are
- 38. permitted to engage in anticocpetitive c
- 39. agreements and restraints. ... City of
- 40. Lafaye tte , Louisiana v. Securities and
- 41. Exchange Commission, 454 F2d 941 (D.C.
'. - 42. Cir. 1971)." 43. 44 Q. Is the value placed upon competition by economists
- 45. generally accepted?
46.
- 47. A. Yes. Economiats believe that free enterprise
'48 . in a co=petitive economic system will result in the most
- 49. efficient allocation of resources. Court decisions in
- 50. antitrust cases have reflected the preference of economist:
((])
.. ..~.__... . . . _ . ....--_.
1515
- 1. for economic colicies that foster comoetition in the (g) 2. regulated indhstries. The Supreme Court, for example,
- 3. in Northern Pacific Rv. Co. v. United States 356 U. S. 1, 4 4 (1956) stated that:
5.
- 6. "The Sherman Act was designed to be a
- 7. comprehensive charter of economic liberty
- 8. aimed at preserving free and unfettered
- 9. comoetition as the r21e of trade. It
. 10. res'es on the premise that the unrestrained
- 11. interaction of comoetitive forces will
- 12. yield the best all' ocation of our economic
- 13. resources, the lowest prices, the highest
- 14. quality and the greatest =aterial progress,
- 15. while at the same time providing an environ-
- 16. ment con lucive to the preservation of our
- 17. democratic political and social institutiens.
- 18. But even where open to question, the policy
- 19. unequivocably laid down by the acc is
- 20. competitive."
21.
- 22. In another decision regarding a regulated utility
- 23. the United States Circuit Court of Appeals for the
- 24. District of Columbia described the inherent liniestions
- 25. of the ratemaking process:
26.
- 27. " Admittedly, the Commission possesses a rate-
- 23. making pgwer and this power is designed to
- 29. protect the consumers...But it is clear that
- 30. this power is largely a negative one. Thus
- 31. the Co= mission may set a selling rate for a
- 32. supplier only after it has been demonstrated
- 33. that the present charge is unjust, unreason-34 able, caduly discriminatory c e preferential,
- 35. a heavy burden even for specialists as
- 36. familiar with the... industry as is the
- 37. Commission. On the other hand, if competition
- 38. exists, albeit in a limited area, there would '
- 39. be incentives for innovation by the regulated
- 40. companies themselves and for their coming
- 41. forward with proposals for better services,
. 42. lower prices or both. And once innovations
- 43. or proposals are forthcoming by a supplier,
- 44. the Commission could more easily act to
- 45. universalize these benefits than it coulc have 46.
acted to extract them initially." Northern
- 47. Natural Gas Co. v. Federal Power Commission.
- 48. 399 F.2d 953 (D.C. Cir. 1968) at 964, 965.
49. 50.
<G
..___x___. . . _ . . _ _ . . . . . . _.; _.
_.._ ... _ _ a 1516
- 1. Moreover, the Supreme Court in its decision
(~) 2. in Otter Tail also has addressed the i=cortance of
'~'
- 3. competition in the regulated electric power industry.
4 The Court said: 5.
- 6. "There is nothing in the legislative
~
- 7. history (in Federal Power Act] which
- 8. reveals a purpose to insulate electric
- 9. power companies from the operation of
- 10. the antitrust laws. To the contrary,
- 11. the his tory of Part II of the Federal
- 12. Power Act indicates an overriding policy
- 13. of maintaining competition to the macimum
- 14. extent possible with the public interest."
- 15. Otter Tail Co. v. United States 410 U.S.
- 16. 300, 374-375 (1973).
17.
- 18. Q. Since electric utilities are regulated, why
- 19. should competition be protected and enhanced in this
- 20. industry?
21.
- 22. A. The purpose of regulation is to achieve the
- 23. results that accrue under co= petition; in competitive 24 markets, customers are protected by having indek andent
- 25. alternative sources of supply. When there are alterna-
- 26. tive sources of supply, the fir =s competing for the
- 27. business of custocers must =aintain good service, keep
- 28. costs and prices down and be efficient, progressive,
- 29. and innovative. Cocpetition in the electric utility
- 30. industry assures good performance because those who lag
- 31. behind may lose the franchise to serve.
32.
- 33. The electric utility industry has competitive 34 restrictions because competition for customers street-
- 35. by-street or house-by-house would be duplicative and
- 36. war,teful. Tc avoid this waste, a single utility is
- 37. given a conopoly franchise to serve a ' ocal area.
- 38. However, co= petition in the electric industry both in "
- 39. the retention of a franchise to serve a retail area
- 40. and in the production of energy, is possible. I will
- 41. develop this argument in detail below.
- 42. -
- 43. The purpose of regulation is stated by Professor
- 44. Kahn in his The Economics of Regulation, Volume I:
45.
- 46. "the single most widely accepted rule 47, for the governance of the regulated -
- 45. industries is to regulate them in such
- 49. a way as to produce the same results r~s 50. as would be produced by effective com-(-) 51. petition, if it were feasible."
- 52. (page 17)
,w- - ' - p, -- -, g , _ ,
.._L.a.
__ %...= m.__ 1517 O .
- 1. In the concluding paragraph of his two volume
- 2. study of The Economics of Regulation, Professor Kahn
- 3. states that the great majority:
4.
- 5. " regard this market economy (competition]
- 6. much as they regard democracy -as a
- 7. manifestly inefficient system that is
- 8. better than any of the alternatives...
- 9. To the extent that it can be relied on, -
- 10. the instit.ution itself, rather than
- 11. either political or managerial policy
- 12. takes over responsibility for the puolic
- 13. interest...Even when highly imperfect,
- 14. it (compe tition ] can often be a valuable
- 15. supplement to regulation." (emphasis
- 16. in original) 17.
- 18. Unfortunately, regulation does not create the
- 19. positive pressures for good perfor=ance similar to those
- 20. of competition. Regulation is essentially negative because ~
- 21. it: sets maxi =um prices and does not p,ut pressure down-
- 22. wards on prices; establishes minimum standards of service
- 23. instead of encouraging better quality; and oversece
- 24. expenditures rather than letting market . returns cull out
- 25. good from poor investments.
26.
- 27. Regulation does i= prove the performance of the
- 28. regulated industries , but economists almost universally
- 29. agree that at its best, regulation is not a good substitute
- 30. for competition. Moreover, there is general agreement
- 31. among economists that we should encourage competition
- 32. wherever possible in the regulated industries. In 1970,
- 33. the President's Council of Economic Advisers in their
- 34. annual report stated that: <
35.
- 36. "more reliance on economic incentives
- 37. and market mechanisms in regulated l - 38. industries would be a step ,rorward" 39.
- 40. The Council also stated that regulated industries have
- 41. been more progressive when competition has been encouraged.
- 42. by the regulatory authorities.
43.
- 44. Since the purpose of regulation is to achieve the
- 45. performance of competitive industry, competition should
. (]) 46. be encouraged and protected because it complements and
- 47. reinforces the goals of regulation. Encouraging and pro-
- 48. tecting competition is also the objective of antitrust
- 49. policy. The appropriate relationship between competition
- 50. and regulation has been summnrized by Professor James E.
s - s. l 1518 ;
- 1. Meeks in his article in the Colu=bia Law Review
(]) 2. (Vol. 72:64) entitled: " Concentration in the Electric
- 3. Power Ir.dustry: the Impact of Antitrust Policy."
- 4. He states on pages 75 and 76:
5.
- 6. "It is submitted that an appropriate
- 7. antitrust policy for the electric
- 8. power industry is one that preserves
- 9. -
that degree of competition consonant
~
- 10. with realization of available econcmies
- 11. of scale.
12.
- 13. . . .a careful application of antitrust 14, concepts can supplement ' regulation
- 15. without sacrificing available economies
- 16. of scale."
17.-
- 18. In summary, competition can produce an efficient
- 19. use of our nation's resources more readily than regulation.
- 20. Thus, competition should be protected and encouraged in
- 21. the regulated industries wherever it would not block the
- 22. achievement of economies of scale.
23. 24 Q. Would you please explain more fully what the
- 25. value of competitica is to the economy?
26.
- 27. A. Comoetition is valuable because it is a strong
- 28. force which leads in an. automatic fashion to an optimal
- 29. allocationfof the economy's resources'; In addition, competition is thought to be a good method of achieving
~
30.
- 31. the perfor=ance desired from producers. In contrast,
- 32. monopoly frustrates achieving the competitive ideal and
- 33. socially good performance from producers.
34.
- 35. Q. In economics, what does the term " competitive
- 36. market" mean?
37.
- 38. A. A competitive market has many buyers and c
- 39. many sellers of an identical product and entry into this
- 40. market is unrestricted. Moreover, no single buyer or
- 41. seller is sufficiently large in that market to be able
- 42. to have an influence on price. Thus, a eccpetitive
- 43. market is a type of market organization in which there
- 44. are severe lLnits to the power or control.th~at can be -
- 45. exercised by individual firms.
46,
- 47. Economists also recognize that ccmpetition in
- 48. the sense of rivalry can exist even when the market
- 49. structure is nct perfectly competitive. In these i
O-s 50. imperfect markets, each company consciously makes pro-
" ' ' ' ~ ~ ~ - . . _ . _ _ , _ _ _ _ _
s.
. _ . . .... . -. ..._.-_. ...___m. . _ _ _ _
o __ _s_ \ - 1519 () 1, duction an'd price dec'isions only after considering '
- 2. what those same decisions by their close rivals will
- 3. be. Even competition in imperfect markets, however,
- 4. can promote efficiency.
. 5.
- 6. Q. How is the electric industry organized?
7.
- 8. A. Electricity must be produced, transmitted,
- 9. and distributed to end-use customers. Each of these
- 10. functions in the chain of supply is distinct although i
- 11. the structure of the industry is characterized by '
- 12. large vertically integrated systems which do all three.
13 hiny small utilities only distribute electricity; they 14 pt rchase bulk power and transrission services. These
' Ey ~- pu chases either may be for f 211 requirements from a
- 16. single supplier or may be par -ial requirements from
- 17. each of several suppliers.
18.
- 19. The largest electric system in the U.S. La
- 20. terms of kWh sales is the Tennessee Valley Authority
- 21. (TVA) which only produces and transmits electricity.
- 22. TVA does not sell at retail although it does sell
- 23. bulk power directly to large industrial and governmental '
- 24. customers. The Bonneville Power Administration (BPA)
- 25. neither generates electricity nor retails it, except
- 26. to a few large industrial fir =s. It only transmits
- 27. bulk power. BPA markets power produced by the U.S.
- 28. Corp of Engineers, the Bureau of Reclamation, and
- 29. publicly-owned ucilities. BPA then transmits and sells
- 30. this bulk power for resale. Some firms only generate
- 31. electricity and sell it to others to transmit and
- 32. distribute. Although the electric industry is dominated
- 33. by large firms which are vertically integrated, elec-
- 34. tricity obviously could be supplied witho6e vertical
- 35. integration as demonstrated by the institutional 36, organization of TVA and BPA.
- 37. "
38.
- 39. '
40.
~ ' 41.
42.
' 43.
- 44. .
45. 46. 47. 48.
'() 50.
~ . .
1520 l
- 22a -
([) 1. Q. You stated that the vertical structure of the
- 2. industry is organized into generation, transmission and e
- 3. distribt.cion functions and that these functions can.be
- 4. and are in some cases performed by separate entities, f Does FP&L recognize these functional distinctions?
7- A. Yes. In an FP&L internal memorandum dated March 8- 26, 1976 to Senior Vice President Ralph G. Mulholland from
- 9. LloVd L. Williams, Director of Rates and Research, Exhibit f0. _ (GT-63), Mr. Williams proposed the following:
h2- 2. A comprehensive study should be made to evaluate
$4. th,e profitability of each:
75
- 16. a) Generation system. .
b) Transmission system. - ff- c) Lstribution system.
- 19. 3. Should separa.te subsidlaries or independent
- 20. corporations be formed for:
- 22. a) Generation 23.
b) Transmission 2@.
- 23. c) Distribution 26.
- 27. -
- 28. Q. Would you please explain what is mesnt by the
- 29. cerm "struccure?"
30.
- 31. A. The term " structure" in e~onomics c refers to
- 32. the organizational characteristics of the market which
- 33. might substantially influence the behavior of a firm 34 within the market. Elements of market structure would
- 35. include such things as the nu=ber of sellers and buyers,
- 36. product differentiation, barriers to entry, cost
- 37. structure, and the amount of vertical and horizontal <
- 38. integration.
39. 40.
- 41. -
, 42.
43. i
~
M. . 45. 46. 47. 48, 49. s(wu) 50. 9
- 1 j
. _ _ \ '- *
-_._t._. _ _ . . . . _ _ _ _ _ . __ .__ ' _ _ __ J 1521
- 1. Q. Would you please define and explain the
(~>T 2. concept of vertical integration? 3. 4 A. The precess of extracting raw materials and
- 5. then refining and using them in manufacturing finished
- 6. products can be conceptualized as a vertical chain of
- 7. separate activities. There are firms at each level
- 8. in the vertical chain. A firm that integrates backward
- 9. undertakes the production of the raw caterials or semi-
- 10. fabricated materials needed in its plancs, materials
- 11. previously purchaced from other firms. A firm that 12, integrates forward moves to produce more finished or
- 13. final products and perhaps moves into the wholesaling 14 and retailing of its products.
15.
- 16. The, reduction of costs is the pri=ary motive
- 17. for vertical integration although firms naturally
- 18. prefer enhanced control over their economic environment.
- 19. Backward integration insures the supply of raw materials,
- 20. improved predictability of the cost of these materials,
- 21. and r rotection from a price squeeze by a vertically
- 22. int . grated monopolis tic supplier competing with its
- 23. wholesale customer. Forward integration insurec an 24 outlet for a firm's product and rec :es a firm's
- 25. vulnerability to exclusion from the .arket by. wholesalers
. 26. or retailers with monopoly power ; 27.
- 28. As I mentioned, the larg_ invesror-owned electri@
- 29. systems La the U.S. are vertically integated since they
- 30. generally produce, transmit, and sell electricity at In addition, some extract their
- 31. wholesale and retail.
- 32. own fuelo, but none manufacture generators and turbines.
33, 34 The enhanced control of markets through vertical
- 35. integration also provides a means for abuse of that
- 36. control. Thus, a vertically integrated firm may be able
- 37. to restrict the supply of essential materials or trans-
- 38. portation services to less integrated competitors, to <
- 39. shut out competitors from certain markets or to establish
- 40. a vertical price structure which squeezes the profit
- 41. margins of its competitor,s.
- 42. ,
- 43. Q. What is meant by horizontal integration? l 44.
A. In the electric pewer industry, for exa=ple, ( 45
- 46. horizontal integration at tne production level means
- 47. that a single utility owns a number of plants. At
- 48. the distribution level, it means that one utility
- 49. serves at retail a number of different local areas.
- 4) 50
1522
- 1. Q. Would you please define the concept of
- 2. economies of scale?
(]) 3. -
- 4. A. Economies of scale exist for a firm if
5. average unit costs decline as the scale of pro-
- 6. duction increases. Stated differently, the concept
- 7. of economies of scale expresses a technological
- 8. relationship in which an increase in inputs produces
- 9. a more than proportional change in output. Produc-
- 10. tion requires inputs such as capital equipment,
- 11. labor, and raw materials. If an additional amount
- 12. of all of these inputs.yielv.s a more than proportional
- 13. increase La outuut there ara economies of scale.
- 14. Assuming that the cost per unit of the inputs remains
- 15. the same as more inputs are purchased, the presencu .
- 16. of economies of scale implies that the average cost
- 17. of the goed being produced will fall.
18.
- 19. Q. Are there economies of scale in the electric
- 20. power industry?
- 21. .
, Yes there are but they result from quite differens
- 22. A. In the di;tribution
- 23. factors in each part of the industry.
- 24. of electric cower to retail customers there are economies
^
more
- 25. from serving nore customers per square mile.
. 26. customers there are per square mile the fewer as of
- 27. distribution lines that are needed per custome- In
- 28. tddition, one transformer can serve more customers if there
- 29. is gr.eate : customer density, cnd transformers also are
- 30. more economic per unit of capacity as their size increases.
- 31. Moreover, if each customer takes more energy, but the
- 32. coincident ceak load on each distribution line does not
- 33. increase, then costs per. kilowatt-hour also will fall 34 since the fixed c-sts of the distribution system are
- 35. spread over more cnits. To repeat, if consumption increase
- 36. but the ceak* load on each line does not, then no additional'
- 37. size to 'the distribution lines or transformers would be
- 38. required and their fixed costs would be spread over more #
- 39. kilowatt-hours of energy.
40.
- 41. In transmission there are significant economies
- 42. of scale because doubling' the voltage of a line will
- 43. increase its energy carrying ability by the square of the
- 44. change in voltage. Since the cost of transmission lines
- 45. increases in propcreion to increases in voltage, the I 46. cost per unit of energy carrying ability falls as design
- 47. voltage is increased.
48,
- 49. In the production or generation of electricity n 50. there also are economies of scale. 'dere the basis is
'l / 51. both different technology as scale increases as well as
- 52. changes in inputs . At very low outputs diesel or combusti
25 - 1523 kse buuk ;
- 1. turbines are economic. Asj output requirements
- 2. incrasse first small coal and oil boilers become
( ') 3. economic and then lar coal units are less costly. 4 Finally, at ina large obtput levels hig) pressure
- 5. coal and nuclear units ecome economic it(the high
- 6. levef~of output is required throughout theyear).
7.
- 8. There are also economies of scale as sales
- 9. grow from being able to have many maximum economic
- 10. scale generating units that can be operated on a ll, coordinated basis. Increased sales permit economic
- 12. si=e in units and the sharing of reserves. Thus,
- 13. there are economies as we expand in scale frem a 14 single generating unit, to a (multi-plant) firm, to a
- 15. firm with interchange and coordination arrangements,
- 16. and to a powe pool.
17.
- 18. Q. What is the relationship between economies
- 19. of scale and natural monopolies?
20.
- 21. A. The existence of economies of scale means
- 22. thac the average cost declines, if average cost
- 23. continues to decline over the entire range of probable 24 output levels then it may be efficient to have this
- 25. supplied by one firm. It two or more firms were
- 26. allowed to serve this output with separate facilities,
- 27. then neither' firm would raach a scale of output giving
- 28. the lowest average cost attainable. A " natural
- 29. mo'nopoly exists when it is more efficient or less
- 30. costly for a single firm to supply all of the output.
- 31. For example, it would be inefficient for two or
- 32. three electric distribution companies to serve a
- 33. single town since it would probably result in the 34 needless duplication of facilities. Thus, electricity
- 35. distribution in a local geographic area is a natural
- 36. monopoly, but serving several local areas is uot.
37.
- 38. Transmission lines also are natural monopolies
- 39. because of their economies of scale. Moreover, the <
- 40. duplication of transmission lines is aesthetically
- 41. unpleasing, wastes scarce land resources, and has
. 42. higher electric losses. All three factors impose 43, higher costs on society. For these several reasons 44 transmission lines should be constructed to voltages
- 45. high enough to carry the loads of all those utilities
- 46. wanting to use them rather than building duplicate 47, lower voltage lines , each to serve a single utility.
- 48. Thus , joint ownership of transmission lines is
- 49. desirable and can allow several utilities to all gain
- 50. from economies of scale.
.n L)
- - - ~ '
1524
- 1. There also are economies of scale in
- 2. production beyond the multi-unit plant from such
/ 3. things as reserve sharing and coordination. Pro-4 duction is not a natural monopoly, however; since - 5. reserves can be shared and clant operations
- 6. coordinated even if each plant is ' separately owned.
- 7. In fact, joint ownership of a single plant, such
- 8. as a nuclear unit, can per=it several smaller
- 9. utilities to obtain the benefits from economies
- 10. of scale in production.
11.
- 12. Q. Is horizontal integration at the generating
- 13. level of the industry necessary to achieve economies
- 14. of scale?
15.
- 16. A. No. Separate fir =s that each have their own
- 17. plant can achieve economies of scale by interconnection,
- 18. coordination, and planning, particularly if they
- 19. operate as a pool with contral economic dispatch and
- 20. the staggered construction of their generating units.
- 21. Ownership by a single firm of all these plants could
- 22. give an advantage over the central dispatch type of
- 23. pool organization I have just described if there are
- 24. organizational problems getting the several firms in
, 25. a pool to work together cooperatively. There are
- 26. differences of opinion on this point since there are
- 27. now power pools that have both small utilities and
- 28. large syste=s as =e=cers in a single pool working
- 29. successfully together.
30.
- 31. Q. From the viewpoint of economic analysis what
- 32. is the expected relationship between economies of
- 33. scale and the structure of an industry.
34.
- 35. A. Economic analysis would predict that where 36 there are significant economes of scale there would
- 37. be relatively few firms in that industry, or in the
- 38. case of anatural conopoly, one firm. In a natural
- 39. monopoly situation, where costs continue to fall <
- 40. over the relevant range of output, society would
- 41. be better off having a single firm produce this
- 42. product. Since the firm With the conopoly would
- 43. have no-competition, society could either produce
- 44. the good itself in a government run enterprise or
- 45. regulate the private firm.
46. t 47. Q. Does vertical integration create economies L8. of scale. 49. 50. A. No. Econcmies of scale refers to changes in n., 1
-1525 O 1.
2. average costs as output increases. Vertical integration by itself does not automatically lead
- 3. to a change in output. Vertical integration =ay 4 nevertheless lower average costs for reasons other
. 5. than economies of scale. For exa=ple, a steel
- 6. producer who integgrates forward in rolling sheet
- 7. =etal does not have to reheat the steel ingots
- 8. from'which sheets are rolled thereby lowering costs
- 9. without increasing final output. Conversely, si= ply
- 10. because a distribution utility integraces backwards
- 11. into bulk power production does not mean it neces-
- 12. sarily can obtain 1:s power at lower costs. Other
- 13. larger producers may have substantial economies of 14 scale in production that the small distribution utility
- 15. :annot match. Purchasing all of its. power, or
- 16. purchasing base load power and only installing
- 17. peaking capacity, may be the lowest cost alterna-18, tive for the small distributor.
19.
- 20. Q. Are utilities attempting to integrate
- 21. forwards or backwards in the chain of supply?
22.
- 23. A. The publicly-owned utilities are primarily 24 distributors who either purchase full requirements
- 25. wholesale bulk power or atte=pt to integrate back-
- 26. wards into bulk power supply. For example, the
- 27. cunicipals and cooperatives in eastern and
- 28. southern Florida either have or are attempting to
- 29. create what are, conceptually, wholly-owned subsi-
- 30. diaries to generate for them. Thus, I view these
- 31. distribution utilities as the " parent firm." An l 32. efficient parent firm would purchase from
- 33. its subsidiary only to the extent that its sub-34 sidiary can produce power at a lower cost than l 35. alternative suppliers. Therefore, the =unicipals
- 36. search for the lowest cost combination of.self-l 37. generated (i.e. , " subsidiary" generated) power
- 38. and purchased power.
39.
- 40. In contrast, the large privately-owned c
- 41. utilities such as FP&L are primarily bulk power
- 42. producers and transporters who attempt to integrate
- 43. forward into retail markets to insure outlets for 44 their bulk power.
45.
- 46. The publicly-owned utilitie
; 47. a tie to only one particular com= uni,sty. usually have Thus, a
- 48. municipal in one town is unlikely to compete to
- 49. take over the franchise to serve in another town.
- 50. (A municipal, however, may atte=pt to expand uO
.. ._..__ _ . . . . - - t 1526 .-
- 28.-
O 1. its service area to newly developed nearby areas.)
- 2. On the other hand, the privately-owned utilities
- 3. do not have such co==cnity. ties and only the Board 4 of Directors, and not an elected community body,
- 5. needs to authorize an attempted expansion of the
- 6. service territory or the takeover of already served
- 7. areas within or next to the company's general ser-
- 8. vice area. Within their general service areas,
~
- 9. the privately-owned utilities are in actual or
- 10. potential cocpetition to serve at retail not with
- 11. one publicly-owned utility, but with the municipal
- 12. or co-op form of ownership. Moreover, newly for=ed
- 13. publicly-owned utilities usually start from scratch ~
14 as distribution utilities without any production
- 15. " subsidiaries." Entry by the privately-owned
- 16. utilities into a distribution market area, however,
- 17. is usually by an existing, large, vertically-
- 18. integrated, production-oriented utility trying to
- 19. obtain another retail franchise area.
20.
- 21. Q. Why do you believe it is useful to view
- 22. the privately-owned and the publicy-owned system
- 23. differently in this manner?
24
- 25. A. First, it emphasizes the likely focus of
- 26. anticompetitive conduct by the privately-owned
- 27. systems. The private utilities are likely to make
~
- 28. bulk power and transmission difficult and expensive
- 29. for others to obtain to discourage com= unities from
- 30. creating new =unicipal utilities. Moreover restricting
- 31. power supplies =ay artifically inflate the p,ower
- 32. costs of existing =unicipals and co-ops and make
- 33. them look like poor alternatives to privately-34 supplied power.
35.
- 36. Second, it highlights that the utility
- 37. induarry has three main levels in the chain of
- 38. supply: production, transportation, and distri- c
- 39. bution.
40.
- 41. The difference in perspective can avoid
- 42. an analvtic confusion that stems from a monolithic
. 43. view of'a utility instead of acknowledging that
- 44. the different levels in the chain of production
- 45. often are vertically integrated into one utility.
- 46. For example, a privately-owned system =ay argue,
- 47. "Why should I sell my low cost power to my
- 48. publicly-owned competi tor?" If we conceptually
- 49. break the conolithic firm into its vertical parts,
- 50. however, we see there is no competition of the
-( ) ,
i
1527 , 1 (~b
- 1. type just asserted. The private producer sells
- 2. power to the public distributor. The conolithic
- 3. ~v iew would have the private producer selling power
- 4. to its competitor, the public's production subsi-
- 5. diary. Whether the public distributor puts together
- 6. (the lowest cost =ix of) private power and its sub-
- 7. sidiary's power, or lets its subsidiary provide all
- 8. the power is ic=aterici. The point is that the
- 9. production part of the privately-owned utility
- 10. does not compete with the distribution part of
- 11. the publicly-owned. They are at different levels
- 12. La the vertical chain of production. For a produc-
- 13. tion firm to refuse to sell on equal terms both to
- 14. its captive distributors and to independent
- 15. distributors is the basis for a price scueece. A
- 16. price squeeze occurs when a vertically integrated
- 17. firm discri=inates in its pricing or availability
- 18. of wholesale products or services against non-
- 19. integrated independent distributors or fabrica-
- 20. tors with whom it competes at retail. Cnly by
- 21. asking how a separate independent firm at each
- 22. level in the chain of croduction would behave in
- 23. a competitive market c'an anticompetitive conduct 24 be properly analyzed.
25.
- 26. . Q. You have characterized the present
- 27. structure of the electric utility industry as being
- 28. dominated' by large vertically and horizontally
- 29. integrated electric utilities. Do you think this
- 30. structure has come about because of monopolistic
- 31. activities on the part of these large firms?
32.
- 33. A. There is no basis for an overall genera-
- 34. lization: one would have to look very carefully
- 35. at the activities of each firm separately. There
- 36. is a natural =onopoly at the distribution level
- 37. in each local area. There is not, however, a
- 38. natural =onopoly from horizontal integration and <
- 39. the ownership or control of retail service in
- 40. several local areas. Thus, the motivation for
- 41. horizontal integration at the distribution level
- 42. does not come from economies of scale in retailing.
- 43. The need for a transmission grid and for generat-
- 44. ing capacity depends on what the firm can sell at
- 45. retail or can sell in the bulk power =arket. If it
- 46. generally were the power industry's policy to allow
- 47. wheeling, there would be =uch less reason to believe
- 48. that the exercise of monopoly power could explain
- 49. part of the concentrated structure of the industry.
50. e NEP \ I
s . 1528 _ , , ,
- 1. Q. Would you please explain the meaning of the
- 2. term " conduct" in economics?
1.
- 4. A. In economics the term " conduct" refers to
- 5. the behavior pattern followed by firms in operating
- 6. in the market in wnich they sell their product.
- 7. Examples of market conduct would include such things as price behavior, product strategy, resea.ch and
- 8.
- 9. innovation, advertisin , legal tactics, ar.d cocreion
- 10. policies toward rival girms. The potential for
- 11. anticompetitive conduct or behavior depends primarily
- 12. on whether a firm has conopoly power.
13. 14 15.
- 16. -
17. 18. 19. 20. 21. 22. 23. 24 25. 26. 27. 28. 29. 30.
- 31. .
32, 34. 35. 36. 37. 38. 39.
- 40. /
41.
- 42. .
43. 44. 45. 46. 47, 48, 49. 50. l l [ . _ - . _ _ _ _ .. __ ___
~
1529 () 1. Q. What is the difference between the terms 1. _ _ _. t 2. _ market power and monocolv power? . 3. 4 A. I use the terms market power and monopoly
- 5. power interchangeably.
6.
- 7. Monopoly power is any power over price.
. 8. Possession of monopoly power, however, does not
- 9. i= ply that such power necessarily is exercised.
10.
- 11. Monopoly power can be exercised in several
- 12. forms. Examples are: charging excessive or dis-
- 13. criminatory prices, excluding competitors or deny-
- 14. ing the= access to essential resources , refusing
- 15. to engage in economically efficient transactions,
- 16. and restricting capacity and output below the
- 17. competitive level. Electric rates are commonly
- 13. subject to regulation but, because of imperfec'-
- 19. tions in regulation, the exercise of monopoly
- 20. power over prices while limited may still exist.
21.
- 22. 4 Tr the , electric power industry, four issues
- 23. regardin,ggm Up31y power predominate. First is
- 24. price discrimination against wholesale customers.
- 25. Second is the refusal to deal. This takes the
- 26. form of refusals to sell bulk power for resale,
- 27. to coordinate, bulk to exchagg/ g, or to engage in other power transactions
- 28. 1A refusal to wheel is
- 29. also an example of a refusal to deal; it is
- 30. stated separately because a refusal to wheel can
- 31. enforce a refusal to deal. Without transmission
- 32. services, a utility cannot secure bulk power ser-
- 33. vices from alternative sources. Fourth is denying 34, access, through joint ownership or unit power -
- 35. sales, to nuclear, geothermal, hydroelectric, or
!' 36. other essential generating resources. An "essen-
- 37. tial" resource is one which is perhaps physically
- 38. possible to duplicate, but to do so would either 39, be plainly illegal, such as a product covered by c
- 40. a patent, or uneconomic, such as a nuclear plant i
- 41. constructed by a small utility. Only through-l 42. access to these essential generating resources l "
43, are small utilities and their customers able to 44 obtain power at as low a cost as the large systems. 45.
- 46. Monopoly power is evaluated in comparison to a i 47. 'co=getitive market. In a competitive market no one has s
- 48. monopoly power. To have monopoly power, a fir = must have, for example, control over market prices , output, 49.
l 50. yor entry. Another exa=ple is control over the use a: O l [ [
1530 s .
...r . .. .. .
.1. 2 -
- 1. an essential facility or the supply of an essential
- 2. resource. Where there are competitive alternatives,
- 3. a firm will not be able to maintain conopoly power 4 for any length of time.
5.
- 6. Monopoly power is usually exercised with
- 7. respect to some particular market participants or
. 8. potential participants. If a seller has monopoly
- 9. power it means that his customers lack competitive
- 10. alternatives to his products or services.
11.
- 12. Q. As a firm grows does it necessarily obtain
- 13. increasing monopoly power? .
14 .
- 15. A. No, not necessarily, alt..ough it could. First,
- 16. the firm may be expanding into a new geographic markets.
- 17. Second, it may be exoanding into new product markets.
- 18. Third, the total market sales in the product and geographic
- 19. markets it serves may be growing as fast or faster than
- 20. .the firm's sales. In this last case the firm's share
- 21. of the market would be declining. Concentration obviously
- 22. is not a measure of absolute size but rather it is a
- 23. l measure of size relative to the =arket, a measure of
- 24. market share.
- 25.
- 26. Q. What does the term " concentration" or
- 27. " concentration ratio" mean in economics?
- 28. .
- 29. A. Concentration refers to the number of fir =s
- 30. in a market and the' largest firms' share of that
- 31. market. A concentration ratio is a method of
- 32. expressing the degree of concentration. To cocpute
- 33. a concentration ratio, the fir =s in a carket are 34 ranked by size starting with the largest industry.
- 35. Size is =easured by sales in dollars or in enics
- 36. such as kilowatt-hours. A concentration ratio-is
~
37, the percentage of sales by the largest firm, by the
- 38. largest four firms, or setetimes by more firms. A
- 39. =enopoly would, of course, have 100 percent of a a
- 40. market.
41.
- 42. Other things,bein'g equal, the larger tne
- 43. share of the relevant market a firm has, the greater
- 44. its monopoly power. Just because a firm has conopoly
- 45. power, however, does not cean that it necessarily will
- 46. use this power in an anticompetitive and monopolistic
- i 47. fashion.
48.
- 49. Q. Does increasing concentration result only
- 50. from acquisitions and =ergers?
O O
. . . _ . - 1531
() 1. 2. A. No. An increase in concentration may also occur when firms leave the industry either because
- 3. of failure, or from liquidation for some reason
- 4. other than failure, in greater nunbers than those
- 5. entering the industry. In the electric power industry
- 6. utilities may stop selling bulk power for several
- 7. reasons:
8.
- 9. (1) retail loads grow to the utility's
- 10. plant capacity and new additions
- 11. to capacity to supply wholesale loads
- 12. are not thought to be economic or
- 13. reasonable for some reason; 14.
- 15. (2) wholesale customers' stop buying
- 16. because competing sources of bulk
- 17. power supply become less expensive; 18.
- 19. (3) wholesale customers buy less bulk
- 20. power because they install their
- 21. own generating capacity 'and no
- 22. Longer want to purchase so =uch
- 23. oower; or 24
- 25. (4) ' actual and potential wholesale
- 26. customers are viewed as a threa
- 27. to (the bulk supplier's) plans to
- 28. vertically integrate through
- 29. acquisition of retail distribution. .
30.
- 31. Q. Can =easures .of concentration establish the
- 32. existence of monopoly power?
33.
- 34. A. Such measures can help, but viewed alone they
- 35. may not be ' definitive. Therefore, concentration
- 36. indices are only a rough indicator of monopoly power
- 37. and their use must be combined with coccon sense.
- 38. Concentration indices may overstate the degree of
- 39. concentration if substitutes are excluded, or if
- 40. competition from i= ported goods is significant. Con- c
- 41. versely, the degree of concentration may be understated
- 42. if markets include non-substitutes,'if meaningful
. 43. markets are local or regional, or if there are special 44 institutional features such as franchises.
45.
- 46. Q. Does a high degree of concentration in an
( 47. unregulated industry support the inference that
- 48. conopoly power exists?
49.
- 50. A. Yes. If there are only a few large fir =s or ir k.
s
1532
. () 1.
2. a single large firm in an industry vich a few s=all firms, and if there are effective barriers to entry
- 3. of new competitiors, then without any evidence to
- 4. the contrary it may be infe'rred that the existing
- 5. large firms have monopoly power.
6.
- 7. Q. Doesn't the existence of monocoly cower mean
- 8. that the firm can set prices above lev'els that will
, 9. prevail in a purely competitive market and therefore .
could earn conopoly profits? {0.
- 12. A. Yes, in general that is true, but regulation
- 13. cay limit such action in the electric utility industry.
- 14. Monopoly power, however, can be exercised to protect
- 15. existing =arkets through the limitation of capacity
- 16. or output, price discrimination, tying arrangements, .
- 17. and refusals to deal.
18.
- 19. Q. Would you expect that a single firm would tend
- 20. naturally to own a number of plants in order to achieve
- 21. managerial and techn1cc:. economies of ' scale, and in
- 22. order to insure the achievement of the economies available
- 23. from integration?
24.
- 25. A. Certainly, I can see a firm wanting to do this,
' 26. but that does not demonstrate that the same econo =ies 27, cannot be achieved equally by coordination."' There is
- 28. a high degree of horizontal integration at the generation
- 29. level of the industry, but this degree of concentration
- 30. may not be required or justified by economies of scale.
31.
- 32. Since there are lower average costs at each
'Q.of the
- 33. level industry, does this imply that there are 34 also economies from the vertical. inter, ration of these
- 35. three functions into a single firm?. ..
36.
- 37. A. There may be some canagerial savings but I
- 38. expect they would be quite small. This does not take
- 39. away from the natural tendency of firms to strive for
- 40. vertical integration, to try to control the transportation
- 41. of their electric power, and to atte=ot to insure that
- 42. they will always have a market for th'e power from their
- 43. plants. For example, the construction of electric power
- 44. plants is expensive and it might have been easier in the
- 45. past to obtain financing for new plants if a market
- 46. for the plant's output is assured. Although this type
- 47. of risk might have been i=portant in the development
- 48. of the industry, certainly these risks now have greatly
- 49. diminished.
50. O V
._ . = , - .c
;N .
1533
- () 1.
2. Q. Why don't new firms always enter industries like the electric power industry whose markets are 3. increasing? 4
- 5. A. Many industries, including the electric
- 6. power industry, are very difficult for new firms to
- 7. enter successfully. The difficulties encountered in
- 8. attemoting to enter are called barriers to entry. In
- 9. the electric power industry there are a number of
- 10. barriers to entry:
11.
- 12. (1) government permits or franchises are
- 13. required; 14.
- 15. (2) a very large investment per dollar
- 16. of sales is required; 17.
- 18. (3) some essential productive resources
- 19. (e.g., transmission or nuclear power)
- 20. that are required, or are required
- 21. to compete successfully in the industry,
- 22. are controlled by one or a few supplier
- 23. firms who themselves produce and market
- 24. the final products of the industry; and 25.
- 26. (4) economies of scale such as in the pro-
- 27. duction and transmission of electricity
- 28. are very substantial thus requiring a
, 29 - new firm to enter on a very larga scale
- 30. in order to compete successully.
31. l 32. In the electric power industry =ost of these l
- 33. barriers exist in varying degrees. Entry is usually 34 controlled by a state or faderal regulatory agency which
- 35. =ust grant a franchise or a certificate of convenience
- 36. and necessity to the prospective entrant. A new munici-
- 37. pal utility may have to show that no legal actions are
- 38. pending against it in order to sell the bonds necessary
- 39. for financing its entry. New franchises may be challenged . "
- 40. or legal suits with or withour merit brought against
- 41. municipals. These barriers restrict entry because
- 42. regulatory agencies =ay not want to franchise new entrants
. 43. for fear of excess capacity and because of the expense
- 44. of litigation.
45.
- 46. Entry into the retailing of electric power is
- 47. difficult when a large verrically integrated electric _
- 48. system restricts the sale of or refuses to sell bulk'
- 49. power or refuses to wheel bulk power eenerated by another
- 50. producer. Without access to large ef'ficient generating
'O
= ,
.. x ._. . .._ .
" 1534
- 1. plants, and'to the necessary related bulk power services,
- 2. a new distribution utility may find it difficult to O 3.
4 co=gete o=. indeed. to su= vive.
- 5. Q. Would you please explain the difference between
- 6. transmission and wheeling?
7.
- 8. A. There is no substantive difference, transmission
- 9. and wheeling are the'same thing. It is convenient to use
- 10. the term " transmission" when a vertically integrated
- 11. utility is transporting the power it is producing over 12, its own transmission system to lo ws it serves at whole-
- 13. sale or retail. It is convenient to distinguish the 14 transmission of power produced by another utility oy
- 15. calling this transmission " wheeling." In addition, it
- 16. is useful to distinguish two types of wheeling. When a
- 17. utility needs wheeling from its remote plant to its system
- 18. load, this transaction is called second party wheeling.
- 19. When a utility purchases power from another utility, but
- 20. needs a third utility to transmi~.: the power, the trans--
- 21. action is called third party wheeling.
22.
- 23. The electric utility industry has three distinct
- 24. levels in the chain of supply. They are production,
- 25. transportation, and distribution. The industry is
- 26. characterized by large vertically integrated systems.
- 27. If we view the productica part of an integrated utility
- 28. as the parent firm, then its tranLportation subsidiary
- 29. can be viewed as wheeling to its distribution subsidiary.
- 30. The transportation of electricity is physically the same
- 31. regardless of whether or not the transportation system
- 32. is owned by the oroducer or the distributor that uses
- 33. this system. El'ectricity is a homogeneous product.
34 Power pools clearly demonstrate this fact. Power is on
- 35. the grid and used. All sorts of contractual arrange-
- 36. ments may be needed in a pool to plan, finance, construct, N- operate, meter, and bill, but it is clear from pooling 8- arrangements that the distinction between transmission
- 39. and wheeling is an ownership-contractual dis *:inction
- 40. and not a physical or electrical distinction. In order
- 41. to see that transmission and wheeling differ only <
4.. because of ownership, note that if for some reason elec-
- 43. tric utilities were not allowed to be vertically inte-44 grated, that is, if it were illegal to both produce
- 45. power and transoort it, then all transmission would be l- 46. called wheeling'.
47. 48- Q. Would you please explain what is meant by 9- anticompetitive behavior or conduct? 50.
- 51. A. There are various types of anticompe~titive con-
- 5. duct that can be employed by a firm or group of fir J
'O
=
1535 A kl 1. with monopoly power. Such conduct is dqsigned to frus-
- 2. trate or eliminate the competitive ability of other
- 3. fir =s which are actual or potential competitors. More-
- 4. over, this conduct includes actions to inhibit or eli=i-
- 5. nate a competitor's ability to increase its market
- o. share or to grow in step with the growth of the market.
- 7. In addition, anticompetitive conduct includes measures
- 8. designed to force the failure of a competitor or to
- 9. corner a competitor into being acquired. Acquisition is
- 10. an effective scheme to eradicate competition.
11. 12- Anticompetitive conduct may not be as effective
- 13. where the barriers to entry are low. New firms will
- 14. emerge in any growing and profitable market. In con-
- 13. trast, large r,ir=s with market power in concentrated
- 16. markets that have significant barriers to entry can li. pursue anticompetitive conduct.
18.
- 19. Q. How does nor=al competition differ from anticom-
- 20. petitive conduct?
21.
- 22. A. In normal competition, fir =s also attemot to
- 23. increase sales and gain customers. Of course no't all 24 firms can increase their market shares si=ultaneously.
- 25. Some gain and come lose. In nor=al competition the
- 26. gains ensue from increases in efficiency permitting
- 27. lower prices, i= proved produce quality or reliability,
- 28. better service, superior planning and timely expansion
- 29. of capacity. Some fir =s decline or fail because they.
- 30. are laggards or make serious business errors. As a
- 31. result, nor=al competition weeds out firms that are
- 32. inefficient and whose prices, and the quality and
- 33. reliability of their service or product is judged by 34 consu=ers to be inferior. Weeding out the inefficient
- 35. does not reduce competition because new firms will enter
- 36. the market and exis' ting fir =s must co=pete both with new
- 37. entrants and with other existing efficient fir =s. Nor=al
- 38. competition is dynamic and compels an ongoing attention
- 39. to efficiency in order to survive. <
40.
- 41. In stark contrast, anticompetitin_ conduct
- 42. aspires to debilitate and ' cripple the vigorous efficient
- 43. firms which can survive the rigors of a normal competitive 44 =arket.
45.
- 46. Q. What are some principal types of anticompeti-
. 47. tive behavior and how =ight they be manifested in the
- 48. electric utility industry?
49.
- 50. A. There are several types of antico=petitive
'OO
=
l l
s .
-.1536 - - -
llI 1. business practices which are intended to reduce co=peci-
- 2. tion and to eli=inate competitors. These practices are
- 3. quite different froc nor=al ec=petitive conduct. Some
- 4. of these anticompetitive practices are:
5.
- 6. 1. refusals to deal
- 7. 2. tying arrange =ents
- 8. 3. price discri=1 nation and price squeeze
- 9. 4. foreclosure of markets
- 10. 5. restrictive provisions 11.
- 12. 1. Refusals to deal 13.
- 14. To deal means to do business; a refusal to deal
- 15. is a refusal,to do business. For exa=ple, a bulk power
- 16. supplier could be expected to sell its product to all
- 17. who would purchase it. The sc=e is true of a utility
- 18. owning transcission facilities. A refusal to sell trans-
- 19. =ission services can squee=e competitors by forcing
- 20. them to self-generate on a s=all inefficient sesle and by
- 21. denying the= access to reserve sharing, econo =y energy ex-
- 22. changes, and other bulk power services. A refusal to cell
- 23. bulk power services can squeeze competitors even if 24 trans=ission service is available if a utility is the
- 25. pri=ary econo =ic source of bulk power. The competitors
~
- 26. in this instance are scall distribution utilities who
- 27. compete to retain their service area against the efforts
- 28. of, the bulk power supplier and transporters to capture
- 29. the franchise to serve at retail.
30.
- 31. -
- 2. Tving arrangements 32.
- 33. Sometimes a fir = with =cnopoly power over one '
- 34. product will sell that product only if a c.ustomer agrees
- 35. to purchase a c re.ond product the fir = produces but =ust
- 36. sell in a co=petitive =arket. The second product is
- 37. said to be " tied" to the first or " tying" good. An
- 38. example in the electric utility indust:7 is transmission.
- 39. Often a utility has a monopoly fu its service area over <
- 40. transmission, but wholesale bulk power could be supplied
- 41. to distribution utilities in its service area fro = other
- 42. utilities nearby if transmission were supriied co= peti-
- 43. cively. TPc utility can cake transmission the tying good
- 44. and only sell transmission in a bundle that includes its
- 45. bulk power, the tied product.
46.
- 47. Another exa=ple of a tying arrange =ent in the
- 48. electric power industry is tying retail distribution
- 49. service to bulk power service which includes transcission.
- 50. Retail service is the tied good; bulk power services is g
.I l
l
_...'s
. 1537. . . _ -
() 1. 2.
,the tying good., A vertically. integrated.utilirv syatem selling at retail is also necessarily selling bulk power
- 3. and transmission in the retail product " bundle." A ,
1 4 utility system which serves at retail but refuses to
- 5. break up this hundle into its ccaponent parts and separately
- 6. sell transmiss'cn or bulk power is monopolizing the
- 7. retail market through use of tying arrangements.
8.
- 9. In the bulk power market, exclurive of trans-
- 10. mission, there is still another example of tying arrange- )
- 11. ments in partial requirements wholesale rates. Whole-
- 12. sale bulk power necessarily is made up of base load Bower
- 13. and peak load power. Several utilities now offer dirfer-14 ent race sch,dules for full requirements and for partial
- 15. equirements service, and further break up partial require-
- 16. ments into separate base load and peak load races. A r 17. wholesale customer may have obtained base load power
- 18. through a unit power purchase or through acc'ess to a
- 19. nuclear plant; this custome~ may also wish to purchase
- 20. partial require =ents peaking power. Another wholesale
- 21. customer may have small, relatively inefficient generat-
- 22. ing units that can be used for peaking, but may need to
- 23. purchase partial requirements base load power tor an economic power supply. A wholesaae supplier who refuses i 24 i 25. to break up cza partial requirements wholesale power
- 26. bundle into its component base load and peak load parts
- 27. is using a tying arrangement to monopolize the bulk
- 28. power market.
29.
- 30. Q. Is it a widesprecd practice in the electric
- 31. utility industry to tie products together?
32.
- 33. A. Yes. "For example, most wholesale electric 34 races now on file at the Federal Energy Regulatory Cocmis-
- 35. sion include electric power and the transportation of
- 36. this power to the wholesale customer in one " bundled"
- 37. race.
38.
- 39. Q. Does the existence of these tying agreements c
- 40. hinder competicion in the industry?
41.
- 42. A. Yes. Utilities that purchase bulk power are
- 43. limited to & singit supplier if that sucolier has control 44 of the only economic transmission available and refuses
- 45. to transmit.anless the~ customer also buys the supplier's
- 46. bulk power. If all such single combinad rates were
- 47. required to be unbundled into their separate production 48, and transmission components, this would eliminate tied
- 49. sales. Moreover, it would aid in the development of
- 50. bulk power markets and the more efficient allocation of T --
e
,A
~ s, 1538 -
- s- _ .. . _.
O 1. resources. 2.
- 3. The Con: mission has recogni::ed the bundling of
- 4. bulk power services. The Cor:=ission stated in a
- 5. recent order that when a utility sells bulk power it
- 6. "necessarily" is also selling transmission services.
- 7. This is a correct economic analysis. This, order is
- 8. Florida Power & Light Company (FP&L), Docket No. ER77-175,
- 9. April 12, 1977. O EL filed a wheeling race for the City
- 10. of New Smyrna Beach to obtain the power from its encicle-
- 11. men' in Florida Power Corocration'.s Crystal River #3 -
- 12. Nuclaar Plant. The Co M ssion argued that:
13 . .
- 14. "The City, at present, provides some of
- 15. its own electric power generation capa-
- 16. city and receives its recaining capacity
- 17. requirements from F?&L. F?&L thus
- 18. provides the City with firm pattial
- 19. requirements service. In providinz -
- 20. this service, FP&L necessarily presides
- 21. the City with the Transmission services
- 22. necessary to carry FP&L's generating
- 23. capacity to the City."
24
- 25. The Co==ission, using this argument, accep gacT"Gac
??&L's,f g A
- 26. wheeling service race filing as a change i
- 27. could be suscended and made subject to raf d, and not
- 23. as an initial ace for a new service in which the rate ;
- 29. could neither be suspended,nor made subject to refund if l 30. the Coc=ission after a hearing set a lower just and
- 31. reasonable rate.
32.
- 33. The economic i=clication of the Cocsission's
- 34. decision to accept FP&Ls wheeling rate as a change in
- 35. service, and not an initial race, is an i=plicit recogni-
- 36. tion that FP&L was simply unbundling its existing bulk
- 37. power services.
38.
- 39. If the Commission were to require all of its c
- 40. jurisdictional utilities to unbundle the transmission
- 41. services they are already providing as a parr of their
- 42. wholesale services, then it might be much more difficult
- 43. for a bulk power supplier to refuse to deal if one of
- 44. its customers requested wheeling service under the filed 45, transmission race. If the wholesale supplier and the
- 46. wholesale customer were .x potential or actual competi-
- 47. tien with each other, either for the franchise to serve 48, at retail er for industrial and coc=ercial loads, then a
- 49. refusal to deal might be construed as a price squee::e.
50. O G
. .s.lS3'T
. ~~
- 3. Price discrimination and price scueeze.
() 1.
- 2. tion A price squeeze involves both price discr d 4na-and an anticcmpetitive effect. Price discrimina-
- 3. tion occurs when a seller charges his customers differ-
- 4. ent cria.es when the difference 2 in the prices are not cost
- 5. j us61fied. An anticc=petitive effect is a weakening
- 6. or elisination of a wholesale custccer as a rival in a
- 7. retail =arket. Thus, price squee e - occur in a situa-
- 8. tion in which a vertically integrate t;-- sells , =f
- 9. at retail and also sells at wholesal to another (non-
- 10. integrated) firm which is cc=peting in the sa=e retail
- 11. =arket. An ,exa=ple .would be a vertically integrated
- 12. electric system competing with its own bulk powbr customer,
- 13. an electric distribution utility, for retail loads or 14 the retail franchise. A price squeeze occurs in tt.is
- 15. situation if the integrated systen charges the distri-
- 16. bution utility a price for bulk power that is higher
- 17. in proportion to the cost of service than the price the
- 13. system charges its retail custc=ers. The distribution
- 19. utility is thereby unfairly squeezed-out in the competi,__ .-
- 20. tion to retain or attract loads because the price of
- 21. wholesale bulk power is artifically inflated above cost
- 22. while the integrated systec =aintains a smaller profit
- 23. =argin in its retail sales.
24
- 25. Alternatively, the retail price for only certain
- 26. loads such as large industrial, institutional, or com-
- 27. =ercial customers can be set so that the distribution
- 28. utility buying at wholesale frem the integrated system
- 29. finds it is not cccpensatory to ccopete for these
- 30. particular retail loads.
- 31. .
- 32. Finally, price squeeze can occur even when the
- 33. integrated systes does not sell to the distribution 34 utility. If the system refuses requests by the utility
- 35. to transfer or wheel third party power; to sell bulk
- 36. power or energy; to give access to nuclear or other
- 37. large scale plants; or to transact for other services 3E. that are technically feasible and for which the charges
- 39. are compensatory, then these several instances of ._
- 40. refusals to deal can in effect produce a pried s~queece. _ . ,
- 41. These refusals to deal result in unnecessarily higher
- 42. costs of bulk power to the' distributor. ,
. / 43. .. _ . _
44 4. Foreclosure of Markets. A foreclosure is a
- 45. form of. vertical. integration.and..r,efers to a situation
- 46. in which two (or more) fir =s are competing for the sales
- 47. of a third, but then one of the competitors acquires or
. 48. =erges with the third. Alternatively, access to this
- 49. third firs can be foreclosed by a contractual arrange-
- 50. tent. The other coccetitor is foreclosed from cccoeting
- 51. for these sales. For example, if two producers of
'O
I
-- - -1540 1
O +
- 1. electric power both could sell bulk power to a distri-bution utility, then if one of them acquirea or merges 2.
- 3. with that distributor the other is foreclosed from com-
- 4. pecing for the sale even if it is core efficient and
- 5. could sell bulk power for less.
6.
- 7. If the firm that forecloses its actual or
- 3. potential cocpetitors from =arkets in this =anner ac-
- 9. quires enoueh such markets it may force the other pro-
- 10. ducer out of the industry or into being acquired itself.
- 11. Obviously, an acquisition-of distribution tacilities along
- 12. with an exclusive'isng-ters franchise effectively fore-
- 13. closes any potential competitor for years to co=e.
14
- 15. 5. I=mosition of Restrictive Conditions. A
- 16. vertically integratec firm selling at -retail =ay sell a
- 17. necessary inter ediate product or service at wholesale
- 18. to a nonintegrated retail market competitor only if that
- 19. potential competitor accepts conditio.ns_. .Such-condi-
- 20. tions would be designed to-prevent'the nonintegrated firm
- 21. from competing for certain business. If the noninte-
- 22. grated firs refuses these conditions ic =ust then turn
- 23. to less economic sources of supply, if any, and its 24 competitive condition is weakened.
25.
- 26. For example, a vertically integrated electric
- 27. utility =ay wheel or sell bulk power and energy to a
- 28. dis tribution utility only if that utility agrees not to
- 29. sell electricity outside of a specified geographic area
- 30. or to certain classes of customers. Control of trans-
- 31. misaion is sufficient to block wheeling but power pool
- 32. members =ay also make gentlemen's agree =ents or ecploy
- 33. other means of allocating territory and customers,
- 34. thus =aking a refusal to wheel unnecessary to L=pede and
- 35. restrict cc= petition.
36.
- 37. Q. Are you aware of any special institutional
- 38. factors in the electric utility industry which give rise
- 39. to significant efficiency problens when competition is <
- 40. introduced?
41.
- 42. A. No, but I sa aware of some characteristics of
- 43. this industry that are alleged to interfere with pro =oting competition. First, that regulated electric utilities 44.
- 45. have a legal obligation to serve under uniform rates The and
- 46. specific conditions to all who request service.
- 47. alleged problem here is that some customers are more 43 , profitable to serve than others, but that all cust be 49, served. It is asserted that, in contrast, unregulated
- 50. competitors face no such constraints. There are several o
.l.. v .. .... . s ..-. . - - - - - 2154 L- - -- - :
O 1. oroblems with this allegation. One problem is that i:he utilities may not in fact have co' serve all indus-2.
- 3. trial customers who request service. But rather, 4 specific rates are negotiated with each industrial
- 5. customer that applies for service. Therefe s neither
- 6. the requirement to serve nor the uniform u , allegation
- 7. is usually applicable on these large loads. In addition,
- 8. regulated utilities may not be required to aall at
- 9. wholesale to distribution utilities in their.. service
- 10. area, but only may be required to sell at retail to
- 11. -Telatively small domuatic loads. An unregulated competi-
- 12. tor, normally a municipal distribution utility, will
- 13. serve all loads within its geographic area. Although 14 in similar fashion to the regulated utilities, the muni-
- 15. cipals have some choice whether or not.co accept new
- 16. industrial loads.
17.
- 18. Q. Do electric _utilicies-have to seru all
- 19. _custo=ers_although they =ay have wide variations in
- 20. cheir profitability?
21,
- 22. A. Yes, this is true but with the excentions.I
- 23. noted earlier. Industrial cuscomers =ay pay" rates that 24 are bargained for on an individual basis.
25.
- 26. Q. If a titility is not under the regulation of a
- 27. regulatory coccission, can it engage in cream-sk M ng?
23.
- 29. A. Cream-skimming =eans serving only the most
- 30. profitable loads. In the electric utility industry the
- 31. type of competitien that you were talking about for
- 32. profitable loads comes in the competition for the reten-
- 33. tion or the attraction of large industrial, commercial, 34 and governmental loads. Presumably, each of these types
- 35. of customers has fr.irly sophisticate d management that
- 36. bargains with the various utilities that can supply them 3e. and attempts to obtain the most attractive races. Thus,
- 38. every utility has an equal opportunity to compete for .
- 39. these loads and this type of. competition is obviously
- 40. very healthy for the industry. It makes the competitors
- 41. more efficient in trying to keep their costs down to be
- 42. able to offer rates that will attract and retain these
- 43. large loads. For these reasons, I do not think that 44 cream-ski = ming is wide spread in the electric utility
- 45. industry.
46.
- 47. Q. What is the second institutional factor that
- 48. you are aware of? (
49. 50.
- O
- - , . , - . - . ~ , , - , , ,
s .
.N ._. _: __ . .____ __.1542 O 1. A. The second alleged problem comes from an
- 2. apparent fear by the large utilities that the s=all
- 3. competitors will be able to obtain coccaratively favor-4 able costs by gaining access to large baseload generac-
- 5. ing units, particularly nuclear units. Here the argu-
- 6. =ent is that rates in the electric utility industry are
- 7. based on the cost of facilities used jointly by a large
- 8. number of customers because all customers, whether whole-
- 9. sale or retail, jointly use the basic generating and
- 10. transmission system of the utility. Therefore, in most
- 11. situations the cost of a particular piece of equipment
- 12. cannot be assigned directly to a particular custeree.
- 13. Since the cosc of all facilities cust be recovered, each 14 customer group is allocated a share of the joint cost >
- 15. of the system. The conclusion of this line of argu=ent
- 16 . is that to per=it individual customers or groups of
- 17. customers such as the wholesale class to obtain access
- 18. to a low cost _ facility, instead of sharing an allocated
~~
19_ -shar~e ~ Ef the cost of all facilities , would be discrimi-
~~30. natory. In particular, it is alleged that this would
- 21. allow the s=all electric utilities that gain access to
- 22. specific facilities to have an unfair competitive
- 23. advantage.
24
- 25. There are two problems with this argument.
- 26. First, if the utility gaining access gets only sufficient
- 27. capacity in the low cost facility so as to have the
- 28. same impact on its total generating costs as that plant
- 29. has on the total generating cost or the sponsoring
- 30. utility, then no ce=petitive advcncage would accrue to
- 31. either. Second, the other generating facilities of the
- 32. utility obtaining access may bc core expensive in ter=s
- 33. of cost per kilowatt-hour of generation compared to the 34 sponsoring utility's cost for its other generating
- 35. facilities. In this case the large utility still would
- 36. have a cost advantage. ~
37.
- 38. Q. What is the third institutional consideration?
- 39. / <
- 40. Ar- It is alleged that municipal and cooperative
- 41. utilities have advantages.in financing, and in exemp-
- 42. tions from particular taxes, that are not matched by
- 43. similar advantages to the investor-owned utility systems.
44 Bonds used to finance =unicipal facilities are granted
- 45. an advantage because 'their interest payments are not
- 46. taxable for federal income tax purposes. For this rea-
' 47. son, the interest that =unicipals have to pay is generally
- 48. lower than that paid by investor-owned systems. In
- 49. addition, municipals are exe=pt from Federal corporate
- 50. incc=e taxes and are usually exempt from certain types of O
l l 1543 l
- 1. property and other taxes. Investor-owned systems also
(]) 2. have advantages. For exa=ple, they have an invastmant
- 3. tax credit and accelerated depreciation for invest =ent 4 in facilities. Moreover, these private fir =s are granted
- 5. condemnation powers for the construction of transmission
- 6. facilities. Finally, the private systems are able to
- 7. obtain low cost =unicipal financing in many cases for
- 8. their pollution control facilities.
9.
- 10. In an evaluation of moncpoly power and the
- 11. evaluation of competition in general, however, the eco-
- 12. nemic rule is that competitors should take each other
- 13. as they are. Industries located in different states or 14 local areas within states may be subject to differing
- 15. state corporate income taxes, franchise taxes, property
- 16. taxes, water and sewerage taxes, etc. Moreover, the
- 17. costs of constructing facilities and transporting
- 18. resources also may d.ffer greatly by region. In a
- 19. comuecitive economy, si=cly because one competitor has
' '~~~ - - 20. one' kind of advantage an'd a second competitor has another,
- 21. does not imply that either would act differently. They
- 22. si= ply take each other as they are. There is no duty
- 23. or right for one firm to attempt to increase the costs 24 of a competitor si= ply because the firm pcreeives its
- 25. competitor has some advantage.
26. 77 Q. What is the fourth insti ntional arrangement
- 28. that is said to lead to unfair competition?
29.
- 30. A. It is alleged that cooperative power and
- 31. reserve sharing arrangements between neighboring large
- 32. utilities have developed over the years and have been
- 33. encouraged by public policy and by the inherent economics
- 34. of such arranements. The individual terms in these
- 35. arrangements are said to vary widely~. Therefore, it is
- 36. alleged, these ter=s cannuu ce taken as indicative of
- 37. appropriate terms. For example, the dollar a=ount charged
- 38. to a neighboring utility for use in an e=ergency of
- 39. reserve capacity might be quite low if that neighboring '
- 40. utility nor= ally had spinning reserves with which
- 41. it could reciprocate in an emergency. A utility usually
- 42. without sufficient capacity to meet its own load could
- 43. not reciprocate and, therefore, does not have emerge.ncy
- 44. reserves to barter. The capacity deficient utilit, could,
- 45. of course be erpected to pay more dollars for emergency
- 46. reserve service since it has nothing with which to pay
- 47. for this service in kind. In summary, the existing
- 48. dollar rates that assume reciprocation are alleged to
- 49. be. discriminatory for the extension of services to all
- 50. who ask for similar arrangecents. The argument is that
- 51. these arrangements have been for=ulated on the basis of 5 '. . mutuality.
x .- a.. --.~ 15 4 4 '
/~N
(_) 4
- 1. When boiled down, this argn=ent si= ply states
- 2. that current arrange =ents are either economically out of
- 1. date and no longer cc=pensatory, or are reseved for the
- 4. mutual benefit of those in a special group of utilities
- 5. organized to excluded competitors. When cooperative
- 6. arrangements are of value this simply means that when you
- 7. cooperate with another . utility you provide them with a
- 8. service and you get paid back with some other service.
- 9. The matter at hand is si= ply to translate the value of
- 10. the expected return services into a cost and,.hence for-
- 11. ward, to offer the same services at a cost-based race to
- 12. those who apply for them. Simply because barter arrange-
- 13. ments have been =ade in the past does not mean that a
- 14. normai competitor.would turn down dollars, the nor=al .
- 15. medium of exchange in the U. S. , and offer the sa=e ser-
- 16. vices to any utility that applied for them. To not
~
- 17. offer the same services for dollars is a refusal to deal.
18.
- 19. Q. But isn't it true that prices in the electric
- 20. utility industry are regulated?
21.
- 22. A. Yes.
23. 24 Q. Since the electric industry's prices are regu-
- 25. laced, and their conopoly profits are controlled, why
- 26. is the existence of monopoly power i=portant in this
- 27. industry?
28.
- 29. A. Monopoly power still in i=portant because the
- 30. exercise of monopoly power may be for reasons other than
- 31. to obtain conopoly profits. For exa=ple, firms may wish .
- 32. to protect the a=ount of bi.siness they now have and to 34 exclude competitors. In the unregulated industries the
- 35. focus in the analysis of monopoly power is on the ability
- 36. of the firm to set prices at monopolistic levels and to
- 37. earn monopcly profits. In a regulated industry, however,
- 38. the focus is somewhat different. While the potential for
- 39. monopoly pricing and profits exists, both prices and prof- ,
- 40. its are regulated. Thus, the focus in the analysis of
- 41. conduct in regulated industries is on excluding accuci
- 42, and potential competitors, on restrictive provision:
- 43. and on discriminatorf pricing. E12ctric utilities are
- 44. allowed to price on a discriminatory basis but only to
- 45. the extent that there are differences in cost.
46.
- 47. Q. If a utility earns a different rate of return from serving different customer classes, or different 48.
- 49. custeters, does this demonstrate that it is pricing in
- 50. a discriminatory fashion?
51. f~1 52. A. No, but it could. Certainly we would want to V a i
- '1545
() 1. 2. find out the reasons for having different races of return on different classes of service. In order to be
- 3. fair, the method of costing should be the sa=e among
- 4. custccer classes.
5.
- 6. Q. Are FP&L's retail rates regulated by the Florida
- 7. Public Service Coc=ission, and are ??&L's wholesale rates
- 8. regulated by the Federal Energy Regulatory Commissitn?
9.
- 10. A. Yes.
11.
- 12. Q. With this extensive regulation, how could a
- 13. price squee=e be i=plemented even if a utility wanted 14 to try?
15.
- 16. A. Until the recent Suorece Court decision in the
- 17. Ocnway case, the Federal Pcw'er Commission argued that it
- 18. was not its responsibility to compare wholesale rates
- 19. with what the utility was charging at retail to its
- 20. direct industrial customers. Although wholesale tariffs
- 21. and retail rates were regulated, they were not regulated
- 22. on a coordinated basis between jurisdictions. For that
- 23. reason, there was a gap in regulation and it was pcost-24 ble, and perhaps still is possible in particular cases,
- 25. for a price squeeze to exist.
26.
- 27. Q. What is the economie interpretation of monopoli-
- 28. =ation and how can it be identified?
- 29. .
- 30. A. In economic analycis, conopolization is any
- 31. attempt by a fir = to conopolice, that is, to exercise
- 32. its monopoly power. Simply possessing conopoly power
- 33. may not be to canopolice, but any action to enhance or 34 exploit monopoly power is conopoli ation. It can be
- 35. identified by actions of the firm that are anticocpeti-
- 36. tive in effect. An anticcepetitive effect is the result
- 37. of the exercise of conopoly power that frustrates any
- 38. buyer or seller from achieving the outcome that woula
- 39. have occurred in a competitive =arkec.
- 40. e
- 41. Q. Is conopolization a single act or does it
- 42. require several acts or development over ti=e?
43. A. Monopoli:ation is the misuse of monopoly power. 44.
- 45. A single act is sufficient to threaten competitors and
- 46. intimidate th'em with the knowledge that a fir = with
- 47. monopoly power will use it. Thus, a single act that
- 48. could produce an anticompetitive effect =ay be sufficient
- 49. to identify monopoli:ation.
50. O v
N _ __ . . _ . _ _ . . . 1546 48 - O O 1. Q. Can monopoly power develop through a continuing l
- 2. course of conduct?
3.
- 4. A. Yes it can. Normally, to maintain or to extend
- 5. monopoly power requires a continuing course of conduct.
- 6. This course of conduct cither may be actual anticompeci-
- 7. tive acts or simply the continued threat of such acts.
8.
. 9. Q. What are the advantages of interconnection and
- 10. coordination between generating utilities?
11.
- 12. A. Through interconnection and coordination electric
- 13. utilities can realiza economies to become more efficient
- 14. and thereby to reduce costs while maintaining or i=prov-
- 15. ing their reliability of service. Coordination cay be
- 16. initiated for i= proved reliability through emergency
- 17. support or reserve sharing. Coordination may then ex-
- 18. pand to improve operating efficiency through economy
- 19. exchanges, daily and seasonal diversity exchanges, and
- 20. maintenance scheduling and can develop further to the
- 21. central dispatch of all power and energy. Finally,
- 22. coordination can encompass the joint planning of capacity
- 23. and transmission, staggered construction of large effi-24 cient generating units, unit power sales, joint ventures
- 23. and long term power exchanges. The major benefits of
- 26. coordination result from the following: -
27.
- 28. 1. E=ergency support service,
- 29. 2. Central economic dispatch and economy
- 30. exchange, 31- 3. Short-term capacity exchanges,
- 32. 4. Reduced reserve requirements,
- 33. 5. I. cad diversity exchanges, .
- 34. 6. Scheduled maintenance service and
- 35. exchange, and
- 36. 7. Staggered construction schedules and joint .
l 37. ownershin of large efficient siced
- 38. generating units.
- 39. "
- 40. Q. Khat is meant by economy exchanges?
41.
- 42. A. During some perio'ds of the day, week, or year
- 43. one utility may have excess generating capacity and
- 44. lower incremental energy costs compared to the higher
- 45. energy costs of another system. Energy costs are the
- 46. variable costs of operating a generating unit and are
- 47. mostly fuel costs, By selling energy for more chan incremental cost, out for less than the amount saved 48.
49- both 50. (the decremental cost) of the higher cost utility,f energy utilities can gain. Economy exchanges are sales o O i
j __.N~.____.. . .. ._ _.s1547 i '() 1. between generating utilities on this basis with the
- 2. price established on some sharing of the difference in f 3. energy costs.
i 4,
- 5. Q. How are coordination and firm power related?
6.
. 7. A. Coordination is a set of bulk power services
- 8. which may include such elements as emergency power,
- 9. spinning and standby reserves, seasonal or diversity
- 10. interchanges, maintenance power, transmission and 11, wheeling, economy power, and others. Adequate coordina-
- 12. tion services plus non-firm power can equal the equiva-
- 13. lent of firm power. Thus, obviously, coordination is
- 14. not a substitute for full requirements firm power, but
- 15. coordination services along with parcial self-generation
- 16. or non-firm power sources might be combined to achieve
- 17. a lower total cost supply of full requir~ements bulk
- 18. power.
19.
- 20. Q. What economic i=portance attaches to access to
- 21. nuclear power for small electric systems such as
- 22. municipals?
23,
- 24. A. At the present time, and probably in the future,
- 25. nuclear generating units will be essential resources. A
- 26. nuclear unit of large size that can be constructed with-
- 27. out undue delays and then operated at a high annual
. 28. capacity factor is probably the least cost method of
!. 29. generating electricity in Florida. Small utilities can-i 30. not use the output of the very large scale at which
- 31. nuclear units become economic. Thus, the small utili-
- 32. ties need to gain access to a portion of large scale
- 33. nuclear units through joint participation or their
- 34. customers will have to pay unnecessarily high costs for
- 35. electric power. Moreover, the small utilities may not
- 36. be able to remain coepetitively viable.
37. l 38. Q. What is your understanding of the Federal
- 39. Government's role in supporting the development
' ' of <
- 40. nuclear power?
. 41. f 42. A. My understanding is that the Government has 43.. had a substantial role in the development of nuclear
- 44. power. This role has included financing of nuclear
- 45. research and development, subsidizantion of uranium
- 46. enrichment, and expenditures for the handling of nuclear s 47. wastes . In addition, utilities are provided with
- 48. federally guaranteed insurance for damages resulting
- 49. from nuclear accidents and are exempted from liability
- 50. beyond the amount that is covered by this insurance.
()
s . 1548 () 1. 2. Q. Are there barriers to the construction and ownership of nuclear plants? 3.
- 4. A. There are two barriers which make it difficult
- 5. for most electric utility systems in the U.S. to own and
~
- 6. operate nuclear plants. Tnese two barriers are the
- 7. high capital costs of these plants per kW of capacity,
- 8. and the need for a very large base load demand to make
- 9. a nuclear unit economical to construct and operate
- 10. since this techno?.ogy is only economic in very large
- 11. units. The result of these two barriers is that only
- 12. the large electric utility systems are able to construce
- 13. and operate nuclear units unless joint venture arrange-
- 14. ne res can be obtained by the small utilities.
15.
- 16. Q. Is a nuclear plant an " essential" resource?
17.
- 18. A. Yes, because construction of a nuclear plant
- 19. by a s=all utility plainly would be uneconomic therefore,
- 20. the owner of a nuclear plant may have monopoly power if
- 21. small utilities have li=ited or no alternativc sources
- 22. of low cost power supply and are denied access to the
- 23. nuclear plant.
24
- 25. Q. Is joint ownership economically desirable? .
26.
- 27. A. If joint ownership can reduce the cost of obtain-
- 28. ing power for at least one party without increasing the
- 29. cost to others, then the arrangement will Such be desirable a result,
- 30. from an economic efficiency standpoint.
- 31. if achieved, would be due mainly to opening up the econo-
- 32. mies of scale in generation that the nuclear plant or
- 33. unit allows co utilities that are too small to build such
- 34. units by themselves.
35.
- 36. Another potential economic benefit of joint
- 37. ownership is that it may maintian or strengthen the
- 38. ability of municipals to be competitive with larger
- 39. privace utilities in certain retail markets. osts If, in the
- 40. absence of joint ownership, the =unicipals of c
- 41. service are higher than those of the private utilities, 42, then the customers of the municipals would be forced to
- 43. pay unnecessarily high races, and the municipals might
- 44, be forced to sell out to the private utilities or restrict
- 45. their operations to fewer and smaller retail markets.
46.
- 47. Q. Shouldn't the municipals build their own
' 48, nuclear units?
- 49. -
- 50. A. As stated earlier, the =nnicipals have neither.
O Le. . N em e
; 1549 >
. .. l 1
f () 1. the demand to support nuclear units nor the individual
- 2. capability to finance them.
- 3. Would a. refusal by FP&L to grant municipal
- 4. Q.
- 5. utilities in Florida participatory access to nuclear
- 6. units have any effect on competition?
7. A. Yes. A refusal by FP&L to grant to the munici-8.
- 9. pals a comparable degree of access to nuclear emits would
- 10. provide FP&L a competitive advantage since only FP&L
- 11. would have this relatively low :ost source of supply.
12.
- 13. Q. PJ. ease explain what is meant by a bottleneck
- 14. =onopoly?
- 15. A bottleneck =enopoly exists where entry inr.o a
- 16. A.
- 17. market, or successful participation in a market, requires
- 18. the use of some specific er.sential facility or product
- 19. and where those who centrol that facility can prevent
- 20. entry into a market or threaten a firm's survival by
- 21. refusing to deal. The refusal to deal can be either an
- 22. outright refusal or it can take the for= of agreeing to
- 23. serve but only on inequitable terms. Moreover, a firm
- 24. can put transactions costs at such a high level that to a
- 25. potential entrant finds it too expensive to attempt
- 26. obtain the seriice.
27.
- 28. The transmission of electric p 29.
bottleneck monopoly because it is inefr,ower icient andisprohi-a classic
- 30. bitively expensive to install parallel or duplicate
- 31. transmission facilities. The attempt to transact short-32, term bulk power services can be blocked by making the
- 33. transactions costs prohibitive by insisting in each case
- 34. on separate negotiations for the use of a transmission
- 35. iine. Such high transactions costs can make it so expen- ,
- 36. sive and time consuming that it is not worthwhile for a
- 37. potential user of the transmission line to ask for ser-
- 38. vice, particularly short ters transactions. By the ti=e
- 39. negotiations are completed, the opportunity for the c
- 40. transaction may be lost. Stalling potential transactions
- 41. until they are no longer available is as effective as a
- 42. refusal to deal. /
43. 44 The control of a bottleneck facility or service
- 45. by a company or companies is sufficient to establish
- 46. monopoly power. The refusal to deal or to grant access
- 47. to a coctleneck facility which has an effect on compeci-48 . tion in a final product market is an exercise of
- 49. monopoly power. The co=petitive advantage accorded by
- 30. control of the bottleneck service does not need to be
- 51. indispensible to competitive survival. It is sufficient
(-) RJ
, . -- ._ . . 1550_. - -. :
O 1. that without access to it that the excluded competitor
- 2. is at a competitive disadvantage.
3.
- 4. Q. Would you consider the denial of access to a
- 5. nuclear unit planned for construction to be a bottleneck
- 6. conopoly?
7. A. Yes. A nuclear generating unit is essential 3.
- 9. because it is the lowest cost cethod to the utility of
- 10. producing electricity, its costs are partly subsidized by
- 11. the federal gover=nent, and without access the customers
- 12. ef small utilities would have to pay more for electricity
- 13. and could not share equitably in a national resource.
14.
- 15. Q. Are you fa=iliar with any cases involving elec-
- 16. tric utilities in which a utility was required to wheel
- 17. power generally to mitigate its anticompetitive practices?
18.
- 19. A. Yes. The U. S. District Court in its Otter
- 20. Tail decision / United States v. Otter Tail, 331 F. Supp. '
- 21. is T1971) 7 foEnd that Otter Tail was a vertically inte-
- 22. grated utility and possessed monopoly power in the rele-
- 23. vant market and maintained this =arket power by refusing 24 to deal. Otter Tail was the recati distributor of elec-
- 25. cricity in about 465 towns and sold bulk power to 17
- 26. municipalities also in its operating area which did their
- 27. own distribution. Otter Tail owned the transmission lines 28 in its cperating area. When stee of the towns that Otter
- 29. Tail was serving at retail decided to undertake their
- 30. een distribution, the company refused to sell them bulk
- 31. power. In addition, Otter Tail refused to sell trans-
- 32. mission services and thereby blocked them from obtaining
- 33. power from other suppliers. Most towns had no alterna-
- 34. cive source of bulk power and either had to renew Otter
- 35. Tail's franchise or install a small isolated generating 36, system with the attendant high costs per kilowatt-hour.
- 37. The District Court found that Otter Tail's refusal to .
- 38. deal in bulk power and transmission services was illegal
- 39. conopolization under Section 2 of the Sherman Act. The c
- 40. District Court enjoined Otter Tail from these refusals
- 41. to deal with the isolated municipal systets in its
- 42. operating area, and the Suprem. Courr affi:med.
~
43. 44. 45.
- 46. .
\ 47. 48. 49. 50. O G
s . ,1551 I 53 - 73 U
- l. The District Court stated that Otter Tail:
2.
- 3. "... has a =enopoly in the relevant market
- 4 and has consistently refused to deal with
- 5. municipalities which desired to establish
- 6. =unicipally owned systems on the alleged
. 7. justification that to do so would i= pair its
- 8. position of dominance in selling power at
- 9. retail to towns in its service arca. The
- 10. court concludes that this conduct is
- 11. prohibited by the Sharman Act. It is well
- 12. established that the unilateral refusal to
- 13. deal with another, cocivated by a purpose
- 14. to preserve a monopoly position, is
- 15. illegal ...
16.
- 17. The U. S. Supreme Court in affirming the District
- 18. Court, Otter Tail Power Company v. United States, 410
- 19. U. S. 366 T1973) states enat:
20.
- 21. "The District Court found -- and its find-
- 22. ings are supported -- that Otter Tail's
- 23. refusals to sell wholesale or to wheel
- 24. were solely to prevent municipal power
- 25. systems from eroding its =onopolistic
- 26. position ...
27.
- 28. The record =akes abundantly clear that
- 29. Otter Tail used its monopoly power in
- 30. the cities in its service area to fore-
- 31. close ccmpetition or gain a competitive
- 32. advantage, all in violatien of the
- 33. antitrust laws.
34,
- 35. Moreover, the Supreme Court stated that one of the
- 36. principal means ecployed by Otter Tail:
3e.
- 38. "to prevent com_uities in which its retail <
- 39. distribution franchise had expired from
- 40. replacing it with a municipal distribu- l
- 41. tion system .. /UereT refusals to " wheel"
- 42. power to such systeEs, that is to say,
- 43. to transfer by direct transmission or dis-
- 44. placement electric power from one utility
- 45. to another over the facilities of an
( 46. inter =ediate utility." 47. L8. 49. 50.
1552
' 0 1. In response to the Court's order, Otter Tail has filed firm transmission wheeling rates and supplemental power 2.
- 3. rates with the Cocmission which are now being adjudica-
- 4. ted. Supple = ental power is partial requirements bulk
- 5. power.
6.
.. 7. Q. Did the Otter Tail decision involve the untying
- 8. of bundled power services?
9.
- 10. A. Yes, this economic effect appears implicit in
- 11. the Court's decision. Otter Tail was serving at retail.
- 12. Retail service includes a bundle made up of separate
- 13. production, transmission and distribution services.
- 14. When a town served at retail tried to buy only parts of
-15 . the bundle, Otter Tail refused to untie it. The Court
- 16. required that these separate servi ~ces be sold separately.
- 17. In economic effect, the Court's decision was that
- 18. electric power services can and should be unbundled to
- 19. help protect competition in the electric utility industry.
20.
- 21. Q. What in your view is the economic significance
- 22. of the Court's decision in Otter Tail?
23.
- 24. A. The Cougg'y Otter Tail First, decision asisI economically just cencioned,
- 25. significant for .a-ee reasons .
- 26. the Court required power services to be unbundled to
- 27. protect and enhance competition. Second, the Court found
- 28. that the electric power industry, although regulated, is
- 29. subject to the antitrust laws. This is econctically
- 30. i=portant because the purpose of the antitrust laws is
- 31. to protect and promote ccmpetition. If the Co= mission
- 32. required the unbundling of all tied transmission and
- 33. bulk power services races, competition si=ilarly would
- 34. be prc=oted. Competition could make available additional
- 35. viable alternative sources of bulk power supply to whole-
- 36. sale customers and provide a more efficient use of
- 37. scarce and e:cpensive electric and other energy sources.
38 39 Q. Would you please discuss Im similarities or < differences between Otter rail's wh'eling tariff filed to
- 40. e
- 41. comoly with the Court's order and F?&L's tariff filed to
- 42. whe'e l power for New Smyrna- Beach?
43.
- 44. A. With regard to wheeling, otter Tail has filed
- 45. a general wheeling tariff to comply with the Court's
- 46. judgment. The wheeling rate that 0,tcer Tail filed is l '- 47. based on the cost of Otter Tail's entire transmission
- 48. system. FP&L also has filed a wheeling transmission
- 49. tariff for New Smyrna Beach based on the ecs: of FP&L's
- 50. entire transmission system. But in contrast to otter l
l l [ -
_.: _ _ _ _ _ . . -- - 15 5 3 - --- 55 - O (/ 1. Tail's general wheeling tariff for the wheeling of
- 2. power from any source to any town, FP&L's rate schedule
, 3. is artifically restricted to only one town from only one 4 source of power (i.e. , Florida Power Corporation's
- 5. Crystal River No. 3 Nuclear Station).
6.
. 7. Q. Distribution utilities require a source of firm
- 8. bulk power. What are the alecrnative ways that they can
- 9. obtain this power?
10.
- 11. A. There are several ways. First they may buy
- 12. their firs power at wholesale from another elect =ic
- 13. syste= that engages in the business of producing firs
- 14. bulk power for sale. Second, the utility may produce all
- 15. of its own power if it is economically feasible to do so
- 16. or no alternatives are available. Third, a utility =ay-
- 17. produce part of its firs power require =ents and buy the
- 18. remainder. Fourth, a utility may buy different types of
- 19. pcwer from several differant syste=s that will sell to
- 20. it. In this last case the system essentially puts together
- 21. the various different types of bulk power services in
- 22. order to obtain firs power sufficient to meet its full
- 23. requirements.
24.
- 25. Q. If the electric power industry were more co= peti-
- 26. tive, which of these alternatives would be available to
- 27. distribution syste=s?
28.
- 29. A. All of these alternatives would be available if
- 30. the market were more co=petitive. With access to the
- 31. benefits of coordinated operation and developtent, a
- 32. system would have the ability to choose the bulk power
- 33. supply alternative or six of alternatives which it believes 34 to be the most economic and efficient for it.
35. 36. 37. 38.
- 39. "
40. 41.
- 42. -
. 43. 44. 45. 46.
- 47.
48 . 49. 50. s
l \
- s,
_. . _ . _ _ . . . 1554 i 3. Relevant Product and Geograchic Markets and ( () ene structure or tne exectric rower incustrv in Florida
- 1. Q. What is the concept of a =arket in economic
, 2. analysis?
3.
- 4. A. The concept of a market in economics is an analyti-
- 5. cal device employed in order to gain insight into complex
,I 6. relationships. This basic concept is usetul for studying a
- 7. broad range of diverse actual markets ranging from the stock
- 8. exchange to a local flea market.
- 9.
l 10. A market is the arena in which actual or potential
- 11. competition can occur. X market has a demand side .and a supply Customers have a de=and for products and sellers supply 4
- 13. side.
i 14 these products. On the demand side, a product market
! 15. is a set of products that customers view as being essentially
- 16. interchangeable. .If customers are willing to interchange any
- 17. items within a set of products in response to small price or
- 18. quality variations then this set constitutes a single product
- 19. market. On the supply side, if producers _can -easi-ly- switch
- 20. their production equipment into the manuracture or different
- 21. products, then these products are interchangeable in supply i 22. and part of the same market.
23. j 24 Every market has essential characteristics. There
~
- 25. must be at least one seller and one buyer. There =ust be
- 26. a distinguishable product or service,without close substitutes.
- 27. The parties =ust have the right to exchange the product.
- 28. The geographic extent of the market =ust also be identified.
- 29. The geographic boundaries of a product market should include
- 30. the area within which actual or potential buyers realistically
! 31. can turn to alternative suppliers of the product and within
> 32. which the suppliers provide the product. An area that includes
- 33. most of the buyers and sellers is adequate for analysis; not
- 34. every last one must be included.
t 35.
- 36. . In snmmary, a market is a set of products that are
- 37. considered interchangeable by customers or by producers; and
- 38. .its geographic extent includes the location of the actuar and 39 potential buyers and sellers. c 40.
- 41. Q. Do economists define and identify markets for descrip-j 42; tive purposes? .
43..,
- 44. A. Yes, that is one purpose; but it is not the primary
- 45. reason. Markets are defined and identified primarily for
- 46. analytical purposes. A firm may possess monopoly power in
- 47. some markets and not in others. The purpose of market analysis 1'
- 48. is to determine from the structure of an identified market
- 49. .whether a firm has conopoly power in that particular =arket.
50.
Y
.1555 1 v
- 1. Q. In a case such as this one concerning the availa-
, 2. bility of wholesale electric power would all of the markets
- 3. in which the parties participate have to be exa=ined?
- 4 5 ~. A. No, the only =arkets that need to be analyted in
- 6. detail are those which are relevant to an assessment of the
- 7. i= pact of the tariff provisions.
8.
- 9. Q. How should =arkets be defined for the purpose of
- 10. assessing monopoly power?
11.
- 12. A. First, the product markets =ust be defined and
- 13. then the geographic excent of each identified.
14
- 15. Q. Would you please describe first the considerations
- 16. necessary'for defining product markets fro = the de=and or
- 17. custa=ers side of the market?______ -
- 18. 7-
- 19. A. There are three main criteria for defining the demand
- 20. side of product markets. The product in a defined =arket
- 21. should be:
22.
- 23. 1. relevant,
( 24. 2 interchangeable, and
- 25. 3. complete.
26.
- 27. The product defined =ust be relevant to the alleged
- 28. proble=s for which the canopoly power is to be assessed. A
- 29. firm, and particularly a vertically integrated fir =, can
- 30. obtain and exercise =onopoly power at different levels in
- 31. the chain of production. Monopoly power in the electric
- 32. power industry may exist, for example, in acquiring fuels,
, 33. transporting fuels, obtaining electrical generating equip-34 =ent, trans=ission, supplying other bulk power services , or
- 35. supplying retail power services. Only some of these products l 36. =ay be relevant to evaluating the i= pact of the tariffs'
- 37. availability. Thus, applying the criterion of relevance
- 38. identifies the product or service = ark,ets in which the i= pact c
- 39. of the availability provisions potentially could be signifi-40; cant. -
, 41sT l . 42;_. The product =arket defined must only include products
- 43. that.are close substitutes; products that are interchangeable.
44 For industrial service, firm power and interruptible power 4 5 .' =ay be substitutes in many uses, but not in other uses where
- 46. safety, security, or health are involved. Similarly, elec-
- 47. tricity as an energy source has no substitutes in residential
- 43. .uses for li6 hting, television, radio, and other small anali-
- 49. ances, but nas substitutes which are of di=inishing int'e'r-l gx 50. changeability going from space heating, to water heating, to Ql
. . .__ _ _ . . - 1556 v
- 1. clothes drying, to cooking, to air c'onditioning, and to
- 2. refrigeration. Since all homes use electricity, the exist-
< 3. ence of interfuel competition in some residential uses is
- 4. not particularly relevant to the tariff availability provisions.
- 5. In the bulk power =arket, a distributor needs transmission but ~~~
- 6. can, for exa=p~le, substitute for firm full' requirements bulk ~~
- 7. power, ~ a ' unit poyer ourchase that is backey-up wit,h_a epo,rdina-
- 8. ,. tion services ag;>.enent..with a third, utility.
9.
- 10. The produce cust be complete in the sense dhat suffi-
- 11. cient elements of the whole produen =ust-be included to make
- 12. the product of value to users. For example, some bulk power
- 13. services would be incomplete without the transmission element
- 14. to deliver the other elecents of this service. In contrast,
- 15. some other elements of'a product may not behere absolutely neces-an example is
- 16. sary to take the other elements of value.
- 17. central economic dispatch which, although it increases overail
- 18. efficiency, is not_necessary to make an interconnection of 19.
20.__yalucrbe defined-Nevertheless, too narrowly a product or service by applying marketof the criterion should inter-not
- 21. changeability too strictly. Such narrow definition can =ake
- 22. e product incomplete and of little value to customers by
- 23. itself. For example, non-firm bulkpower may be useful or
- 24. c.omplete only if emergency and maintenance power can also be
- 25. obtained. Non-firm power is not usually isolated as a sepa-
- 26. race market by itself becats2 it is incomplete and not useful
- 27. by itself to many customers. Sub-carkets for products such
- 28. as transmission =ay nevertheless be usefully isolated if they
- 29. show that monopoly power is being abused.
30.
- 31. Q. What are the considerations for defining product
- 32. markets from the supply or producers side of the market?
33. 34 A. On the supply side, the same three criteria are used
- 35. but two of these criteria are interpreted somewhat
- 36. differently.
- 37.
- 38. The criterion that a product cust be relevant does
- 39. not change. On the supply side we are still concernec c
- 40. specifically only with identifying the product or service
- 41. markets in which the i= pact of the availability provisions
- 42. in the tariff potentially coul'd be siginficart.
- 43. .
- 44. The criterion that products to be in the same
- 45. market =ust be close substitutes and therefore interchanrea-
- 46. ble is interpreted differently on the supply side. Instead of
( 47. being interchangeable in production, for exa=ple, a bulk pcver
- 48. supplier can use his generating equipment to produce emer-
- 49. gency power, economy power, partial requirements firm power,
- 50. interruptible power, full requirements firm power, n
N_ ,
._ . /_.... . . . .
-1557 ..-
O 1. peak power, seasonal diversity power, et cetera. The pro-
- 2. duction or generating plants do not have to be modified to
- 3. change from supplying one type of power to another. To get 4 another view or substitution in production, assume for the
- 5. moment that bulk power producers own no transmission facili-
- 6. ties nor do they distribute power at retail. With this non-
- 7. integrated structure of the industry, we could expect bulk
. 8. power producers to sell all types of power and to quickly
- 9. and easily move to supply rare of any type if it becama
- 10. in short supply. Thus, ut.enever the price of a type of power
- 11. in short supply rose, we could expect producers to =ove 1 12. quickly to supply ir In summary, on the supply side the
- 13. various types of bulk power are i,nterchangeable because little
- 14. or no modification in production equipment is required to
- 15. switch between the types of power being sold.
-, 16. _
- 17. Q. You have indicated that a markct is the arena in .
- 18. which actual or potential competition can occur. Are you p -19 . aware of the way FP&L assesses the concept of a =arket?
20.
- 21. A. Yes. FP&L acknowledges the actual and potential
- 22. ce=petitive factors in =arket analyses. Attached to a
- 23. March 31, 1977 memorandum on " Issues in Market Development i 24. SMC (Senior Man 13ement Council) Presentation" from J. 3.
25< Sanchez to R. E. Tallon, Exhibit (GT-64) is a paper
- 26. cn " marketing." The memorandum deT Ees marketing as:
27.1 28.i A coordinate corporate process to influence
- 29. the comcany - customer relationship for
- 30. the purpose of preserving, enhancing, and
- 31. warding off threats against, the long-ters 32.i mutual advantage of that relationship. Two 33.l main areas of concern:
34. 35.{ - Energy management 36.. - Government and Community Relationship 37.; 38.! Among the factors involved in government and community
- 39. relations to which this dveument refers at page 4 is <
- 40. "Interutility relations" which includes the following 41.3 considerations: -
i . .42.
- 43. Interchange agreements
- 44. FPL Purchase of Local Systems
- 45. Wholesale rates
, 46. Points of Service i 47. . Unit Sharing
- 48. Wheeling .
49. 50. ()
. 1558
, . , i ., - . . j. __
- 59a -
Moreover, Mr. Sanche:'s list in this sa=e document
- 1. of the benefits
- 2. of FP&L's marketing plan cites (at page 6):
3.
- 4. - Prompt Recognition of Threat and Opportunities 5.
6, 7. S.
- 9. - Maintain Integrity of Company in Relation .
- 10. to Publicly Financed Utilities 11.
- 12. Another undated document, shown in Exhibit 13 (GT-65), entitled "Recou:= ended Criteria for Evaluating a
- 14. Market Plan" also stresses the i=portance of recognizing the 1.5. product.co be marketed, listing: -
16.
- 17. - Electric Power
- 18. - Service
- 19. - Nuclear Pcwer
- 20. - FPL I= age
- 21. - Investor owned Service
- 22. - Etc. '
23. i 24 25. 26. 27. 28. 29. 30.
! 31.
32. 33. 34. l 35. ! 36.
- 37. -
38, ' 39. l 40. ' I 41. 42.
~ 43.
M. l 45. l - 46. l 47. l 48. 49. l .h - g
s,1559 - o-, , () - 59b -
- 1. Q. What are the relevant product markets'in this case?
r 2.
- 3. A. There are two' broadly defined markets that are rele- ,
- 4. vant, but each consists of various sub-markets. These two l
- 5. are the retail power market and the bulk power market. In 6.
the retail market, the buyers are end-use electricity customers . 7. and the se.llers are distribution utilities and the captive
- 8. distribution centers of vertically integrated systems. In
- 9. the bulk power market the buyers are these same distributors
- 10. plus the bulk power suppliers; the sellers are bulk pow,r
- 11. producets and suppliers. In identifying relevant marka s,
- 12. both the demand and the supply participants, that is, the 13 customers and the sellers must be studied.
4 A 13 .~ Q. Does FP&L recognize two distinct markets similar to -
- 16. your breakdown?
17.
- 18. A. Yes. FP&L views the market in an identical fashion.
- 19. In Exhiatt __(GT-1), page 3, Mr. R. J. Gardnar of FP&L
- 20. states that:
21.
-- - e9'
- 22. "An "X-ray" of our business reveals
- 23. existence of two principal businesses:
; 24. a bulk power business and an electric
- 25. service business ."
26.
- 27. Q. What is the ' definition of the geographic market for
- 28. each of the product markets?
29.
- 30. A. The geographic dimension of each product market is
- 31. determined from the location of the buyers and sellers of the
- 32. product in question. There are two types of geographic mar-
- 33. kets, actual and potencial. An actual market is defined as
- 34. the geographic area within which transactions are now taking 35.
36. 37.
- 38. <
39. i 40. . 41. 42. 43.
- 44, 45.
s, 46. 47. 48. 49. 50. O, . e 9
N 1560 - 60 - 1, place. A potential market is' defined as the geographic
- 2. area within which transactions probably would take place if 3, all participants in the =arket behaved like nor=al compeci-
. i. , tors. To determine the excent of an actual market, the i
- 5. actual buyers and sellers currently in that market are
- 6. identified.. It is not necessary to isolate every single buyer and seller "t'd isolate the'carldtT identifying
~ ~
~ ~ ~ ~ ~ -
7.
- 8. ;a high percentage generally is sufficient. Thus, the actual "
- 9. '=arket is the extent of the area necessary to include (1) all
- 10. present customers of the product who are purchasing little of
- 11. the product from outside chis area and, in addition, (2) the
- 12. sellers of the product in this area who are marketing little
- 13. ,of the product outside the area.
14
- 15. The second type of geographic market encompasses the l
- 16. actual market but also includes the potential buyers and sellers l
- 17. who would be in the market if no one had market power to exclude' la. chem. The potential geographic =arket contains customers who 19, would buy, and producers who would sell, if they were not
- 20. frustrated by the =onopoly power of some firms.
21.
- 22. Q. Is the retail power market relevant to FP&L's
- 23. proposed revision in the availability of wholesale s'ervice?
24
- 25. A. Yes it is. The retail power =arket is relevant
- 26. because FP&L and the =:micipals are competing with each. .
- 27. other to sell at retail, that is, for the exclusive franchise
- 28. to serve in each coccunity. Moreover, FP&L and the municipals
- 29. are competing for commercial and industrial customers. If
- 30. FP&L's restrictions on the availability of wholesale service
- 31. result in higher bulk power costs to the municipals and co-ops
- 32. then they could be squeezed out of the retailing of electric
- 34. power and FP&L would replace them.
!> Q. Are you suggesting that retail competition should mean
- 37. that each home owner, for exa=ple, could choose who would. serve
- 38. him? <
39 3' 40 A. No. Duplicate or triplicate distribution lines 41' throughout a local area would be wasteful. Each local area is, 42' 'e'conomically, a local natural rionopoly. The choice of =ost 43' 'ustomers c is expressed in their vote for who should be given 44 'the right to serve all customers in the local area. ~ A rew ,
- 45. l customers also may cho'ose to locaEe based in part on compara-46, tive electric power costs.
4h Q. Does 100 cercent control of a local area retail . 49l =arket by a distribution utility or captive distribution
- 50. center rule out competition?
O I
s . ./ . . ; .
. - ~ 1561 ~ "
~
- O 1. A. No, the distributor can be replaced and,therefore,
- 2. there is competition to be the utility chosen to serve.
- 3. Although one local =enopoly replaces another, there is con-
- 4. tinuing co= petition to be that monopoly in each local area.
5.
- 6. Q. Doesn't 6 fact that few if any municipal systems
. 7. have been acquired in the last few years by F?&L, and that i
- 8. FP&L has not had its franchise areas desert them in order to
- 9. form municipal utilities, indicate that there is no competi-
- 10. tion to serve at retail?
i 11'.
- 12. A.
No, there is competition. The lack of changes to 13; municipal systa=s may be partly explained by FP&L having i 14. obtained 30 year franchises from the 165 municipalities it
- 15. serves. Moreover, it may be explained if F?LL exercises
, - - 16 . monopoly power to block, frustrate, or =ake unnecessarily expen-
- 17. sive, the formation of new =unicipal system. Without access 1 18. to bulk power on reasonable terms as would be available in a
- 19. normal.co=petitive market, the remaining cunicipal systems
- 20. may soon have to turn to F?&L for acqusition. Monopoly power
- 21. in bulk power supply can be applied ca an effecieve barrier
- 22. to entry of new =unicipal systems.
23.
- 24. Q. Would you please describe the competition that does
- , 25. occur on the demand or customer side of the retail power s 26. carket?
j 27.
- 28. A. There are several types of competition. First, as i 29. I just mentioned, customers in a local area may as a group
- 30. decide to change their particular distributor. For example,
- 31. the citizens of Vero Beach recently voted to authorice FP&L i 32. to distribute retail power to them. Alternatively the resi-
! 33. dents in one of the 165 municinalities that FP&L serves at
- 34. retail under a franchise could' vote at the expiration of the i
- 35. franchise to form a municipal distribution company.
- 36. .
- 37. The possibility that the customers _of a municipal
- 38. ; system may voce to sell that system to FP&L should serve as a
- 39. . spur to the municipal's management to i= prove economy and re-
- 40. liability of service. Similarly, the potential that an FP&L
- 41. ra. call market franchise could switch and become a municipal 42., utility should serve continuously to encourage ??&L to be 43.;more efficient. If monopoly power is exercised by FP&L, 44..however, the potential of creating.the viable new municipal
- 45. . distribution utility is greatly diminished. FP&L can totally
- 46. frustrate this kind of competition by refusing to sell bulk
- 47. power services, by selling them only on artificially restric-
- 48. tive and costly terms, or by refusing to wheel third party
- 49. bulk power. In this anticomoetitive environ =ent, a new 50.. municipal utility would probably also have to install its own tO 4
s
~,,-w-- - ,m-.-- --,-s < , - . - ,s,,--> , m, y w.y-- -
-y- - .- y-m. ,,v,.w.------.--, c,,- --,,~e - - - - - - , -
--w--
- ~
'1562 t
62 -
' ~ ~~
- 1. generating plan lt wich'the attendant inefficiencies
- 2. of s=all scale production. Thus, there is competition
- 3. to serve at retail, but it may be re.1,atively inactive if 4 FP&L has and is exercising its monopoly power to suppress -
- 5. it.
- 6. --. '
- 7. Q. I[.thereanyrecognitionbyFPsLofcompetitionto
- 8. serve at retail?
9.
- 10. A. Yes, FP&L is hainfully aware of the potential loss ,of itz Ll franchise areas to municipal utilities. As I indicated earlier 1
- 12. FPSL serves About 165 municipalities at retail under 30 vear fran<
13 chises which expire at different times. In a document wh6se cover
- 14. is simply labeled " Government Takeover", Exhibit (GT- 66) r . 23*'FP&L has prepared a chart dated June 30, 1975. This chart lists
- 16. franchises obtained and expiring during the period 1965-1985.
l 17. The chart reveals that hetveen 1976 and 1985 fully 41.8% of FP&L'l
- 18. franchises have expirei or will expire. Exhibit (GT-66, p. 3).
19.
- 20. A document entitled " Areas to Address in Market Planning"
- 21. also reflects FP&L's concern with competition from municipal
- 22. governments for franchise renewal. Competition is an area cited
- 23. in the documenr:
24.
- 25. F) competition
- 26. - temands of Public Power Groups Escalating
- 27. - Takec/er Talk
- 28. - Our Growth vs. Other Competitors; gas, oil, etc.
- 29. - Franchises
- 30. - Interutility Relations Exhibit (GT-67, p. 3) 31.
- 32. An example from an FP&L document concerning "interutility
- 33. relations" summarizes FP&L's recognition and fear of competi-34 tion frca municipal takeover of their franchise areas. An FP&L
- 35. document prepared by R. J. Gardner shown in Exhibit (GT-1),
- 36. page 13, states as one of nine possibilities that could prevail-
- 37. for the purpose of aggregating geogr?phic loads:
- 38. '
39.- "The municipals-co-operative strategy:
- 40. Should have statewide generation planning, 41.- multiple-unit sharing, and full cordination.
42.. Problems - FP&L may not be able to compete
- 43. if municipals and co-operatives
- 44. can gain access to generation
- 45. investment with their low-cost
- 46. capital. Municipals presently
- 47. having franchises with FP&L will
- 48. be encouraged to go public."
- 49. -
(]) .
,n ..r - -- ,--e-., . - , , . . - - - ,,- ,m,- _% ,, w r.. .,-, ,_...,m-.,,
1563
- s -
- 62a -
(' }
- 1. Q. You state that the potential for a municipal to refuse
- 2. to renew FPSL's retail market franchise and become a municipal
- 3. utility should serve continuously to encourage FP&L to be more
- 4. ef ficient. Is there any evidence that takeover pressure actually
- 5. has this effect?
6.
- 7. A. Yes. An FP&L document identified as " Flip Charts used
- 8. by R. J. Gardner and J. T. Petillo in Customer Relations Presen-
- 9. tations in Divisions, Fall, 1975" Exhibit (GT-68) describes
- 10. "The Situation outside the Company" as involving several factors:
11.
- 12. -
Rising Bills - Customers Reaction 13 - Rising PSC Complaints
"~14 Increasing customer pressure on PSC lf? -
' Rising volume of Customer Contracts -
- 16. -
Increased Awareness of Cost and Efficiency
- 17. -
Many Franchises Coming up for Renewal
- 18. -
Need for Rate Increases will Continue
- 19. -
More Talk of Takeover 20.
- 21. The situation summary c'oncludes, inter alia:
22.
- 23. 2. The need for good Customer Service is 24 becoming greater. "
25. 26. 27.
- 28. Q. Are there other types of competition in the retail
- 29. power market?
30.
- 31. A. Yes. Another important type of cenpetition is
- 32. closely related to the first type. This is competition by
- 33. comparison or yardstick competition. Yardstick competition
- 34. is clearly defined by Professor James E. Meeks in his
- 35. article in the Columbia Law Review,"' Concentration-ifFth7
- 36. Electric Power Incustry: the Impact of Antitrust Policy"
- 37. (Vol. 72:64, page 77). He states:
38.
- 39. " Yardstick competition exists by virtue
- 40. of the comparison as part cf the regula-
- 41. tory process of one utility's performance
- 42. with that of another ... The efficiencies
- 43. of the compared systems could give much
- 44. insight into their relative performances,
, 45. croviding a uniform measurement useful
- 46. (foot-In setting regulatory standards.
- 47. note omitted).
48. 49. 50* ('T q) -
1564
- 1. On the next page Professor Meeks goes on to say a';out
- 2. yardstick competition that:
3.
- 4. "this form of competition can se:ve a
- 5. very valuable fun'etion in the regulatory
- 6. process, and should therefore be encouraged
- 7. by prohibiting structure or conduct that
- 8. makes such comparisons unrealistic or
- 9. i=cossible."
10.
- 11. In addition to its usefulness as a regulatory
- 12. yardstick, competition by comparison is the means by which 13 voters make decisions on whom to have serve them. Professor 14 Alfred E. Kahn in his treatise, The Economics of Regulacion,
- 15. in Volume II, page 319 explains yarcscick competition:
16.
- 17. "It is competition by example: each
- 18. cocpany is concerned that the way in which
- 19. it treats its own customers compares favorably
- 20. with the corresponding performance of its
- 21. rivals, in the hope of favorable political
- 22. decisions whenever the question arises of
- 23. which kind of utility system is to be certi-
- 24. ficated for future service areas, or to
- 25. serve the expanding needs or indeed the
- 26. ,
present requirements of existing ones."
- 27. -
- 28. Q. Does-FP&L recognize the existence of yardstick competi-
- 29. tion as a regulatory tool?
30.
- 31. A. Yes. A January 27, 1977 document prepared by H. D. Sarkis
- 32. Jr. Exhibit (GT- 69) provides an " Environmental Assessment
- 33. of Energy Policy and Regulation" . Mr. Sarkis cites as an issue in
- 34. this area: ,
35.
- 36. Intensified pressure to resist rate increases -
- 37. Increasing surveillance by'the Public Service
- 38. commission of Management decisions - Utility
- 39. cerformance comparisons.
(Emphasis supplied) c 40.
- 41. I would add that not only does FP&L recognize yardstick
- 42. competition, but it wholeheartedly endorses the concept in the oil
- 43. industry. Mr. O. F. Pearson, in a March 21, 1975 policy planning
- 44. document entitled "FPL Positions on State and Federal Energy
- 45. Poliev" Exhibit ( GT- 7 0 ) , states that with respect to the s 46 role of a "U.S. Oil Company" in exploration on'public lands,
- 47. FP&L's cosition is to:
48. 49. 50.
'O
- 1565
- 63a -
O)
\,_.
- 1. Encourage development of Federal reserves
- 2. by a U.S. oil Co." for speed and to provide a measure of private company performance. (Emphasis add'ed)
{ FP&L ascribes great importance to yardstick competition in f*theoilindustry. The existen<.e of yardstick competition is 7 even more important in the highly concentrated regional elec-tric utility industries. Viable publicly operated electric
- syste s pr vide .a valuable " measure of private company 10 performance". -
12. Q. Are there other types of comoetition?
- 15. A. Yes. Utilities comnete at the edges of their service
- 16. territories inEo new areas.'This tyce of competition also is
- 17. recognized by FP&L since FP&L has attempted as a condi-18- tion of bulk power service to force municipals into
- 19. ter-itorial agreements. This territorial e:cpansion is
- 20. one form of the more general comoecition to attract and
- 21. retain customers. In this artic1'e , Professor Meeks states i- -
at page 99 that:
- 24. "The most fruitful kind of competition is
- 25. that to attract potential customers tc
- 26. locate in one area as occosed to another.
- 27. However, this kind of c'hpetition o which
- 28. is very prevalcr.c today among all systems
- 29. primarily benefits large load users since
- 30. they are the ones with sufficient demand to make such competition worthwhile."
- 33. " U" ** **) .
34.
' 35.
36. 37. 38.- a 39. 40, 41.
- 42. --
43.
- 44. . ,
45. 46. ( 47. . 48. 49. 50. A - D
J.5 6 6. . 64 -
- 1. What is the geographic extent of the actual reta ' 4 2.
Q. power market relevant to i ~ , w /gg
- _ _ gA ,/ pyyd 5
- 3. gy*
. ./q a po er market is FP&L,s
- 4. The actua ge grapn2.c ret
- 5. operating area. FP&L's operating area is defined to include
- 6. FP&L's service cerritory, the service territory of the
- 7. utilities geographically isolated within FP&L's service
- 8. territory, and the service territories of the relativelyThe
- 9. small utilities that border FP&L's service territory.
- 10. service territories of the larger bordering utilities, Tampa
- 11. Electric and Florida Power Corporation, were excluded as
- 12. suppliers because they generally cannot 13 wheeled to municipals or co-ops in F?&L'get their power sc erating area,
- 14. and they have territorial agreements with FP&L. In addition,
- 15. it is unlikely that-FP&L currently would compete to serve at
- 16. retail in the survice territories of its large neighbors
- 17. because of territorial agreements. FPEl,may compete to
- 13. serve at retail in the areas of bordering small utilities
- 19. and does compete to sell at retail in the balance of its
- 20. operating area.
21.
- 22. The actual retail market incides all or part of 35
- 23. counties in the eastern and southern earts of Florida.
24 This area was determined primarily by'using FP&L's 1975
- 25. Annual Recort to its stockholders.
- 26.
- 27. The several types of retail competition that I
- 28. have outlined exist in this actual market. On the supply
- 29. side, the two major organizational forms , investor-owned
- 30. and publicly-owned, compete to serve at retail. For example,
- 31. a vote was taken recently by the citizens of Daytona Beach
- 32. to decide whether FP&L's franchise to sell at retail should
- 33. be renewed or whether a municipal distribution utility
- 34. should be established. FP&L was competing for the right to
- 35. serve at retail. FP&L has 165 such franchises that similarly
- 36. come up periodically for a vote. The excessive length o.f
- 37. FP&L's 30 year exclusive franchises limits ~ the frequency that
- 38. each group of citizens can vote and change suppliers but
- 39. does not eliminate competition to serve at retail.
40.
- 41. Competition by compkrison is also important because
- 42. FP&L's performance and economy of service are compared to
- 43. that of the municipal systems in FP&L's operating area when
- 44. the citizens of a municipality vote on who is to serve them.
45.
- 46. Yardstick competition would also be a factor to
" 47. the extent that comparisons among utilities influence deci-
- 48. sions by the state regulatory commis.sion in regulating FP&L's
- 49. rates, race of return, etc.
50. pJ l 1 l 1
, . . -I
_ s . .. . __
-1567 i
- 1. Competition between FP&L and the other distribution
- 2. utilities probably also goes on in the attraction.and
- 3. retention of large industrial, coc=ercial (including resi-
- 4. dential-coc=ercial), and governmental loads. If a large
- 5. electric load customer wanta to locate in eastern or
- 6. southern Florida it probably would cc= care electricity costs
- 7. among the several retail distributors 'and direct bulk power
- 8. supplierc within that area as a consideration in its loca-
- 9. tion decision.
10.
- 11. Q. What analysis did you perfor= of the retail elec-
- 12. tricity sales =arket?
13 14 A. I analysed the =arket frc= two perspectives. First,
- 13. I identified the shares of both the retail electricity kilo-
- 16. watt-hour.-sales and the nu=ber of retail customers served
- 17. by each utility within the geographic area of the eastern
- 18. and southern portions of Florida defined as ??&L's operating
- 19. area. Second, I identified the cc== unities within this i
- 20. area for which the utilities co=pete to serve at retail. l
- 21. From both viewpoints, I examined FP&L's =arket shares.
22.
- 23. Q. What is the relative i=portance of FP&L in serving 24 at retail in the actual retail market?
25.
- 26. A. FP&L dominates the retail electric power =arket 27~ I have defined in eastern and southern Florida.
~ 28.
- 29. I have prepared Exhibit (GT-2) which consists of
- 30. two pages. Page one is an electric syste= =ap of the State
- 31. of Florida prepared by FP&L. On that =ap, I have drawn a
- 32. line indicating generally the operating area of FP&L. In
- 33. addition, I have identified, with a nu=ber for each, the 34 other electric syste=s both within and adjacent to the ??&L
- 35. service territory that I have included in the actual retail
- 36. =arket relevant to this case. Page two of this exhibit.shows
- 37. the names of the utilities corresponding to the nu=bers on
- 38. the =ap.
- 39. Y '
- 40. I have also prepared Exhibit (GT,/) which is
- 41. entitled " Retail Electricity Sales and Harket Shares in
- 42. Eastern and Southern Florida'Is76." This exhibit provides
- 43. data for the octual retail =arket I have defined, and that
- 44. I have depicted in =y Exhibit (GT-2). In Exhibit
- 45. (GT-3), I present retail electricity sales by utilities'
- 46. in eastern and southern Florida to residential customers,
- 47. to ec==ercial and industrial customers, to other retail 48, customers and in total. I show separately the sales
- 49. data for Florida Power & Light and have clas'sified the other
- 50. utilities within the geogrpahic =arket into two general O
e
s . 1568 -
- 66 e O
- 1. areas -- those geographically surrounded or isolated -by
- 2. FP&L and those geographically adjacent to FP&L. Within
- 3. those general classifications, I have further identified
- 4. utilities by the degree of vertical integration and by
- 5. ownership type. I do not consider these latter classifica-
- 6. tions as constituting submarkets, but only as one way to
- 7. analytically group the utilities within the whole retail
,. 8. =arket. Exhibit (GT-j) shows the number of retail
- 9. custo ers to whom'the electricity sales shown in Exhibic -
- 10. (GT- ) were made.
11.
- 12. As shown in my Exhibit (GT-h),FP&Lhas75 percent 13 of the relevant retail electriciEy =arket. I have =easured
- 14. =arket share in ter=s cf annual kilowatt-hour sales. My
- 15. Exhibit (GT-3) shows that if =arket shares were instead
- 16. =easured I'n ter=s of customers that FP&L has a 74 percent 2 17. share of the relevant market.
18.
- 19. Q. Do market shares differ significantly for serving
- 20. the different customer classes?
; 21.
- 22. A. No, they differ, but not significantly. FP&L
- 23. dominates in sales to all of the retail customer classes with
- 24. a range in shares from 73 to 81 percent within the customer
- 25. classes that I have reported separately.
26.
- 27. Q. Has FP&L?s share of the market changed over the
- 28. last ten years? -
2.9 .
- 30. A. Yes, FP&L's share has increased a little. From
- 31. 1966 to 1976, the ownership structure of utilities within
. 32. FP&L's operating area re=ained al=ost the sa=e. The only
- 33. change was in 1966 when FP&L acquired the City of Edgewater, i 34. a non-generating utility with approximately a 2 Ma peak load.
, . 35. FP&L, however, has ie. creased its =arket share of retail sales
- 36. and cusco=ers over this period primarily through the more
- 37. rapid growth of kWh consumption by its customers. In 1966, 38.
39.' FP&L 1976 sold 74 FP&L's percent share was of the
- 75. retail The electricofsales, percentage total and by customers a
40, in the area served at retail by FP&L also increased ov'er-the
- 41. same period, rising from 73 percent in 1966 to 76 percent in
- 42. 1976. This growth in market shares has come, in part,
- 43. through acquisition by FP&L of line sections from cooperatives.
44 and other utilities and acquisition of various types of
- 45. publicly and privately owned electric facilities associated
, 46. with hospitals , schools , and universities, airports, shopping T 47. centers, industrial plants, residential housing subsdivisions, 48 office buildings, trailer parks, street lighting systers,
- 49. race tracks, churches and private clubs.
50. O
1569
, () 1. Q. You stated that in the relevant retail market
- 2. you also have identified how many coc= unities are served
- 3. by FP&L.
4.
- 5. A. Yer. Since competition to serve retail loads
- 6. is focused on. obtaining exclusive franchises to serve local
- 7. areas it is instructive to identify how many communities
- 8. are served by FP&L and other utilities. FP&L serves 165
- 9. communities under an exclusive franchise. According to
- 10. the 1970 Census of Population, ll4 of these have a population
- 11. of 1000 persons or more. In addition, FP&L serves another
- 12. 93 com= unities according to the 1:. sting of coc= unities 13 with populations of over 1000 persons served by electric 14 utilities in Florida in Electrical World's Directorv of
- 15. Electric Utilities for 1975-1976. Thus, FP&L serves 207
- 16. com= unities of over 1000 persons and the other utilities in
- 17. FP&L's operating area serve another 22 such communities.
- 18. Out of the total of 229 communities of 1000 persons or more
- 19. in FP&L's operating area in eastern and southern Florida,
- 20. FP&L serves 90 percent of them and holds franchises for 2i, nearly 50 percent of the total.
22.
- 23. Q. Did you include the communities served by rural
- 24. electric cooperatives in this analysis of com= unities?
25.
- 26. A. No. For the most part, rural cooperatives were
- 27. unincercorated rural areas in the state. Electrical World's
- 28. Directo'v r does not list co=munities served by cooperatives,
- 29. so I die not incicde any coc= unities which they might serve
- 30. in my analysis. I did, however, look at the proportion of
- 31. rural population to total population in the eastern and
- 22. southern portion of the State and found that less than 20%
- 33. of the population was classed as rural. This percentage also
- 34. would include the population in the coc= unities smaller than
- 35. 1000 people which are served by FP&L.
36.
- 37. Q. Can you make any inference concerning monopoly
- 38. power from this data of market shares and ce'tcentration in
- 39. the relevant actual retail power market in eastern and s 40- southern Florida?
41.
- 42. A. Yes. B? sed on the ' data market shares, FP&L alone
- 43. dominates the retail power market relevant to the analysis
- 44. of tha competitive impact of FP&L's proposed restrictions
- 45. on the availability of wholesalc power. FP&L's dominance
- 46. of the retail markets in eastern and southern Florida i 47. shows it has conopoly power there.
48. 49. 50. (*]
\-
_.;1570 l (' V) 1. Q. Does the potential retail market differ in geo-
- 2. graphic excent compared to the actual retail market?
3. 6 A. Yes. It is conceivable that it could be larger, S. but this result is not probable. Two types of competi-
- 6. tors could enter the supply side of the actual =arket
- 7. if FP&L allowed the wheeling of third party power on its
- 8. system. Thus far, of course, FP&L has allowed very few
- 9. wheeling transactions.
10.
- 11. If FP&L generally allowed wheeling, then Florida
- 12. Power Corporation, Tampa Electric Company, or some other
- 13. entity might compete to serve at retail in FP&L's operating
- 14. area, but territorial agreements probably would continue
- 15. to frustrate new entrants who could compete in this market.
16.
- 17. .
18. 19. 20. 21. 22. 23. 24
- 25. -
26. 27. 78. 13. 30. 31. 32. 33. 34.
- 35. t 36.
37.
- 38. c 39.
40. 41. 42 43 44. [ 45. ) 46. 47. 48. 49. 50. A U
. .. __r . . . .
'1571
- 1. Q. You stated earlier thi.: the bulk power market
- 2. also is relevant for analyzing the effect of the
- 3. restricted availability of the wholesale tariff. In
- 4. addition, you stated that this broad =arket concept actually consisted of various sub-markets. Would you 5.
- 6. please define these sub-markets?
7.
- 8. A. Yes. For analytical purposes it is useful to
- 9. segregate initially the bulk power market into five
- 10. sub-markets or, simply, markets :
11.
- 12. 1. requirements market 13 2. exchange market
- 14. 3. services market
- 15. 4. end-use sales market ~
- 16. 5. transmission services market 17.
- 18. FP&L defines an " interchange" market which is
- 19. equivalent to my exchange market. FP&L's definition
- 20. is too restrictive because the interchange market also
- 21. includes what I call the services market. I will start
- 22. my analysis by treating the exchange and services market
- 23. as discrete in order to highlight the discriminatory
- 24. tariff availability distinctions that ??&L is attempting
- 25. to impose. Moreover, I will show that the product
- 26. offered in the requirements market is interchangeable
- 27. with the products in the (single) exchange-services -
- 28. market.
29.
- 30. The bulk power reouirements market on the supply
- 31. side is defined as the market or 'oulk power producers for
- 32. the sale of full requirements wholesale-for-resale power.
- 33. On the demand side are distribution-only utilities and 34, the captive distribution centers of integrated sys tems .
35.
- 36. The bulk power exchange market on the supply side
- 37. is the market for the various separate elements or inter-
- 38. mediate products from electricity producers which become
- 39. the inputs that together produce a reliable bulk power
- 40. supply. These elements include partial requirements
- 41. bulk power, maintenance powen, emergency power, coordina-
- 42. tion, economy energy, and others . On the demand side
- 43. are generating utilities who can lower their costs by 44, purchasing variou. 21ements that make up bulk power supply.
- 45. This exchange mark.:c, however, is said (by FP&L) to be
- 46. restricted by definition to generating utilities with
- 47. capacity in excess of their own needs who therefore can
- 48. exchange or barter bulk power services with similarly
- 49. situated utilities. Exchange in this market may be for
- 50. money as well as for services.
O-e r - - ,
\
s 72
- r. The bulk power services market on the demand 7 2. side is defined as distribution utilities with insuf-
- 3. ficient generation to =aet their own loads or reserve
- 4. needs, and includes distribution utilities without any
- 5. significant amount of generation, who purchase the
- 6. elements of bulk power services from = ore than one
- 7. supplier. The supply side includes electricity producers
- 8. with bulk power sarvices to sell.
9.
- 10. The bulk power end-use sales market on the
- 11. de=and side incorporates incustrial, ccamercial, and
- 12. governmental customers who can take power at transmis-13 sion voltages. The supply side includes not only bulk
- 14. power producers but also distribution utilities.
- 15. -
- 16. The bulk power transmission services market on
- 17. the demand side includes both bulk power sellers and
- 18. purchasers who need to transport bulk power to deliver
- 19. or receive the product. This market includes the trans-
- 20. mission of an integrated firm's own power and the wheeling
- 21. of second and third party power. Second party wheeling
- 22. is the transmission of another utility's power where the
- 23. power is for that other utility's own use. For example, 24 a utility with access to a nuclear unit may recuire
- 25. wheeling to bring the power to its service area. Third
- 26. party wheeling is the transmission of another utility's
- 27. power to a third party. The supply side of the trans-
- 28. mission market consists of all those who own transmission
- 29. lines or systems.
30.
- 31. Transmission service is, of course, a necessary
- 32. element to deliver bulk power to retail distributors and
- 33. to direct industrial and other customers. A distribution 34 company in a competitive electric industry should be
- 35. able to buy various elements of bulk power and piece them
- 36. togethcr to minimite its bulk power costs. If a distribu-
- 37. tion utility is blocked from obtaining transmisston, it'is
- 38. de facto excluded frca the bulk power exchange and require- "
- 39. ments markets, except to deal with the utility that owns
- 40. the transmission that is blocking access to other suppliers.
- 41. Most transmission services are internal accounting entries
- 42. for the large vertically integrated systems. But in cost
- 43. allocation for ratemaking by these systems, the total
- 44. transmission costs are allocated according to which customers 45, are using them.
46.
- 47. O. Do you believe that the products in the five sub-
- 48. markets you have defined are close substitut:s and are
- 49. interchangeable.
50. O
\ ' -
1573____... O
- 1. A. On the supply side all of the products are r 2. interchanges.ble except transmission. Generating
- 3. plants can supply the products in the requirements
- 4. market, the exchange market, the services market, or
- 5. the end-use =arket without any changes in those plants.
- 6. Elacericity is fungible. The product of the trans-
- 7. sission services market is not a substitute for the j 8. product in the first four markets, but is necessary
- 9. to make the bulk power market complete; the power
- 10. must be delivered.
11. Similarly on the demand side, power is not a 12. 13 substitute for transmission. Moreover, some of the
- 14. elements or intermediate products within a single sub-
- 15. =arket also are not substitutes. Examples in the
- 16. exchange market are the elements: spihning reserves;
- 17. economy energy; and maintenance power. These are not
- 18. substitutes or interchangeable but are defined to be
- 19. within the bulk power exchange sub-market. The problem
- 20. in applying the interchangeable criterion, in order to
- 21. define a market to include only close substitutes, is
- 22. that this criterio may conflict with the criterion of
- 23. completeness. The comolete useful oroduct of the bulk
- 24. power market is delivered fir = fu11' requirements pcwer.
- 25. On the demand side, the many elem'ents that go into =aking
- 26. the bundle called full requirements power can be obtained
- 27. either as. a single pre-assembled bundle delivered from
- 28. a sole supplier or the various elements including trans-
- 29. mission can be purchased or self-produced, and the bundle
- 30. assembled by the customer. Regardless of how the elements
- 31. are obtained, however, the importint point is that the
- 32. overall complete product is full requirements bulk power 33, and there'are no close substitutes for it.
34.
- 35. Defining sub-markets within the bulk power =arket
- 36. is simply a different trade-off between the criteria of
- 37. completeness and interchangeability. The usefulness of
- 38. these various definitions depends on whether they facilitate '
- 39. insights into the extent of honopoly power, and the impact
- 40. on competitors fr5m exercising that power.
41.
- 42. In analyzing the structure of the bulk power
- 43. market, each of its sub-markets should be studied separately
- 44. to determine whether the product in that market is relevant
- 45. for evaluating the proposed tariff availability provisions.
(
- 46. Thus, the structure in particular sub-carkets is the 1
- 47. initial basis for an inference of the existence of monopoly
- 48. power. If we find an artificial distinction being made
- 49. between sub-markets, this =ay show that some market partici-
- 50. pant is exerting its =onopoly power and =aking artificial O
. ,____. i _ _ _ _ ._
'1574
- 1. product or customer distinctions in order to exclude
< 2. certain potential customers. For example, a company
- 3. might try to restrict the sale of partial requirements
- 4. firm power only to utilities that are self-sufficient
- 5. in order to force small utilities to maintain costly
- 6. excess generating capacity.
7.
- 8. The overall bulk power market is the market
- 9. that is primarily relevant. A distribution utility may
- 10. be in the recuirements market, but then install some
- 11. generation aIthough insufficient to meet its own needs.
- 12. This utility then changes into the services market.
13 Later, the same utility =ay install sufficient generation
- 14. to meet all of its needs and moves (by definition) into
- 15. the exchange market. The utility may move between these
- 16. sub-markets each year, or during the y:.ar, because it is
- 17. economic tc aN generating capacity in relatively large
- 18. "lu=ps" of capacity. Thus, a utility buys power until
- 19. it is economic to add a large unic and then sells cower
- 20. until :.cs native load grows. In all three cases this
- 21. utility also is in the transmission market and competes
- 22. in the end-use~ sales market. Thus, distribution utilities
- 23. usually purchase in three of the sub-markets si=ultaneously, 24 and shift in and out of the other two over time. Since
- 25. the objective of the distribution utilities is to obtain
- 26. firm bulk power, and because they are, or potentially are,
- 27. in all of the sub-markets, the broad concent of a bulk 28.
- 29. power market tariff the wheelsale is the relevant product availability marke't .forAnalysis provisions analyzing
- 30. of r.he. sub-markets is relevant if it indicates monopoly 31 power or anticompetitive conduct.
3
- 33. Q. In the bulk power exchange =arket which group
- 34. of generating utilities sells services and which group
- 35. buys them?
36.
- 37. A. Each participant in the exchange ccrket usually
- 38. is on both sides of the market simultaneously buying
- 39. some services and selling others. Because each participant ]
- 40. can be both buyer and seller this =arket is quite unusual. :
- 41. The aa=e is true for the bulk power services market. A
. 42. ncn self-sufficient utility nevertheless =ay sell, for
- 43. instance, maintenance power during certain seasons.
44
- 45. a. p; ease describe the elements that make un the
(
- 46. bulk p'ower exchange market and the bulk power serbices
- 47. market. '
48.
- 49. A. In general, the elements sold and traded in the
- 50. exchange market and the service =arket are all of the
[u) 1 1
9 1
-i.* .
-- -- .. . 575 . . _. :
1 , 1. elements of bulk power supply. Transmission service *
- 2. is necessary, of course, to deliver these elements and i 3. also is traded in barter or cash sales. The basic elements
. 4. of the exchange and services market can be grouped; there
- 5. are other elements and scme are partly interchangeable
- 6. with each other:
7.
- 8. 1. Coordinated operations:
9.
- 10. a. emergency capacity exchange
- 11. b. central econgmic dispatch
- 12. c. spinning reserves 13 d. economy interchange
- 14. e. partial recuirements firm power and energy
- 15. f. maintenance power
- 16. g. daily or seasonal diversity exchange
- 17. .
- 18. 2. Coordinated planning and development:
19.
- 20. a. interconnections
- 21. b. expansion of bulk power supplies
- 22. c. unit power
- 23. d. com=en or joint ownership of bulk generation
- 24. facilities (and transmission facilities)
- 25. e. installed reserves 26.
- 27. Q. How then does the bulk power services =arket differ
- 28. from the exchange market?
29.
- 30. A. It doesn't, but the primary difference as I have
- 31. defined it for pedagogical putposes is that one of the
- 32. utilities is limited in its ability to exchange services
- 33. because its generating capacity is lesa than its own
- 34. requirements. (As I noted ecrlier, I have made this
- 35. distinction, although I believe it to be artificial,
- 36. because it helps to analyce some contract distinctions
- 37. that FP&L attemp ts to i= pose.) Therefore, the dependent
- 38. utility would have to purchase more of the elements it
- 39. needs rather than pri=arily making barter exchange trans-
- 40. actions. An interchange agreement would be written
- 41. differently if one party rarely would have capacity in
- 42. excess of its own needs compared to an interchange where
- 43. both parties nor= ally would' nave reserve capacity in 44, excess of their own needs.
45.
- 46. Rather than emphasiring the differences between
- 47. the services and exchange markets, however, it is more
- 48. relevant to stress the similarities. These markets are
- 49. essentially the same except for the method of payment.
- 50. To repeat, repayment in the exchange market is primarily O
l l
._ A ____. ... _
. -1576 ._
- 1. through reciprocation whereas repayment in the services
- 2. market is with money. Although it is useful temporarily
- 3. to view these bulk power sub-markets separately, this
- 4. analytical convenience certainly is not a basis for
- 5. asserting that a dependent utility can't purchase for
- 6. money an element being supplied to another utility
- 7. through a barter agreement in the exchange market. Here-
- 8. after, I will refer to these two markets together as
- 9. the exchange-services market.
10.
- 11. Q. Why do you consider the transportation or trans-
- 12. mission of bulk pcwer from the producers to the distributors 13 to be a part of the bulk power market?
14
- 15. A. Although transmis. s ion is a distinguishable market,
- 16. the unique technology of the electric power industry makes
- 17. it necessary to include the transportation sector of
- 13. the industrf si= ply as a part of production. The unique
- 19. technology is the need for a physical connection between
- 20. the producer and end-use customer at the time of production.
21.
- 22. There are no inventories; you can'e produce power
- 23. now for delivery later. Hydroelectric pumped storage
- 24. projects and some exotic technologies may partially change
(- 25. this for producers, but this is not a factor in Florida
- 26. at the present. Moreover, there are no alternative modes
- 27. of trans7orting power and a customer ca'nnot select a
- 28. truck, train, or barge. The 61ectric power produced now
- 29. is lost forever if not delivered to an end-use customer
- 30. now.
31.
- 32. Therefore, the unique intimate interrelationship
- 33. between production and transportation makes the transmission i 34. services market a necessary element in the bulk power
- 35. =arket and appropriate to analyze as a integral part of
- 36. that market. Clearly, however, this need to be physically
- 37. connected at the ti=e of production is no impediment to
- 38. the separate ownership of the production, transmission, e
- 39. and distribution facilities serving a customer.
40.
- 41. Q. Which of the bulk pc.wer sub-markets do you
- 42. consider relevant to evaluating FP&L's proposed restric-43, tions on the availability of the wholesale tariff?
44.
- 45. A. They are all relevant, although some are more
- 46. important than others.
( 47.
- 48. Q. Why is transmission services a relevant market?
49.
- 50. A. Transmission services is a relevant market because i JD
l 1 1577 l l O 1. control of transmission by a'large utility can block
- 2. a geographically isolated independent utility from
- 3. access to other bulk power markets and lower cost power.
' 4. If FP&L controls transmission and refuses generally to allow wheeling, then municipals and the co-ops would ! 5.
- 6. have very limited alternative sources of bulk power
- 7. requirements and exchange-services. In particular,
- 8. FP&L could tie wholesale service to the provis.on of
- 9. transmission.
10.
- 11. Q. Why is the exchange-services market relevant?
12. 13 A. This market is impcrtant because the municipals
- 14. have interchange agreements with FP&L under which these
- 15. bulk power services are sold and bartered. To the extent
- 16. that FP&L will not wheel, however, this market is
- 17. artifically constrained.
18.
- 19. Q. What is the geographic extent of both the actual
- 20. and the potencial transmission services markets?
21. A. As I have stated earlier, markets =ust be viewed r ! 22.
- 23. from the demand side and the supply side. The actual
- 24. transmission services market is the operating area of
- 25. Florida Power & Light Company. On the supIl y side of
- 26. this market is FP&L's transmission services which are
- 27. provided as a part of its bulk power sales et its captive j 28. distribution centers and to other utilities. Since FP&L
- 29. does not generally wheel third party power either in or
- 30. out of its operating area, the supply side of the actual
- 31. transmission services market is almost totally constrained
- 32. to FP&L's operating area. In this geographic area FP&L
- 33. clearly dominates and has monopoly power in the transmission
- 34. services =arkat. In ??&L's operating area, of the total
- 35. 4,843 miles of high voltage transmission lines of 67 Kv
- 36. and above in 1976, FP&L owned 81 percent. This is shown
- 37. in Exhibit (GT-5). FP&L's share has actually increased
- 38. with the addition of a 500 Kv-line installed in 1977.
39.
- 40. j The potential trans=ission services market includes
- 41. not only F?&L s operating area, but also all of Florida
- 42. and beyond into neighboring. states. The geographic extent
- 43. of this market would include' areas as far away as it is
- 44. economic for somewhat distant utilities to buy, sell or 45, excnange power with the utilities in the FP&L operating l
- 46. area, including FF&L. There is no clear method for
~
- 47. determining the geographic extent of this market. It is t
- 48. clear, however, that on the supply side the utilities isolated
- 49. within the FF&L service area vould continue to depend on
- 50. FF&L to wheel power to them in the potential market. The a(~h 4
?
1-578 N. O
- 1. demand side of this potential market includes all of
- 2. the utilities in the FPGL operating area who would
/ 3. wish to receive wheeled power or who would wish to
- 4. have their power sent out over FP&L transmission lines
- 5. to otaer utilities within FP&L's operating area, within
- 6. Florida and perhaps beyond.
7.
- 8. It will become increasingly clear as I describe
- 9. the geographic extent of the actual market in the other
- 10. bulk power sub-markets, that F?&L's refusal to put in
- 11. a general wheeling tariff is the one dominant factor in
- 12. determining the geographic extent of the various ac~ual 13 sub-markets. Thus, if FP&L were to wheel on reasonabia
- 14. cocoetitive terms, one comoetitive imoact of FP&L's
- 15. res'trictions on the availability of the wholesale
- 16. tariff would be greatly lessened although it would by
- 17. no means be eliminated. FP&L still would have monopoly
- 18. power in the supply of bulk power at reasonable cost.
19.
- 20. Q. What is the geographic extent of the actual
- 21. bulk power requirements market?
- 22. .
- 23. A. The actual requirements market is FP&L's operating
- 24. area. On the supply side, FP&L does not sell full require-
- 25. =ents power outside of its service territory because of
- 26. terrircrial agreements with neighboring utilities.
- 27. Utilities within FP&L's operating area cannot sell out-l 28. side this area either forthe same reason or because FP&L
- 29. will not wheel for them. On the demand side, all of the
- 30. customers that FP&L supplies are of course in FP&L's
- 31. operating area.
32.
- 33. In the actual market on the supply side, the
- 34. primary supplier of full requirements power is Florida l
- 35. Power and Light. FP&L supplies full requirements to all
- 36. 259 of its own distribution Uithincenters FP&L's and to operating area, M
- 37. seven cooperatives.
- 38. ms also providerfull requirements bulk power
- 39. other to other utilit}ribued diso an utilities and to their own distribu-
- 40. tion centers. %eeM swo sucoliers 6e Jacksonville Electric
- 41. Authority, which cupplies full require =ents to the City
- 42. of Jacksonville Beach, Green Cove Springs, and to its own
- 43. dis tribution network,, ae+ Fw ~b: _ . . _ _ _ ,.m l ...__.. y x:::s 44 all f it s- u- --^ds.
45.
- 46. Thus, FP&L's dominance in the bulk power require-l s 47. ments market gives it significant monopoly power.
48.
- 49. Q. Could competition go on between full requirecents 1 50. bulk power suppliers?
() i
._ _ _ _ __ ~ _ - . _ _ . -_ .
1579
- y. . ._
.-.s . . . _ . ...
O O 1. A. Yes , but not in the normal sense. In fact,
- 2. competition does go on as an outgrowth of the competi-
- 3. tion to serve retail loads. Specifically, if a
- 4. =unicipal system is. serving retail loads, FP&L is
- 5. competing to obtain that franchise and therefore at
- 6. the same time is competing to supply bulk power require-
- 7. ments to what would become a captive FP&L districution
- 8. center. Conversely, an FP&L distribution center may
- 9. be in a municipality which decides to create a
- 10. cunicipal distribution utility. The competition in
- 11. this market is between FP6L and the municipal form
- 12. of utility. A particular =unicipal utility does not
- 13. compete with FP&L to serve in another municipality.
- 14. Thus, there is not competition in the normal senso
- 15. of two existing utilities trying to serve one customer.
- 16. Nevertheless, there is competition.
17. 18.
~
If FP&L allowed third party wheeling preferably
- 19. under a general tariff, or if other transmission lines
- 20. were built, then some utility other than FP&L could
- 11. supply the bulk power requirements to- a new dis tribution
- 22. utility. Since we are discussing here the actual
- 23. full requirements market, it is not likely that anyone 24 other than FP&L could serve a municipal. FP&L never-
- 25. theless faces the competition from the possibility
- 26. that the municipal will obtain its own generation
- 27. either by building its own plant or by gaining access
- 28. to a plant built by FP&L, Florida Power Corporation
- 29. or some other utility constructing a large efficient
- 30. plant.
31.
- 32. O. Don't each of these full requirements
- 33. suppliers have 100 percent of their markets?
34.
- 35. A. Yes, they do have 100 percent of each of
- 36. the local geographic markets that they serve. There
- 37. nevertheless is actual co= petition going on continuously
- 38. to see whether ??&L will continue to serve the full
- 39. requirements to its franchise municipalities or whether
- 40. a cunicipality will create a municipal utility and
- 41. install its own generation. Even though FP&L attempts
- 42. to block a municipality fr~om getting power wheeled to
- 43, it from outside of FP&L's operating area, the possibility 44, for a municipality to create a utility to distributa
- 45. and to generate its own power does exist.
46.
- 47. Q. What is the geographic extent of the potential
- 48. bulk power requirements market?
49.
- 50. A. If FP&L would generally wheel power, then the v)
(~
.. _ . 1580-78 -
Q
- 1. potential full requirements market would be opened
- 2. up. In this market, the suppliers would include
- 3. any generating utility in Florida, and perhaps even 4 beyond, with excess generation relative to its own
- 5. needs. For example, if a utility in Georgia had
- 6. excess capacity it might be willing toThere sell full
- 7. requirements to a utility in Florida. are,
- 8. however, i=portant questions to answer: whether
- 9. the intercies are sufficient to carry such loads:
- 10. whether it would be economic to transmit that
- 11. distance: and whether regulatory constraints would
- 12. block interstate sales of this type. More realis -
- 13. tically, the potential suppliers of full require-14 ments to Vero Beach would probably be only those-
- 15. utilities in PeninsularFlorida. This cotential ~
- 16. market would have many more competitors than
- 17. FP&L attempting to supply full requirements to '
- 18. the various distribution utilities unless, however,
- 19. territorial restrictions are imposed and enf . .ced.
20.
- 21. On the demand side, the potential purchasers
- 22. of full requirements bulk power would be any non-
- 23. generating utility within economic reach of a 24, potential supplier. Non-generating distribution
- 25. utilities include the captive distribution centers
,~
- 26. of the vertically integrated utilities and the
- 27. distribution networks of the currently self-generating
- 28. independent utilities if that utility decided to
- 29. drop out of the generating level of the industry.
30. 31, Q. Do you consider the actual bulk power require-
- 32. ments market that you have identified relevant to this
- 33. proceeding? '
~
34.
- 35. A. Yes. The reason this market is relevant 36, stems from FP&L's refusal to wheel power generally
, 37. and, now, to sell wholesale power. The municipals
- 38. and co-ops have no viable choice among suppliers of
- 39. bulk power. Since FP&L has dominated the require- ,
- 40. ments by its control of transmission and refusals to 41 deal fully in the bulk power market, it has no t-4 2.
- permitted the municipals and co-ops access to nor=al
. 43. competitive alternatives. /
44.
- 45. Are you suggesting that utilities other than
- 46. FP&LQ.should be allowed to serve either partial or full L 47. requirements to a distribution utility is ated within
- 48. FP&L's service territory?
49.
- 50. A. Yes and particularly since FP&L does not fully x0
x - . 1581_. 0 1. recognice a public utility's obligation to serve
- 2. all customers on an equal basis whether captive
- 3. resale distribution centers, direct high voltage 4 industrial customers, or direct high voltage
- 5. resale distribution utilities. Even if FP&L did
- 6. not discri inate among the types of customers it
- 7. serves, a customer should have the choice of who
- 8. supplies him.
~
9.
- 10. Q. What is the geographic extent of the actual
- 11. bulk power exchange market?
12.
- 13. A. As I mentioned earlier, the bulk power 14 exchange market is an artificial creation of FP&L
- 15. and this market is unusual in that the utilities 16, which participate in it are both supp!sers and
- 17. buyers. Reca.ll that the exchange market by itself 18, was restricced by definition o generating utilities 19, with capacity in excess of their needs which aan
- 20. exchange or barter bulk power services with s tilarly
- 21. situated utilities. For most of the Intervens .
- 22. the actual bulk power exchange market is with iP&L
- 23. who dominated this bulk power exchange market with 24 987. of the generating capacity in 1976.
, 25. N
- 26. Q. Which utilities are in the actual bulk power
- 27. exchange market for FP&L?
28.
- 29. A. FP&L exchanges power with Vero Beach, Ft.
- 30. Pierce, Jacksonville Electric Authority, Lake Worth,
- 31. Orlando Utilities, Florida Power Corporation, and
- 32. Ta=ca Electric. Of these eight utilities, Orlando
- 33. Utilities, Vero Beach, Ft.. Pierce, Lake Worth, FP&L 34 and Jacksonville Electric Authority do not exchange
- 35. bulk power outside the group cf eight utilities.
- 36. Tampa Electric exchanges power with the City of Lake-
- 37. land (which in turn exchanges w1-d. Florida Power
- 38. Corporation), and Florida Power Corporation exchanges
- 39. with Gulf Power Corporation, Georgia Power, and <
- 40. Gainsville-Alachua County Utilities Board.
41.
- 42. Q. What is the geographic extent of the potential
- 43. ulk cower exchange merket?
44
- 45. A. If there were no barriers (other than economic)
- 46. to the transmission of bulk power, the entrants into l
- 47. the bulk power exchange market we ald be any utility 48 . with capacity greater than its needs. These utilities
- 49. could include thos a located in eastern and southern
- 50. Florida as well as throughout the state and the eastern ;
O
...__...:. _...~. 1582. _..
. . __. . . \.
f (2) Exclusion from transmission services,
- 1. United States.
- 2. however, makes- these utilities only potential !
- 3. competitors in the bulk power exchange market.
4
- 5. Yet another level of potential entrants into
- 3. the bulk power exchange market would be existing
- 7. utilities with less generation than they need to be self-
- 8. sufficient to meet their own requirements. They
- 9. could in the future add capacity, or could purchase
- 10. jointly a large unit and compete for bulk power sales.
- 11. Less likely but still potential entrants also include
- 12. com= unities with the capability of acquiring distri-
- 13. bution and generating facilities.
14.
- 15. Q. What is the geographic extent of the actual
- 16. bulk power services market?
17.
- 13. A. The supply side of the bulk power services
- 19. market includes utilities with bulk power services
- 20. to sell. The suppliers are the same utilities that
- 21. are operating in the bulk power exchange =arket.
22,
- 23. Purchasers of bulk power services are defined
- 24. to be utilities with insufficient capacity or genera-
- 25. tion to meet their own loads or reserve needs. The
- 26. actual generating purchasers witnin FP&L's operating
- 27. area include Florida Public Utilities, New Smyrna . _ _ , , ,
- 23. Beach, and Florida Keys Electric Cooperative,'O~ther ~
- 29. all of whom purchase frem only one supplier.
- 30. exa=ples cf purchasers which do not generate are
- 31. Peace River Cooperative, which purchases energy from
- 32. Florida Power Corporation, Florida Power & Light and Ta=pa Electric; Clay Electric Cooperative, which 33.
- 34. purchases from FP&L and Florida Power Corporation;
. 35. Okefencke Electric Cooperative, which purchases from
- 36. FP&L and Georgia Power; Suwannee Valley Electric
- 37. Cooperative, which purchases from Southeast Power
- 38. Administration, FP&L, and Florida Power Corp. ; and
- 39. Glades Electric, which purchasee from FP&L and Florida c
- 40. Power Corp.
41,
- 42. Q. What 1. the potential bulk power services =arket?
43. 44 A. Potentially, any generating utility could
- 45. cocpete with FP&L to sell services to Florida Keys, to
- 46. Homestead, Vero Beach or to New Smyrna Beach, or with
- 47. Jacksonville Electric Authority to serve Florida Public
- 48. Utilities if access to transmission services were made
- 49. available by FP&L. Similarly, generating utilities
- 50. could enter the market with FP&L, Florida Power Corp. ,
O i
1583 O V
- 1. Tampa Electric, Georgia Power and SEPA to compete
- 2. for bulk power service to Okefenoke, Suwannee Valley,
- 3. Glades Electric, Clay Electric and Peace River
- 4. Electric Cooperative, but for transmission facilities
- 5. controlled by FP&L but not made available to competitors.
6.
- 7. Q. Does FP&L view these various bulk power sub-markets as substitutes for each other?
8. 9.
- 10. A. Yes. An FP&L document, " Strategic Planning
- 11. Department Policy Planning - Background Paper Strategic
- 12. Issues In Inter-utility Relations defines franchises
- 13. as follows:
14.
- 15. " Franchises: Our contracts with Municipal
- 16. or County governments for distribution of _
- 17. power at retail to customers within their
- 18. boundaries - an alternative to municipal
- 19. distribution of power bought at wholesale
- 20. from FP&L or =unicipal generating and
- 21. distribution with agreed interchange with
- 22. FP&L." (Exhibit (GT-6).
23. 24 Thus, FP&L acknowledges that the bulk power racuire-
- 25. ments, exchange, and services markets are inter-
- 26. changeacle from the viewpoint of a distributor for
- 27. purposes of obtaining bulk power.
28.
- 29. Q. Does F?&L recognite competition in the bulk
- 30. power services market?
31.
- 32. A. Yes they do, but they call it the firm inter-
- 33. change market. In an FP&L document entitled " Market 34 Assessment, Firm Interchange, Peninsular Florida Systems,
- 35. 1977-1985", shown in Exhibit (GT-7), FP&L's System
- 36. Planning Department states in ene first paragraph that
- 37. it: 1 38.
- 39. "has undertaken to appraise the potential ;
- 40. market for firm interchange power in
- 41. Florida during the period 1977 to 1985,"
42.
- 43. Considering ten systems as potential buyers, an FP&L 44, document under the heading of Findings and Conclusions,
- 45. System Planning Department, states on the third page 46, that:
' 47.
48 . "Under present construction schedules and
- 49. load forecasts, five systems acpear to be
- 50. capable of offering significant competition G
L.) l I [
.- 1584
- 1. to us during the 1980-85 period:
- 2. a) TECO (21-35 MW)
/
- 3. b) OUC (174-225 MW)
~
4 c) LAK (57-253 MW)
- 5. d) GVL (135-237 MW)
- 6. e) TAL (156-248 MR) 7.
- 8. The initial page of this document translates these
~
- 9. acronyms:
10.
. 11. TECO - Tampa Electric Company
- 12. OUC - Orlando Utilities Commission
- 13. LAK - City of Lakeland
- 14. GVL - Cainesville.Alachua County
- 15. TAL - City of Tallahassee 16.
- 17. Moreover, the System Planning Department
- 18. further states on page 3 under Findings and Conclusions
- 19. regarding the interchange market that:
20.
"Because the need exists and we have 21.
- 22. done this type of business with them
- 23. in the past, the Cities of Ft. Pierce
- 24. and Vero Beach for small offer good markets contracts."
s 25. 26.
- 27. To su=marize, FP&L recognizes the exchange-
- 28. services or interchange market and the competition in
- 29. it. What is nc : stated is that the comoetitors listed
- 30. can only compete for certain loads to which they
- 31. have transmission access and that FP&L, by not filing
- 32. a general wheeling tariff for its transmission system,
- 33. effectively excludes these competitors from offering 34, to serve, tor exa=ple, Fcrt Pierce.
- 35. A review of
- 36. There is one additional point.
- 37. this document highlights the overlac between the bulk
- 38. power services and exchange markets'. Recall that the
- 39. distinction is in the relationship between peak load c 40, and calf-generating capacity. On che demand side, a
- 41. utility in the exchange market has adequate reserves
- 42. and a utility in the services market does not. This
- 43. FP&L document shows that a single utility can go back
- 44. and forth between these two markets every few years.
- 45. As a utility's load grows it may have negative reserves
- 46. and purchase. power. Then it may build a new unit larger
- 47. thanie needs and sell power for a few years while its loads grow. Thus, the distinction that I drew earlier a
48.
- 49. for anclytical convenience between the bulk power
- 50. ~~ services market and the exchange market is shown to be 0
a
l
.s 15,85 .
2 Q
- 1. artificial. Utilities buy and sell the elements of
- 2. bulk power regardless of their degree of self-Notice FP&L's terminology. FP&L
- 3. sufficiency.
- 4. goes to great pains to avoid an interchar.ge agree-
- 5. ment with any utility with inadecuate self-generation
- 6. to meet its own requirements , but then FP&L offers
- 7. " firm interchange" power to utilities with insufficient
- 8. reserves. Any distinction between these markets
- 9. obviously was unclear to FP&L as well.
10.
- 11. how, however, FP&L accarently sees that
- 12. selling bulk power as a normally competitive bulk
- 13. power supplier could aid new municipal utilities 14, if they decide not to renew FP&L's retail
- 15. franchises. Thus, FP&L now would monocoli::e the
- 16. retail market further by only offering' bulk
- 17. power and transmission in a tying arrangement to
- 18. those who would also take their retail distribu-
- 19. tion service (c.g., Vero Beach) as captive FP&L
- 20. distribution centers.
21. 22. 23. 24 25. 26. 27. 28, c 29. 30. 31. 32. . 33. 34 35. 36.
- 37.
- I 38. <
39. 40.
- 41. .
42, 43. 44. 45. 46.
- i. 47.
48. 49. 50. O
=
-. . : . .. . . .. .. . . . . . ... _ . . . . . .158 6. .. _. . ..
- 4. Conduct of FP&L in the Relevant Markets
( 1. Q. Although you have already discussed it, would
- 2. you please repeat here what the term " conduct" means
- 3. in economic analysis?
4.
- 5. A. Conduct refers to a fir ='s behavior in its 6.( business transactions. Examples The are its pricing norm is the
- 7. policies and product strategies.
- 8. expected behavior of a firm in a competitive market.
- 9. Monopoly power can be identified by observing whether
~
- 10. a firm's conduct differs from its expected behavior
- 11. in a competitive market.
12.
- 13. Q. Is your analysis of FP&L's conduct focused on
- 14. particular markets?
15.
- 16. A. Yes. I will analyze FP&L's market conduct in ~ ~
- 17. both the~ actual geographic bulk and retail power markets
- 18. that I previously identified. Both cf these markets are
- 19. FP&L's operating area in eastern and southern Florida.
- 26. In addition, I will analyze FP&L's conduct in some of ~
- 21. the bulk power sub-markets in this same area.
22.
- 23. Since you have already shown that FP&L dominates
- 24. both Q.the relevant bulk power and retail power markets
- 25. through your analysis of market structure, what is the
- 26. purpose of analyzing FP&L's conduct in these markets?
27.
- 28. A. FP&L's dominance in the relevant markets
- 29. clearly indicates FP&L's monopoly power. I stated
- 30. before that possession of menopoly power does not
- 31. necessarily mean that this monopoly power is being
- 32. exercised against competitors. Evidence of monopolistic
- 33. cenduct, however, would purge any doubt that FP&L has
- 34. monopoly power and that FP&L uses this monopoly power
- 35. against its remaining or potential competitors.
36.
- 37. If FP&L is shown to oossess monopoly power then
- 38. no change in the structure of the industry in the
- 39. relevant markets should be allowed to increase it
- 40. regardless.of how small the increase - If unless there <
- 41. are substantial offsetting benefits. FP&L is shown,
- 42. however, to be exercising'its monopoly power then even
- 43. the demonstration or offsetting benefits wanes as a
- 44. rationale since increasing such power even a small amount
- 45. lessens competition; a 1.oss in competition can impose
- 46. higher costs though inefficiency. Strengthening a
- 47. firm's monopoly power may accelerate the loss of the s
- 48. remaining competitors and leave a virtual monopoly.
49.
- 50. Q. With regard to your examination of the ecmpany's
(~n
\_)
s 1587 "' ~ fs O conduct what were your sources of information? 1. 2.
- 3. A. The primary source was the discovery material 4 sent by FP&L in these dockets and in the previous FP&L
- 5. docket, No. E-9574; but I also have used the hearing
- 6. record in Phases 1 and 2 of E-9574 and other materials
- 7. filed by FP&L at the Commission.
- 8. .
- 9. Q. Are company documents such as the ones on
- 10. which you relied the kinds of caterials that experts
- 11. in your field would reasonably rely on in reaching their
- 12. conclusions?
13.
- 14. A. Yes.
15.
- 16. Q. Some of the anticomnetitive practices that you
- 17. may cite may not be practiced by FP&L currently. h'ould
- 18. this consideration change your conclusions? -
19.
- 20. A. No. The evidence demonstrates that FP&L has
- 21. monopoly power,in the production and sale of electricity
- 22. in the bulk pcwer and retail power =arket areas it serves.
- 23. Even though some of 'these anticompetitive practices =ay
- 24. not now be practiced does not indicate that FP&L's conopoly 25 power has diminished. The saca or new anticompetitive
- 26. practices can be exercised as long as this monopoly
- 27. power continues. Indeed, FP&L's availability limitations
- 28. . on wholesale power and the termination of service to
- 29. Homestead ar the naked exercise of FP&L's W '
- 30. monopoly gainst its co=petitors. The IL=itations on the
- 31. availab. ity of wholesale service constitute a flat
- 32. refusal to deal that helps to maintain FP&L's =onopoly
- 33. power in the bulk power and retail power =arkets in
- 34. eastern and southern Florida. The discovery and other
- 35. documents demcnstrate that this wholesale rate filing
- 36. is a continuation of FP&L's now " traditional" anti-
- 37. competitive conduct. .
38.
- 39. s 40,
- 41. Monopolv Power in Retail Power Markets 42.
43.
- 44. Q. Have =unicipalities in FP&L's operating area
- 45. granted FP&L exclusive franchises to serve at retail?
46.
- 47. A. Yes, FP&L has obtained about 165 such franchises.
48.
- 49. Q. How do the terms of these franchises vary?
50. (" v)
~
._ \ _ . . , .. .. . . . . . . . .
._. 1588__......
O
- 1. A. The terms apparently do not vary; the
- 2. franchises are essentially identical.
3.
- 4. Q. Do you attach any economic significance to ,
1
- 5. the fact that these 165 franchise agreements are
- 6. identical in their terms?
- 7. .
- 8. A. 'Yes. Unless the exact form and terms of these
- 9. franchises are dictated by a regulatory authority, state
- 10. law, or similar legal requirement, the extraction o#
- 11. identical terms from a large and diverse set of customers
- 12. indicates possession of monopoly power.
13.
- 14. Q. Why is this important?
15.
- 16. A. An exclusive franchise to serve a market at
- 17. retail effects the vertical foreclosure of this market
- 18. for any actual or potential competitor. Moreover,
- 19. FP&L's uniform franchise form runs for 30 years which,
- 20. in my opinion, is both unnecessary and excessive. With
- 21. a large number of franchises with staggered expiration
- 22. dates, and with a growing consumption of electricity
- 23. overall in these franchise areas, there is little or
- 24. no risk of FP&L being caught with excess generating
- 25. capacity if a municipality decided not to renew a
- 26. franchise. Therefore, the importance of these uniform
- 27. long term franchises is that they exhibit FP&L's monopoly
- 28. power to foreclose potentia). competitive suppliers
- 29. of bulk power an'd to severely restrict any opportunities
- 30. for nunicipalities to obtain lower cost electricity
- 31. since the franchises expire so infrequently.
32.
- 33. Q. Have municipalities served at retail by FP&L
- 34. expressed objections to FP&L's insistence on thirty
- 35. year franchises?
36.
- 37. A. Yes. For example, an FP&L memorandum from
- 38. J.N. Scott to R.E. De=arais, dated December 11, 1975, <
- 39. provides the following su-mry of a city council
- 40. meeting in the City of Miramar:
l 41.
- 42. Councilman Branca, Veins and Portner
- 43. indicated that they did not want to enter
- 44. into a new Franchise for a thirty vear
- 45. period. They feit this was too long a
(
- 46. time to co=mit the City. With economic
- 47. conditions changing so rapidly and new
- 48. forms of energy being developed, they were
- 49. hesitant to bind the City to a Franchise
- 50. for the next thirty years. F.xhibit (GT-73).
O
1589
^- - -
- l. The City of Daytona Beach provides a.wther
- 2. example of FP&L's monopoly power in the retail power 7 3. market. With FP&L's franchisa up for renewal in 1977,
- 4. the City hired engineering consultants to explore the
- 5. feasibility of Daytona Beach entering into the retail
- 6. electricity distribution business. It also hired
. 7. negotiators to represent the City in franchise renewal - 8. negotiations with FP&L.
9.
- 10. The City's mayor, in a letter to FP&L negotiator
- 11. J. Kermit Cobble, Esq. dated March 17, 1977, expressed ~
- 12. dissatisfaction with FP&L's insistence on a thirty
- 13. year franchise:
14.
- 15. FP&L states that a thirty-year franchise
- 16. is required for states It also its financing that in and viewplanning of FP&L 's
- 17. - needs.
- 18. low rates and adequate service, Daytona
- 19. Beach should be willing to grant a maxi =um
- 20. term franchise. -
21.
?.2 .
Resolution of questions concerning the
- 13. adequacy of FP&L's rates and service as it
! 24 relates to the grant of a franchise depends upon a comparison of alternatives available k 25.
- 26. to Daytona Beach, assessments of probable
- 27. future FP&L costs and evaluation of the
- 28. adequacy of utility regulation. The fact
- 29. that FP&L's present rates and service may
- 30. have been within a satisfactory range provides
- 31. reason for renewing FP&L's franchise. It 32.
does not justify a thirty year term without
- 33. any right of reopening or reevaluation
- 34. regard?ess of changed conditions. Exhibit i 35. (GT- 74, p . 1-2) -
i 36.
- 37. The City Manager of Daytona Beach, in a March 28,
- 38. 1977 memorandum to the Mayor and city coc=issioners also
- 39. =ade this observation about FP&L's negotiation stance: ,
- 40. If
- 41. They are adamant about 30 years.
- 42. they genuinely want to negotiate, they
- 43. should propose something in between 30 years
- 44. and our two proposals. This Committee is
- 45. willing to give and take on this issue and
- 46. FP&L is not. (Exhibit (GT-75) 47.
43 . Despite Daytona Beach's strong objections to
- 49. a thirty year franchise, FP&L's franchise was renewed
- 50. on June 21, 1977, Exhibit (GT-76). FP&L's ability ry
( i i
- - - - - - - - - , . ~ - . . - , . , , -~. . - .---c-- ,. + ,, , , - - - - , - , w- w- .,.,.,---m , . - - - - . - . - - - . . , -
N r. s l590
- 88 -
1 O
- 1. to impose this arrangement in Daytona Beach and i
- 2. elsewhere is indicative of FP&L's monopoly power in
- 3. the retail power market.
4.
- 5. Q. Suppose a large vertically and horizontally i 6. integrated electric system refused to engage in coordi-
- 7. nating activities with the small utilities with whom
- 8. it is in actual or potential competition in wholesale
- 9. or retail =arkets, or both. Would you consider such l 10. refusal to be anticocoetitive? ' '
11.
- 12. A. Yes, I would if both the large system and the
- 13. small utilities could benefit from such coordination.
The large system could not be expected to benefit as
~
14.
- 15. =uch because-it already would have.obtained many of the
- 16. benefits of pooling from inrarnal pooling and fromMoreover, the
- 17. economies of scale related to its overall size.
- 18. the system already =ay be pooling with other systems.
- 19. In contrast, the small utility would gain much more
- 20. The distribution of the benefits between the two ,
- 21. however, would depend on their co=parative bargaining
'22. power. Presumably, the system and a utility would-
- 23. coordinate only if each saa some benefit to themselves
- 24. of doing so. Since each would gain, the total cost of
- 25. the combined coordinated system would be lower than the
- 26. combined cost of each before coordination.
27.
- 28. Assuming that both the large system and the
- 29. small utility coiuld benefit by achieving lower costs,
- 30. then a refusal to coordinate on equitable ter=s is to
- 31. engage in practices which of course i= pose higher costs
- 32. than necessary. This is true even if the large syrtam's
- 33. relative savings are small. The refusal by the large
- 34. system would prevent the small utility from attaining
' 35. an economic combination of productive resources . In
- 36. principle, such a refusal to coordinate is identical
- 37. in effect to a price squeeze. Alternatively, an effect
- 38. identical to a price squeeze can be imposed by denying
- 39. a competitor access to lower cost intermediate products
- 40. and thereby forcing the competitor to usa a non-optimal
- 41. combination of productive factors and thereby artifically
- 42. raise his costs.
- 43. Both of these anticompetitive strategies have 44.
- 45. the same i pact. The small utility cannot make sufficient
! 46. revenues to cover its costs and may be forced to sell
- 47. out to the large system. Refusing to enter into a full
- 48. range of regional power pooling and exchange transactions ,
i
- 49. =ay also have the effect of inhibiting the achievement ;
, 50. of the full economics available. The small utility may J I
I) V t - - * *,w r--.~,n,,-,,w-. , , + , , , , , . , , - - , , -v--,-m -- . - - - -
1591 s .
.~ .. -
O
- 1. have to forego opportunities to expand as much as the
/. 2. market would allow, or to delay expansion for a prolonged
- 3. period. This is particularly likely in the case of the
- 4. smaller utility which wishes to obtain nuclear generating
- 5. capacity.
6.
- 7. ~
- 8. Refusals to Transmit the Power
- 9. of Comoeting Utilities
- 10. ~~
11.
- 12. Q.
What is the meaning of the term " dealing"? 13.
- 14. _ A. Dealing means transacting business with others
- 15. in the market. -A refusal to deal means refusing to A
- 16. engage in normal competitive market transactions.
- 17. refusal to wheel or transmit power for others is an -
- 18. exa=ple of a refusal to deal.
19.
- 20. Q.
You stated earlier that the exercise of conopoly
- 21. power to block ot.ars from access to transmission services
- 22. would be a bottleneck conopoly and antico=cetitive. What
- 23. is FP&L's general policy toward the use of its transmission
- 24. system for wheeling?
- 25.
- 26. A. FP&L has a general policy of refusing to wheel
- 27. power for other utilities.
28.
- 29. Q. Is ther'e any evidence that demonstrates this
- 30. general policy of refusing to deal in trcnsmission
- 31. seni r.es ?
32.
- 33. A. Yes. FP&L's policy of refusing to deal in
- 34. transmission services is de=enstrated by the lack of
- 35. e filed general tariff for wheeling and by FP&L's state-
- 36. ment of policy. In 1975, in a letter to the New Smyrna
- 37. Beach Utility Co= mission marked. Exhibit (GT-8) FP&L
- 38. stated in the fourth paragraph that: ,
39.
- 40. "FP&L is not prepared to hold itself
- 41. out as a ec==en carrier of electricity
- 42. and therefore does not intend to file'
- 43. a generally applicable tariff for
- 44. transmission serrices."
45. L 46. The lack of a filed general wheeling tariff and
- 47. FP&L's policy statement show FP&L's conopoly power.
- 48. FPSL apparently believes it does not have to transact
- 49. busine.as , to deal, like a nor=al competitor, and openly
- 50. offer transmission services under a general rate. A O
^ - - - - - - - - _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _
s
.1592 90 -
O 1. normal cocoetitor is a competitor without monopoly
- 2. power whose conduct is the norm expected of a firm
- 3. in a comretitive market. A nor=al coccetitor would
- 4. offer to' transmit anyone's power, at a' compensatory
- 5. general rate, up to the capacity of the transmission
- 6. system. FP&L does not cention any problems with
. 7. transmission capacity. The only re=aining rationale - 8. for FP&L's refusal to wheel is that by exerting its
- 9. monopoly power it can either maintain or gain a
- 10. competitive advantage.
- 11. ___
- 12. Moreover, FP&L's neighboring investor-owned
- 13. utility, Florida Power Corporation, has a filed general
- 14. wheeling tariff, and Otter Tail Power Company has
- 15. filed a general wheeling tariff in response to the .
. 16. . District Court's order to correctTheforeconomic Otter Tail's impact
- 17. bottleneck onopoly activities.
- 18. of I?&L's refusal t- eheel power is similar to Otter
- 19. Tail's : it helps to maintain-FP&L'~s~donopoly power.
- 20. - '
- 21. Q. Is a border-to-border contract, that is, a
- 22. sale of power between service areas, a type of wheeling?
23. 24 A. No. Border-to-border contracts differ ( 25. fundamentally from wheeling. A border-to-border con-
- 26. tract is a sale in which one utility acquires power
- 27. from an adjacent utility. The selling utility may
- 28. obtain its power from some other utility, but the
- 29. border sale is noc wheeling. Wheeling is the transfer
- 30. of power betwcen geographically separated utilities ,
- 31. or separated parts of a single utility, employing the
- 32. tranc=ission system of a third utility between them.
33.
- 34. Q. Is there additional evidence that FP&L refuses
- 35. to wheel?.
36.
- 37. A. Yes. In 1971, FP&L responded to a request
- 38. for wheeling made by the Jacksonville Electric Authority.
, 39. FP&L's respcnse to Jacksonville's request, shown in '
- 40. a FP&L letter marked Exhibit (GT-9), in the first
- 41. paragraph was : .
42.
- 43. '*With reference to your letter of
- 44. January 27, and our telephone con-
. 45. versation of February 22 we have
- 46. carefully considered your request
( 47. to use our transmission systems
- 48. for dealing with a third party.
- 49. We are strongly opposed to this
- 50. as expressed tc you in Dece=ber, O
....s. . . . _ _ _ . _ _ .. __.s.1593_.
q\_/ '
\
- 1. when you first brought up the
- 2. matter, and again expressed to
- 3. you and Lou Winnard in Jackson-
- 4. ville by the writer and A.L.
- 5. Wright on January 20."
6.
- 7. Again this is a clear exercise of monopoly power, a
- 8. refusal to deal. But the second paragraph is even
- 9. = ore blatant. FP&L wanted to sell the power to
~l'O Jacksonville and thus used its transmission bottle-neck as a lever to block a competitor's sale and to 11.
- 12. i= pose a tying arrangement:
13.
- 14. "We can readily understand your
- 15. concern about power supply for the
- 16. summer of 1971. The situation will
- 17. be tight in peninsular Florida, but 18 -we stand read y to help you as we have
-19. always done in the past. We feel that
- 20. you should make a request to us to
- 21. obtain. power for you from any source
- 22. available to us. This is the way we
- 23. have always supplied you."
( 24
- 25. If FP&L refuses to wheel power to Jacksonville
- 26. then it is obvious why FP&L can say "This is the way
- 27. we have always supplied you."
28.
- 29. Another example not only demonstrates again
- 30. FP&L's policy of refusing to wheel, but also FP&L's
- 31. general resistance to supplying retail competitors '
- 32. with intermediate bulk power services such as firm 34 power. fxhibit (GT-10) is a 1973 FP&L internal
- 35. =emorandum. This memorandum discusses alternative
- 36. FP&L tactics to w'iggle out from under the City of
- 37. Homestead's ass 8rtion that since FP&L had been supplying
- 38. the City with continuous emergency power, FP&L could
- 39. not refuse to sell the City firm power. <
40.
- 41. The concluding paragraph of this memo states:
42.
- 43. "It is our belief that if we refuse
. 44 to s2ll the City of Homestead Firm
- 45. Power they will i= mediately request
- 46. - us to wheel from o'ther Municipalities.
i 47. If we encourage them to incre'ase their
- 48. generation /In an amount sufficient to7 -
- 49. where we can purchase power from them
- 50. we may offset the demand for wheeling
- 51. as well as avoid a long-term Firm Power
- 52. Commitment."
(]s)
- , r - x - w ,
. '* .. .. . . ._ . - 15 9 4- -- - - ~-
(2) '
- 1. In the new wholesale rate, FP&L has con up an excase to terminate service to Homestead. 'jured
~
- 2. FP&L
- 1. in its "An.twar of Florida Power & Light Company to
- 4. Petition tc Intervene, Protest Motion to Reject, and
- 5. Requests of Florida Cities" filed December 1,1977
- 6. states at page 9 how FP&L deter =ined Homestead
- 7. "no longer desired to be served under FP&L's wholesale
. 8. tariff; FP&L apparently read (or misread) an
- 9. interview report of a Homestead official in the Vero
- 10. Beach case, E-9574 and also read a newspaper article.
- 11. FP&L has, to say the least, instituted an unusual
- 12. business practice in declining to use the telephone
- 13. or the : mails to find out if a wholesale customer does
- 14. or does not want to continue service, particularly
- 15. when the customer has attempted for years to obtain
- 16. that service.
17.
-18. - Recently FP&L refused a request by Lake
- 19. Worth Utilities Authority (Lake Worth) that it wheel
- 20. power which Lake Worth had agreed to purchase from
- 21. Ft. Pierce. In a letter dated October 31, 1977, from
- 22. C.C. Blaisdell, Jr., Lake Worth Utilities Director,
- 23. to R.C. Taylor of FP&L, Exhibic (GT-81), Blaisdell
- 24. stated:
25.
- 26. 977, Florida Power and
- 27. OnOctober6,}eniedarequestbytheLake Light Company m
- 28. Worth Utilities Authority to transport
- 29. (wheel) power that ic agreed to purchase
, 30. from the Fort Pierce Utilities Authority.
- 31. Thia interchange transaction, had it been
- 32. allowed to proceed, could have resulted
- 34. in significant economic savings for the
- 35. Lake Worth system.
- 36. .
- 37. The premise for the refusal to " wheel" power
- 38. between the two systems, as explained by a 39, Florida Power and Light Company official, was because of the lack of a " Transmission 40.
- 41. Service Race Schedule" on the part of
- 42. Florida Power and Light Company. The
- 43. absence of such a rate greatly restricts 44, the ability of the 7 Tke Worth Utilities
- 45. idvantage of acquiring 46.
Authority for its customers e actrical energy at the in taking ^
- 47. moet economical rate possible.
g 48, 40 Therefore, the Lake Worth Utilities Authc rity
- 50. would reouest that a f air and ecuitable "'2rans-
- 51. mission service Rate senedule" be developed pv
' 1595
_. 's. . _ _ . _ - _ _ . . . . . . _ . . . 1 93 - - 1. by Florida Power and Light Company, and
- 2. filed with tr.e Federal Power Commission
- 1. and the Florida Public Service Commission
- 4. that would grant Lake Worth access to j 5. economical energy sources when and as
! 6. they become available throughout the
- 7. State of Florida.
, 3.
- 9. Within the last month or two, FP&L has
- 10. indicated that it will modify its stance in the area
- 11. of wheeling. According to the direct testimony of l
- 12. Ernest L. Bivans, FP&L Vice President for System
- 13. Planning, in FF&L Docket No. ER77-175, filed on 14 January 30, 1975~ FPEG is "willing to provide trans-
- 15. mission service when:" .
l 16.
- 17. 1. The specific potential seller and buyer L _________ 18. are contractually identified; 19.
- 20. 2. The magnitude, time and duration of the
- 21. transaction are specified prior to
- 22. commencement of the transaction; 23.
24 3. It can be determined that the transaction 2
- 25. capacity will be availa)le for the term
- 26. of the contract; and 27.
- 28. 4. The rate for such service is sufficient
- 29. to compensate FP&L for its costs.
30.
- 31. FP&L has filed nothing with this Commission
- 32. which reflects this change in policy. Thus, the Company
- 34. has provifed no evidence of its intention to exercise
- 35. its willingness to provide limited transmission service.
- 36. Moreover, this reputed modification in FP&L's stance
- 37. falls far short of a willingness to file a general
- 38. transmission tariff with the Commission; this type of
- 39. cariff is needed unless FP&L intends to continue its '
- 40. monopoly power over transmission. It is clear from
- 41. the Rebuttal Testimony of FP&L witness Lloyd L. Williams l
- 42. in FP&L Docket No. ER77-175 filed January 30, 1978 why
- 43. FP&L does not file a general rate. By requiring
- 44. separate negotiations for each tariff, FP&L can impose'
- 45. expencive litigation costs. As Mr. Williams states:
46. N 47. As I previously testified, the
- 48. race schedule filed by FPL was_
i 49. based on years of negotiation 50, between FPL and New Smyrna Beach. J
_ __ \ __ 4 _ . . _ _
, .1596-() '.
- 1. This rate is currently the subject of a hearing in
- 2. Docket No. ER77-175.
1. - 4. The Florida Public Service Commission (Florida
- 5. P.S.C.) is interested in having FP&L provide a general
- 6. wheeling tariff. In a letter to FP&L dated Sectember 28,
- 7. 1977 shown in Exhibit (GT-82), David L. Swafford,
- 8. Deputy Executive Director of the Florida P.S.C. , asked
- 9. the various members of the Florida Electric Power
- 10. Coordinating Grcup to individually respond to the
- 11. question:
12.
- 13. "Can a uniform wheeling cariff, company-
- 14. wide and/or peninsula-wide, with appropriate
- 15. caveat be devised which will not result in subsidi:ation between utilities?"
16. 17.
- 18. R.J. Gardner, FP&L Vice President, responded
- 19. by letter dated October 12, 1977, Exhibit (GT-83).
- 20. He did not answer the question directly, preferring
- 21. to enclose a copy of a proposed transmission service
- 22. agreement with Orlando and Vero Beach and to state that
- 23. FP&L would =ake similar agreements available to other i 24 utilities which request them. He did, however, point
- 25. out that FP&L's =echod of calculating its transmission
- 26. races, " reflects fully allocated costs of the trans-
- 27. mission systems, including return on invest =ent."
28.
- 29. Thus, there is no impediment to filing a
- 30. general wheeling tariff from the standpoint of any
- 31. technical difficulty of devising a cost-of-service for
- 32. wheeling transmission. In fact, FPGL has filed such
- 34. a rate ror New Smyrna Beach in Docket ER77-175. The
- 35. rate that FP&L filed in ER77-175 was based essentially 36, on the fully allocaced costs for the entire transmission
- 37. system. FP&L, however, restricted the transmission
- 38. service so that New Smyrna Beach could have only
- 39. " point to pcint" service. Thus, FF&L makes offers but
- 40. the offers are worth little because they are restrictive <
41, and excessively costly for the service offered as
- 42. well as being discriminatory.
43.
- 44. Q. Would FP&L wheel third party power or energy
- 45. if, for example, Vero Beach made such a request" 46.
1 47. A. Vero Beach did request such a service from
- 48. FP&L on May 11, 1976, according to para r.aph three in
- 49. a FP&L memo to file shown in Exhibit (GT-ll). Vero 50, 3each requested that FF&L ' wheel' non-rirm power from
() .. _ .
- . 1597 O .
- l. the Orlando Utilities Commission (OUC) to Vero
- 2. Beach. The memo indicates that FP&L pointed out to Mr. Little that FP&L had not filed a rate for 3.
- u. such a delivery, and in the second place, FPEL
- 5. would be able to sell non-firm energy during many
- 6. hours of the. day at the same or at a lesser rate
- 7. than that quoted Vero Beach by OUC. Some two and S. one-half months later on July 28, 1976, the internal
- 9. FP&L document shown in Exhibit (OT-12) entitled,
- 10. "FP&L's Response to ' Refusal to"7 heel for Vero Beach'"
i 11. was written. This document describes in the second
- 12. paragraph the oral response rendered to Mr. Little,
- 13. City Manager, by FP&L:
14.
- 15. "It was exclained that FP&L is under the
- 16. jurisdiction of the Federal Power
- 17. Commission and that any agreement concerning l 18. such transaction would have to be filed
- 19. with the FPC and receive their approval
- 20. and this could be a time consuming process.
! 21. Moreover, in order. to arrive at the basis
- 22. for costing such service, studies would
- 23. have to be conducted to assure that
, 24. reasonable charges would prevail. Again,
- 25. these studies would be ti=e consuming.
26.
- 27. This stalling tactic is as effective as an outright refusal
- 28. to deal. P.&L imposed excessive transmissions costs on '
- 29. Vero Beach in the " form of time delays. Over a year later
- 30. FP&L still has not filed a rate for Vero Beach with the FERC
- 31. In its decision in Otter Tail, the District Court required
- 32. the Otter Tail Power Company to institute a general wheel-
- 34. ing rate as a partial remedy to reduce what the court found
- 35. ;
36. 37. 38.
- 39. <
40, 41. 42, 43. 44 45. 46, 47. 48.
- 49. )
50. O
s N .. 1598
....an~ . . - - . .
O 9.6 - g
- 1. to be Otter Tail's =enopolistic hold on the electrici:7
- 2. =arkets in the areas that Otter Tail serves. Thus, it is clear that the Court thought that the lack of c general 3.
4, wheeling race is a significant antico=petitive practice.
- 5. I agree. F?&L's failure to pro =ulgate a general wheeling i
- 6. race prohibits parties from knowing before hand whether
- 7. or not particular agree =ents would be prudent. In con-
. 8. trast, if FP&L knows the enount of power agreed to and '
- 9. its purchase price in advance of quoting a wheeling race,
- 10. as the Vero Beach exa=ple de=onstrates, then ??&L can
- 11. =anipulate its wheeling race for the particular transaction Thus, F?&L 12, in order to discourage the transaction.
- 13. exercises and =aintains 1:s monopoly power.
14.
- 15. Alternatively, under these sane circunstances, F?&L
- 16. could esti= ate the econo =ic value to the custo=er of such
- 17. service and set its wheeling rate based en this esti=ated
- 18. value. That is, the absence of a general wheeling rate facili-
- 19. cates undue price discrimination. I conclude : hat instaad
- 20. of filing a cost of service tariff for general wheeling, which
- 21. custa=ers do not have to negotiate and perhaps liti5ate
( 22. for each transaction, ??&L prefers to be in a position
- 23. to exert its monopoly power in every transaction. A's the 24 present exa=ple indicates, there- is no question tha:
- 25. F?&L's posture on wheeling has a chilling effect on
- 26. coordination, pooling, exchanges , and similar economic
- 27. transactions.
28.
- 29. Q. Are there any wheeling possibilities open to
- 30. Vero Beach?
31.
- 32. A. Apparently in line wi:h =y previous answer, Vero, '
- 33. Beach does not believe that any trans=ission services 34 can be obtained fro: FP&L. In cross-exa=ination in E-9574,
- 35. M.r. Tho=as L. Jones of Ernst and Ernst" was askedwill Wheeling about adda state =ent in his report which read:
36.
- 37. additional costs to incoming power. No current wheeling
- 38. options are available." The question to Mt. Jones
- 39. elicited this conclusion regarding his sta:e=ent ' en the
- 40. availability of wheeling to Vero 3sach:
41.
- 42. "I think it is accurate as stated, that at
- 43. that time, based on our conversation with
(
- 44 the City /of Vero Beach 7, no current
- 45. wheeling options were available." (Tr. 517) 46.
- 47. Q. Has FP&L atte=oted to i=cose its wheeling policy
~
O 48. 49. onto ~ other utilities in' the state of Florida that own trans=ission systeus? 50.
._...\.'_-- . __ _._. - _ _._.~.1599 . _
97 - O / 1. A. Yes. Through its participation in the Florida
- 2. Coordinating Group (FCG), F?&L has atte=pted to insert In 1974,
- 3. its wheeling policy into group agreements. -
- 4. FP&L's suggested wording of the 300 Kv (transmission
- 5. line) Florida Cperating Agreement stated that wheeling
. 6. should involve only syste=s fully regulated by the
- 7. Florida Public Service Co==ission (FPSC) as shown in
- 8. 'Exhibic (GT-13). This wording would prevent access
- 9. to wheeling en this large efficient transmission line by
- 10. =unicipal and cooperative electric systems since neither
- 11. are regulated by the FPSC.
12.
- 13. Q. Are there any recent developments with regard to
- 14. ??&L policy on wheeling that would alter your general
- 15. conclusien that FP&L is adverse to this service? ~
16.
- 17. A. No. Even wi'th the advent of nuclear generation
- 18. capability in the state of Florida, and thus large generation
- 19. capability contained in one installation, E?&L has resisted
- 20. filing a general transmission rate tariff with the Federal
- 21. Power Coc=ission. FP&L has agreed to wheel power fees
- 22. Florida Power Corporation's Crystal River 93 nuclear unit However, f
' 23. to New Smyrna Beach who has access to this unit.
- 24. this arrange =ent is only on a point to point basis. ??&L's
- 25. position with regard to wheeling as expressed to Fort .
- 26. Pierce in 1976 is shown in Exhibit (GT-14) in the
- 27. next to the last paragraph:
- 28. " . FP&L has no objection in principle to
- 29. . .
- 30. working with the City of Fort Pierce to
- 31. accoc=odate specific transmission arrange-
- 32. cents where feasible. However, such
- 33. transcission service involves the use of
- 34. capacity as well as operating considerations on three systems. Therefore, it is custocary 35.
- 36. in the industry for transmission service
- 37. arrangements to be the subject of reasonable ,
- 38. advanced planning a=ong the parties involved."
39.
- 40. FP&L continues to make excuses for not wheeling. In
- 41. sn-mary, the facts are: (1) that F?&L has no general wheel-
- 42. ing tariff on rile with the FERC; (2) that only second
- 43. party point to point wheeling service is being provided
- 44. by FP&L mad then to only one utility in F?&L's service
(~ ~ 45. territory; (3) that F?&L's policy is against a general
- 46. wheeling cariff; and (4) that Mr. Jones testified in E-9574.
- 47. (transcript p. 517) that Vero Beach irfor=ed his ccmpany
- 48. that no wheeling option existed. I conclude from these and other facts that ??&L has and is exercising monopoly
.O 49.
-50. power in the transmission services market with a resultant
- 51. 'anticompetitive effect.
s . - 1600 Q. What is the effect of ??&I,'s transmission t '. 2 policy on competition in the bulk power market? 3* 4' A. By not wheeling power in a general fashion FP&L blocks access to alternative sources of supply for co-op 5* In so doing, such systems can't 6* and municipal systems. i 7* shop for less expensive' sources of supply or sell excess I
~~
g' generating capacity except to FP&L. This is significant 9' in that historically municipals have possessed certain 10* C7 pes of generating capacity, comparable to the peaking tt' equipment of the larger systems, while at the same time 12* being unable to compete with the large efficient base I i load generating units of larger systems. Eithout access 13' to wheeling, smaller systems are unable to minimise their 14' costs by optimally combining the peak and intermediate 15* 16* 1 ad output from their generating units with base load 17, power purchased from others. 18' Therefore, I conclude that F?&L is exercising 19' 20' geographicpower monopoly
=arket over transmission services in the relevant to the detriment of FP&L's competitor 31'
- 22. municipal and co-op systems.
23. 24. 25. 26. 27. 28.
- 29. Refusals to Sell Wholesa! e Power Q. What has been FP&L's general policy toward the 32.
selling-of firm bulk power to municipal utilities in its
- 33. perating area?
34' A. During the 1950's and 1960's, FP&L blatantly 35' 36 refused to sell firm bulk power to municipals: FP&L
- 37. refused to deal. During the period from roughly 1967
- 38. '
39. 40. 41. 42. 43.
- 44.
45. 46. 47. 48. 49. 50.
isor - l _ 9 9. p _ d
- l. however, F?&L had become = ore circumspect ta such .
- 2. " refusals.F?&L now reluctantly sells partial require-
- 3. =ents firm bulk power to three municipals that have 4 some generating capacity of their own. These are
- 5. Starke, Homestead, and New Smyrna 3each and I will
- 6. discuss how they were able to obtain this service
- 7. later. First, however, it would be useful to examine
- 8. F?&L's conduct regarding the sale of firm bulk power
- 9. (wholesale power) to municipals in the period before 1967.
- 10.
- 11. Q. Why have you chosen 1967 as the particular date?
12.
- 13. A. In 1967, a significant event occurra.d that changed
- 14. the regulatory environ =ent in which F?&L operated in th.-
- 15. bulk pow (: rr.rke t . The event was that the Federal Power
- 16. Cocsission declared FF&L to be jurisdictional. The
- 17. Co= mission in its Opinion No. 517 issued March 20, 1967
- 18. (37 F?C 544) found that F?&L owns and operates facilities
- 19. for the transmission of electric energy in interstate
- 20. coc=erce and therefore is subject to tne Cotsission's
- 21. regulations. This Cor=ission opinion was affirmed by the
( 22. Sucre =e Court in 1972. ,The Cocsission's coinion adooted '
- 23. th'e Initial Decision of the Hearing Examiner. FF&L's 24 earlier period conduct is described in tha Initial Decision
- 25. in an analysis of the problem of the Coc=ission's jurisdic-
- 26. tion over interconnections of public utilities:
27.
- 28. ". . . A facet of this problem (of interconnection}
- 29. is illustrated by the situation regarding the -
- 30. Intervenor City of Clewiston. ..
- 31. Clewiston is three miles from Florida's (??&L's] F.anch-
- 32. Fort Myers transmission line. Clewiston owns and operates its own distribution plant. It presently 33.
34 purchases Clewiston's requirements from Glades
- 35. Electric Cooperative, Inc. Glades purchases its
- 36. power from Florida three miles - from Clewiston.
- 37. Clewiston seeks to purchase directly from Florida.
- 38. Direct service to Clewiston by Florida would save
- 39. the City $100,000 per year.
. 40. In 1952 Clewiston and U.S. Sugar sought jointly
- 41. to obtain power for the sr-mer months. Florida
- 42. stated its willingness to sell power to U.S. Sugar,
. 43. but was not willing to per=it the power to be re-A 44, sold to Clewiston.
- 45. In 1954 Cleviston requested direct service from
- 46. Florida at wholesale. This was refused on the
- 47. grounds that this was contrary to co=pany policy,
(( 3.) 48. that it would not sell to a =unicipal at wholesale
- 49. except in the case of furnishing an emergency supply. ~
- 50. As an alternative, Florida proposed to lease
. M1602
. 100_
Os
- 1. Cleviscon's ~ distribution systen and sell directly
- 2. at retail within the City. This coun:er-proposal
- 3. was rejected by the Ci:y Co==ission.
- 4. In 1957 Clewiston again requested that Florida
- 5. sell directly to it. Florida stated in essence
- 6. that Clewiston's request was rejected, but that i:
- 7. would be willing to buy out the system and sell at
~
S. retail within thn City. The City turned down this
- 9. counter-offer, and, as a result, was unable to pur-
- 10. chase power from Florida. At this conference,
- 11. Florida restated the sa=e co=pany policy as was
- 12. stated in the 1954 negotiations.
- 13. In 1962 Clewiston again requested a direc:
- 14. power supply from Florida. Florida stated,in
- 15. essence, that its policy had not changed and i:
- 16. would therefore not sell to Clewiston at wholesale.
- 17. In July 1965 Clewiston requested a direct whole-
- 18. sale supply fron Florida at the sa=e rates as Florida
- 19. was using for its sales to Glades , the rural electric '
- 20. cooperative whic'. was reselling Florida power to U.S.
- 21. Sugar which t curn was selling to Clewiston. Florida
- 22. stated _a essence that the co=pany policy had not
- 23. chans ed, and that it would not sell :o Clewiston..
- 24. In a Septe=ber 1965 conference Florida's president
' 25. staced in essence that the co=pany policy regarding
- 26. selling power to =unicipalities had not changed, but
- 27. could change. He would propose to Florida's Soard
- 23. of Directors that if the City of Clewiston would
- 29. agree to have a referendu= to see if the City would
- 30. sell its distribution system to Florida or should
- 31. continue to operate it, nd the City Coc=ission
- 32. would be bound by this referendum, Florida would
- 33. sell directly to the City if the referendus vote were in favor of City ownership. Florida also 34.
- 35. stated, in essence that the rates would not necessarily
- 36. be as low as the races to Glades, and that this
- 37. would have to be worked out. Cleviston infor=ed
- 38. Florida that if Florida would submit a written
- 39. proposal it would be presented to the City Coc=ission
. 40. for approrpiate action."
41.
- 42. Thus , for over ten years , F?&LAt refused to deal with the same ti=e, ??&L
- 43. Clewiston in supplying bulk power.
~
- 44. continuously atte=pted the takeover of the town's retail 45, electric business. Since ??&L was supplying Glades Electric
- 46. Co-op that in turn resold to Clew iston it is clear that
- 47. FP&L had sufficient capacity to supply Cleviston directly.
~
- 49. The sale of power by ??&L to the Glades Co-co for
- 50. resale to a =unicipal was an exception to FF&L's ' gene =al .
m
. n-. . . . ,.-._.3 --- -.
. . . + . . . . . . - . . . . . . .
~.
1603 1
- 101 -
[-
- 1. policy. Until 1973, the rate schedule under which F?&L '
- 2. sold wholesale power (the industry ter= used to describe firm bulk power) to REA co-op electric utilities , pro-3.
- 4. hibited the co-ops from reselling this power to
- 5. =t:11cipalitics or unincorporated co== unities. This was 6: the so-called " Application" clause. The current rate
- 7. schedule SR is still restrictive; every wholesale bulk
- 8. power custo=er =ust agree not to supply any custo=er of FP&L's.
9. 10.
- 11. As I stated earlier, in the 1960's an exception
- 12. to the application clause in the REA cooperative race
- 13. schedule was =ade for Glades Electric Cooperative. Glades 14 was permitted to supply the City of Clewiston with the
- 15. wholesale power that Glades had purchased from F?&L.
- 16. However, as shown by a ??&L letter to Glades, Exhibi;
- 17. (GT-23), FP&L, for a period of approximately two
- 18. years, assessed Glades what ??&L designated as a spet'.al
- 19. invest =ent charge of $925.00 per conth for this privilege
- 20. "to cover the cost of certain peaking power for resale.
- 21. FP&L's i= position of this special charge cannot be
- 22. justified by cost since the same product, fir = wholesale
- 23. Power, was being sold to other REA cooperatives during
- 24. this ti=e without the $925.00 per conth extra charge.
- 25. Thus , F?&L's action appears to have been undue price
- 26. discrimination.
27.
- 28. FP&L did not refuse to sell fir = bulk power just to
- 29. Clewiston. Two exa=ples deconstrate this fact. First,
- 30. FP&L's refusal to sell fir = power =ay be seen in F?&L's
- 31. internal correspondence of 1955 in relation to the City
- 32. of Starke's desire to purchase wholesale power from FP&L.
- 33. Paragraoh two of this F?&L =ecorandum shown in Exhibit
- 34. (GT-15)', states that City Council =an Olson:
- 35. "
- 36. ...is correct in his understanding that <
- 37. we do not sell wholesale power tu any co==u-
- 38. nity or =unicipality and certainly have
- 39. no intention of changing our policy on this
- 40. =atter".
41.
- 42. Second, in a telegram to the co== unity of Winter Garden,
. 43. shown in Exhibit (GT-16), FP&L reiterates this position:
1 44.
- 45. "We do not supply =unicipal syste=s fi=n
- 46. wholesale power..."
- 47. .
48. (~} u, 49,
- 30. .
i
, - , - - , , - . - . . _ . ~ , . - , - - . , . , . , .
_ .\ '._...;_. . . - 1604. - _102 O -
- 1. Q. Are there any other exceptions to FP&L's policy
- 2. of refusing to deal with =unicipals?
3.
- 4. A. Yes. An exception to F?&L's refusal to deal
- 5. policy was =ade in 1958 when firm wholesale power was
- 6. sold to New Smyrna Beach, a municipal. As suawn in FP&L
- 7. internal correspondence, Exhibit (GT-24), F?&L furnished
^
- 8. firm power to New Smyrna Beach during the winters of 1958-
- 9. 1959 and provided the power at the regular rates charged
- 10. the co-ops. However, as seen in this correst.ondence, this
- 11. service was conditioned because:
12. (1) the New Scyrna Beach City Co==ission was to 13. 14 agree verbally not to order any additional
- 15. generation during this period, and 16.
- 17. (2) to initiate legislation to change the City
- 18. Charter in such a way as to enable the City
- 19. to dispose of its electric property by sale
- 20. or lease upon a =ajority vote of the free-21.
holders participating in an election held
- 22. for that purpo se.
23. 24 The circumstances of this exception to F?6L policy in the
- 25. case of New Smyrna Beach indicate that the exception was
- 26. made only to assist ??&L in its efforts to acquire the
- 27. electric system of New Smyrna Beach.
28.
- 29. Q. During this. period, did FP&L have an opportunity
- 30. to state its policy on dealing with municipals in a forum outside of Florida?
31.
- 32. .
- 33. A. Yes, in the same year that FP&L was declared 34 jurisdictional by the Co==ission, FP&L cade a statement
- 35. for the record June 27-28, 1967 at the United States Senate .
- 36. Cocmittee Hearings on S. 1365 as shown in Exhibit (GT-17). <
- 37. In the last paragraph on the first page, FP&L states that:
- 38. ~
- 39. " Florida Power and Light Company has not
- 40. =ade any categorical statement of policy l
- 41. to the extent that it would not wholesale j
- 42. -
to municipalities..."
. 43.
- 44. The facts contradict FP&L's assertion. As an example of its
- 45. " good neighbor" policy of serving runicipals , FP&L states
- 46. in paragraph two on the first page of this Exhibit that:
()
- 8. " Florida Power & Light Co=pany has on number
- 49. of occasions provided electric energy for
- 50. ci;ies in distressed situations caused by
(
\, . .'. . _ - . - . ;
_ . . . . ..2.1605- . _ 103. O
- 1. emergencies, breakdownc or inadequacies.
- 2. A prime example is New Smyrna Beach where
- 3. electric energy was supplied for about
- 4. three years because of de) sys in the
- 5. installation of the city's steam plant."
. 6 *.
- 7. FP&L uses as an example of willingness to serve, its
- 8. concerted attempt to acquire the New Smyrna Beach utility,
- 9. an effort for which it was willing to bend its general 10.
policy of refusing to deal with the municipals. Thus,
- 11. FP&L's policy statecent on dealing with municipals made
- 12. before the U.S. Senate Comnittee is directly contradi.ccgd .by. ~
- 13. the FP&L internal docu=ents that I have examined.
14.
- 15. Q. Was there any effect on F?&L's policies concerning
- 16. the sale of wholesale power on cunicipalities?
17.
- 18. A. Yes. FP&L's refusal to sell wholesale power
- 19. lessened co= petition direccly in the bulk power =arket
- 20. and probably also in the retail market. In the bulk
- 21. power carket, FP&L's refusal to sell wholesale power to e 22. =unicipals isolated municipal electric systems. This i
23 isolation was made possible, of course, by FF&L's refusal 2l. to wheel power from other electric syste=s. FP&L's
- 23. refusal to se.ll wholesale power i= posed higher costs on
- 26. these =unicipal systems and their custcmers because in
- 27. isolation only small scale units of limited efficiency
- 28. are economic for serving a cunicipal's small loads.
- 29. FP&L denied the municipals the cost savings from economies
- 30. of scale in generation.
31.
- 32. Co= petition also was probably reduced in the
- 33. retail power market because FP&L denied the municipals the 34 cost advantages of large scale production. Municipalities
- 35. would be discouraged from forming new cunicipal systems
- 36. because of the expectation that FF&L would neither wheel <
- 37. nor deal and would leave them isolated with a small scale
- 38. inefficient generating plant.
39.
. 40. Q, Would you please describe FP&L's policies toward
- 41. municipal utilities after the June 27-28, 1967 statement
- 42. before Congress?
. 43. . .
- 44. A. Yes. One month after FP&L's statement for the
- 45. record before the U.S. Senate, an FP&L internal memorandum
- 46. shown in Exhibit (GT-18) recounts an informal meeting
- 47. with the City of EEmestead:
- p 48.
3,,/ 49. "Upon direct request by the City for an arrange-
- 50. ment for wholesale service, we pointed out that we we .e . e egpene
..16 16
() .104 -
- 1. don't now serve any municipalities whole-
- 2. sale, we don't want to serve any, but if
- 1. they really want wholesale service and this
- 4. is the only arrangement that can be negoci-
- 5. aced, if the territorial agreement has been
- 6. settled, that we would not refuse to sell
- 7. whl o esa el , but we would not expect to give
- 8. the City our REA wholesale rate.
9. 10 It was also pointed out that an inter-
- 11. change agreement =ay be more desirabl2 to the
- 12. City than a wholesale contract. We emphasized
- 13. again that purchase of the Homestead facili-14 ties, or lease of them should be considered
- 15. also. At several points it was repeated that
- 10. we =ust have a territorial agreement signed,
- 17. sealed and delivered, and approved by the
- 18. Public Service Cocsission before going
- 19. ahead with any of these arrangements.
20.
- 21. While Mr. Turner said ..he City was more
- 22. interested in a wholesale contract than anything
- 23. else, he volunteered that the present cocaission
( 24 is different from those of the past and that
- 25. it was willing to review and consider anything,
- 26. such as an offer to purchase, or lease that
- 27. we may care to submit."
28,
- 29. At this point F?&L says it will sell at wholesale
- 30. to a municipal, but only at a higher rate and conditioned
- 31. or tied to a territorial agreement. FP&L,instead of
- 32. dealing nor= ally, conditions and inflates the cost of its 34 offer while at the sa=e time atte=pting to acquire the
- 35. utility.
36.
- 37. Q. You indicated that FP&L's pre-1967 policy of
- 38. refusing to sell firm wholesale power lessened competi-
- 39. tion directly in the bulk power =arket. You also stated c
- 40. that competition in the retail power market in that ceri-
- 41. od was probably reduced since "/m /unicipalities wou'ld --
- 42. be discouraged from forming new m aicipal systems because
- 43. of the expectation that FP&L would neither wheel nor deal 44 and would leave them isolated with a small scale ineffi-
- 45. cient generating plant."
- 40,
- 47. Does the availability of firm wholesale power
. 48. have any current effect on competition in the retail
- 49. market?
50.
'T A. Yes. In fact, FP&L's refusal to make firm bulk (Q
l l I y -
, - - - . - - - - - , - , . - - ~ _ _ - . , , - , . - , , ,.
i 1607
- 105 - ) 1. power generally available on a sale for resale basic has l
- 2. an even more pronounced effect on competition today for
- 3. three reasons. First over 40 percent of the retail fran-i
- 4. chises FP&L now holds either have expired or will expire
- 5. between 1976 and 1985. Thus, there are continuous and
- 6. numerous opportunities for municipalities to consider 1
. 7. entry into the retail power market. Second, the option
, 8. of small scale self-generation is no longer a viable
< 9. alternative for municipalities considering entry. Fuel
- 10. costs, particularly oil costs, have risen dramatically
- 11. since the 1960's, making self-generation prohibitively
- 12. er. pensive for new entrants. Third, under FP&L's proposed
- 13. tariff, firm bulk power for resale (SR-2 and PR) will not
- 14. be made available to new customers including potential 1 15. entrants to the retail market who do not wish to renew *
- 16. FP&L's retail franchises. Thus, FP&L exercises its
- 17. monopoly power in bulk power supplies to maintain its
- 18. retail monopoly power.
i 19.
- 20. The numerous franchises which will expire in the
- 21. next seven years offer the possiblity of increased retail
- 22. competition. Small scale self-generation is not an
> 23. economic alternative to the purchase of firm bulk power 24 from FP&L for those municipalities considering the
- 25. establishment c' retail distribution systems. FP&L's
- 26. continued refur.al to make find bulk power generally avail-
. 27. able on a sale for resale basis raises an enormous bar-
- 28. rier to entry in the retail power market and thereby
- 29. =41atains FP&L's conopoly power in the retail market.
30.
- 31. Q. Is there any evidence that FP&L recognizes the
- 32. effect of its wholesale sales policy on competition-in
- 33. the retail power market?
5 34.
- 35. A. Yes. In a paper by Senior Vic- 3 resident R. J.
36: Gardner, " Policy Planning - Background Paper, (dated
- 37. 2/28/75 and retyped 6/22/77) - Strategic Issues in Inter-
- 38. utility Relations" -- tapears the following statement: c
{ 39.
- 40. Wholesaling SR Rate 41.
- 42. While sales for resale represent only .
- 43. about 3". of our current revenues (Slide 21)
- 44. they are nevertheless of considerable Leport-
- 45. ance to us because they are growing at a
- 46. faster rate than our retail sales and because
- 47. the rate at which we wholesale (as regulated
- 48. by the FPC) can effect other ways in which
- 49. we do business with our customers (franchises
- 50. and interchange service contracts) as 4
, < - - - , , . , - . , , , , . ~ . . , n n,. . . _ . , , , . . - , -w. ,,n, ,,nw.-,_ r,.-- ,-----.n .,.v.,, . , . .- . , , --_.-,_n ,.-n.- -
. '.1608
- 106 -
() t* 3 well as our ability to compete with competitive systems. Exhibit
- 3. (GT 71, p. 5) 4*
5* Pages 34-38 of this document include a February 6* 27, 1975 paper prepared by Mr. Willia =s, entitled 7
" Major Provisions of the Wholesale tariff and Associated F carcial Problems." Mr. Williams lasts as one of the 8'*
" potential problems" asstciated with sales for resale g
10l under the SR cariff. 11' 12* 4. An existing municipality may not renew 13' franchise: purchase distribution system 14 from FP&L and then buy wholesale from
- 15. FP&L. Exhibit __,(GT-71, p. 36) 16* ^
17' Similarly, Mr. Gardner, in another document, 18* " Introduction to Strategic Planning" Exhibit (GT-72, ig' p. 8) attaches a chart captioned " Understanding the 20 Electric Power Ball Game" and addresses the issue of i 21; increased wholesale sales in the follcwing manner: 22. 23. 14'
- 55. The Game Strategic Profile Factors Contingencies
- 26. (Internal Environment)
'7
- 58. Dcvelop and Break in growth par- Obtain cus- alternative 29' serve a terns declining load comer ac- energy replace 30" market factor up in 1975; ceptance cent. Takeova
- 31. standard franchise of FP&L. Loss of agreements. Fran- Obtain franchise.
32 33 '. chises covering 41. public
- 87. or customers anc govern-34.
35 expire in 10 years ment accep-
- 36. Reduced industrial cance of
- 37. sales. FP&L.
- 38. Secure and
- 39. maintain ,
- 40. franchises.
41 42l Intercon- Rising wholesale Loss of
- 43. nect with sales; interconnec -
territory
- 44. other tion where required
- 45. by law or in best
- 46. interests of FP&L
- 47. customers.
48. 49. 50. h
,w---ei --
9 g e t-we i-ri -m-c-- --r-- --
1609
. - _ .- - . ...... . . -- -. ...x --
- 107 -
0 1* 9 te there avidence th = ret; would t=90 e restrictions in negotiating for the sale of wholesale 23 '. P ""#7 4* A. Yes. In a =e=orandum, FP&L describes a Florida 5* Public Service Commission inquiry about t'he territorial 6* agreement between the City at Homestead and FP&L. This 7 '. correspondence,Exhibic 8 (GT-22) dated in 1967 states: if *' 7.n answer to question two, I gave him some of the history of the negotiat.icns we have it' conducted with the City and Clyde Booth of 12* Maurice* Connell and Assoc. I told him we 13* had rate no deals to sell the City of Home-14* stea.i power. That the City of Homestead has 15* asked us if we would sell wholesale power
- 16* - to them at the co-op race. We had told them 77* that we didn't want to sell wholesale power, 18' but that we didn't refuse them. I told him 19* that I thought the City would be having to 20* make a decision shortly after this territorial ,
9t' 59 agreement is ordered as to whether they are 4' 3 g ing t buy more generation or request us
$'4' to sell them wholesale power or us take over
- 25. their system. I explained about the emergency 26.
~
27.
- 28.
- 29.
30. 31. 32. 33. 34. 35. 36. 37. 38.
- 39. c 40.
41. 42. 43. 44 45. 46. 47. M. 49. 50.
'o
i
. N __ _. . .. ..._. _
- 1610. . . ..--. n
_108 . O i
- 1. ties which gives them firm power if they lose
. . 2. their largest unit, and also that the City had
- 3. agreed to listen to and consider a propcaal
. 4. for us to buy or lease their distribution system.
5.
- 6. Again, a similar policy appears in an FF&L letter
- 7. to the City Commission of Fort Pierce, Exhibic (GT-20),
? 8. dated December 13, 1967, the third paragraph oI~ihich i 9. reads:
10.
- 11. "The second question was about an emergency i 12. tie with your system to furnish whatever power
- 13. you =ay need in case of an emergency. Pending
. 14. the development of a territorial agreement and
- 15. further decisions we will be in a position.to
- 16. make an e.nerge.ncy cie with your system."
17.
- 18. Q. How would you characterize this indication of F?&L
- 19. policy?
20.
- 21. A. The ??&L policy outlined in this docu=ent is the
- 22. same as the policy before it; an atte=pt by F?&L to contain
- ( 23. the municipal syste=s by =eans of territorial agreements.
- 24. The practice of two utilities agreeing upon service carritories
- 25. in order to prevent the wasteful duplication of electrical
- 26. facilities within an area is not the issue. In these
- 27. documents F7&L is shown to have e= ployed the territorial 28 agreemJnts as a precondition for discussing what should
- 29. have been nor=al business transactions for bulk power with
- 30. other utilities. Thus, these internal ??&L docu=ents indicate
- 31. FF&L has attempted to i= pose restrictive conditions.
32.
- 33. Q. Has Vero Beach attempted to obtain wholesale fira 34 bulk power from ??&L?
35.
- 36. A. Yes , but FP&L subtly refused. In this same year,
/ 37. 1967, an FF&L memorandum s e nrized a meeting with representa- <
- 38. tives of Vero Beach >as shown in Exhibit (GT-19). F?&L I
- 39. takes a position similar to its Homestead posicion. The
, , 40. FF&L memo states that:
41.
- 42. "The question of wholesale power was presented
- 43. {co Vero Beach] and I told them I did not think this was a good ides and then withdrew my answer
( 44.
- 45. and stated I thou the a reviu of the third purpose
~
- 46. of the =eeting, (discussion of emergency service),
- 47. might enter into this and be a solution. I said
- 48. we would be glad to discuss this but that it
" " * ****"*> * " "="*- " ch* '"c*=*=***** " '
O -
- 50. what constituted e=ergency service. This then j--.--
- - - , .,..,,--m m y-- , . , --.-y-,--..y, ,-wr - - ,
N< _ . . _ . . . . . - . _ _ . _ _ . 1611
.. .. . . . _ _ _ . = -
. 109 -
O I 1. brought on the third question...Mr. Wallace
- 2. brought up the question of rates and trading
- 3. of power and also at the ti=a made a statement
. 4. that Messrs. Spencer and Fuqua (of FP&L] had
- 5. previously told them they (??&L) were not
- 6. interested in wholesale power. 'At this time
- 7. I asked them (those representing the city),
- 8. as a diversion, whether they were interested
- 9. in selling or leasing the property to us.
- 10. They said "yes" that they would be interested
- 11. in a proposal and asked how long it would take
- 12. to =ake such a proposal. I told them that if
- 13. we had the infor=ation a proposal could be =ade
! 14. In about 30 days. ,
15.
- 16. Q. Did FP&L cake any offers to Vero Beach of bulk power
- 17. service or to acquire ~ the Vero Beach system?
18.
- 19. A. FP&L did not offer bulk power service, but did
- 20. suggest acquisition. In a ??&L letter of Novecher 28, 1967,
- 21. Exhibit (GT-21) to the City Comnission of Vero Beach,FrGL
/ 22. responds to questions raised at the Novecher 24, 1967 meeting,
- 23. just mentioned, between the City of Vero Beach and ??&L.
- 24. Paragraphs three and four of the letter state:
25.
- 26. The second question was about an emergency tie
- 27. with your system to furnish whatever power you may
- 28. need in case of an e=ergency. ?ending the develop-
- 29. ment of a territorial agreement and further decisions
- 30. to which we refer below, we will be in a position
- 31. to make an emergency tie with your system. This will
- 32. take the pressures of i==ediaev off both the City and
- 33. our company and provide ti=e for further study dnd 34 discussion.
- 35. The thir d qt:estion involves wholesale power to
- 36. the City and we are reluctant to go further Lato this <
- 37. at this time as we believe there are other alternatives l
- 38. which should first be fully studied. These will l 39. include:
. 40. (a) similar arrangements for interchange of power
- 41. between us such as we now have with the City of Jackson-
- 42. ville and Orlando Utilities Commission.
(b) The outright purchase of your present system by i 43. i 44 our company.
- 45. (c) A 30-year lease of your present system by our
- 46. ce=pany for our operation.
47.
- 48. At this coint at the end of 1967, F?&L's subtle poliev 49, of refusing to deal with the municipals had taken shape. This'
({} 50. policy continues to this day. The heart of the refusal is
-, ~_ - . . _ - --- ___ _ - , . .. - _ -
1612 l . 110 - (]) 4
- 1. on insisting that F?&L will only deal in interchange agree-
- 2. ments and not in firm wholesale the power. The key municipal is issue o.
required 3
- 3. interchange agreements is that
- 4. to have enough generating capacity to be self-sufficient,
?
- 5. and any " firm interchange power" supplied under Of course, the inter-5
- 6. change is li= iced to a three year maximum.
- 7. the municipals want firm bulk power that they can count
- 8. on for longer periods in order to efficiently. plan theirMoreover, the m *
' 9. generating needs and for economy.are required by ??&L's terms
- 10. By making the municipals install 11.
- 12. plant than is econocic. expensive capacity, F?&L makes them
! 13. ??&L also continues its efforts to acquire or 16 l
- 15. lease the =unicipals' systems, and stalls and delays
+ 4
- 16. dealing in the bulk power market while it attempts to
- 17. acquire control of the :mnicipals' retail service.
- 18. How did Homestead and New Smyrna Beach persuade
> 19. F?&LQ.to sell them fir = partial requirements bulk power? 20.
- 21. New Smyrna Beach apparently persuaded F?&L chrough
- 22. A. in granting this
- 23. litigation and threatened litigation, butthat they were making an
- 24. service FF&L carefully pointed out
- 25. exception. Hocestead obtained power during an emergency
- 26. for about three years under FF&L's wholesale rate SR under
- 27. which F?&L sells to the co-ops. Then Homestead claimed
- 28. that since it has been receiving firm power under FF&L's
- l
- 29. wholesale rate SR that it had to be served continuously In contrast, Vero Beach was not l 30. under successful this infiled cariff. firm partial requirements power obtaining 31.,
32, from F?&L. Now F?&L has applied to acquire the entire ! 33. Vero Beach system and retail service. 34.
- 35. The case of Homestead is shown in Exhi'ait in the several (GT-29). <
- 36. F7&L memoranda and other document.*
3
- 37. For example, in this exhibit is a October 23, I?73 ??&L
- 38. memorandum that shows the City of Homestead has been
'T. 39. receiving emergency power continuously for three years,
- 40. 1970-1972. Upon a Homestead request for firm power an
- 41. FP&L meco of August 20, 1973 shown [an on page ??&L 14 of the accorney]
- 42. Exhibit states that " Jack Matthews(i.e.,.F?&L President Marshall
- 43. echos the Marshall Theory, Homestead' s
- e .
- 44. MacDonald) "You can' t sell what you ain' t got."
- 45. request for fir = power supposedly cannot Further=beore, granted since this memo
- 46. FP&L is asserted not to have it.
- 47. states that FP&L should have available its-load esti= aces However, O, 48. and estimated reserves to back up these re= arks.
(GT-29) dated
- 49. in an F?&L memorandun also in Exhibit
- 50. Augus t 21, 1973, the following F?&L scacements indicate i
- , , - .-.,,-,,,,---w,-,,,.y-,
,,,,m,,.,,,,,-.y. ,...,,_% ,, , , . , - - ,,.%__ .,e.vy. -..q .yy-,,.e
, 3., ,y.-. - _ - ,
..___.._.. .._ _ . .. . ._.__s l6 13 111 _
O
- 1. that FP&L felt trapped into providing Homestead with
- 2. firm power:- " - - ~ " - -
- 3. - - " -
- 4. Homestead - Met this date with Ben Fuqua, Jack
- 5. Fattnews, and Lloyd Williams. Jack Matthews 4
. 6. was now familiar with the company's filing of
- 7. rate schedule SR with the FSC and our letters
- 8. to wholesale customers advising our intention
- 9. for effectuating said rate SR beginning Septem-
- 10. ber 1, 1973. He also was given and reviewed
- 11. the letter of August 14, 1973 from Roberr Jablon
- 12. to Kenneth Plumb requesting a 10 day extension.
- 13. Jack Matthew's opinion of our position is
- 14. now' changed from his opinion stated yesterday. *
- 15. He maintains with race schedule SR being
- 16. effectuated that Homestead, as all customers
- 17. on SR, is indeed receiving wholesale power and
- 18. firm base power; that we have no argn=ent in our
- 19. contention that Homestead has been receiving
- 20. firm base cower at commited intervals. There-
- 21. fore, our negotiations should center around the
- 22. following factors:
- 23. 1. If they request fir = base load power,
- 24. they are receiving base load power through
- 25. existing ' distribution connections and can
- 26. continue to receive some base load power plus
- 27. any additional firm base load power they
- 28. requite. All of which will be on wholesale
- 29. rate SR.
i 30. 2. If they elect to construct a transmission
- 31. line and connect with our transmission faciliev - '
- 32. they ecy do so.
- 33. 3. If they desire firm base load power via the 34 transmission connection, we cannot refuse. Rate SR
- 35. will still be apolicable. In this event, they
- 36. would effectively be receiving the sa=e base load <
- 37. power at the same rate (SR) but will have gone to
- 38. ' the expense of constructing transnission facilities.
- 39. 4. If they request a tranmission interchange
. 40. along with a request for firs base load, then 41- Schedule D, which states that the rates shall be
- 42. neogtiated, will apply, in which case we will
- . 43. imolement rate schedule SR. The other contract 44- schedules for interchange power (Schedules A,3,C,
- 45. & E) preclude the fact that both parties have power 46, to exchange. During negotiations we should ask 4/- for a certain a= cunt of power that we may want to buy
- 48. some time. We should earnestly seek, with their
( 49. 50. assistance, where the mutual benefit is derived.
. . . . . _. __ .1614. .. .. -._....
- 112 - .
- 1. Even though ??&L felt trapped by its own slip-up
- 2. in letting Homestead have fir = emergency power
- 3. for three years, F?&L still wanted to i= pose on Homestead
- 4. the requirement to build new capacity adequate to =ake
- 5. Homestead self-sufficient. It obviously is uneconomic to
- 6. both purchase long-ters firm bulk power and to also have
- 7. to build high cost new capacity for the same load.
8.
- 9. The apprehension of ??&L that Homestead might not
- 10. be forced into building new capacity is expressed in a
- 11. later FP&L memorandum on October 5, 1973 unich also is
- 12. in Exhibit (GT-29). It indicates alternatives in replying
- 13. to a letter from the City of Hocestead (via their con-14 sultants) to ??&L.
15.
- 16. Firm Power (3chedule D)
- 17. une rollowing alternatives are available to us in
- 18. answering this question:
- 19. a. We do not have Fir = ?ower to sell and since
- 20. chis Schedule is not in use with other
- 21. Municipalities, we would not propose its use.
22.
- 23. b. Allowing them to use a rnte similar to S?. as l
- 24. a Firn Power Agreement. This is extremely
- 25. dangerous as it will allow the City of Homestead
- 26. to operate its electrical system without increasing
- 27. its generation. ,
28.
- 29. c. Offer them a Schedule D Race at less than Race.SR
- 30. if they will p 6 vide us with a signed contract for
- 31. the installation of generation capable of carrying
- 32. their electrical load and having additional service
- 33. which we could buy at the end of a three year 34 period. This would allow us to have a Fir = Agree-
- 35. ment from the City of Homestead that they will <
- 36. continua their generation and prove that we are
- 37. only selling Firm Power for a definite period of
- 38. time.
39.
- 40. In paragraph b is the statement that it would be
- 41. " extremely dangerous" to allow Homestead to become a nor=al
- 42. partial require =ents firm bulk power customer like the co-ops.
i . 43. I interpret the " danger" to mean that other existing =unicipals
- 44. or new municipals created in F?&L's current retail franchise
- 45. =unicipalities, =ight then be able to get the SR rate too
- 46. and thereby becoce = ore comcetitive with ??&L for retail
- 47. business as stated. explicitly by FP&L in Exhibit (GT-29).
gs () 43.
- 49. Q. What do you conclude from these docu=ents?
N -
, , 1615 113 -
O
' First, I conclude chac ??&L has =aintained a
- l. A.
- 2. =arket power position where it is able to deny access to
- 3. lower cost generation by the municipal utilities by
- 4. insisting on interchange agree =ents and refusing where
- 5. possible to sell firm power. In a January 15, 1974 letter
- 6. from F?&L to the City of Homestead, also in Exhibit (GT-29),
- 7. it is stated that once the interchange (an interconnection
- 8. at transmission voltage) has been completed, F?&L will
- 9. ce serveHomestea4.nhg*$1Effhiodnottoexceed36'monthswith -
- 10. firm power at .
In this case. FP&L not only
- 11. atte=ptstol$=itthesaletoashort-termbutalso
- 12. atte= pts to condition this agree =ent so that Homestead
- 13. =ust increase its generating capacity. Thus, the pri=e
- 14. reason that the =unicipals want access to wholesale power,
- 15. to obtain the economies of scale of large generating
- 16. units, would be precluded by FP&L through its intercnange agree-
- 17. ment. Further= ore, since the sale is to be of limited
- 18. duration, ??&L reduces an option to the interchange
- 19. partner. This option is planning generating capacity and
- 20. firm purchases so that a least-cost firm bulk powerg is
- 21. achieved. %pph i
- 22. s
- 23. Q. Can F?&L gain from etase interchange agree =ents?
24.
- 25. A. Yes. ??&L gets the advantage of having a wide
- 26. choice of which utility it wants to exchange with hour by
- 27. hour, but the municipals are by and large isolated from
- 28. each other and have fewer alternatives. Thus, F?&L operates 29, with a range of alternatives, but denies these alternatives
- 30. to its co=cecitors.
31.
- 32. Now, however, F?&L has unilaterally decided to terminate
- 33. wholesale service to Homestead. FP&L argues it would instead
- 34. sell firm power under schedule D of the interchange agree =ent.
- 35. FP&L prefers to negotiate each power sale with each customer
- 36. to isolate that customer and then extract a =onopolist's c
. 37. conditions for service if any service at all is offered.
38. 39.
- 40. /
41. 42.
. 43.
44
- 45.
L6. L7. 48. (E) !!: . 4 e - -*~- m , - _r
- - , ~- .- _ -_- _ _ _
1' 1
. . 1616c . . . . ... ... ,
.l....
114.- . O .
- 1. Q. Are there any documents that indicate FP&L's recent
- 2. policy toward municipal electric systems?
3.
- 4. . A. F?&L's policy toward the generating options of muni-
- 5. cipals is found in a 1975 FP&L Strategic Planning Deparr=ent
- 6. Policy Planning - 3ackground Pacer shown in Exhibit .
- 7. GT-30. This paper describes FP&L's inter-utility relations
- 8. program and the policy developed at a February 24, 1975 Senior
- 9. Management Planning Council =eeting. Inter-utility relations
- 10. is defined therein as the way in waich FP&L deals with its
- 11. neighboring utility systems and customers. Two slides that
- 12. accompany this document are relevant to your question and
- 13. are" described on pages 9 and 10 of the paper: .
14.
- 15. "In the i=portant area of the interactions
- 16. between interconnections, interchange, whole-saling and joint ventures Slides 48 and 49
~
17.
- 18. su==arize the obj ectives which we consider
- 19. to be desirable and the efforts which are
- 20. recoc= ended to t_ carried out in furtherance
- 21. of these objectives."
N
- 22. (GT-30) at page 14. (Mder .
- 23. Slide 48 is shown in Exhibit
- 24. the heading, " Direct Efforts co" are listed the following-
- 25.
- 26. o Renewing franchises.
27.
- 28. - planning
- 29. - organitation t
- 30. - cuscocer service 31.
- 32. o Infor=al coordination arrangements .
- 33. .
34 - nonbinding coc=it=ent
- 35. - insure voluntary benefits 36.
- 37. o Negotiated interconnection contracts rather than
- 38. wholesale tariff.
39.
. 40. o Apely interchange contracts utilising appropriate t 41. schedules to all non-isolated generating utilities.
42. ( 43. o Confine SR rate to non-generating utilties or to isolated portions of generating utilities. 44. 45.
- 46. o Phase out wholesale tariffs where ossible to substi-
- 47. tute negotiated contracts.
f I) . o Territorial agreements covering directly adjoining
- 50. facilities. ,
l \ i L
~- - - .. - _ . - .
j -. --
... . . . _ . . . .... . _ ..1617 -- -
- 115 ,
O
- 1. It is apparent that FP&L planned to apply its r 2. monopoly power to renew retail franchises, to
- 1. force negotiation of each power sale rather than file a general-tariff, to rostrict wholesale service
- 4.
- 5. wherever possible in order to substitute negotiated
- 6. contracts, and to impose territorial agreements.
- 7. -
- 8. These actions, if undertaken, would reduce the
- 9. bulk power supply options of the umnicipals. First, the^
- 10. emphasis on negotiated rates of service instead of a filed 1 11. tariff hinders rational planning by FP&L's customers. The
- 12. time it=itation on the provision oc firm service under
- 13. the FP&L interchange contracts frustrates the municipals
- 14. planning anc increases their costs. Substituting
- 15. negotiated races for a general wholesale firs power tariff
- 16. adds uncertainty to the decision-making process of the
=unicipals. Further the interchange contracts force each j
17. j i 18. municipal utility to install excess generating capacity
- 19. and limit access to large scale generating units. Phasing
- 20. out wholesale tariffs where possi~ ole and substituting
- 21. negotiated interconnection contracts appears to indicate
- 22. FP&L's desire to serve new partial requirements customers
- 23. with emergency service only. This further complicates i
N 24 municipal attempts to achieve least-cost generation.
- 25. ~ -
26.
- 27. . A recent blatant exznple of FP&L's refusal
- 28. to deal in wholesale power with cunicipals is its
- 29. conduct with the Ft. Pierce Utilities Authority (Ft.
- 30. Pierce). FP&L's wholesale service availabilty provisions
- 31. currently in effect are contained in its filed SR-1 ~
r 32. rate schedule. The rate schedule has been en file with :his Commission since 1975. The following are ' 34
- 35. the pertinent provisions:
36.
- 37. AVAILABLE:
38.
- 39. In all territory served by the Company. ,
l 40. i 41. APPLICATION:
- 42. . _ _
- 43. To electric service supplied to a 44 municipal electric utility or to a coocerative
- 45. non-profit membership corporation organized l s 46.
47. under the Rural Electric Coo their own use or f6r ~resaT~e .p'"~ erative law for
- 48. . . :. . .~ . ,_ l l ~._ _ J . . ..
- 49. Since early 1976,..F.t. Pierce.has attempted to have FP&L
- 50. agree to sell wholesale power or_ wheel power for Ft. Pierce, j (
1
__._..s. Jg 18, _ _ -
- 116 -
O -
- 1. . .
...The relheionship between FP&L and Ft. Pierce.
is illustrated in a.ser'.a= of exhibits commencing with
..I 2.
- 1. Exhibit (GT-31). This exhibit contains the text
. 4. of a 1973 letter from the Fort Pierce Util' .es
- 5. Authority (FPUA) to FP&L; on page one, the fort
- 6. Pierce spokesman states that:
7.
- 8. "The Fort Pierce Utilitiei Authority
- 9. has instructed me to explore all
- 10. reasonable means of procuring electricity
- 11. for our customers. These alternatives
- 12. to selling the system include the
- 13. possibility of buying wholesale power and 14 of ' wheeling' power if we can buy power
- 15. from some otner private company or
- 16. municipality.
17.
- 18. Will Florida Power and Light sell firs
- 19. power to the Fort Pierce Uti? d. ties Authority
- 20. in such quantities as required by the Fort
- 21. Pierce Utilities Authority in additica to
- 22. that power presently sold or exchanged
- 23. under existing contracts? What would the 24 demand and coc=odity charges be? What
- 25. terms, conditions and limitations would
- 26. Florida Power and Light require in a
- 27. contract to sell wholesale pcwer?
28.
- 29. Will Florida Power and i.ight agree to wheel 30, power for the Fort Pierce Utilities Authority
- 31. if the Authority finds a private or public
- 32. generating system which can and will sell 34 power to the Fort Pierce Utilities Authority?
35. 36. 37. 38.
- 39. '
40. 41. 42, 43. 44. 45. 46. (' 47. - - 48. 49. 50. {
=
..: . - - . . _a _ . .
. . _. 4 O e
?-
l_ +
- 1. The Fort Pierce Utilities Authority feels it is j
- 2. essential that this infor=ation be available to j
- 3. them in order for them to evaluate any offer which
- 4. might be =ade to purchase the Fort Pierce Utilities
- 5. Authority system.
6.
- 7. The prospective bayer of Fort Pierce's electric
- 8. utility is. F?&L. In response to this request, ??&L said
- 9. during an April 8th meeting with Fort Pierce, F.xhibit
- 10. (GT-31), p. 2, that FP&L did not have general trans=ission i 11. service tariffs, nor did it anticipate them in the future;
- 12. and that there existed the framewoik for obtaining additional
- 13. power through the FPUA-FP&L Interchange contract. Minutes
- 14. of a March 1, 1976 FPUA-FP&L =eeting shown in F.xhibit
- 15. (GT-31) on pages 11 and 12 indicate FP&L was stalling anc
- 16. effectively refusing to deal with Fort Pierce.
17.
- 18. FP&L, by exercising its market power along the lines
- 19. of the actions outlined in its. Policy Planning Background 1 20. Paper, has forced Fort Pierce into choosing between only two
- 21. alternatives: =aintaining excess generation or letting FP&L
- 22. acquire its electric system. In a competitive market, FP&L
- 23. would not have market power and be able to constrain the
{- 24 =arket situation of other utilities so tightly that only
- 25. these limited alternatives exist.
26.
- 27. In Dece=ber of 1976, Fort Pierce again requested
- 28. races for alternative tyces of bulk power services from FP&L
- 29. as shown in F.xhibit "(GT-31) pp . 15-16. The partial
- 30. requirements serrices requested were, according to Fort
- 31. Pierce, types then beinz offered by =ajor utilities
- 32. in the United States. These reque'sted partial require =ents
- 33. servica.s were: unreserved base, inter =ediate and peaking 34 capacity, and reserve capacity. Fort Pierce went on to
- 35. indicate that while chev were interested in purchasing base
- 36. capacity and energy frein FP&L, they currently had surplus c
- 37. installed capacity and would be willing to quote FP&L prices
- 38. for the sale of intermediate, peaking, or reserve bulk power
- 39. frem the Fort Pierce system.
- 40.
- 41. In its response, F.xhibit (GT-31) p. 17, FP&L
- 42. referred Fort Pierce to the existing agree =ent between Fort
- 43. Pierce and FP&L for interchange service as well as FP&L's
(~ .
- 44. fir = sale-for-resale schedule, Schedule SR-1. The SR rate
- 45. docs not untie different types of power such as base, inter-
- 46. =ediate, and peaking. F7&L refused to untie its different
- 47. types of bulk power. Untying these services is not unusual.
( 48. Fort Pierce is asking for types of service which although . O
%. 49. unavailable from FP&L are types of service offered in other
- 50. bulk power =arkets in the U.S. In addition, FF&L's lack of ,
l
W 0-' I
- 118 -
() -!
- 1. a general wheeling tariff precludes Fort Pierce's
- 2. canvassing other systems to see if they might be
- 3. able to provide these services.
4.
- 5. In an interoffice memorandum from J.K. Daniel
- 6. to Marshall Mcdonald, FP&L's President, dated April 29,
- 7. 1977, Exhibit (GT-84) , Mr. Daniel discusses the
- 8. " Status of New Requests for Power." Under the heading
- 9. Fort Pierce Utility Authority Recuest for Alternative
- 10. Source-South Beach, he relatesi 11.
- 12. Present status: FPUA has advised
- 13. me by phone they wish cc obtain the 14 service under SR-1 and propose to
- 15. include in the 1977-78 budget funds to -
- 16. accomplish this. '
- 17. .
- 18. An interoffice memorandum dated two weeks
- 19. earlier, April 15, 1977, Exhibit (GT-85), signed
- 20. by L.L. Williams, Director of Rates and Research,
- 21. indicates that FP&L was well aware that its SR-1
- 22. tariff on file with the FPC was generally available
- 23. to new as well as existing wholesale customers:
( 24
- 25. We propose to file with the FPC
- 26. certain ravisions as they relate to the
- 27. rate schedules in our FPC Tariff on sale
- 28. for resale.
29.
- 30. A revision in the prezent Rate Schedule
- 31. SR-1 would be made to the "Available para- ~
- 32. graph, relating to the availability of the
- 34. SR-1 to those customers presently being
- 35. served thereunder.
36.
- 37. Nevertheless, FP&L has refused to s411 whole-
- 38. sale power under its SR-1 rate to Ft. Pierce, while
- 39. admitting internally its obligation to serve new ,
- 40. customers.
41.
- 42. By letter dated August 17, 1977 concerning
- 43. a meeting August 9, 1977, Exhbit (GT-86), Ewell E. ,-
44 Menge, Director of Utilities for Ft. Pierce, atte=pted
- 45. to su=marize FP&L's position on its willingness to sell
, 46. wholesale power to Ft. Pierce under the SR-1 rate ( 47. 48. schedula (pages 2 and 3) :
- 49. With respect to item 2, the purchase of
- 50. power by the Authority under FP&L's filed ga
~ - - - - . . . - - , . - , n .
_ . \ . _ _ __ ,. . _ _ _ . . _ . _ _ . . _ _ . . ._ .1621 ... . p - 119 - Q,) SR-1 tariff for service to wholesale 1. t' 2. customers on file with the Federal
- 1. Power Commission, the Authority
- 4. requested to i= mediately begin pur-
- 5. chasing under that tariff cower and
- 6. energy up to approximately'33,000 kwh
- 7. of annual peak demand initially and as
. 3. =uch as 50,000 kw of annual peak demand
- 9. dep.anding upon the availability of gas
- 10. supply.
11.
- 12. It was the consensus of the Authority's
- 13. staff and our consultants, R.W. Beck and
- 14. Associates, that your response to this
- 15. request anounted to a refusal to sell
- 16. the Fort Pierce Util.ities Authority
- 17. power and enrgy under the SR-1 rate. If 18, that is not the case, please advise us as
- 19. to when the Authority can begin making
- 20. such purchases.
21,
- 22. FP&L, through its Senior Vice President,
- 23. R.J. Gardner, responded by letter dated September 12,
- 24. 1977, Exhibit (GT-87):
25.
- 26. In regard to your cocnent that it was
- 27. the consensus of you and your associates
- 28. that my position on SR-1 amounted to a
- 29. refusal, I would prefer to stand on the
- 30. statement that I actually made during the
- 31. =eeting and that is in view of the actual 32, and potential restrictions on our generating 34 capability we are reluctant at this time
- 35. to extend the obligations for utility type
- 36. service over and beyond those which we 37, have hitherto undertaken.
38.
- 39. It is clear from this review ef recent dealings between ,
- 40. FP&L and Ft. Pierce that Ft. Pierce.has requested fits
- 41. power under the filed SR-1 tariff and FP&L has refused.
- 42. This refusal to provi'de fir = power to competitiors at.
- 43. retail either under :he SR-1 rate or by some other method, 44 is consistent with FP&L's long scanding policy of refusing
- 45. to sell wholesale power, a policy which extends over the
- 46. last 25 years.
s 47.
- 48. Q. Do you have any additional exhibits providing
- 49. evidence of FP&L's conduct in wheeling, bulk power
- 50. sales , or tying agreements?
fs i_J
=
_ . . . _ . . . . . - . . . - . - ._. ... 16 R _. i
- 120 - -
O 1. A. Yes , ::rf Exhibit _(GT-35) through Exhibic 4
/ 2. (GT-59) provide additional evidence of FP&L's
! 1. market conduct. 4.
, 5.
1 6. 7.
, 8.
9. 10. ! 11. i 12. . 13.
- 14.
15.
- 16. .
17. , 18. 19. 20. 21. , 22. i 23. i (' 24 25. l 26.
- 27.
t 28. 29. 30. 31. 32. 34. 35. 36. 37. l 38.
- 39. <
40. 41. ', 42. , 43. 44. 1 45. ' i 46. i (~' 47. I 48. - ! 49. ! 50. 7 :-
1623 N s.
.-- < 5
/ - 121 -
. 1. -
Restrictions on Power ?coling ', 2,
- 3. -- '
4.
- 5. Q. Are you familiar with FP&L's policy with regard to
- 6. for=al power pooling?
- 7. FP&L is against a for=al power pool in Florida.
3, A. Yes. 9,* FP&L's position is outlined in the sa=e 1975 Strategic Planning
- 10. Department Policy - Planning - Background Paper on Inter-
- 11. utility relations, previously referred to and shown in
- 12. Enhibit (GT-30). Slide #45 that ace 6mpanied this paper is -
- 13. in Exhibic (GT-32) at page 1; it presents FP&L " actions
- 14. and hedges" regarding a for=al power pool in Florida:
- 15. -
- 16. POOLING ,
17.
- 18. (1) Defend existing informal pool as providing cost
- 19. of the known advantages of for=al pooling.
20.
- 21. o Obtain =eaningful calculation of costs and
- 22. benefits.
- 23. o Continue efforts on economy interchange.
24
- 25. (2) Consider (and support if it beco~ces necessary)
- 26. actions which can be taken through existing
- 27. informal pool to further enhance its perfor=ance
- 28. relative to formal pooling.
29.
- 30. o Economy interchange a=ong third parties -
- 31. delivery service.
- 32. o Joint projects.
- 33. o Reserve sharing.
34
- 35. (3) Deter =ine (and support if it becomes necessary) e
- 36. the preferable for=al pooling alternative.
37.
- 38. o Other systems fo=n a separative ror=al pool;
- 39. o FP&L act as a second " pool".
+ 40. o FP&L become the " pool".
- 41. o Link pool.
42. (
- 43. Q. Are there generally differentials in benefits that
- 44. accrue to large and small utilities from joining a power pool?
45.
- 46. A. Yes, in some cases. A true power pool allows for (3 47. the operation of the generating units of a group of utilities x_/ 48, as if all the generating units belonged to a single utility.
- 49. If, in a particular market, a very large utility exists among
- 50. =any =uch scaller utilities, the predominant utility may already l
1624 ~ ~ ^ I
-122 -
.)
(
- 1. have cost of the least-cost generaedag units in the area and
- 2. may not be helped much by a pocling agreement. This is not to
- 3. say that the large system could never be helped in terms of
- 4. lowering its costs of generating electricity as seems to be
~
- 5. recognized by ??&L in its documents.
6.
- 7. Q. Economy exchanges of energy are mentioned in your (GT-30) and Exhibit (GT 32). Do~ economy
~
- 8. Exhibit
- 9. exchanges generally relate to pooITng?
10.
- 11. A. Yes, but such exchanges are an inefficient and only
- 12. partial method of pooling. An econo =y exchange is an ex-
- 13. change of power that takes place between two utilities when
- 14. their incremental. costs of generating differ and when the
- 15. lower cost utility is operating below capacity. These '
- 16. exchanges are entered into perhaps on an heur-to-ho g c. sis
- 17. and the savings are solit. In a cower pool with tentral
- 18. disaatch, however, the ecuivalent'of econocy exchanges goes
- 19. on continously instead of having to be arranged for each
- 20. transaction. Energy is too expensive and scarce to rely on
- 21. i= perfect econocy exchanges when for=al cower pooling could '
- 22. insure these potential savings are reali:ed.
23. 24 For least-cost generation to take place under the
- 25. economy exchange =ethod, each utility cust be able to deal
- 26. with all other utilities. If not, then differential generat-
- 27. ing costs might exist that two utilities otherwise could take
- 28. advantage of during a given hour. Without wheeling, economy'
- 29. exchange becomes an even poorer substitute for central d
- 30. discacch. Note that in Exhibit f
- 31. support informal exchanges of power ,GT-32) quoted abov
- 32. indicating FP&L's efforts to frustrate others in economizing
- 33. on bulk power costs.
34.
- 35. <
36. 37. 38. 39.
> 40.
41. 42. ( , 43. 44. 45. 46. 47. 48. q) 3-s 49.
- 50. .
,.-,,,,e -
r-, r. ----e-a-- ,-.-,c- ,- , w e v - . - - . , ,,,t 9y-+, +e3-* ,.%., .m4-y ,c- --
- _ _ _ - - - _ - - ~ - - - - - _ _ _ _
...162S
_ _ i_ - . - - O .ua . gah&3 m N6 km! '
- 1. Q.
Earlier in your testi=ony, you discussed the
- 2. i=portance of nuclear access to the small electricYou also discussed the co
- 3. utilities in Florida. these small electric 4 impact of a refusal by FFSL to grantAre you aware of
- 5. utili:ies access to nuclear uni:s.
- 6. FP&L's policy and actions in this area?
- 7. ??&L does not share with
- 8. A. fes. At the present,
- 9. other utilitiesIn any part of FF&L's three nuclear generac-F?&L L:s proposed St. Lucie #2 nuclear unit,
- 10. ing units.
- 11. extended a participation offer during the licensing process
-12. to only two =unicipal systems, Ecmestead Seminole.
and New Smyrna
- 13. Beach, and to but one REA Coop,
- 14. Are you familiar with ??&L's initial of fer of
- 15. Q.
- 16. access to the St. Lucie II nuclear '~ uni ? -
17. A. Yes, to the extent the initial offer by ??st is 18.
- 19. exclained in a letter frca R.G. Mulholland of FF&L to
(
- 20. 3.' Spiegel of Spiegel & McDiar=id dated January 9, 1975
- 21. shown in Exhibic (GT-28) .
Frca your viewpoint as an ecenc=ist, is F?&L's l ' 22.
- 23. Q.
24 method for determining the arount of capacity to be
- 25. offered to those seeking access reasonable?
26.
- 27. A. No, F?&L's cethod is highly First,restrictive and
??&L's meched 2S. unreasonable for three reasons.
access to a utility that is now purchasing
- 29. wculd only grant oulk power from F?&L. This introduces the uotential are for
- 30. *
- 31. anti-coepetitive i= pact as it excludes utili:ies that Second, a
- 32. indeoendent of FF&L for their bulk power.Lucie II wou'ld be li=ited to that
- 33. util'ity's share in St. the ti=e of ??&L's peak load.
34 utility's demand on F?&L at
- 35. Utilities which generate as theruch cin+ power as system cf F?&L's possiblepeak.
to
- 36. seet their own needs at
- 37. thereby . helping.FF&L to meet the area's load, are incenalize 38, turn
- 39. the F?&L cethod.
Moreover, basing access en coincident
- 40. decands is not reasonable. St. Lucie II is a base lead 41, unit and can be projected to supply energy for a certain Municipals 42.
( 43. percentage of FP&L's total annual kWh sales.or others should b
- 44. to have an equal percentage cocpared to ??&L of thier
- 45. annual kWh sales ccce f ca St. Lucie II.
46.
- 47. Q.
Did F?&L plan to give access to its now canceled crocosed South Dade nuclear plan:? O 48. 49.
~ '
50.
. -- - 16 2 6
_ 1,24 (2)
- 1. A. No, FP&L maintained that the South Dade unit
- 2. would be exclusively for F?&L's use. This was FP&L's
- 3. position although the Orlando Utilities Cocsission (OUC)
- 4. had foregone the opportunity to intervene in the 1973
- 5. St. Lucie II licensing proceeding at the NRC because
- 6. Orlando relied upon FP&L's reoresentations that it was
- 7. too late to modify St. Lucie II plans and Orlando would
- 8. be afforded _the opportunity to participate in FP&L's
- 9. next nuclear unit. This is shown in Exhibi.. (GT-33)
_ _] ,
~
- 10. at pages 12 to 18. _ , ,
11.
- 12. In March, 1975, Orlando was advised of F?&L's plans
- 13. for a South Dac.c. nuclear unit. Within two weeks, Orlando
- 14. Lafor=ed FF&L of its interest in an ownership share of
- 15. the proposed unit. FP&L did not respond until a year
- 16. la car when it informed Orlando_and others that the unit 17, would not be _jaintly'eMed. This same letter also infor=ed
- 18. these parties that FP&L might be interested in the joint
- 19. development, at an unspecified future time and at an
- 20. unspecified site, of some other, yet unplanned nuclear
- 21. facility.
22.
- 23. Q. What, if any conclusions can you draw from F?&L's
- 24. policy toward joint nuclear ownership?
25.
- 26. A. Its resistance to joint ownership in nuclear units,
- 27. on any terms, effectively denies smaller systems in Florida
- 28. a source of low cost generation and thereby restricts chair
- 29. ability to compete and unnecessarily' keeps the cost of
- 30. power to their customers high.
31.
- 32. Q. Do you have any other exhibits that relate to FP&L's
- 33. policy on pooling or resisting (not of) granting access by
- 34. small utilities to nuclear unres?
35.
- 36. A. Yes, my Exhibit (GT-60) and Exhibit (GT-61)
- 37. related to these issues.
- 38. ,
- 39. l 40.
41. 42. 43. ( 44. 45. 46. 47 48. (~h 49. 50.
'l
. , . _ _ . . . _ . . . .2.1627 .. .
~ ~
(~]) ..
- 1. Acouisition Poliev
/ 2.
- 1. Q. Historically, what has been FP&L's general
. 4. policy toward the acquisition of other electric utilities? 5.
- 6. A. FP&L has shown a longstanding interest in
- 7. acquiring co=peting electric utilities. The Coenission's
- 8. Opinion 517, issued March 20, 1967 that I quoted ' rom
- 9. earlier concerning refusals to deal, shows FP&L's desire
- 10. to purchase the Clewiston Utility. The portion I quoted
- 11. of the Laitial Decision was adopted by the Cecmission
- 12. in their Opinion.
13. 14 In 1958, an election was held in Lake Worth to deter-
- 15. mine whether the City should sell its electric utility to
- 16. - FP&L. A letter from then FP&L Division Manager Hill to
- 17. his fellow e=ployees stresses the need for vigorous
- 18. election-efforts and points out: "This is very i=portant
- 1 C to all of us as success in this election will assist us
- 20. in our negotiations for other systems." Exhibit (GT-34),
- 21. page 64 22.
23. 24 25. 26. 27. 28. 29.
- 30. -
- 31. .
32. 34 35. 36. 37. 38.
- 39. <
40. 41. 42. 43. 44. 45. 46. '( 47. 48. 49. 50.
1 l 1 Ifi28 1-~ -- i m ,126 _ l
- 1. Q. Do you know to what "other systems," if any, !
- 2. Mr. Hill =ay have been referring?
3.
- 4. A. I don't know, however, during the 1958-59
- 5. period FP&L appears to have exhibited considerable
- 6. interest in purchase of the Vero Beach and New Smyrna
- 7. Beach utilities as indicated in Exhibic (GT-34)
- 8. pages 64-74.
9.
- 10. Q. Did you find additional evidence regarding
- 11. ??&L's interest in acquiring other elect-ic utilities?
12.
- 13. A. Yes. For example, in 1965, as shown in 14 Exhibit (GT-34) pages 52 to 63 and 75, FP&L indicated f Ft.
"y -15. ~~ a~Pierce 16. willingneas and Newto purchase Smyrnathe electric utilities oOne ??&L official describes 3each.
- 17. the prospect of acquirine the New Smyrna Beach system as
- 18. a desire that the FP&L system regards "with natural
- 19. enthusiasm," Exhibit (GT-34), page 75.
20.
- 21. In 1966, ??&L purchased the Edgewater system from
- 22. New Smyrna Beach, Exhibit (GT-34), pages 40 and 41.
- 23. Homestead was the subj ect BTTP&L's attention in 1967, 26 Exhibit (GT-34), eages 50 and 51, while in 1968, 25
- 26. Lake Exhibit Worth's utility)apoears (GT-34 , pagesto47 have to 49.interested FP&L
~
27.
- 28. An unidentified REA cooperative is the subj ect of a
- 29. 1972 letter in Exhibit (GT-34) page 46. In 1973, FF&L
- 30. again pursued the possi5 titty of acquiring the New Smyrna
- 31. 3each utili:y Exhibit (GT-34) , page 45. Extensive
- 32. consideration and effort involving New Smyrna Beach continues
- 33. through 1974, Exhibi: (GT-34) pages 31 to 39 and into 34 1975, Exhibit (GT'TCT pages 21 to 25.
- 35. '
- 36. The possibility of acquiring the Vero Beach utility 3i. apparently came to the attention of FF&L in 1974,
- 38. Exhibit (GT-34) page 30.
39.
- 40. During 1976, F?&L devoted considerable attention to
- 41. the possibility of acquiring the electric utilities in
- 42. Ft. Pierce, Eccestead and Vero Beach, Exhibic (GT-34)
- 43. pages 11 to 16.
44,
- 45. Q. What evidence, if any, is there regarding any more
- 40. recent interese FP&L may have in the acquisition of other p
v 47. 48. electric utilities?
- 49. A. FF&L has been seriously considering purchase 50 of the Homestead and Ft. Pierce utilities, and
._\.'_..__.,_ _ _ _ _ _
. 1629 ,
- 127 -
(])
- 1. has applied to acquire Vero Beach. Moreover, in a _
/ 2. company memorandum dated September 10, 1976, it shows
- 3. chat the acquisition of the Vero Beach franchise was
- 4. regarded as important to "the franchise election in Daytona Beach and other municip'al operations such as 5.
- 6. Ft. Pierce, Homestead, etc.... Exhibit (GT-34),
- 7. page i.
8.
- 9. Q. Are there other exhibits showing FP&L's
- 10. general interest in the acquisition of competing or
- 11. potentially competi:q electric utilities?
10.
- 13. A. Yes, my Exhibit (GT-62) contains additional 14 evidence on FP&L's acquisition policies.
15.
- 16. Ability to Produce Power 17.
~~~~~~
- 18. Q. You have testified that FP&L's refusal to make
- 19. firm bulk power generally available on a sale for resale
- 20. basis reduces competition in the wholesale bulk power
- 21. and retail power markets. Would either a financial or
- 22. physical inability to meet its load on FP&L's part
- 23. have any i= pact on your analysis?
24,
- 25. A. Yes it would. First, however, it is important
- 26. to recognize that although FP&L now generates bulk power
- 27. for two cus tomer classes -- wholesale and retail -- the
- 28. only distinction between these two classes is that FP&L
- 29. provides distribution facilities for its retail customers
- 30. while the wholesale customers provide their own. If
- 31. the wholesale customers stopped distributing power at ~
- 32. retail, then FP&L most likely would have to distribute
- 34. power at retail since the wholesale customers are within g
- 35. FP&L's service area.
36,
- 37. Any difference in availability of firm bulk
- 38. power to retail and wholessle classes would be arbitrary.
l 39. There is no economic justification for distinguishing ' l
- 40. between the two groups; eliminating firm bulk power to
- 41. wholesale customers would create discrimination between
- 42. customer classes with essentially identical bulk power
- 43. cast characteristics. The effects of any inability to 44 generate its bulk power requirements should fall equally
- 45. upon all FP&L's customers.
46.
- 47. Q. Are you aware of any evidence by FP&L of its.
- 48. inability to serve loads? '
49.
- 50. A. No, FP&L offers no evidence of an inability O
l
- s. 1630 1
- 128 - l
({) _1 .
- 1. to serve. F?&L's problems two years ago related to ["
- 2. excess capacity. Slides used in a presentation to
- 3. the Senior Management Planning Council on November 21,
- 4. 1975, bear this out. The slides relate to " Alternative
- 5. System Expansion Strategies" Exhibit (GT-77). For
- 6. example, en page 8, 9,10, and 11 of the exhibit, FP&L
- 7. states:
8.
- 9. o Thru 1979, Reserves Are Greater
- 10. Than 20% In All Scenarios 11.
- 12. o High Reserves Could Persist Past 1980 13.
- 14. PROBLEM 15.
- 16. There exists the Probability That
- 17. Generating Capacity Will be in Excess 18.
of Need For The Next Four Years or More. 19.
- 20. Imoact of High Reserves 21.
- 22. o Excessive Operating Costs From Inefficient
- 23. Use of Personnel and Equipment 24
- 25. o Possible Exclusion of New Plants From Rate
- 26. Base 27.
- 28. Alternative Actions 29.
- 30. o Delay or Cancel Units
- 31. ^
- 32. o Firm Power Sales 34.
t 35. o Deactivate Existing Generation, Either
- 36. Temporarily or Per=anently. ,
37.
- 38. FP&L prepared a list of units under considera-
- 39. tion for deactivation shown in Exhibit (GT-77, p. 12.). <
l 40.
- 41. On March 24, 1976, Mr. Williams of FP&L cade 42, the following observation
43. 44 One half of our power plants operate
- 45. at less that 507. annual capacity factor.
, 46. Therefore, (public we may and haveprivate energy)to sell the other k 47. utilities within 48, state. Exhibit (GT-63).
49.
- 50. Q. Mr. John Hudiburg, in his prepared direct 0
163 1
-. ~* .. -. - . . .- . . .. .
() - 129 -
- 1. testimony indicates concern over rapidly increasing demands from FP&L's present customers and FP&L's
- i. 2.
- 1. uncertainty about its ability to constructHe sufficient concludes
- 4, capacity to supply all of these demands.
- 5. that, because of these factors, ET&L will be unable
- 6. to make wholesale service under SR-2 and PR available
- 7. to new customers. What effects have these factors
- 8. had on FP&L's generation planning and marketing
- 9. strategies?
10.
- 11. A. First, I find it hard to believe that FP&L
- 12. itself perceives the alleged problems of rapidly
- 13. increasing demands from its customers or any inability 14 to meet those demands. Mr. Hudiburg, whose testimony
- 15. you have just cited to me, recently took-an opposite
- 16. view of future growth trends and of FP&L's financial
- 17. picture. Last October 7th (1977), in a " Presentation
- 18. to Analysts", Exhibit (GT-78), he stated:
- 19. To summarice the information you have 20.
- 21. reqeived this afternoon, we feel we have
- 22. some things going for us :
23. 24 - The economy of Florida has recovered 3
- 25. and growth in the future will be at
- 26. a more manageable race.
27.
- 28. - This lower growth means construction
- 29. expenditures will be lower than other-
- 30. vise.
- 31. - Because of the expected high percentage
- 32. of funds generated internally, our
- 34. financing needs will be much lower
- 35. than in the past.
36. 37. 38.
- Earnings and coverage should improve
- 39. due to the rate relief. c 40, 41.
- We have increased dividends this year.
- 42. Second, FP&L's marketing plans do not portray
- 43. concern over its ability to serve present custocars,
- 44. but rather reflect an interest in expanding sales and 45.
1
- 46. increasing its share of the retail market. In 1975, Executive Vice President- 0.F. Pearson urged the addition
.' 47.
of new high load factor loads. Exhibit (GT-79).
- 48. Partial recuirements customers who wou1H ouy bulk power
- 49. from FP&L for baseload purposes would be near 100% load
- 50. FP&L should logically therefore seek
- 51. factor customers.
' (~J'
' 52. these loads.
I 1 L
1632
-- - - - i -- .
l l () - 130 - ,.
- 1. A memorandum from J.3. Sanchez to R.F. ~
- 2. Tallon discusses increasing market penetration of new
- 1. homes and. attracting industry Exhibit (GT-80, n. 12).
- 4. Yet another document on " Marketing Planning" Exhlbit
- 5. (GT-67, p. 4-5) discusses a new marketing policy whose
- 6. elements are described below: '
- 7.
- 8. - Marketing Philoscohies 9.
- 10. Active vs. ?assive Marketing
- 11. Intensive Growth Strategy
- 12. Increase Market Penetration 13.
14 - Increase Market Penetration
- 15. through increased sales,
- 16. more promotion 17.
- 18. - Attract Competitor's Customers 19.
- 20. - Attract Nonusers 21.
- 22. - Market Development 23.
- 24. - Open New Geographical areas
- 25. (franchises) 26,
- 27. A =arketing plan to increase m'a rket penetration
- 28. through increased sales is inconsistent with a perceived
- 29. inability to meet the demands of present customers.
- 30. FP&L indicates that it may not be able to construct
- 31. capacity sufficient to meet these demands. If such
- 32. were the case, it would be disingenuous for FP&L 34 to attempt to " attract competitors' customers", to
- 35. " attract t.onusers ," or to open new geographical areas."
36.
- 37. Q. FP&L proposes to deny service under either the
- 38. SR-2 or PR tariffs to new wholesale customers because Can this *
- 39. of an elleged inability to serve new loads.
- 40. limitation be supported with this assertion of insufficient
- 41. capacity?
42. ~
- 43. A. No. A new customer would most likely be a
- 44. municipality that decides not to renew FP&L's franchise
- 45. to serve at ratail. Thus, FP&L would have available to sell at wholesale to the new municipal the pow'er
.> 46.
- 47. that F?&L vss selling at retail in that community.
48.
- 49. In any case, even if FP&L has insufficient
- 50. capacity to serve all of the needs of existing and new ed i
1633
. .....-- ~ - --
131 -
- 1. customers,'ior FP&L to sing'le out the wholesale class
~
- 2. for separate treatment in a peric3'of shortage would
- 1. be unduly discriminatory and anticompetitive in its
' 4. effect. In order to treat all of its customers equally
- 5. and thereby to avoid discrimination in the event of a
- 6. generating capacity shortage, it should first remove all
- 7. of the limitations on availability of the tariffs and,
- 8. second, file with this Commission and the Florida PSC
- 9. a non-discriminatory curtailment plan.
10.
- 11. FP&L's rationale for terminating service to
- 12. Homestead appears to be a hodge
- 13. whose only relationship is FP&L'podge of scacements s desire to increase 14 the cost of power to its competitor- for retail loads.
- 25. In any case, ??&L says it will sell Homestead firm
- 16. power under schedule D of the interchange agreements
- 17. so a shortage of power dc es r c appear to be the crux
- 18. of its decision to terminc*a service to Homestead.
19.
- 20. Thus, there is no valid ground for limiting
- 21. the availability of service whether or not a shortage
- 22. in generating capacity exists. FP&L's denial of service
- 23. to new wholesale customers and termination of service 24 to the City of Homestead will maintain FP&L's monopoly
- 25. power over the relevant retail and bulk power markets
- 26. in eastern and southern Florida.
27. 28. 29. 30.
- 31. ~
32. 34 35. 36.
- 37. -
38.
- 39. <
40. 4L. 42. 43. 44 45. 46.
$. 47.
48. 49. 50.
- . - - ~ , , - - - .,. .n. , ,, , , , , , n -,, , , ~ , , , -- ,, . - , -
s 1634
.__ - '._.- , _. _ 1 1
- 132 -
CCNCLUSIONS AND REMEDIES
- 1. Q. Although you stated your conclusions at page 12
- 2. above, would you please restate them here before outlining
- 3. your recommended remedies? '
_4... - _ Yes, my conclusions are:
- 5. A.
6.
- 7. 1. The production, transmission, and distribution of
- 8. electric power are distinct and separable functions in the
- 9. vertical structure of the electric po ver industry.
- 10. Florida Power and Light Company (FP&L) is one of the
- 11. 2.
nation's largest vertically integrated investor-owned
- 12. utilities; it sells bulk power, transmits bulk power, and
- 13. sells retail power in eastern and southern Florida which 14
- 15. is its operating area.
- 16. Independent municipal and cooperative electric utili .
- 17. 3.
18. ties exist in FP&L's operating area and most are isolated 19, within this area. 20,
- 21. 4. It is national economic policy to protect and enhance
- 22. competition as reflected in the nation's antitrust laws.
23.
- 24. 5. Competition is possible and desirable in the regulated 4
- 25. electric power industry.
- 26. Retail electric power and bulk electric pcwer including
- 27. 6.
transmission are the relevant product markets for analysing 28.
- 29. the issues in these two dockets: ER78-19 (Phase I) and
- 30. ER78-81.
- 31. The actual geographic market relevant for analyzing
- 32. 7.
- 33. the retail power market is FP&L's operating area in eas-
- 34. tern and southern Florida. The actual geographic The whole-potential
- 35. sale bulk power market is the same area.
- 36. bulk power' market is a larger area, but the potential -
- 37. retail market is not. ,
- 38. FP&L dominates transmission in actual bulk power '
- 39. 8.
j
- 40. geographic market. FP&L also dominates the supply of l
- 41. relatively low cost or economic bulk power (partly because
- 42. of its ownership of nuclear plants) in the relevant whole-
~ 43. '~ sale geographic market. FP&L dominates the supply of 44, power at retail in the relevant actual geographic retail
- 45. market. FP&L has monopoly power in bulk power, transmis-i
- 46. sion, and retail power in the relevant geographic markets.
l 47. i 48 , 9. FP&L exercises its monopoly power in the relevant l 1 49. bulk cox>r and transmission market.
~
( 50. -
s -
. 1635 ,
- 133 -
)
.l. 10. If existing municipal.and cooperative wholesala custo-2' 'mers of FP&L in FPATl's operating area were no longer able
- 3. to serve, FPLL would take over and serve at retail.
- 4. 11. FP&L hag. applied to purchase the municipal
- 5. Until recently,electric FP&L .~.has
- 6. system of the City of Vero Beach. refused to wheel power
- 7. other bulk power producers and has refused to sell bulk or
/' .
g, wholesale power to Vero Beach. 9. 10, 12. FP&L has attempted to purchase other municipal utili-
- 11. ties En its operating area.
12.
- 13. 13. FP&L now holds about 165 30-year franchises from muni-
- 14. cipalities to serve at retail.
15. 16.
- 14. FP&L has insisted on 30-year The franchises to those muni-effect of such long
- 17. cipalities it serves at retail.
18. 19' term franchises is to foreclose _3he-. retail market to 20. potential competitorsr~~~~~ 91' 15. FPGL is in competition with its municipal wholesale
- 32. customers for the franchise to serve the municipalities 23, 24 at retail.
r
' 25. 16. FP&L now sells bulk power in its operating areamunici-in
- 26. (e.g.,
- 27. competition with other bulk power suppliers
- 28. pals and cooperatives). ~
29.
- 30. 17. With minor exceptions, FP&L will sell transmission 31.
services only under a tying arrangement in which a whole-32. sale customer can obtain transmission only if that custo-33. mer also agrees to buy bulk power only from FP&L. Thus, 34. FP&L uses its transmission monopoly power as a lever to
~
- 35.
o'otain =cnopoly power in the bulk power market.
- 36. FP.&L would imoose anothe .
- 37. 19. In the proposed FP&L SR-2 tarif.f would require or tie N recall
- 38. tying arrangement. franchise to full requirements wholesale service, th
- 39. FP&L would only sell bulk power and transmission
- 40. product; (excep 41.
services to captive franchise distribution centers 42, to seven existing cooperative wholesale customers). 43, 44.
- 19. FP&L of fers only a single partial requirements whole-45.
sale tariff and does not unbundle it into separate peak
- 46. load and base load rates.
(~ 47. ' 48 , 20. FP&L's proposed tariff rertrictions arefuture an exercise o attempes:
- 49. monopoly pot ir which will severely thwartto establish neo municipe
- 50. by communities (municipalities)
O l l . . l
1636 1 i
--.+.------r ;, , , . - _
l 134 - 1 () utilities after FP&L's 30 year retail franchises expire. 1.
' 2. The new municipal utilities would have to enter all three
- 3. production levels in the industry simultaneously (distri-
- 4. bution, transmission, bulk-power production) instead of
- 5. just distribution. ,
6. 7, 21. FP&L has a wholesale bulk power tariff on file with
- 8. the FERC but has refused to serve selected customers under
- 9. it.
10 .^
- 22. FP&L has filed a restrictive " point to point" wheeling 11.
- 12. transmission rate schedule for New Smyrna Beach (ER77-175)
- 13. but the rate is based on the cost of FP&L's entire trans-
- 14. mission system.
15.
- 16. 23. FP&L refuses to file a tariff for general wheeling on
- 17. its system.
3,
- 19. ~ 'f4. FP&L has a policy of refusing to form a power pool to
- 20. benefit all utilities and customers in Florida.
21. 22, 25. FP&L presents no evidence of a shortage of generating
, 23. capacity. IP&L's do:uments indicate an excess of generating
( 24 capacity. 25.
- 26. 26. An alleged shorfage of generating capacity by FP&L is
- 27. not a basis for denying new municipals bulk power servicesc
- 28. When FP&L serves at retail, it necessarily also is selling
- 29. both bulk power and transmission services. A new municipal
- 30. would simply replace an FP&L retail franchise; thus, the
- 31. same generating capacity already in use would still be
- 32. available to sup;_ly bulk power at wholesale.
- 33. 27. In the event of a capacity shortage, FP&L should file 34.
- 35. a curtailment plan that treats its wholesale and retail
- 36. customers equaliy la order to avoid imposing thetnduly
- 37. discriminatory availability limitations in the tariff on
- 38. the wholesale customers alone, c 39.
- 40. 28. FP&L's refusal to sell wholesale power under its pro-
- 41. posed tariff to the City of Homestead is unduly restric-
- 42. tive and anticompetitive in its effect.
- 43. 29. FP&L's refusci to sell wholesale power unfer its exis%
44,
- 45. ing sR-1 tariff or under its proposed SR-2 and PR whole-
' 46, sale tariffs is unduly restrictive and anticompetitive in
- 47. effect.
- 48. 30. Limitations on tne availability of wholesale service
- 49. based on whether a utility has some or all of the generat$
50. O
,1637 x ,
- 135 -
O ..
- 1. cap % needed to meet its load is unduly discii=ina- ',
- 2. tory and anticompetitive in effect. ,
s 3. '
- 4. 31. Limitations on the availability of either the SR-2
- 5. or PR wholesale rates based on whether a utility has
- 6. some or all of the generating capacity needed to meet t 7. its load is unduly discriminatory and anticompetitive in ,
- 8. its effect.
- 9.
- 10. 32. Limitations on the availability of the SR-2 or PR
- 11. wholesale rates based on the type of interchange agree-
- 12. ment a utility has with FP&L is unduly discriminatory and 13 anticompetitive in its effect.
- 14. '
- 15. 33. FP&L's proposed limitations on the availability ,
- 16. of its SR-2 and PR wholesale tariffs should be rejected
- 17. in-cheir ~ entirety.
' 18.
- 19. 34. FP&L's denial of full interchange service to' any
- 20. system purchasing partial requirements wholesale power ,,
2.. is unduly restrictive and anticc=petitive in its effect.
- 22. ~
- 23. 35. F?&L's refusal to sell power under its wholesale
- 24. tariff co systems having full interchange service is
- 25. unduly restrictive and anticompetitive in its effect.
26.
- 27. 36. FP&L's denial of standby and emergency service
- 28. under the PR tariff is unduly restrictive and anti-29,. cor:petitive in its effect. -
30. 31. 32. 33.
- 34. .
35. l 36. l 37. 38.
/
39. 40. t 41. 42.
- 43.
44. 45. ( 46. 47. 48. 49. 50.
1638
~
. ._~.__
8 s . r - 136 - Remedies (]}
- 1. Q. What remedies do you recom=end to alleviate the
- 2. antico=petitive features of FP&L's tariff?
3.
- 4. A. My answer will relate only to Phase I 2 ER78-19
- 5. and to 'ER78-81, but issues postponed to Phase II of ER78-19
- 6. also must be remedied for the anticompetitive effect of
- 7. FP&L's wholesale rate filing to be ameliorated.
8.
- 9. I will address FP&L Docket No. ER78-81 first. In ~
- 10. this docket, FP&L proposes to terminate wholesale service
- 11. to the City of Homestead. Termination of service to
- 12. Homestead should be denied because to allow termination 13 would be unduly discriminatory and anticompetitive in its
- 14. effect; moreover, FP&L should be required to add Homestead
- 15. to its list of customers served under the SR-2 or PR' rate
- 16. at the choice of Homestead.
______ 17.
~~~~
- 18. In its wholesale tariff docket, FF5L Docket No.
- 19. ER78-19, I recomnend several changes:
20.
- 21. (a) All of the limitations on the availability.
- 22. of service under the SR-2 and PR rates
- 23. should be deleted because they are unduly
( 24. discriminatory and anticompetitive in
- 25. their effect. The availability language
- 26. should read as it now reads in the SR-1
- 27. tariff except that the restriction on ,
- 28. resale should be deleted.
- 29. '.
- 30. (b) FP&L should be required to give notice -
- 31. to all utilities in its operating area
- 32. that service under the SR-2 and PR rates '
( 33. is available to them. i 34. ! 35. (c) The list of customers appearing on the - l 36. the tariff should be deleted; all those ,
- 37. requesting service should be served. j
- 38. J 39.
40. 41. w 42. 43. 44. 45. k' 46. 47. 48. 49. 50.
~
'O .
l
- - - -- . 1639.. .
e [ ,
- 137 -
O
- 1. In the event that a list of customers is maintained 2- on the tariff and no new customers are to be served, then:
3. . 4; (d) The City of Homestead, an existing whole-
- 5. sale customer, should be added to the '
- 6. list of customers and service should be i 7. centinued under the SR-2 or PR race
- 8. depending on Homestead s choice.
- 10. (e) The City of Fort Pierce, a potential cus-
- 11. tomer which requested, and was denied,
- 12. wholesale service before the current 13 limitations at issue here were imposed, 14 should be specifically mentioned in the
- 15. availability provision whether or not a.
- 16. list of customers is maintained, to ensure
- 17. wholesale service.
18.
- 19. (f) Any utility who requested whole_ sale service
- 20. in the pasc from FP&L (before the current
- 21. SR-2 and PR filing) should be added to
- 22. the list of customers to be served under the tariff of their choice.
Q. Does this conclude your testimony 7 A. Yes, it does. ,, 29. 30. 31. 32. 33. 34,
- 35. (
36. 37.
- 38. <
-39.
40. 41. n: -
- 44, 45.
( - 46. 47. 48. 49.
- 50. -
'O
-v- n-- n , w ,~. ., , ---,------,--ne-- - -w .-.e-, , -, --, - - -
1640 s O' AFFIDAVIT
- s F
DISTRICT OF COLUMBIA 1 Affiant having been first duly sworn, on oath deposes and says: That he has read the foregoing testi=ony and if asked the questions herein his answers in response uould be as shown; That the facts contained herein are true to the best of . his knowledge and belief.
- f'Eb es $
SUBSCRIBED AND S'JORN to before me this # day o
/
-_dtt?f.
\
= di_4 . _i /M 40TARY PUBLIC IN AND FOR ,
DISTRICT OF COLUMBIA
' MY COMMISSION EX? IRES M / / m M t-7 // /dve //
~
l l
l. v1 1641 fis copy 1 PRESIDING JUDGE: Are there objections to the admission in () 3 evidence of this testimony subject to later specific motions to strike? 4 MR. EALL: I would like to ask a question first, .Your Honor.
& 5 j 3
I believe when Mr. Taylor's white volume of testimony came 2" 6 5 in it also had transcript corrections include.d. What I want z 9 7 6 to be sure is that the green volume has no changes other than U 8
" what were indicated in those transcript corrections.
9 THE WITNESS: I can speak to that. 10 0 There are two other changes, there are two commas inserted,
@ 11 I don't care about the commas, I wanted.to be p MR. HALL:
e o 12 b suretthere were no substantive changes. m
$ THE WITNESS: In addition to the 138 pages that ydu Jee, s
3 14 o Your Honor, there are also pages 22-A, 59-A, 59-3, 62-A and U 15 63-A. 16 Fine; thank you. PRESIDING JUDGE: Hearing no objection the direct testimony of Dr. Taylor ! Bi Z 18
- W4 is hereby admitted into evidence.
c 29 19 Subject to later specific mctions to strike? G9 MR. HAL: E5 z- 20 Yes.
;j PRESIDING JUDGE:
M5
*s m 21 Dr c Taylor, I think you were present when I asked the 22
(' other experts to briefly summarize their testimony and their 23 position in this proceeding. () 25 I am going to ask you if you would do the same at this point, if you would. 1
v2 1642 1 > THE WITNESS: Yes, sir. (m 2 (_) What I would like to do is discuss four subjects, and I 3 g will outline them first. Each of these four subjects has 4 y subparts which I will label with letters. 4 . 4 5 3 The first subject area is issues in this case, which will E 6 5 have two parts, one is those issues that have been emphasized z o 7 y thus far, and part B which are issues I think equally important E 8
" and also should be emphasized.
. 9 The second. subject is a short background on Staff's inves-g tigation in the vero Beach case and how that was the basis C 11 for the testimony in this case. &nd second, what Staff did in h e o 12 b the New Smyrna Beach case on the wheeling tariff. t x
< 13 E The third subject area is subsequent developments, that is, s
3 14 o u subsequent to Staff's filing of its Vero Beach case last 15 August. That raises three parts. 16 A: FP&L has offered wheeling contracts to Vero Beach, 17 and to other utilities subsequent to Staff's filing in the s 7. 18 3 m; A Vero Beach Case. hN 19 Florida Power and Light is now seeking the. Commission's s B: t E5 ze 20 g5 approval to limit the availability of wholesale service to.nine mu 8$ 21 of its ten wholesale customers, and to not serve any new
< 22 customers at wholesale, including municipals who do not renew 23 FP&L's retail franchise but decide instead to undertake their 24 x own distribution service.
25 C: Florida Power and Light has filed to terminate wholesalg
" 1643 1
service to the City of Homestead. () ~ The fourth subject ater, that I will summarise, two things. o One is FPL's continuation of its anticompetitive conduct. 4 g And two: my own conclusions. 4 5 3 The first subject area is issues in this case.
~
2 6 2 I think the issues that have been emphasized thus f ar are z 7l
~
O the termination of service to Homestnad, and under that,~~the l G 8
" emphasis has been on resource allocation, brought up by the 9
. company. They have not, however, emphasized the i'ssue of o conservation of oil.
o _ m e ^1 1 y Second is the competitive issue as to how Homestead would e o 12 b : be treated. < x
< 13 5 The second issue is refusing service to Fort Pierce and 2
m 74
^
a other generating utilities. u 15 Third is denying full service interchange to New Smyrna 16 Beach. 17 The second part, B, which I think is equally important
- 67. 18 and has been brought up, but I don't taink has been emphasized qg c
50 19
$4 sufficiently, is the refusal by Florida Power and Light to Ei z- 20 si sell full requirements to new generating municipal distributors.
G5 2* x3 21 I will talk about this as the competition for the retail franchig ( 22 although Florida Power and Light does not necessarily have a 23 franchise to serve at retail.
/~ 24
,i,,T/ The other area I think is critical is Florida Power and 25 Light's policy on wheeling power.
v4 1644 1 The second subject area is Staff's perspective. A Staff cs 2 m-tem of ten people, three Staff attorneys and seven economists a prepared the Vero Beach testimony which was filed last August. 4
@ Subsequent to that, Staff filed tes-imony in the New 4 5 3 Smyrna Beach case on the wheeling tariff.
5 6 E Another case that I am not involved in but has been the z 9 7 - g investigation of Florida Power and Light's refusal to sell d 8 power to Fort Pierce in EL78-4 docket. I am a potential 9 Staff witness in a third case called Tampa Electric. Power 10 g Company, Florida Powes Company -- Florida' Power Co porationzand- - S
$ 11 l Florida Power and Lignt in the combined dockets ER77-549, e
o 12 i I ER77550 and ER77-516, in which the three companies have gone e
< 13 g into bilateral agreements to share, in particular, economy 3 14 o
a energy, and Florida Power and Light has not allowed any of 15 the other utilities in its service area to enter into those, 16 agreements or to benefit from them. 17 The conclusions that Staff reached in August were that s 7. 18 W$ Florida Power and Light had monopoly power in the production 30 19
^
34 of electricity, in the tranmission of electricity, and in the
=I EE 20
[[ distribution of electricity; that Florida Power and Light mm a*
^# 21 refused to wheel power. It had only one filed tariff for 22 l
the wheeling of power and that was for New Smyrna Beach's own 23 entitlements. It had not third party wheeling tariff on file. It refused to sell bulk power under its filed tariff. 25 It resisted access to its nuclear units. It required
9 v5 1645 1 territorial agreements from wholesale customers before entering () - o any bulk power transactions. It had in its wholesale tariff, a restrictive clause so 4
- it would not allow sales of Florida Power and Light to be 2
4 5 3 passed on to a third party. E 6 G It insisted on 30-year franchises. z 9 7 - 3 It attempted to make municipals maintain excess amounts d 8
" of generating capacity in order to get interchange agreements 9
rather than simply just selling wholesale power. 10 o Whenever the company said it would negotiate-,-it created ~ U . C 11 y uncertainty, f rustrated planning and imposed excessivel trans-o 12 6 actions costs. c
< 13 In the second case, the New Smyrna Beach case, which is s
s 3 14
ER77-175, I addressed another issue. That is, FP&L filed a o
u 15 cost of service for a general wheeling tar,iff for anywhere on 16 its system because it used the cost of nearly all of the FP&L 17 transmission system, but then, FP&L restricted the service s: 18 offered to New Smyrna Beach to a singin point-to-point jg d' 19 transaction and limited it to four megawatts. 3d EE O a5 Moreover, it filed that tariff as an initial rate, which 2 21 the Ccmmission said was not an initial rate but in fact, was b- simply a change in rate and that. Florida Power and Light 23 was unbundling the service it was already provided. () 25 I want to emphasize that the transmission link to the distributors is the critical link. It is the only way they
\
l
I v6 1645-A 1 can get access to their bulk power suppl is; the only way c^ (_/ 2 they can get access to economy energy exchange; the only way 3 they can get access to joint constructed projects; the only 4 e way they can get access to efficient bulk power supplies. c o
; In my experience in th Otter Tail Power Company case, n
2 6 g and what I have learned about the Georgia Power case, the z o 7 E investor-owned utilities and the municipals cooperate and a a w 8 jointly build transmission to serve both their needs; both 9 achieving economies of scale. The small utilities need to be 10 6 able to plan, need to have ready access to transmission over o e 1,^ y a long period of time. They need to know the availability of e o 12 g capacity. And they need to know the cost. c
< 13 s In short, it is just impossible to run a business if your s
3 14 y transportation is uncertain and not secure, o 15 The third subject area I want to discuss is the develop-16 menta since the Vero Beach testimony was filed in August. 17 These can be posed as questions: 18 hh Question A: Has Florida Power and Light's policy on a1 2' 19
^
3d wheeling changad?
=3 5:j 20
~
After we filed our testimony, Florida Power and Light filed a5 s5 x$ 21 a wheeling tariff for Vero Beach. It was not a general wheeling 22 It was merely point-to-point. It went between Vero tariff. l Beach and the Orlando Public Utilities Commission. -m aa l
~'
Part.E of that tariff, which is called Schedule TD, Firm Transmission Service, reads: "FPL will provide firm transmission
v7 1646 1 sersice if and when available, for the transmission of electric 2 power received for the City's account from the Commission." 4 O 0 It is quite clear that Florida Power and Light continues 4 e to want to negotiate each and every transaction that it will 8 5
$ undertake under this tranmission tariff.
l 4 3 6 What is the term of this thriff offered to Vero Second: E C 7 y Beach? g 8 It says " term," "one year." 9 In other words, it continues to be impossible for Vero 10 Beach to plan what it will be able to have access to in the d o C 11 2 way of bulk power in the future, because the transmission ser-e 1 g 12 vices continue to be insecure. 5 13 I do not believe there has been any substantive change in m 2 3 14 Florida Power and Light's policy on wheeling. u 15 Are the terms rear ? 16 The only tariff that has been filed is the New Smyrna 17 Beach tariff and in my view, the terms in that tariff are not 18 reasonable. h.j
. e,,
19 / MR. HALL: I don't like to interrupt, but Dr. Taylor
$i 5
,l 20 a few moments ago said that the company had filed the Vero 3$ 21 So, if only one has been filed, then R$ Beach wheeling tariff.
s 22 one or the other of those two statements is incorrect. l 23 THE WITNESS: I misspoke, the Vero Beach tariff has not 24 been filed, they have only offered it to Very Beach. O 25 I would note that when the Otter Tail Power Company was l i I
. . _ . .. _ _ _ _ . . . , _ . _ . . , _ . . _ _ . .-._.m.. _,
g c V8 1647 1 en]cined by the Supreme Court from refusing to wheel, that the 2 Otter Tail Power Company interpreted their requirement as to (]) o file a general wheeling tariff to aheel power from any power 4 y supplier to the mdnicipals. I E 3 My conclusion on wheeling is that Florida Power and Light 5 6 - j continues its exercise of monopoly power over transmission. 9 7 5 Question B: What would be the economic effect of Florida
$ E Power and Light's proposed limitations on the availabilit," of 9
a wholesale tariff?
, 10 0 I view the municipals as bein9 primarily distributors, O 11 h and that their efforts are to find some sort of bulk power
$ 12 i supply. Some or them have created their own, what can be e
< 13 E viewed as a wholly owned subsidiaries, to produce bulk power 2
3 14 o for them. u 4 15 An economic question is: when is the most appropriate 16 time to buy power from ycur own subsidiary? 17 Well, only to the extent that you can obtain it more iZ 18 WR cheaply from your subsidiary than you can from someone else. E' 19 If you had a distribution company that is distributing gj in 20
!! gasoline and you build a refinery and then the cost of running m2
' $ that refinery increased because of pollution control equipment 22 (' or because of your source of oil, you would not continue to 23 operate that refinery, rather, you would try to buy from some q{} other producer. 25 When a vertically integrated utility sells at retail, it __ _ , - -. , __. _ _.~ _ . _ _ _ . _ _ . - _ _ , - - - , --- . . _ - - - _ _
v9 lo48 l 1 also necessarily sells wholesale through its own internal accoun-2 ting tranactions. I will use the word "cantive," not in a () 3 perjorative sense, but to mean as a subsidiary. 4 a so we talk about captive minds of utilities, we will also 4 5 tal} about the captive franchise areas and clearly Vero Beach 3 6 G can be thought of havig a captive franchise area just as b 7 5 Florida Power and Light can. Though I view it the other way w r 8 around. 9
- I think of a distributo'r as having a captive production 10 6
o subsidary. C 11 2 Florida Power and Light is primarily a bulk power producer p j who is trying to integrate forward into distribution. In order to distinguish between the three parts of Florida Power and 2 3 14 y Light, I will view them as three dif ferent firms. As Florida ) u 15 Power and Light Production with a captial "P"; as Florida 16 Power and Light Transmission and Florida Power and Light 17 Distribution. r 18 fk Thus, a wholesale sale of power by Florida Power and 19 Light Production would be to, for example, Homestead Distri- i 55 20 59 bution._ So, Florida Power and Light Production is not in jg <' gs 21 competition with Homestead Distribution. So we would view k Homestead Distribution as attempting to look either at what the 23 cost of power from its production subsidiary, or as the cost of 24 power from Florida Power and Light Production.
.N 25 The question is: does Florida Power and Light have J
v10 1649 1 monopoly power in production which it uses to maintain and v 2 (') o
; enhance its monopoly over retail distribution?
Florida Power and Light does have monopoly power in pro-4 g duction. They have economies of scale. They have nuclear.
, 5 i 3 They have low cost gas.
E 6 sz i We know that if the oil-fired units of Homestead and Fort I 9 7 g lPiercewereintegratedwiththeFloridaPowerandLightsystem d 8
" l that the total consumption of oil by all of thoce combined 9
systems would be much lower. 10 o Florida Power and Light has monopoly power in transmission, o E 11 3 and blocks-tha access of municipals to other bulk power suppliers e o 12
$ Florida Power and Light has three-quarters of the retail e
< 13 5 customers in its operating area.
2 . 3 14 o There is competition to serve at retail. Florida Power u 15 and Light has 165 franchises. 16 A large percent of these franchises, which are 30. years 17 in term, the maximum allowed by state law, will expire over s 7. 18 qj the next ten years. lo~ 36: '. What it appears to me is that Florida Power and Light E5 20 i z! G5 l is now creating an additional barrier to entry. If any of 55 these municipalities decided they want to gn into retail distri-
\' 22 bution for themselves, by refusing to sell them culk power.
23 If Florida Power and Tight were a small independent firm () v j that would be relatively immaterial, but the fact they have 25
.nonopoly power is the critical issue.
1 vil 1650 1 Florida Power and Light now sells wholesale to four types 2 i r^ of Customers. (J 3 They sell to their captive franchise distribution areas. I 4 a f They sell full requirements to independent distribution utilities 1 4 5 . 3 They sell to independent distribution utilities that have some l E 6 2 of their own generating capacity. And they sell to independent z o 7 5 distribution utilities that have suf ficient generation to meet
$ 8 !
their own needs. 9 -
~
Florida Power and Light will now sell only to that first 10 g type, to their captive franchise areas, and they will sell C 11
- to number two and three, that.is, the full requirements customers e
o 12 b and the independent utili. ties with some of their own capacity, e
< 13 g but not to any new customers in either of those classes, and S 14 o
u they will no longer, they say, sell to independent distribution 15 utilities who have sufficient capacity to meet their own needs 16 I in a generating subsidiary. 17 My conclusion on the limitations on availability of service
- 67. 18 ih to captive franchise areas who don't renew the franchise of E' 19 gj FP&L -- that is, if a number one type of customer changes to a 55 20 number two -- there is no reason for Florida Power and Light 3) e-8j 21 not to serve them. They plan in any case the generating and
' 22 l transmission capacity to serve them, and it would be simply a 23 unbundling of the service they have now to provide them at
-~ wholesale.
k-) 25 Therefore, there is absolutely no rationale for Florida
v12 1651 1 Power and Light to erect that type of barrier to entry to the 2 () _ O municipalities and to the distribution. Another question is: is it reasonable to distinguish 4 !
@ between distrib ution-only utilities and those with a generating l '
O 5 3 subsidiary. E 6 G I don't believe it is. z , o 7 Simply because a distributor-has a production subsidiary 3 8
- does not make him less of a wholesale customer or diminish his 9
right to be treated equally and fairly in wholesale purchases. He may have an alternative power supply, but that supply C 11
$ may not be economic. The price of cil rises unreasonably and 5 12
$ unexpected and his subsidiary can no longer supply him with a
< 13 5 bulk power at economic cost. He has a right, as everj other 2
3 '4 o
^
customer in the same class does, whether he has generating U 15 capacity or not, to receive wholesale power equally, not on a 16 nondiscriminatory basis. 17 Moreover, F',orida Power and Light argues that by adding iZ 18
- a. R new loads it is too expensive, but by not selling wholesale c
59 19 ,- a^ this dominant bulk _p_ower supplier squeezes the independent E! ze 20
!! distributors who compete for the retail franchise, aa aj 21
^ By denying a distributor wholesale power because it has 22
.' a subsidiary that can produce, is unduly discriminatory for 23 a dominant bulk power supplier, dominant in the sense that it has monopoly power.
-(])
25 Question C: What would be the effect of Florida Power
vl3 1652 1 and Light terminating wholesale service to Homestead? 2 {} 3 First, this is not a competitive issue, it is simply not in the national interest to terminate serv.ce to Hcmestead. 4 a It would unnecessarily increase the consumption of oil.
?
4 5
- Florida Power and Light makes the allocations of resource 2 6 g argument, talking about long-run marginal costs, et cetera.
z o 7 I; But the simply fact is that by refusing to sell them wholesale d w e 8 i power the consumption of oil will be unnecessarily increased. 9 There is currently excess generating capacity on both the
'O
~
e municipal systems. No additional capacity needs to be added a c 11 3 in Florida to serve them. E 12
$ What we would be doing is simply changing the load from the z
$ inefficient peaking units more towards the more efficient 2
3 14 y base load units. U 15 = The units of Homestead, Fort Pierce and the other genera-
'6
^
ting utilities should be combined in an economic dispatch progra,m 17 so as to minimize the cost of producing power to all of Florida, i 10 h In any case, it would appear that for Florida Power and EU 19 1 3d Light to serve Homestead and Fort Pierce would be less expensivc ! E5
$5 to Florida Power and Light compared to serving other wholesale M5 gj 21 customers who do not generate, because Fort Pierce and Homestead, i 22 would engage in peak shaving and would appear to Florida Power 23 and Light to be much higher load factor customers. So the 1
24 s {} average cost of serving them should be lower compared to l non-generating wholesale customers. l l
vl4 j 1653 1
^
The question then continue.s, why should the distribution
< 2I
(_)3 portions of the Homestead and Fort Pierce generating utilities 3l be singled out to bear the higher costs? They should not be. l I 4
- I Why should these distributors be discriminated against 2 ,
4 5l 3 8 and squeezed?
$ 6 2 Again, they should not be.
z 9 7 5 Florida Power and Light production would make the FP&L d ai
" distribution yardstick competitors' cost higher. They may not 9
wish to take over Homestead and Fort Pierce, but by maintaining 10 o their costs at higher levels, by refusing to sell them bulk U C 11
- power, they make them appear to be inefficient and this helps p
e o 12 b them maintain their retail franchises. c
< 13 5 Moreover, why should the retail customers of Homestead s
3 14 o and Fort Pierce be discriminated agains indirectly by FP&L U 15 Production compared to other retail customers in FP&L's service 16 area? 17 Clearly, they should not be. 18 Therefore, FP&L also proposed termination of service to s:R m, O' 19 jd Homestead, and its refusal to serve Fort Pierce or other self-Ei z: 20 yj generating utilities that request service, is unduly restric-z2 5 tive and anticompetitive in its effect. N 22 The fourth subject area is a summary in two parts: 23 is Florida Power and Light's continuation of its Part A 24
/^]
anticompetitiva conduct. 25 I understand through Staff counsel you wish that I give i
I vl3 1654 1 you a list of what I thought' were the continuing anticompetitive
, - 2
(,) practices of Florida Power and Light. 3 I regard Florida Power and Light to be acting anticompeti-4
@ tively, one: by refusing to lift the restrictive clauses on 0 5 E the general wheeling tariff it has filed for New Smyrna Beach.
l} 6 w Two: by refusing to file a general wheeling tariff for z 9 7 5 all utiliiies in its operating area. d 8 Three: by opposing access to its nuclear plants by the 9 coops and by the municipals. 10
$ Four: by refusing to deal, that is, by refusing as a C 11
$ producer, to sell firm wholesale power to its competitors at o 12 b their retail distribution level, such as Fort Pierce, who has x
< 13 an uneconomic generating subsidiarf.
}m 3 14 o Five: by imposing tying arrangements when providing u
15 transmission service . That is, by requiring a wholesale customog 16 to purchase FP&L's bulk power as a condition of serving trans-17 mission services. 18 by imposing tying arrangements between bulk power
's :f j Six:
J E" 19 with the transmission services as one product, and retail gC l 2& 20 ' 21 services as the other. That is, by requiri.ng a community to G5 8 21 aware FP&L the retail franchise in order to receive FPL's bulk ( 22 power. 23 Seven: by opposing and frustrating the formation of a en 24 I Lj power pool in Florida. l 25 i Eight: by excluding the utilities in its operating area l
v if 1655 1 from the bilateral agreements that FP&L has entered into with 2 (vs') the Tampa Electric Company and Florida Power Co poration to 3 exchange economy energy. 4 j Nine: By attempting to acquire the municipals with whom 4 5 3 l FP&L refuses to deal in bulk pcwer, or for whom they refuse to E 6 G transmit power. z 9 7 5 Ten: by refusing to serve new nongenerating customers d 8
" under the SR-2 or PR tariff, thereby blocking municipalities 9
who want to undertake the'ir own distribution.
~
Finally, eleven: by discriminating amont its present Q C 11
$ wholesale customers by continuing wholesale service to seven e
o 12
$ coops and two municipalities, but attempting to terminate x
< 13 5 service to the City of Homestead, which also is its customer.
s 3 14 There is one other issue which is not an anticompetitive o U 15 issue, but it is the resource allocation issue, which is that 16 by terminating service to Homestead, this unnecessarily 17 By refusing to sell to Fort Pierce some of wastes scarce oil. iZ 18 the SR-2 or PR rarif f, this same waste also occurs. W3 b, . EM 19 G Part B is my conclusions regarding F?&L. E! z: 20 FPL has monopoly pcser in the relevant markets. G5* 5# 21 The availability limitations on the wholesale power main-22 tain and enhance FP&L's productions monopoly power over the t 23 retail market by reinforcing the existing barriers to entry, and unfairly raising the costs of present competitors at (] 25 retail.
vl7 1656 1 FP&L's policy on transmission wheeling is substantively 2 {} _ a unchanged and continues as an anticompetitive barrier to entry. EP&L squeezes the municipals by artificially raising their j 4 costs of power. Refusal to serve wholesale power misallocates S 5 i I 3 and wastes oil, which is a scarce natural resource. E 6 . G T1.e availability limitations imposed on the SR-2 and PR z o 7 5 tariffs are unduty restrictive and anticompetitive in their d 8
" effect, and should be~ denied.
9 Finally, I would repeat and emphasize that Florida Power g and Light is seeking your approval of its refusal to sell bulk C 11
- power at wholesale to the municipalities it now serves at p
$ 12 i retail, if one of these municipalities should not renew FP&L's e
< 13 E retail franchise and instead decides to undertake its own 2
3 14 o distribution. This is exactly the same economic situation U 15 and the same anticompetitivo conduct for which the Supreme Court condemned the Otter Tail ?ower Company and said violated 17 the Sherman Antitrust Act. s 7. 18 m, R In ad identical fashion to Otter Tail's conduct, Florida g 39 19 ' G.C Power and Light would exercise its monopoly power to suppress
=a 15 20 y{ potential competitors.
m2 9* 21
*# If you approve FP&L's proposed limitations on the avail-22
( ability of wholesale service it would appear in its economic 23 effect to reverse the Supreme Court's Otter Tail decision. 24 PRESIDING JUDGE: Thank you, Dr. Taylor, that summation {'~'] 25 of your testimony and of your position and conclusions in this i
v13 1657 1 i case is extremely helpful to us, and I think helps set the stage {} 2 for the cross examination which will follow. 3 Does that conclude the direct exanination of Dr. Taylor? 4 g MR. SHAPIRO : Yes, Your Honor. - 0 5 PRESIDING JUDGE: I think it might be well, Dr.. Taylor, E 6 sz earlier in this proceeding there was marked for identification o 7 g as Exhibits 12, 13, 14 and 15, four volumes of exhibits which d 8
" are entitled " Exhibits of Dr. Taylor."
9 Were these four volumes prepared by you or under your 10 d supervision? u C 11 y MR. SHAPIRO : Your Honor, only Exhibits 12, 13 and 14 5 12 g are exhibits which accompany Dr. Taylor's testimony. e
< 13 s PRESIDING JUDGE: Well, that is right, 12, 13 14 and 15.
2 3 1 y MR. SHAPIRO:'..But Exhibit 15.is a volume.of.findependent U 15 exhibits submitted by Staff with the intention that we shall 16 submit them independently. 17 PRESIDING JUDGE: As counsel's exhibit? 18 i:R i MR. SHAPIRO: Yes. 29 19 l 20 PRESIDING JUDGE: I see.
!! 20 sM Then Dr. Taylor, were Exhibits 12, 13 and 14 prepared 45 8*3 21 by you or under your supervision?
k 22 THE WITNESS : Yes, they were. PRESIDING JUDGE: And they accurately portray that which
!' 24 you intended them to portray?
THE WITNESS: Yes, sir. There is one correction.
1658 ytg 1 PRESIDING JUDGE: Very well. () THE WITNESS: On Exhibit 3 -- 3 MR. SHAPIRO: Excuse me, do you mean Exhibit 127 . 4
@ THE WITNESS: I'm sorry, it is Exhibit 12, GT-3.
0 5 3 Under the general heading there of " Retail Electric Custome r6 5 6 m there is a subheading that says " total Sales." It should z O 7 5 read " Total Customers." d a
# And that is your only correction to PRESIDING JUDGE:
9 Exhibits 12, 13 or 14?
, 10 ~
o THE WITNESS: Yes, Your Honor. j 11 . p PRESIDING JUDGE: Very well. I think it might be well, 5 12 - S Mr. Shapiro, if you would briefly describe for the record what m
< 13 E
2 Exhibit 15 consists of and where the material came from. 3 14 o MR. SHAPIRO: Yes, Your Honor. u 15 Exhibit 15 are documents which came from the company 16 through data requests. We intend to introduce them_as relevant 17 evidence into this case, independent of any testimony filed. l iZ 18 I think that that explanatio i I m, $ PRESIDING JUDGE: Very well. c
$4 19 should be on the record, is the reason I asked for it, so we G.
Ei
' z- 20 know what it is prior to cross examination.
gs 21 So Exhibit 15 is a volume of exhibits that the Staff I (. _ 22
, obtained through its discovery procedures prior to the commence-23 ment of the hearing heren. .r3 24
(_) I believe you said ;that concluded the direct examination. 25 tR. SHAPIRO: Yes.
v20 1659 1 , i THE WITNESS: I wonder if Staff attorney could also describe 2
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the source of the documents in the first three exhibits, Your O i Honor? 4! PRESIDING JUDGE: Yes, that might be well. The exhibits
. l 4 5 ! i j contained in Exhibits 12, 13 and 14, were they likewise obtained l
2 6 E l primarily through the discovery process from the company? z . o 7 i MR. SHAPIRO: Yes, primarily. There are a couple of j l 3 8 I exhibits -- maybe Mr. Reiter can explain this. 9 PRESIDING JUDGE: Mr. Rditer. 10 MR. REITER: The documents, Your Honor, came essentially 8 S 11
$ from three sources.
,o 5 ^~
i The vast bulk of the documents came from FP&L's files z
< ?.3 5 directly, either in response to data requests in E-9574 or
.e a ^4 1
o in response to data requests in this proceeding. U 15 There are also a number of documents from FP&L's files 16 which were produced and introduced into evidence in an anti-17 In particular, trust suit brought by the City of Gainesville. is 18 l those documents would be GT-15, and GT-16 in Exhibit 16, in du 19
^
$C and I believe GT-49 and GT-50, which are identical, duplicated, 5'
z: 20 yi those were also from the Gainesville antitrust case. M5 a#
*# 21 And GT-54 is a document from the files of the City of 22 L Vero Beach. That document was also produced in the E-9574 23 proceeding.
e 24 (, As a simplifying matter, Exhibit 14 itself is entirely 25 from the files of FP&L, and the documents in that exhibit were
v21 1660 1 produced in either this proceeding or in E-9574
,_. 2
() PRESIDING JUDGE: Thank you for that explanation. 3 This brings us to cross examination. 4
$ Mr. Hall, are you ready to proceed?
4 5 3 ! MR. RALL: I am Your Honor. I owuld like to make a state-
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n 6 5 ment first. z 9 7 5 PRESIDING JUDGE: Very well. d 8 MR. RALL: That I would like to reserve the right to read 9 Dr. Taylor's opening remarks in the transcript before cross-10 examining about it. I know from listening to him that there j 11 p were a number of f actually incorrect statements which he made, e o 12 i but I don't think it would be proper to comment on them now x
< 13 '
5 and try to correct them at this tine. a 3 14 o PRESIDING JUDGE: Yes, I anticipate because of the time u 15 element today, and the fact that we are going to put Mr. Willia ms 16 back on the stand toward the conclusion of today's session, 17 that Dr. Taylor will be returning Tuesday, at which point, WZ 18 jh you will be given the opportunity to cross examine him on his EM 19 ' gC. opening statement. 5S 20
- (! MR. WEINBERG: May I ask one" clarifying question?
m2
$$ 21 P RESIDING' JUDGE ~: Yes.
22 MR. WEINBERG: You said that a great number of franchises 23 were coming up within the next ten years. I am not sure that 24 (j
-s I remember your exact phrase, whether you said a great number 25 or majority.
i ( Attachment 13 Florida Power & Light Company, FERC Docket No. ER78-19, " Exhibits cited in Opinion No. 57 (32 PUR 4th 313 (1979))" Exhibit GT-29 (Sl. Op. at 7, ?8; 32 PUR 4th at 318, 332)
! Exhibit GT-34 (Sl. Op. at 23; 32 PUR 4th at 329)
Exhibit GT-52 (SI. Op. at 23; 32 PUR 4th at 329) Exhibit GT-62 (Sl. Op. at23; 32 PUR 4th at 329) Exhibit GT-28 (Sl. Op. at 32; 32 PUR 4th at 335) Exhibit GT-22 (Sl. Op. at 36; 32 PUR 4th at 337) i l I l
, , . ,,-.e_,- _ . , , , ----.__.---..m- . - . - , - - - -.r., , , , . , .,-y . - , , - - - - - - - - - - - - , - + -
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. . et 7, 28, 32 gua l
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Ex%blt [GT~-2-b cm rd Q' =_'I$ V a O MEMOA.ANDUM TO FII.E 27ong . CITY OF HOMESTEAD Th_ Ilii i On April 14, 1972, Messrs. F. E. Autrey and K. R. Beasley meet with Jim Berry and Ken WTtson of Smith and Gillespie and Henry Peters MLp and Olaf Pearsondof the City of Homestead. The
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question of an Interchange was discussed. -Both distribution and transmission. NNo firm eemats- commitments were 9ade; however, the city was told that we would look favorably to an interchange (transmission). They were advised that wef would have to further investigage the possibi,lity of , a distribution e interchange. It was made clear that wer were talking about a true interchange where both parties
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must have capacity to meet their cwn demands plus an ample-amount e to help the other party. The~tchange of a faciliries ' under the territorial agreement was also discussed. The city advised that they expect to have 33,000 KN capacity by July. We agreed to furnish Jim Berry with a sample ' t ( l copy of an interchange agreement. -Me--Ken i ( i Mr. Xen Watson is a new employee with Smith and Gillespie. ( l He is an electrical engineer. He has worked a number of years ar Cape Ker.nedy. He graduated from Tennessee Tech in 195 9- He has three children.
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'l s
$ f. k GS Y 270709 -
O uEuca^xDuM roa arcoar: . 4 9 11 25. 1972 FRCM: Jame s J. Berry
SUBJECT:
Possible Interconnection - City of Homeste,ad with Florida Power & Light Company - File 7,000-2 , t
- The meeting was held in the office of Mr. F. E. Autrey, Vice Presi- !
dent of Florida Power & Light Company on Friday, April 14, 1972. , Those present were:
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Representing Florida Power & Light Company: Mr. h'. E. Autrey, Vice President . Mr. Kenneth R. Beasley, Manager, Scath Dade Office. Representing City of Home stead: M r. O. R. Pearson, City Manager Mr. H. C. Pete rs, Director of Utilities
. Mr. Kenneth A. Watson. Smith and Gillespie Engineers, Inc.
Mr. James J. Berry, Sr:l thi and Gillespie Engineers, Inc. During a brief waiting period, a discussion of Territorial Trr.nsfers l ensued; this is covered in a separate memorandum. l l The following discussion is a summary, not a vertabim account of the meeting. The City of Home stead e stablished that its int sre st vas in ascertaining whether or not an interconnection would be possible; and if possible, if an interconnection at distribution voltage would be a satisfactory intermediate step. Fu rthe r, if the interconnection 'were effected and included, provision
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for firrn powe r purchase, if this provision firm power purchase would be a viable provisioc that could be implemented. . g e O -
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Ex G;T-n)p. 3 a s% MEMORANDUM FOR RECORD: (CONT'D) April 15, 1972
/ .
270710 .
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O ri< rida rewer & tisht Centra #v stated that as t= tse r se. the com-pany was willing to discues interconnection, but that it would have to be on the basis of interchanga of power. The City acknowledged that it was acknowledged that there had to be a mutuality of benefits and further believed that there had to be full mutuality of interest, as well as mutuality of bene-fits. .
- The Power Company questioned as to whether or not an interconnec-tion at distribution voltage was a practical intermediate step; questioning wheaar or not the total capacity of the City's demand could be transferred '
by an interconnection at distribution vo!tage. i The City responded that the interconnection at the. distribution 1svel had to be recognized and accepted for what it would be and that is simply, l an intermediate step that could be pla ed in service prior to the transmission construction; that.the capacity limitations of the distribution connection would have to be recogni.~.ed and that the a. mount of power that'the City would either expect arom or be able to transfer back to the Power Company would be compatible with the distribution levels at the present time. Florida Power & Light Company observed that agreement, if not for-mall:ed, had reached stages o' mutual satisfaction bet-seen Vero Beach l and Ft. Pie rce and the Company. Florida Power & Light Company was . requested to furnish a <:opy of the Vero Beach Agreement. Florida Power & Light Company will furnish a copy of this Agreement with Vero Beach rna. ked out and with the Territorial Agreements deleted. A discus sion about the availability of firm power for sale and/or purchase was not carried to a conclusion; final resolution was left to l
' furthe r meeting.
The Powe r Company initiated di,scussion about capacitie s, demands and probable growth. The City responded with general information and after discus sion, it <eas agreed that this and the pos sible power flows in either direction would best be reserved to a technical discussion, if further review of the possible areas of agreement indicated that this inter-connection merited further consideration. It was resolved that the Florida Power & Light Company would mail to the Consulting Engineer, a copy of the Agreement previously mentioned; the Consulting Engineer would make further cistribution to the City of l hiome ste ad. The meeting recessed. Jim B e r ry a JJB:nv E .
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P 0. som 310e 8MAm. ne.tioA 33t's ek O p_ a-. ,c - . , . . u . _. $' Ls'_ ._
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i . nonica Powan a uce courrin ., f)(, 7~)f f. Y0? b City of Homestead, Florida Gent 1emen: Ull3a . This is to formalize the understanding existing between us with . respect to I our Company supplying emergmncy electric service to your City. Our Company will supply to you, to the extent that it has capz:ity available,
.such amounts of power and energy as you may require from time to time during the duration of this Agreement. Such power and energy will be paid for by you in arcordance with the terms and conditions of the attached rate schedule WH or such other ef fective superseding rate, schedule. Cither one of us may unilaterally at any time sask, by appropriate filing with the regulatory .
agency or agencies having jurisdiction, changes or sub'JtItutloqs in the rate and terms and conditions for such service.
"Jelivery of such power .nd energy wi'el be at the voltage ar.d at the delivery points specified in Exhibit S hereto and such additional delivery points as may be hereaf ter mutually agreed upon. The power and energy shall te ..wtered and billed separately at eacn point of delivery. ;
This Agreement snall be for a period 'fo one year from the date hereof, and , thereaf ter from year to year unless terminated by either party upon written noti:e to the other not more than 90 nor less than 30 days bsfore the date of termination of such year or any extension thereof. It is mstually agreed, should you fail at any time to make payment as provided . for herein for the power and energy furnished hereunder or otherwise fall to perform any of the terms and conditions of this Agreement, that.the Company, at its option, may cease to supply power and energy hereunder, it being under-s tood and agreed, however , tha t such discontinuance of the supplying of power and energy by the Company shall no; be a breach of this Agreement by the Company nor cancel any of the terms and conditions of this Agreement. l yhis Agreement supersedes all previous agreements or representations, either written o, verbal, heretofcre in effect between us made with respect to matters herein contained, and when duly executed, constitutes the Agreement between us. if you agree to the foregoing, please sign and return two copies of this letter. Yours very truly, FLORIDA PCWER r, LIGHT CCMPA*i? n . By m- _ Agreed zo this _ day [ of /M/?;& , 1972 0 d / City of Homestead 3y
. .M0,9 / / *
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l U 'V <-- gf ( f f. > j
. . ~ . .
g, ; CSC - 2/13/63 . RATE SCHEDULE VH $
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MONTHLY AATE: 271133- . No charge for the first 20 W of Demand, -
$1.75 per kw for the next 380 kw of Demand. . ,
. $1.25 per kw for all additional 6 of Demand.
4.0c per kwh for the first 500 bh, ' 3.5c per Wh for the next 500 bh, . 3.0c.per kwh for the next 1,000 kwh, 2.5e per wwh for the next 2,000 wh, 2.2c per 65 for the next 60 kwh per kw of Demand, 1.3c per kwh for the next 7,000 kwh, 1.0c per kwh for the next 30,000 kwh, . O.9c per Wh for the next 40,000 bh, . 0.7c per kwh for all additional bh. Fuel Ac' t a s tmen t: Minus or plus an adjustment calculated in accordance with a rorm la designed to give, effect to increased efficiency and to the char.3i ng cost of fossil fuel . Ceretod i ty Adjustment: Minus or plus 1/5 of I". af the rate before ; fuel adjustment for each whole index point decrease below 120 or i increase above 137 in the Monthly Wholesale Price index of "Cormiod-ities other than Farm Products' and Foods," based on 1947-49 = 100,
. as first published by the United States Department of Labor for the second preceding month. (This Index shall be adjusted to a base of {
1947-49 = 100 if any other base should be used by the United States ! Department of Labor.)
. Tax Adj us tment: Plus the applicable proportionate part of any taxes
, and assessments imposed by any governmental authority. in excess of ) those in ef fect January 1,1967, which are assessed on the basis of l meters or customers or the price of or revenues from electric energy or service sold or the volume of energy generated or purchased for sale o'r sold. l 0E'ANO: I The kw, to the nearest whole kw, as determined from Company 's demand meter for the 15-minute period of Custoner's greatest use during the ' month, I adjusted for power factor, l l PO'.'EA FACTOR: , If Custcr.er's power factor shall average less than 85% lagging during any month, then Company may adjust the readings taken to determine the Demand by multiplying the kw obtained through such readings by 85 and by dividing the result by the average power factor actually established during the current l montb. Such adjusted readings shall be used in determining the Oe..and. O.
'V F
l l?^ \_.
. Ex.V_
GT si9 (. <. g s\ O d City- of Homestead a
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f xhibit 3
'g71140 Item I Tennessee
- Location: S. W. 167 Avenue, 2 poles north of S. W. 328 Street; Dade County, Fla.
Point of Delivery: Where customers wis.es or apparatus tie to Company wires , . Character of Service: 3 phase, 4 wire . Meterine voltace: 13,200 volts , Date of Installation: September, 1967 , i Item I's Biscayne - . . - l L;eation: 2 poles west of S. W.157 Avenue and 2 poles * ' south of S. W. 288 Street,'",ade County, Fla. l Point of Deliverv: Where custccers wires or apparatus are connected with those of Compa,ny Character of Service: 3 phase, 4 wire Deliverv voltace: 13,200 volts Date of Installation: October, 1963 i O- .
I- .
- E x. 67-2 p. 7 _
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C) -
'. i E
City of Herastead, Florida - . Gentlemen 2~'1150 ,
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This is to formoli e the understanding existing between us with respect to cur Co.?.psny supplying emergency electric service to your city. Our Coepany will supply to you, to the extent that it has capa-city a vailable, such amounts of power pnd energy as you r.ay re-quire from time to ti=e during the duration of this Agre==ent. . Such powar and energy will be paid for by you in accordance with the ter=s and conditions of the attached rate schedule WH or such other effective superseding rate schedule. Either one of us eay unilaterally at any time seek, by appropriate filing with' the regulatLry agency or agencies having jurisdiction, changes or rubetitutions La the race and ter=a and conditions for ruch scrvice. Delivery of nuch power and energy will be it the voltage and at the delivery points specified in Exhibit 3 hereto and such addi-ti nal delivery points as may be h'ereafter mutually agreed upon. The p;<er and energy shall be cotered and billed reparately at esch point of delivery. This Agreerent shall be for a period of one year tr:m the data hersof, and thereafter from year to year unicsa terminated by l Oirhor ;::ty up;n written notice to the other nst more than 90 nor lers than 33 days before the daco of ter=instion of such year or any extension thereof. It is rutually 0.;ced,
; sh uld you fall at any ti.a to rake pay-
. unt es p:cvided far herein for the p:wer and onorgy furnished l Pt:runder or ot>erwise fail to perf2rm any of the terms and l csaditions of this Ag co.ont, that the C:m.any, at its option,
=ay ec so to supply pzwar and energy hereunder, it being under-
- rtosd and ag:ced, however, that such discontinunnee of the sup-
! . lying of p ser and energy by the C::.any shall n:t be a breach od this Agraemont by the C pany nor enncol any cf the terms
- cad c ndtions of this Ag eement.
O l . (1) , t ; 1
Ex. I g7.,9 p. sq sg =. i O ~ 271153
. This Agreement supersedes all previous agree =ents or representa- -
tions, either written or verbal, heretofore in effect betwesa us 'i made with respect to matters herein contained, and when duly j er:acuted, constitutes the Agreer.ent between us. j i Yours very truly, - t PLORIOA POWER & LIGHT COMP.h"Y By h //E " - d ' Agreed to this day . of Mi- , 1973 . . _ _ _ . .
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City pi Homesn ad By /--4/CA.l & O t 1 I i i G 9 O
=
(2) -
- - . - , - . _ - - . . . _ . - . . . . - - _ ~ . - - , - . . - - - . . , . . - . .. .- -- - - ..__. - -. . - . ,
l
. E>l - ($7.rm)f.7y.3G M ;
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g M % D bo
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RATE SCHEDUI.E IG
* " " ' " ~ 75 5a-
/eg gg i M T1*EX I G TE : ll1gg No charge for the first 20 Mi of. Demand, .
. $1.75 per Ef for the next 330 Mf of Demand. -
. $1.25 per Ki for all additional MT of' Demand.
I 4.0c per ICE for the next 500 KfH, 3.54 per MG for the next 500 MG, 3.0c per IGG for the next 1,000 K G , 2.50 per m a for the next 2,000 KG,
, 2.20 per 1C3 for the next 60 MG per .4T of Demand, 1.3C per K 3 for the next '7,000 ICG,
- 1.0c per !cs for the next 30,000 MG,
; O.9C per MG for the next 40,000 2Fd, 0.70 per IGG for all additional 3CE. ,
Fuel Adjustment: Minus or plus an adjustment calculated S in accordance with a for=ula designed to give effect to increased efficiency and to the changing ecst of fossil , fuel. Co= odity Adjustment: Minus or plus 1/5 of 17. of the rate before fuel adjust =ent for each whole index point docrease below 120 or increase above 137 in the Monthly Wholesale Price Index of "Co=modities other than Fa.7.4 i Profucts and Foods,? hased on 1947-4 9 = 100, as first published by the United States Departrant of Labor fsr the second preceding month. (This Index shall be ad- ' justed to a base of 1947-49 = 100 if any other base ch:uld be used by the United States Ca.artment of Labor.) s Tax Adjust = ant: Plus the applicable proportionata part of any taxes and ascerscents i= >csed by any govern:nental F.uthority in e.xcess of those in effect J:nuary 1, 1967, which are assecs'ed on the basis of ceters or customers or the price of or revenues from electric energy or ser-vice sold or the voluca of energy genarmted or purchased for sale or sold. _ I l i h l O (3) . h e 4
,, , X. Y 29 [. /0 N ,,
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O -
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. . 1550 c xm
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ne Kf, to the nosrest whole mf, as determined from co=pany's i de= sad meter for the 15-=inute period of customer's greatest use during the month, adjusted fcr power factor. PC*.2R TACTCRs If Custorar's power factor shall average less than 857. lag-ging during any month, then company ms'y adjust the readings taken, to determine the De. and by multiplying the Mi obtained through such readings by 85 and by dividing the result by the average power factor actually established during the current month. Such adjusted readings shall be used in determining the Demand. A I l 0 0 0 4 h O (4 ) e
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- EX- (GT-M p. H SE -
r (f) ***fEI5$*s** e . [ I??M I - SOUTH - Formorally Tennessee 271154 1 w.'** Leestion: S. W. l'67 Avenue, 2 poles north of S. W. 323
. Street: Dade County, Florids. .
. Point of Deliverv: Where customers wires or apparatus tie to Company wires.
Cha racte r of Service: 3 phase, 4 wire. Metering voltace: 13,200 volts Dste of Installation: September, 1967 - b _I=M II - c r:'IR - Tomerally Biscavne, Location: 2 poles west of S. W. 157 Avenue and 2 poles coath of S. W. 233 Street, Dade county, Florida. Point of Deliverv: Uhere customers wires or apparatus are connected with those of Company. Charseter of Service: 3 phase, 4 wire Coliverv voltace: 13,200 volts Date of Installation: October, 1963 172:1 III - I:02?H __ . . . - . - Loestion: S. W. 167 Avenue, 2 psies north of S. W. 233 Streets Cafe County, Florida. Point of Deliver 4: *dhere cust =ers viras or apparatus _ _ _ _ are connected with those of C:mpany. character of Servies : 3 phase, 4 wire ._ . Oslivery voltaco: 13.200 volts. Date of Installation: Sapte=ber, 1972. O e e
} .-t& .q Ey.- _. 65q:m)p._m - :
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' f FLo. JA POWER & LIGHT COM' .~.: .iNY
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~ '61ui anien.orrsce constseonocuct .-: .- :. .. 2 54 3 .4 .
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. i.ec Avie Miami,-Florida
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" A"9".s t 10, 1973
- v. MEMORANDUM TO FILE '
. . .. v .
*:= E. L. Sivans ; Messrs. Marshall' Mcdonald F. E. Autrey
*= *
- n Proposed Interconnection ,
E. A. Adomat City of Homestead , M. Clark Cook .
, , 3 . WI .1 I l s I rwi n .
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'V. M. Klein l
. M. D.*Lang .
'! V
- A .. . J.' A. Casseter
. o.
At the request 'of'Mr. J. J. Berry, of Smlth & GII Tdshie Engineers, a meeting was held in Florida Power & Light Company ' General Of fice. ' -
- Attending the meeting were: ,-
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Ci ty of Homestead _ I Florida Power & Light Cornoany_
.i. .
t E. L. Sivans . J. J. Berry, Consultant *
- 0. R. 'Pearson, Ci ty Manager M. Clark Cook Villis Irwin V. W., Turner, City Attorney M. M. Klein ,
W. D. Lang '
.J. A. Lasseter The purpose of the meeting was to identify an interconnection point and
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provide Mr. Berry w.ith preliminary engineering de'. alls for the required switching station, and to outline Homestead's possible power supply ,
. . expa sion program.
Mr. lerry said 'that Homestead was buying two 8800 kW diesels for service in 1974, which will provide capacity to serve their load through 1975 He estimated W;;r.estead's peak load for 1975 to be. fromHomestead 55 MW te 69 Mw, is currently depending on t.g impact of the Turnpike extension. i experiencing"an annual growth rate of 17%.
.. T l Homestead would 11ks to negotiate for, firm purchase of 12 MV - 16 MW f rom' 1975 through 19 0" According to Mr. Berry, the firm purchase would supply their base leid7 : In addition they would like to purchase " Secondary l Energy" to supply their mid-range load, and reserve their diesel genera-tors for peakini~ and those pcriods when " Secondary Energy" would not be available,. 6 b
-r-it was pointed "cui by the writer that the proposed interconnection .p id i f
' not be mutually Vdvantageous. The benefi es would accrue primarily to' benefits to FPL would be minimal, since Homestead would Homestead. Th have little or! $ reserve capacity. Therefore, as with the interconnections t that Vero Beac ort Pierce, and Lake Vorth have or will have wi tt. FPL,
$m?'
l ' is s s " at . Q? - r. .--
s - (~6 -f on ..
, i . . = .~ -g ,. August 10,.19734 1 ,
- Preposed intercovif 3
. .;f tity of Honv. stead i
Ex -. F->f r./fVdai438sy}" Homeste'ad will be expected to bear the entire cost of the 138 kV ~ switching station at the point af interconnection on the Florida City-0 avis 138 kV line, and ,their connecting 138 kV tie line. Since 138 ki breakers would be installe'd in FPL's line, FPL would agree ithto
, operate and maintain the station as outlined in our agreements w Vero Beach, Fort Pierce .and Lake Vorth. .,
- it was agreed that FPL will meet again with Homestead during the, -
latter part of F1us:.. . Mr. I rwin wi j l -handle the . details.
* .A m.
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m y 'fy E. L. Sivans . Ms , 8 I *. e I
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Ex. - Gr-2)p. t4f 5%
. WMK g 982 Re: Gainvesville Utilities Jack Matthews suggests that we keep our appointment with Gaines-ville. He further suggestis that we be interested, inquisitive, .
and display the feeling of wanting to cooperate wherever possible. We should ask them how effective their tie is to. Florida Power, , what ideas they have on joint ownership in refineries, etc. , etc. t 1 i Re: Homestead
- l Jack Matthews echoes the Marshall Theory, "You can't sell what l you ain't got." Therefore, their request for firm power cannot be granted as we do not have it. We should have available pur l load estimates and estimated reserves to substantiate these remarks.
He believes that if Homestead is willing to spend the necessary . i capital to construct transmission facilities for a tie - then we ! l must oblige aad give them a connection. Regarding the contract for , nervice, however, we should explain, as mentioned above, the problem ; with firm power, but that we are willing to sell any amount they are I willing to receive if it is available. We should keep in mind the possibility of transmission difficulties in wheeling power as the court has stated an investor-owned utility cannot be forced to wheel or sell i power to the detriment of its own customers and its own system. j i i To summari::c, he believes that our negotations with Homestead should ; be based on the Vero contract. Ben Fuqua mentioned that we are now - working with three rate departments: 1) Lloyd Williams, 2) Ernie Bivans, and 3) Ralph Mulholland. This is a precarious posture and he will ask Gene Autrey and Al Adomat to decide just who should handle the negotations on power sales to municipalities and coops. Mr. Matthews asked what are the load projections for the REA's that we serve. , I l- - H I il { ,' 8 O -
Q >*e ,2 ?/du t<4vl A s.,jll cA% './r.uk.i' hf& h ltelu.b .C.h. 6 Mf ' b Y/1/73
'k y*k gg &),
O g. - (Sr m.)p / N SL 2ste83 j Homestead - Het this date with Ben Puqua, Jack Matthews, and l Lloyd Williams. Jack Matthews was now familiar with the company's filing of rate schedule SR with the FPC and our letters to whole- I sale customers advising our intention for effectuating said rate SR beginning September 1, 1973. He also was given and reviewed the letter of August 14, 1973 from Robert Jablen to Kenneth Plumb requesting a 10 day extension. .
. Jack Matthew's opinion of our position is now changed from his l opinion stated yesterday. He maintains with rate sch'edule SR being effectuated that Homestead, as all customers on SR, is indeed receiving, wholesale power and firm base power; that we have no arguement in our contention that Homestead has been receiving emergency service but the thave been historically .
receiving firm base power at(6nmited'. intervals. Therefore, !' our negotiations should center'around'the following factors:
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l 1. If they request firm base load power, they are receiving [ j , base loadpower through existing distribution connections and can j continue to receive same base load power plus any additional firm a base load power they require. All of which will be on wholesale ! rate SR. (i
- 2. If they elect to construct a transmission line and connect j vith our transmission facility - they may do so. -
g 1 ? l 3. If they desire firm base load pcwer via the transmission ! connection, we cannot refuse. Rate SR will still be applicable. ' In this event, .they would effectively be receiving the same base load power at the same rate (SR) but will have gone to the expense of constructing transmission facilities. :
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- 4. If they request a transmission interchange along with a ;
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request for firm base load, then Schedule D, which states that i l the rates shall be negotiated,will apply, in which case we will i implement rate schedule SR. The other contract schedules for li interchange power (Schedules A,B,C & E) preclude the fact that both parties have power to exchange. During negotiations we should ask for a certain amount of power that we may want to buy some time. We should earnestly seek, with their assistance, where the inutual benefit is derived. __ Rancom Notes: Whoicsale is continuous firm. i Inte:: change is limited duration firm. '
. , Rate SR offers firm power. Apparently the company has been honor- L f ing their request for a number of years and is not in a good posi- 'O tion to refuse to continue offerine fi== bese 1oad sower of 12xW to 14MW, which is consistent to their previous demands, m
Ex. 65M9)p A */~%
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26108i ) It would be interestin
- O eeaerattae su=ca e eoger- to compare 2e rate -orea-a11e y erove SR to theirtocostsoere of ia
' the load that the company can supply over existing distribution facilities.
i.
, Ben Tuqua requests that a report be made to him and Jack Matthews es a result of my mecting with Homestead on August 29.
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'- we=aas , rioria O u Mr. Clark Cook
- eats September 27, 1973
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- r. Willis Irwin ,
ca u ser. INTSRCHANGE AGREEMENT
~
CITY OF HCIESTEAD, FLORIDA . . FLORIDA _ POWER & L GHT A meting was held in the Homestead City Council meet [ng room on
. Tuesday, September'25, 1973. Present were:
Olaf Pearson, City Manager, City of Homestead
- s -
.- Sonny Peters, Director of Utilities, City of Homestead Mike Watkins, Assistant City Attorney, City of Homestead Jim Berry, Smith & Gillespie Engineers, Inc.
George Spiegal, Spiegal & McDiarmid, Washington, D. C. Willis Irwin, Florida Power & Light
- Clark Cook, Floridt. Power & Light
- Bill Lang, Florida Power & Light .
The following is a summary of topics discussed: Jim Herry stated that he had ho;ed to reach an agreement at this meeting on an interchange agreen"nt utilizing all schedules of the proposed agreement furnished by FPL to the City. (Similar to
,' Vero Beach Agreement).
,' Of special interest is Schedulo "D", er Firm Power. The City would like to purchase the'ir base load or approximately 267. of their total demand beginning in lato 1975. -
Mr. Berry feels that F?L has delayed the decision long enough.and that the City would appreciate some affirmative. action. Mr. George Spiegal then stated th$t there are four areas that re-quire study and agreement: .
+. .
- 1 1. Facilities necess5:y for an interchange.
- 2. The agreement formulated. -
- 3. Method of purchase. .(Schedule tilized) .,
' - 4, An in*="im rate.
,Mr. Spiegal also encouraged FPL to sett l e SR litigation out of court. He also attempted to discuss application of the various schedules in the interchange agreement, however, Mr. Cook explained that it was nor feacible to discuss rates at this point.
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Ex - cqr,n)p.iry an .
.' 2613.....
O Mr. Clark Cook september 27, 1973 , Page #2 , j Mr. Cook had previously stated that FPL understood that the main g purpose of this meeting was to discuss owne.rship of the switching
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station involved and apologized for the misunderstanding. -
- Mr. Cook presented FPL's proposal concerning the switching station.
It would be the same as previous interchange agreements - the City would construct and own the station and FPL would provide the taps and telemeteri.sg. FPL would also operate and maintain the station. A The City proposed that they wonid own and FPL construct would operate the station and main- and - FPL would contribute one-half the cost. tain it and these costs would be shared equally. The proposals were !
. noted and no decisions reached.
Mr. Berry requested information on a couple.Mr of .items Lang -promised conductor to size of our 138 KV lines and the capacity. . furnish this information. . The next meeting was tentatively scheduled for Thursday, October 25,
- 1973, at the General Office Building. '
It was agreed that Mr. Cook and Mr. Berry woul'd be in close cent.act Serry would furnish a proposed agenda in the interim and that Mr. .,.. for the next meeting. ,
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N b9 " ^ V [* ' 7 y 4 FLORIDA POWER & LIGHT COh PhNY INTEM4FFICE cGRRCrPoNDENCE
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. 6. car.*" Miami September 28, 1973 O Nemo to File o*
<*****'o .
- r. E. G. Brewer
.u .act. Task Force Meeting Held Geptember 28, 1973, 9:00 a.m., Room 401 G.O. . Itl Those attending meeting wers:
Clark Cook Larry Atkinson
- R. E. Lloyd R. T. Culberson Willis Irwin E. L. Bivans R. L. Pringle,Jr. E. G. Brewer J. T. Blount Mr. Brewer chaired the meeting in Mr. Mulholland's absenc,s.
It was decided that the first order of business woitld be to have Mr. Bivans give ,a history of FP&L Company's interconnections with the various cities and co-ops. Discussed the proposed interconnection agreement with the City of Ft. Pierce. After much debate it was decided that Defore this committee could make further recommendations two questions must be answered. Can we refuse to sell firm interchange power while at the same time offering Rate SR without a difference in the benefits flowing to us? Will we offer SR firm power to Homestead? Meeting adjourned at 10:30 a.m. G v. A w l EGB/dv I' i I hD O . . l t COURTESY WINS FRIENDS von rLonsca_ron soun c:nneAnt roR tous com . a e v. u..
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R oh.7A POWER '&' LIGHT COMi JJO[I .9 - J-N.N",
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[2 ... INTER. OFFICE CoRRESPoNCENCE *
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**** October 3, 1973
,. Mr. J. T. Blount s **"'**
- C1 ark Coo). 254386
.m set. NEGOTIATIONS WITH THE CITY OF HCMESTEAD Attached is a copy of a letter from Mr. James J. Berry, Consultant for the City of Homestead, dated September 22 and marked Exhibit A. This letter is in answer to our i letter of September 20, a copy of which is also enclosed and marked Exhibit B.
Our letter was drafted by our attorney, and it appears that
' Mr. Berry's was also drafted by the City of Homestead's legal counsel. ,
l' ~ The question now arises as to whether.or not we should It isreply [ in writing to Mr. Berry's letter of September 22. apparent that they are attempting to make us appear uncoopera- ! tive in our negotiations with the City of Homestead. We have - advised Mr. Berry. verbally that his notes of our Auigus't 8 meeting did not indicate. any additional information was to' be obtained by our office, nor did he at any time' advise us verbally that we were to provideAan agreement copy on firmMinutes of Mr.. Berry's power i at our September.25 meeting. ; g
'of our August 8 meeting is also attached and marked Exhibit C.
- Please review the documents attached and advise us what steps you or our attorneys would recommend in this area.
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=lAcxsoHvtLLc.fto A806 32rci 254387' O- Sqtember 22,4 973 s N M.:. Willis Ixwin, District Manager I Aorida Powcr and Light Company
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. .' ' O 'N Post Office Box 2128 Naranja, Florida 33030 '
Subject:
Negotiations: City cf Homestead with Florida Power and Light Company - Interconnectiori Proposal
. S&G File No. 7002-33 T.
Dsar Winis: d to meeting Representatives of the City of Homestead ~ h and myself are lookingI forwarC d Mo rida. with you, Mr. Cook and the representative from t eet 10:00 a. n
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- delay of the I don't believe there was any problem as far as you b were concerned in th l hich '
meeting from August 28 until the present i h additional schedule econo,nic f on S ith the Com-the City recommended at the meeting on August 8, an pany's planning, and generally it was agreed that Mr. Cook anAs it develope This infor-
. information and coordinate this meeting. hopefully it will be available for thisl me compiling the information.
a f mation _ incidentally, is not the cost of the is the more basic information which will influence the p ann n , l i g substation oMhe interconnecti whic g 15 u h {ky-p' We hope the meeting on September 25 will provid'e lizing the a turningIntercon-point, 37 time the meeting is concluded, we will be well'on the way to fina . nection Agreement. M~ ~stablished policy of Florida Power We l ,
Interconnection Agreement is in accord with thIt is in accord with tile p'oli
' Mrd imple.menting thes e policico, and Light Company. I wish now for both parties'to move decisively =- tow'4.i
. Yours .v;ery truly,
'~s a 9 -- ;
s S- T 'qAND I . GILLESPIE ENGINEERS, INC. Ja es 7,7 Berry
. h E ec tfvl Vice President y =,- .
y ). , .. - - Mr. F; ' . Aupy
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cc: Mr. O. R. Pearson Mr. E. L. Bi'v h U Mr. Vernon W. Turner #Nr. Clark Co@pi2s Mr. H. C. Peters m a
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, -3.- w , S r> ~ 4 -e:i ur. R. C. Fuilerec.n 270820 s MITH ANo olLLCSPIC CNcIN CCRS. INC. Mr.- Ben Fuqua
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, saca s o nw u.c. rto m o4 saa ' Mr. R. G. Mulholland Mr. M. Clark Cook October 2,1973 Mr. R. E. Lloyd Mr. Willis Irwin -
- yzA 10/3/73 1 Mr. F. E. Autrey .
Executive Vice President norida Power and Light Company Post Office Box 3100 Miami, Florida 33101 Subjset: Negotiations: City of Homestead with norida Power and Light Company - Interconnection Proposal SR Rate Negotiations ' nie No. 7002-33 ,
Dear Gene:
The City of Homestead has intervened in the rate filing of Florida Power and The rapresentatives of Light Company before the Fed9 :a1 Power Commission. the City of Homestaad who will be present for the meeting in your office on Octobsr 25 to discuss the Interconnection of the two Utilities will also be pre-pared to discuss and resolve the questions outstanding in connection with the SR Specifically, the City of Homestead understands norida Power and Light f rate. ' Company's position on the 80% ratchet clause, but believes that even on this basis, a substantial modification is justified when the sale is made to a gener-ating system such as Homestead. It is believed that Homestead's current purchases from Morida P6wer and Light Company do not fall v.ithin the purview of such a rate. This power is taken at a time when the norida Power and Light Company is not cperating on a psak condition and is taken to solve transitory problems. The City of Homestead ' presents as its premise that for power taken during off-peak periods, and in.particular, because it has not been possible to negoti-ate a synchroni=ed intercolnection agreement, the ratchet clause should not , apply to power purchased dur$lig these periods. In the event that it is applica-ble, a ratchet clause should be limiEed to power purchased during on-peak periods when Florida Power and Light Company is required to make a special commitrnent in order to supply Homestead. I O
.A Y
w -ssj y.-ca n o<. c x. - - Mr. F. E. Autrey 270821 Iirw Ano cri.:.csmc cscistcas,isc. Florida Power and Light Compiany File No. 7002-33 O / City of Homestead, Florida Octob er 2, 19 7 3 . . . . . . . . 'Da ge two Cook and As emphasized by Mr. Spiegel at the meeting with Mr. Irwin, Mr. Mr. Lang, we are willing, interested and hope to reach an amicable settlement-on this particular question. Yours very truly, MITH AND GIL "SPIE ENGINEERS , INC. t bb Y Jam s J. Berry o (' - Exe tive Vice Presider JJ3:js l i cc: Mr. O. R. Pearson Mr. H. C. Peters ' Mr. Vernon W. Turner Mr. George Spiegel Mr. Harry Poth - I e i O 9
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270822 Mr. R. C. rullerton . Air. Marshall M, cDonald smm no ciu.cspec cucincess.mc. Mr. Ben Fuqua
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. 4casonvittc.rtomoa sam ' Mr. R. G. Mulholland l
s f Mr. M. Clark Coon October 2,1973 Mr. R. E. Lloid Mr. Willis Irwin - . Ex. _ (6,r- p),.B q a. FEx : 10/3/73 i Mr. F. E. Autrey Executive Vice President Florida Power and Light Cornpany Post Office Box 3100 Miami, norida 33101
Subject:
Negotiations: City of Homestead with Florida Power and Light Company - Interconnecti;n Proposal File No. 7002-33 / m
Dear Gene:
As you know, the representatives of the City of Homestead ida Power and Light met with Mr. f Willis
, Irwin, Mr. Clark Cook and Mr. W. D. Lang of FlorUnfortunately, the progress at 25, 1973.
Company in Homestead on SeptemberIt was, however, agreed that the parties wocid set this rnseting was limited. ld i upon a course of action which would lead to greater progress h and t hopefully vou permit a definitive negotiation of the remaining questionsf Homestead and the establis l
' men of the basis for agreeme nt for the Interconnection between theThe Citynext o
l and the Morida Powar and Light Company 25, 1973, at the next meeting.in the offices of Florida. Power meeting is now scheduled for October Miami, and Light Company at the corner of LeJeune Road and Flagler Street, ; Flo rida. It is recommended that the meeting
- The discussion did not establish a time. !
begin at 10:00 a.m. ! At the meeting on Sectember 25 it was agreed that the City of Homestead would furnish Florida Power and Light Company two documents:
- 1. .
The first doculaent is the proposed form of contract recom- . mended to Florida Power and Light Company by the City of Homestead This for use in establishing an Interconnection Agreement between the two Utilities. . form of contract will be furnished by a separate letter.
- 2. This letter outlining the questions to be resolved at the meeting ,
ofCetober 25, 1973, is the second document. O
igr-M)p. noy si, a . Ex. ._ _ Mr. F. E. Autrey . rs ANo ciu.csmc cNo:Nccas, suc. Morida Power and Light Company j gg% File No. 7002-33 City of Homestead, Morida O ctob er 2, 19 '3 . . . . . . . . 'Pa g e two . There are four items which are of particular interest in the Interconnection , Agreement negotiatiet s. These are: ' 1. The location, configuration, and the arrangements required to provide the Interconnection between the two Utilities. 1.1 It has been estelished that the point of interconnection between the City-owned transmission line and the Morida Power and Light Company transmission line will be accomplished by a switching station with a configura-tion essentially similar to the configuration used in Lake Worth with the provision The station isc to be located that the City may make a second tie in the future. on a City-owned site, adjacent to the M;rida Power and Light Company's 138 kv. right-of-way on Farm Life Road somewhere between 296th Street and 344th Streat, with the exact location to be chosen by the City. .
- 1. 2 In order to advance the negotiation discussions, and subject to satisfactory negotiation of all other items, it is agreed that the Morida Power and Light Company will, at their e.xpense, make any necessary modifications to the existing 138 kv. transmission, and will provide the two connections from said 138 kv. transmission line to the high voltage structures in the City-owned Sub station. norida Power and Light Company will, in addition, at their expense, furnish and install such supervisory control and telemetering installations that are required to integrate these operating points into the Morida Power and Light i Morida Power and Light Company will, at their Company system. Furth er, The City j expense, provide for the operation and maintenance of the Substation.
the Interconnection Switching cf Homestead will, at its expense, yrovide: Station complete, except as outlined above; the 138 kv. transmission line , l required to connect the Homestead system to the Dorida Power and and Light the Intercon- l Company's system via the Switching Station just described; nection Substation facilities necessary to reduce the 138 kv. tra=smission voltage to distribution voltage for connection to the Homestead system.
- 2. The form of interconnection agreement or contract is to be l resolved. The Morida Power and Light Company has proposed a format to the City of Homestead and the format which is recommended by the City of '
Homestead coincides with the form proposed by norida Power and Light It is believed, however, that in those Company throughout much of its content. , areas where the format proposed by the City of Homestead differs from that pro.- Iv')
~' - - E)(, - (ST-aW) p. .?g y x,,-
Mr. F. E. Autrey , , smira Ano ciu.csmc cucisccas, suc.. Florida Power and Light Company - rit "a vooz-33 O y g City of Homestead, Morida October 2, 1973 . . . . . . . Page three N . h format win promote posed by Morida Power and Light Company, that the revise i understanding and thereby improve contract relations between the two part es. . - The City of Homestead desires assurance that the contract and *
- 3. . i. e. , that in addition to.the benefits of service schedules win be funy operable; d emergency interconnection, the City of Homestead and the Florida Power an Light Company may avail themselves of the benefits of interconnection thro ScheddedInt ercha nge, Economy Interchange, Interchange of Secondary Energy, In particular, as expressed in each of our previous
- and Firm Powc: Transfer. _ _
meetings, the City of Homestead desires to initiate the Agreement on the basis that the City of Homestead will purchase from Florida Power and Light Company f , as a base load, firm power commitment, the base load portion of the City o ! Homestead requi.rement in accordance with Homestead's projected load and capacity studies, and subject to future negotiations, win continue to purchase ; this amount which now is approximately 26 percent of the total annual demand of ' the City of Homenead. The City of Homestead, for its part, win welcome the oppe:tunity of purchasi .g in addition to this Base Load-Firm Power
- Power Commitme such Intermediate and Peaking Power as may be available from the Flo ida that It is anticipated and Light Company at a rate that is mutuaHy advantageous.
adjustments necessary tc maintain future benefits will be possible through , coordi=ated planning ud through operation of the Operating Committee. l
- 4. The City of Homestead wishes to negotiate an interim arrange- i ment pending execution of the Agreement for th'e tie at transmissionh voltage I which would operate at distribution voltage, and which would optimize t e . 1 utilization of the generation capability of both the City of Homestead and the I i One effcetive step in this regard would be Florida Power and Light Company. j to resolve the questions concerning the outstanding issues in the rate question which is covered in separate correspondence.
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This letter confirrr s :he request of the City of Homestead to Mr. Winis Irwin that at the October 25 meeting there be present Officials of the Florida Power and Light Company who would have the authority to negotiate and to agree on ' - It is desired at this meeting there be a each of the four items noted above. definitive, negotiated settlement out of which win come resolution of the overan question of interconnection between the City of Homestead and Florida Power and . Light Company to the maximum extent possible. . In the event there are some ! areas where this is not possible, the City of Homestead representativesInwish any to : l p discus.s and reach agreement on as many of the items as can be done.
>' > event, the City of Homestead representatives wish to speak directly to Officials 9
~ Ex. - (Gr- M)p. .? 7+g' 4 y Mr. F. E. Autrey gam ao citLCsmc cNo:NCCRs,INC. .
Florida Power and Light Company
- File No. 7002-33 -
City of Homestead, Morida Q
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270825 October 2, 1973 .. . . . . . . .. Page tour
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of Merida Power and Light Company cn each of these items, w e .
. the Florida Power and Light Company his ready at this first-definitive basis.
In the event there are stin some areas in question, it is believed t at a hand discussion of any outstanding questions win promote agreement. in con-Considering the matters to be covered, it is believed the discussions wWe tinue through most, if not all, of the working day. d Power and Light satisfactory and that the appropriate Officials of Flori aIf this is not the case, pleas Company win be able to participate. alternate dates. ' l i ~ It is important to emphasize the necessity for promptt daction as coin- in comp et Items 1, 2 and 3 above. 'The resolution of Item No.dItomay be aaccep e present plete, problem. rubject only to technical details which This leaves are not expect essentiany l to a satisfactory resolution of all remaining items.i. Items 2 and 3; i Agreement, e. , the Forml of ment for operation under au Schedules of the Int'erconnect d on The City
- including the purchase of Firm Power by the City of Homestea be .expe-as believes that the negotiation of the Interconnecti ting units possible on the 138 kv. interconnection.
in service as soon as possible after instanation of the Power and two new gen , in the Homestead Power Plant. likelihood that the City of Homestead could, upon request d capacity. of Florida Light Company, respond to deliver support from the newly installe i thereafter, . I d or as an It is also noted that if it is not accomplished in a re ld not promote the alternative, require .the installation of units which wou ' ener'gy resources. optimum development of the system and the utilication o The City win have at this meeting Officials who win basis havewhich the authority t negotiate and reach a final settlement for each of the items on ahe City Counc the representatives win be prepared to recommend to tThe City of Homestead l ith which, it is believed, the City Council win accept. desires F , similar authority.
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im Aso ciu.cspic cscistcns,1NC. Mr. F. E. Autr ey . Florida Power and Light Company ri1 ne. 2002-33 O , y- g u City of Homestead, Florida
~ ' Octob er 2, 1973 . . . . . . . . Pa ge five The resolution of the fourth item is covered in separate correspondence. While it in hoped that an early settlement of this question can be achieved, it is urged -
f that its. settlement not interfere with the orderly and expeditious development cf tha resolution of questions on the overall Interconnection Agreement. - i It is anticipated that the City of Homestead will be represented by the following: Mr. O. R. Fearson, City Manager j Mr. H. C. Peters, Director of Utilities ' Mr. Vernon W. Turner, City Attorney, Mr. George Spiegel, Attorney < Mr. Robert A. Jablon, Attorney i Mr. James J. Berry, Consulting Engineer Yours very truly, -
- ITH AND GILLESFIE ENGINEERS, INC.
. fE f
' Jam s J. B er r y L Exe utive Vice Preside. i JJB:js cc: Mr. O. R. Pearson .
Mr. H. * :. Peters Mr. Vernon W. Turner ' Mr. George Spiegel . Mr. Harry Poth 9 . O I O-
. 4
E)( . _ (f>T- A9)f. o19q3Z 10/5/13
. 26 8
SUBJECT:
James J. Berry's Letter to F. E. Autrey ({} Dated October 2, 1973 General comment
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When the proposed Contract from the Cit.y of Homes .ead is received it will be forwarded to the members of our team responsible for determining policies on our Municipal accounts. Items 1, 1.1 and 1.2 Mr. Bivans, as well as our General Engineering Section, should decide if Mr. Berry's statements concerning the c/ gpdgdo, - d physical conform Lake Werth arrangements with our recent Agreements If these at at statementsthedo proposed Vero not Beach, Fort acree, Homestead then Pierce Intercha -
'/ / d g4I#,an cbrrection - ild be made so that we may advise them at our y// October 25 w e t.ng . NOTE: The fact that Homestead should . _ _
pay the ent ir a cost of construction of the Switching Station is due to t.e _act the Interconnection is more beneficial to them than t PL.
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Item 2 our team should review Homestead's proposed Agreement, comparing it witn our most recent Agreements with the above , s>" mentioned Mwiicipalities. Our position should be not to j)j change our existing Agreement and offer it as an alternative to Homestead's proposed Agreement. We should then prepare a proposed Agreement to present to the Officials of the City of Homestead at our October 25 meeting. Item 3 This is the most controversial item in Mr. Berry's letter. They want to be assured that all schedules in our Interchange Agreement will be used. It is recommended that this is handled in the following manner: ; l
- 1. Economy Interchance (Schedule C) :
We do not use thir Rate Scnedule at this time due to the fact that no utility in the State of Florida' has equipment capable of determining the information i required for the Rate Schedule's use. When this aquipment is available and it is mutually decided to use the Economy Interchange Rate, then the City cf Ec=cetecd WOuld be offered the Rate along with all of our other Municipal accounts. l o - e I e
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EX. - (fit- A9)p Jo */ EI:; 2B1979 ()' *
- 2. Interchange of Secondary Energy (Schedule E)
We should determine if we are using this Schedule with any other Municipal accounts. If not, the answer should be that when we make it available to our other Municipal accounts the City of l Homestead would be included. . I
.s. : -
- 3. Firm Power (Schedule D)
The following alternatives are available to us in answering this question:
- a. We do not have Firm Power to sell and since this Schedule is not in use with other Municipalities, we would not propose itsfuse.
' b. Allowing them to use a rate This similar is extremely to SR -,
as a Firm Power Agreement. dangerous as it will allow the City of Homestead to operate its electrical system without increas- - ' i ing its generation. * --
- c. Offer them a Schedule D Rate at less than Rate SR ;
if they will provide us with a signed contract for the installation of generation capable of carrying their electrical lead and having additional service which we could buy at the end of a three year period. This would allow us to have a Firm Agreement from the City of Homestead that they will continue their generation and prove that we are only selling Firm Power for a definite period of time. Their request for us to sell them Firm Power for 26% of their total demand should be denied. If we agree to sell any Firm Power it would be for a specific megawatt rating. j Item 4 l_ Their request for us to resolve the pending Rate Case con-cerning SR Rate before the Federal Power Commission. We would recommend that we consider withdrawing Rate SR from the City of Homestead and the City of New Emyrna Beach and replace it with an Emergency Rate Schedule at'a lower cost per kilowatt hour. This will offset the City of Homestead's argument that we are already selling them Firm Power and that since we sell the Co-Ops Firm Power on . Rate SR, we must use Schedule D and commence selling them ( Firm Power on the Interconnection. Our team should review our recommendations on this item to determine if it is possible from a legal and rate netting position. O o
' ~ A f $l A 261980 Q .
It is our belief that if we refuse to sell the City of ' Homestead Firm Power they will immediately request us to . wheel from other Municipalities. If we encourage them to increase their generation where we can purchase power from them, we may offset the demand for wheeling as well
.as avoid a long-term Firm Power commitme.nt. . ,
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. w s zas 0 10/9/73 f ~
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gggMEMOTOFILE Citv of Homestead Willis Irwin to contact the City people today to determine:
- 1. Has the City authorized Mr. Spiegel to act in their ,
behalf? i 2. Has the City authorized Jim Berrey to act in their behalf?
- 3. Can we talk directly with the City erployees about an interchange agreement?
Irwin will also try to contact Jim Berrey to discuss,off the record, what the City really wants, i.e. firm pcwer, get out of the generating business - depend from now cn on FP&L as ultimate source of power, commitment of power while thei'r units . cre under construction , etc. After considering the results of Irwin's conferences today, a letter will be prepared to answer Jim Berrey's letters (one letter reference to SR rate; other letter reference to October ! 25 meeting). ,. I City of Jacksonville Beach Mr. Marshall Mcdonald has already set up a meeting for October 31 l in the General Office, designating Mr. Bob Pring]2 as spokesman for the meeting. City of Ft. Pierce Mr. Sanders and Mr. Zinni liave appoittment with the head of the Utility Board, who requests that we reserve them some power from S t. Lucie 92. Also to discuss the City's plans to expand their service area. City of New Smyrna Beach ~ Mr. Marshall Mcdonald has answered Mr. Mcdonald of the City of New Smyrna Beach, authorizing Mr. Bob Pringle to represent the Florida Power & Light Company in negotiations with the City of New Smyrna Beach. Also must answer Mr. Jablon's letter reference interchange agree-Pierce agree The proposed Ft. ment. (^} of the type of agreement we would like to enter into with theOur attorney' M k City of New Smyrna Beach. drafted the propored answer to Mr. Jablon's letter
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- 10-2)-73
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PEM0 TO FI:.E Electric Serhice to City of Fomestea[ SUS.:ECT: - ' Ty.n of Service i. Homestead started receiving electric service from us in about 1964 on a very shor- term basis, befollowingis'thamonthlyschedulefor rccolpt of that po.or as flied in the'FPC .1 Annual Reports. . Siscayne Tie Tennessee Tie 11 days I day-1968 l 5 months , Simonths 6imonths , 1969 , 12 months 1970 7i w ths 4 months 12 months 1971 1 month 12 months 1972 - .. 5 days
- The above service was reported in FPC 1 as " Emergency Power."
The average ; cst for the above servics was: ' 1968 - 12.58 mills I 1969 = 12.26 mills 1970 - 12.62 artis , 1971 = 13.40 mill? 1972 = 14.1/ allis . During the same periou our coop. custcmers taking distribution voltage were paying in the cange of 8 mills in 1968 to 11.3 m!11s in 1972. . Rate $$nedule SR as presently flied with the Commission has been applied . to electric service to the City of Homestead ef fective September 1,1973. ) ( This rate is subject to refund pending the outcome of hearings before the ! te
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FFC scheduled for November 7, 1973, if the City of Homestead uses this - e
D - Di M f)P 3 M 20914i O . sarvice on a continuous basis at cach point of survice, it wuld amount to approximately 13k mI11s per KW, which is slightly. lower than their . former Rate WH. This rate schedule carries with it a 60% demand ratchet 8 8> (rsduced from 80% as comproselse with co-ops), and if tfie City of. Homestand chooses to use our service for peaking purposes then thl's 60% demand ratchet would increase tneir charges. 'This rate also carries with'It a F-year ' Initial term at each point of servMe with a 4% discount for transmission service. Al. TERNATE 5 FCR SERVICE TO CITY OF HCMESTEAD , . Altnrnate 1_ Continue to serve Homestead on our $R Wholesale Rate for a period of
$ years. If Homestead would combine to one point of delivery, it ,could l
cvoid the demand ratchet by taking continuous service. During the year : 1 1972, the application of SR Rate to the Tennessee Tie would have indicated However, on cn 2% decrease over the Rate WH (12 me, ceatinuous use).
~
ths BiscayIu Tie there would have been a 66% increase. caused by the demand' rot chet (I month 5 days use). While plans are being formulated by the City of Homestead for a tecnsmission' tie with our system,and additional generation capacity, the SR Rata would be ideal for serving partial *oad on a continuous basis. . A1tornate 2 Negotiate standard interchange agreement with Homestead similar to I.. that presented to City of Fert Pier e including Schedules A, 8, C, 0; and l4 E. Ve have already on file with the FPC similar contracts for I.ake Vorth (inactive), Orlando, and vero Beach, except schedule E is not included. 8
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- 209.142 .
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Alternate 3 - p ,
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Fire power under an Interchange agreement is made only when one party, . saller, has excess capacity and the other party, purchaser, has need for . . 8 The rate, negotiated at the tlac of sep; rate contract, would be same. cotablished on the revenue requ red to furnish this . firm power during a.
' finite period (12-36 mos.) Since this p:n er Ts considered excess above thn normal needs of our Company, the price or rate established would reflect this condition. '
( l Ve have not sold firm
- Interchange ' power to any customer for s period ,
cf 12 months or longer even though Schedule D does appear in several of ; laterchange contracts. .
- Vithdrawal of Rate Schedule SR from Homestead and file emerge,ncy delesa'le r te (EMS) with the FPC at a rate substantially higher charge than the now existing SR. This would be emergency nervice supplied to wholesale customers, "when needed," and would be a different type of service than interchange emergency service which is supplied to the other pcrty "If available." .
i l l POTENTI AL PROBLF.MS l Afternate l_ I SincetheCityofHomstead5asitsowngeneration,liw!11probably not be satisfied taking our service on a continuous basis and will wish to use our service for " peaking purposes only." This rate is somewhat . g.. higher than our Steam Interchange Rates supplied on an "If available basis," . l et about 10.5 mf: Is per r!H; .% wever, Interchange power suppired by gas Vi y turbines averages about 21 mills per KtH far above the rate SR level. , i. Upon fi.ial settlement of this rate level by the FPC, it will probably be
.O In the neighborhood,of 12.5 to 13 altis per K.H.
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. Iq1=c21)p. 36.
209143 O . Altarnato 1 / Inte,rchange agreement with Homestead, as well as New Saiyrna Beach, . is concerned would be a one-way street as f ar as Interchange of power " i ct tha present time. Since ths Keys Coop, as well as Clay Count.y Electric, clso h ve partial generation, maybe they w uld request an Interchange agreement, for they could sell' us as much power as Homestead and.New Smyrna . Be ch, which is zero. . If we had no power to sell to Ncw Smyrna 8<.ach and Homestead on an interchenge agreement, then could we transport power from other sources . .. such cs Tallahassee, Lakeland, etc.? Does Homestead have Implied access Do we have excess capacity on to our interconnected transmission system? our system to carry this load without endangering service reliability to . '- Is it "to the public benefit to have our retail and wholesale customers? Homestead and New Smyrna Beach municipal systems operate as an isolated systen or join .n r the benefits and/or responsibilities of an Integrated trensmission network system (Florida Pool)? Will FPL, have' excess generation in ths foreseeable future and should snis capacity be allocated to firm Intarchange? The above questions are some that should be considered under Alternate 2. l Tha legal implication are enormous. . l Afternate 3 A new rate schedule designated as " Emergency Wholesale Service" would initial f!!!ng and would not require hearin;;s If f bs filed with FPC as an lli
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both parties, or other interested parties, agreed as to 'the rate level and *
'it
. o, cpplication. This rate level would be "above" present wholesale rates. , is o
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L; A- . - L v o< 7,) f c 7 o f m a . . . 209.144 ,
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O . GOESTED ACTICH /
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anennta 1 . soll Homestead on one point of delivery, continuous servica, on - . e' alcsclo rate untti transmisslor, tie can be made and capacity available , e intercha'nge flow of power. . 12nennen 2 N:gstiate an laterchange Agreement and inform City that we cannot , noit to firm power but will sell on emergency power basis schedule A Qich will average about 11 allis on steam and 21 altis on gas turbine) . any other schedule if power is available; excluding Schedule 0 expect r periods not longer than one month continuous duration at negotiated ito et time of purchase. t
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Filo init tal (new) rate schedule with FPC. , e 1 i 1 I l r: l 8 ii O . e G
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; INTER cFNct cCRRESPoNOCNc.21._ Miami, Florida ,
_ '**^"" December 18, 1973 Klein gir.W.M. Irwin
- Clark Cook /W. L.
ev. NEGOTIATIONS - FP&L INTERCONNECTION .- .
'WITH CIT'I OF HOMESTEAD:... I 1
ida A standard contract for interchange service between Flor ida, Power and Light Company and the City of Homestead, 5, 1973. It.Flor was presented to City officials on October 2 ld on November 28, was reviewed by the city and a meeting was heMost differences 1973, for clarification of several points. thers under were resolved at that meeting, but FP&L took the o ' consideration. 19, 1973, meeting for , We agreed to several changes1973. at a We Decemberof don' t anti- FP&L perso - i presentation the week of December 24, , cipate any objections from the City. ild the l In summary, th, City's position is that they will bu d switching stat: on to FP&L specifications at their i iscost anThe City e maintain ownership. over completed. three existing ties until such time as the i stats onAt that tim served under Rate SR through the interchange ilable schedules f acilit es, a well as being able to take advartage of all ava In other words , the City ' under the interchange agreement. SR and the Interchange ' will be served under two contrac'ts: Agreement. l l when Engineering has no objection to operacing in paral e ! the switching station is completed is } i i There will be some difficulty in billing when the C ty gree-receiving service on both SR and any schedule under tne a ment, but we f7el that this can be worked out within our . Engineering and Rate Departments. O . e4 v.. N'*/ COURT 5:Y '.ilHS FR* EHC5 . Fca v1.0. tcA Fon Youn C;MPAHi...FCR
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270865 ) / O Page Two Dr.cember 18, 1973 Mr. W. M. Klein The key to the signing of this agreement is FP&L's willingness to ecmmit to serve the City on Rate SR after the interchange is completed and in service. Thera is a question of whether(We or not to put oppose thissuch a conziit-because we msnt to the City in writing. circady have a contract to serve them on SR and the agreementdoas no Approval of this "two rate" approach is recessary beforefinalizing the inte .
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MCC/WLI/jn e o O
Ek (% T-aky.j p T u y % I UJ5 12/23/73 208304 .
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. I SERVICE TO CITS.' OF h MESTEAD ALTEFNATIVES e
PRESENT STATUS City is receiving service at three distribution points, Three n- 13 "v, --A Y ' -d ca r wto sc5: btle *3'4, ?*5jact to +ef"nd jea venclu:.;:.sa ef h.a;. ..gc haforo todnal ruccr C.:a.aission. City has received centinuous service, over twenty-four months , at cae point of Jar tica and has used the other cwo points for The demand ratchet peaking service durir.; the summen months. in rate SR would charge the City at each point of service with Investment in plant ! demand charge even though disconnected. facilities is maintained by FPL; and, therefore, we should-
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receive revenue there* rom. transmission City desires an Interchange Agreement with FPL at The present voltage for parallel operation of the two' systems. problem being that the City cannot generate enough power to i satisfy its own summer peaks, June through October, and, there-fore, could not interchange power with FPL except possibly l during a few winter months. \ \ , . lI f ALTERNATE I i l Sign Interchange Agrca. rent with City to become effective upon I completion of transmission substation to handle interchange of i During this period, City () power (approximately *wo c years). I i would receive service ndor our wholesale power rate SR with e s e e e e* e y .--=.-----g. g $$* ----,-n-% y -p. --,,--7-M- ~ - - - - v--- -- e
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- 1. ~ 1 - . : .r 2 , C ntinued 209335 ?.ge 2 s
tha cac tanyi..g Term and Conditions. The City would alse':rically isolate about 12 Fi; of its system for servi:e en S R : :.:2. The rtmain6.:: of system would be serviced by City's gencession. Upon corpletion of interchange tie, City would
- nt . cia with se :srate service en rata SR (12 .W) and inter- ,
; . ; T -.s r e i ch e L : . :.a. /.d.) : O f .:y: '.cn $3. ..si-W..:n 2jacity) until at such ti=a the City installs generating ,
espacity to handle entire system. At that time, we should i ciscon-inue wholesale service. 4 t l 6 i 6 ru :. . .L. . ., ax . . S.7.gn Incarchange Agree:1ent with City to become effective upon concletion cf tie. Continue on SR rate until tie completed then disconnect all points of ielivery. City could then buy pc ter on interchanga rate schedules from I?L on an "if available" schedule (not fir = power Schedule D), or buy firm or interchange ! pcw,2r f ec= se=2 other utility which is electrically tied to F?L l sys am Giheeling) . Since the City does not have adequate ) graneration to .cet its cun needs, it must receive firm potter durin; the sucmar menchs. F?L would not be abla to supply pow-er during peak periods, therefore City could buy from third
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! Iie.n ntarch2nc.e Agreenent effecti/e u;on cenpletion ef tie. l l A. th=0 time, withdraw rate 3R and serve City on Schedule D t.:irn ;cuar) at a rate negotiated at that ti- e fcr a stated
'; c. -9 . . 2 to 36 conths) . This would be negotiated with the l
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CN C4 l~&)f' N & Alternate III, Continue 209336 "*S* 3 O intent of the City to complete the installation of additional generating capacity to meet its own needs and specified dates. Also, FPL must have capacity available in excess of that required to serve other customers both wholesale and retai4
- _. . .2.5 1V Purchase or lease, entire electrical system or cer.mit to serve entire load under rate SR and purchase existing generation capacity from City.
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- Note: The present energy crisis favors large generating unica and would restrict the user of diesel units because of high heat rate and user of middle distillate fuels.
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.. . FLORt0A PCWER & UGHT ' COMPANY
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'270'8.93 -
January 15, 1974
. City'of Ecmestead
% 's Homastead, Florida ,
0.. . Attention:
- Mr. Olaf Pearson
' City Manager .
Gantlemen: . The purpose of this letter is to clarify'the intent of both FPL
'and City of Ecme-tead with respect to the Interchange Agreement * ~ ' dated January, _.,74.
The City will continue to receive service under the Company's i -- wholosale rate schedule SR until the completion of the interchange
~ facilities, scheduled for March, 1975. .
.The Company will furnish electric power to the City, not to exceed tha total kw demand purchased at that time, for a period of 36 months from the completion date of said facilities. The charges
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for such energy shall not exceed those of the Company's approved wholesale rate schedule in effect at that time or any Company rate
. gehedules subsequently approved for wholesale electric energy.
It is further understood that the City will pay for the interchange i
. facilities, and that after'the interchange is in effect the C tywill maintai
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facilities. ..
, 3 l'
If the foregoing correctly sets forth our understanding, please co indicate in the space provide' on the attached copy of this i- lotter. ' I Yours truly, . .
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P] R. './ Mulholland l '3roup vice President
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46@em c-a T . s b l-a.J.UhA"_5.5551CY ' TfLTF4CHMc_Av.g . 7_g [ #1/5(FOR '- . L T v2 EMERGENCY . 2. 50"NITMIN MIN. = p,1ERGENCY= LNADVERTENT.09 IrlTERCHANGE.T UTI(!ZE MIN ALL CHNEDJ,z oi 7 FACILITIEF i
- 3. 44 HOURS MUS A) . OR REVERT TO SCHEDUIj APPLIES. '3.
270ggk... . 230 DA, SCHEDULE"$ (3) - - f. ' J. II. PAYMENT. . (EXCLUDING Opf!ON,3Y SUPPLIER - EITHER ..' RETURN I (A)) (3 PLuS ONE MILL / NET WH; . 2.L.) PLuS)101,JF.A COST SUPPLIES BY PRODUCTION ~
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.- f/100 MILL. " .. .
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DEPARTMENT. .
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ANGF SFRVICE .- .
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- DLU F "B" - SCHCDUlFD INTFRCH .
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1.' ROUTINE SHORT TERM.
- OR EMERGENCY OVERHAUL AN
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.P NOT APPLICABLE ;<..:~ TO SHORTAGE DUE TO 9
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50. INTEGRATED CLOCK HOURS)". PER. . DAY . FOR '
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- 4. .DEMANDADJUSTMENT:
ENERGY: SAME AS SCHEDULE "A .HO .- .-C . CHARGE i BILLING ADJUSTED DOWN TO .. LESSER .
'?.IN.b.I....$-.!. FIGUR
. UNA3LE TO DELIVER CONTRACTED '. i- .
AMOUNT. .
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FRG'Y INTFRCHANG$. .
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_HFDiftP"C"-FCOHOMYFN QUATE - ' ' .. 1.2.' -LOwsR MUSTINCREMENTAL COST WILLING TO cuY HAVE ALTERNATE DEPENDABL
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RESERVES. # PAYMENT =' +E (3 = 1NC. COST OF {A = INC. COST OF UYER)) ELLER TIVE COMMITTEE
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COST CALCU! ATION i. . . 'ADMINIS c: h~ DETERMINED
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REPRESENTATIVES.-
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COMNITMENT' BETNEEN '30'/ER AND '
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l'. .- IF AGREEABLE.
.. DOCUMENTATION. ..
BUYER' S ADVANCE DAILY SCHEDULE.. MAXIMUM TE l -:2. CUMENT .- 60 MIN. !. 3. . r 4. PAYMENT - NEGOTI ATED AND , w , g STIPULATED
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INTEGRATED CLOCX HOUR. . 2D1K FM%.SQC0@p1Y_c1ER'iyAfa y.g. y (ILAB A CLUDIN'G ALTERNATE
- 1. NON-FIRM ENEP - . q cA.P4 t", ,
.CLUDES Fio' T.M4TMENT.
2, MUST HAVE ALTERnAT
$ESERVES,WHICHrluST STATE : TF FOLJ,,0W44 l '
J. '- A PEgg..cs.-rrME. - l S IOTAC',,R EQU I R EMENT . \. - . (_' CV 3UYER' S FORECASTED (DEMAND.,NO DFMAND CHARG'E).
,j,.d AYMENT:' POSTED PRICE s . .
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-. . . O AMENDMENT NUMBED CNS TO CONTRACT ,
FOR . 1[) .INIERCHAnaE SERVICE BETWEEN 2'708pu FLORIDA POWER & LIGHT COMPANY . e ARD . CITY OF HOMESTEAD, FLORIDA . da'y SSction 0.1 This AMENbPENT, made and entered into this
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g LIGHT COMPANY, 1976, by and between FLORIDA PCNER & 3 of __ , 3 a private' corporation organized and eSisting under the laws of the CITY OF HOMESTEAD 4 State of Florida, herein referred to as "FP,L", and tF J i5 FLORIDA, a municipal corporation organized and existing 'under the laws ~~ collectively 6 of the State of Florida, herein referred to as " CITY", 7 hereinafter referred to as the parties; WITNESSETE
. s.
1 I l3 Section 0.2 WHEREAS, the parties entered into an agreement dated l between May 1, 1974, entitled, " Contract for Interchange Serv ce l i 9 l and 0 Florida Power & Light Company and City of Homestead, Florida"; , section 0.3_ WHEREAS, the parties deem it desirable to amend certain Al 32 sections of Service Schedules a and'B thereof in order to more ' 83 accurately reflect actual opsrating c,osts appropriate for their 84 respective facilitie's; and 15 Section og WHEREAS,"the parties deem i.t desirable to terminate 16 Service Schedule E thereof.
'17 Section 0.5 NOW THEREFORE, in considera' tion of the foregoing premises 18 and the mutual benefits to be obtained from the covenants herein set <
19 forth, the parties do hereby agree as follows: . C:) . l
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Section 0.6 Section A2 of Service Schedule A of said agri.eme,nt is eby amended in accordance with Supplement Number One to Service Schedule A, which is attached hereto and made a part hereof. 270844 Section 0.7 Section B2 of Service Schedule B of said agreement is - hereby acended in accordance with Supplement Number One to Service i Schedule B, which is attached hereto and made a part hereof. Section 0.8 The amendkd Section A2 and 32 of Supplements to Service , Schedules A and B attached hereto shall become effective and super-seds prior existing Sections A2 and 32 upon execution o.f this Amend-I I ment Number one ,and upon simultaneous execution of said Supplements. ( section 0.9 Service Schedule E of said agreement is hereby. terminated, effective upon execution of this Amendment Number One". Section 1.0 Ssve and except as hereby expressly amended all terms , and conditions of that certain agreement between the parties dated i l May 1, 1974, shall be and r'emain in full force and effect. . ., t IN WITNESS h~dERICF, the parties hereto have duly eNecuted' this l Amendment Number one on the day and year above first written I ATTEST: FLORIDA PCWER & LIGHT CCMPANY J By By Vice--President Secretary CITY OF HOMESTEAD, FLORIDA ATTEST: City Cler)c Mayor l
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C /( - (.47- 4),0. l'7 "[ _ bk Suppi.cment Number One to SERVICE SCHEDULE B 270945 SCHEDUL"D INTERCHANGE SERVICE For Scheduled Interchange Service Section B2 - Pavment for Service _: , mnda available by one party to the other, payment shall be made at based on the most the rate or rates below.. Prices for this service; recent cost data, shall be. readily available to the other party upon request. , Pavnent - Buyer shall pay Seller for Scheduled Interchange Service as follows: - B2.1.1 Demand - . (a) For Scheduled Interchange Service made , available by the CITY to FPL, FPL rhall pay .tio the CITY a daily demas.J charge equal =1 to S50.00 per MW for each MW of billing demand. p (b) For Scheduled Interchange Service made , available by FPL to the CITY, the CITY shall pay to FPL a daily demand charge equal to
$50.00 per MW for each MW of billing demand.
B2.1.2 Fossil Steam Enercy .' For energy supplied from ,
-an assigned fossil steam generating unit, an amount per MWh delivered equal to the sum of the .
following items: Replacement cost of fuel used to generate
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(a) f
- the energy, in dollars per million'BTUs, f 4 0
e
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i cA- - c.%/- M)p fr y 5% _
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' - 270946 > :
times average net operating heat rate ,of the unit assigned to generate the energy, in million BTUs per net MWh. Replacement cost of fuel is defined as the average invoice cost . of fuel for fossil steam units, excluding gas, that was received at the respective plant during the month in which the energy was delivered (hereinafter referred .to as the
- " delivery month") , including average trans-I portatien and handling costs. If there were no shipments received at the respective plant _
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during the delivery month, the Seller's contract price for such fuel plus average ( transportation and handling cost shall.be ' i used. Average net operating heat rate is defined as the unit's average net heat'. rate f or the delivery month, the calculation of which is based on fuel consumption only during . operating periods with gas consumption, if any, being adjusted to an oil equivalent basis. 2 . l (b) 12-month (ending month preceding delivery month) average fossil steam production operation and maintenance expense, excluding fuel, for the plant of the unit assigned t'o generate the energy. . i O . i - - - - - - - - - - -
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70947- *
. . o (c) Comeensation for transmission losses equal Q to 5% of the sum of (a) and (b) abova.
(d) Administrative and general expenses as
- allocated to interchange energy charges,
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based on the most recent fiscal year data. (e) Transmission operation and maintenance expenses as allocated to interchange energy . I charges, based on the most recent fiscal t - . year data. 32.1.3 Combustion Turbine Energv - For energy supplied . f from an assigned combustion turbine (c'r diesel) ~ ~ ~ ~ plant, an amount per. MWh delivered equal to the sum : of the following items: . (a) Replacement cost of fuel usek to generata .
- the energy, in dollars per million BTUs, ,.
times average net heat rate of the r canbustion turbine (or diesel) plant assigned to generate the energy, in million BTOs per net MWh. Replacement cost of fuel is define'd as the - i average invoice cost of fuel for combustion j
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{ turbine (or diesel) uni ts , excluding gas, that was received at the respective plant during the delivery month, including average trans- , portation and handling costs. If there were no shipments ' received at the respective plant during the deslivery month, the Seller's , O _3 . e
. _ . .. _ _ . _ _ _ _ . --n--. _ r. ___
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1
w.n. - uqic,<yj p. q ' 270948 contract price 'for such fuel plus average t=ans,oreation and hend1ine cose shali be usee. c O a Average net heat rate is defined as the plant's average net heat rate for the delivery month, " the calculation of which is based on total , fuel censumption with gas consumption, if any, being adjusted to an oil equivalent basis. . , (b) 12-month (ending month preceding ' delivery month) average combustion turbine ' operation and maintenance expense, excluding fuel, for the plant assigned to generate the energy. , (c) Compensation for transmission losses equal to e l 5% of the sum of (a) 'and (b) above. (d) Administrative and general expenses as - allocated to interchange energy char ~ges, based '~ on the most recent fiscal year data. 3 , (e) Transmission , operation and main'tenance expenses as allocated to interchange energy ch rges, . ( . based on the most recent fiscal year data. Each year, prior to May 1, the rates for B2.1.2 (d) and l i (e) and B2.1.3 (d) and (e), ab'ove shall be reviewed and ..
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updated by the parties. Such rates shall apply for the succeeding year. ..
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r Billing demand hereunder shall rean the single maximum . 60-minute integrated power demand expressed in MW, which
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the seller agrees to furnish and the Buyer agrees to pay .
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O . M no o ao , e n-- e s om eme ao e* e6***M"**
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qwr m ig t- w t aww w- The tima _ for in accordance with this Service Schedulo B. intervals for determining the 60-minute integrated power h demand shall be between the clock hours. Unless' 'ot erwise q the billing demand adjusted as provided hereinafter in B3, will be the Schedule d Interchange Service Commitment between the parties hereto in accordance with Section Bl. ' B2.2 Start-up cost - If the Seller is required to start up a fossil steam unit (s) to supply Scheduled Interchange Service, the Buyer shall be advised and any additional co'st so incurred shall be included in the payment schedule in A2.1 above. . . B2.3 Purchased Power Cost - If the Seller purchases energy from other parties for the supply of Scheduled Interchange Service, _ _ the charge reflected in the payment schedule provided pur-suant to B2.1 shall be: Seller's cost.of such purchased , energy, plus compensation for transmission losses equal t'o 2-St of said cost, p3us items (d) and (e) of' B2.1.2 above. , s t FLORIDA POWER . T,IG*dT COMPANY EST: 's . By l Vice .-resident , Secretary , C ITY OF HOMESTEAD, FLORIDA l .'IST: . .
== - . . - - - , -
. Mayor _
City Clerk O
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. EX. -- ( G T-M) Sp q' % __
Supplement Number One to ,
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s=av c= scarootz ^ - O - 270950 EMERGENCY INTERCHANGE SERVICE Section A2 - Payment for Emergency Interchange Service: _ _ Emergency Interchange Service zeceived by either party shall, at , i
'tha option of the Seller, be accounted for: , (1) by return of the
, energy withi s the curreht billing period in' kind at mutually agreeable
! timas (i.e. , when the value-of the capacity and energy to the party
' ' which supplied the emergency interchange service is substantially ! cquel to the cost of the corresponding capacity and energy delivered); , or (2) by payment at th'a rate or rates below. Prices forfthis' _ ' service, based on the most recent cost data, shall be readily available , to the other party upon request. * *
- s A2.1 Pavment - Buyer shall pay Seller for Emergency Interchange Service as follo s: .. !
A2.1.1 Fossil Steam Enerev - For energy supplied Yrom an assigned fossil steam generating unit, an amount per MWi2 delivered equal to the sum of th,e following items: (a) Replacement cost of fuel used to generate a the energy, 'in dollars per million BTUs,- ' times average net operating heat rate of the unit assigned to cencrate the energy, l'n million , I BTUs per net MWh. Replacement cost of fuel , is defined as the average invoice cost of fuel for fossil staan units, excluding gas, that s was received at the ' respective plant during
~
e 1
.- - - - . . - . . . . . ~ . - . . . - - , . - . . - - . --
~
w i,- m. y i g. .
~
270951 the month in which the energy was. delivered (he :einaft'er referred to as the " delivery month") , including average transportation and handling costs. If there were no ship-ments received at the respective plant during I the delivery month, the Seller's contract price for such fuel plus average transpor-' tation and handling cost shall be used. F F. , ' ' ~ Average net o'perating heat rate is def4 ed as the uniti,s average net heat rate for the delivery month, the calculation'of which .is
- based on fuel consumption only during oper-- . . - - .
- y. -
' ation periods with gas consumption, if any, being adjusted to an o Te ui,ra-1 ' -nt
' -basis.
.( b) 12-month (ending costh - preceding delivery ,.
month) average fossil steam production operation and maintenance expense, excluding I fuel, for the plant of the unit assigned to t generate the energy. (c) Compensa, tion for transmission losses equal I ! to 5% of'the.** sum of (a) and (b) above. 1 (d) Administrative and general expenses as . allocated to interchange energy charges, based on the me.t a recent fiscal year data. t I O m x.
-- . _ . . _ - -" JL" .7. C- - - _ _ - _ . . _ . - , . - . . _ _ _ . - _ _- - . . - _ . . . .,___ ,
t D* (k ?- AV e kj bb _ 270952
~
(e) Transmission operation and maintcnance M expenses all allocated to interchange anergy 3 charges, based on the most recent fiscsl a year data. .. . 5 . A2.1.2 Combustion Turbine Enercy - For energy supplied 6 frem an assigned combustion turbine (or diesel) l; 7 M plant, an amount per IGh' delivered equal to the sum 3 [ of the following items:
.9 _ (a) Replacement cost of fuel used to generat'e. , .0 J(#- the energy, in dollars per million BTUs, 1 times average net heat rate of the combustion 2 turbine (or diesel) plant assigned to generate i
3 the energy, in million BTUs per net 2Gh. . 4 Replacement cost of fuel is defined as the 5 average invoice cost of fuel for combustion '~ t 5 turbine (or diesel) units, excluding gas, 7 ' that was received at the resp. ctive plant 8 during the delivery renth, including. average 3 transportation and handling costs. If there were no shipments received at the respective
.l .
L plant during the delivery month, the Seller's 2- contract price for such fuel plus average , 3 transoortation and handling cost shall be used. 1
.1 Average net heat rate is defined as the plant's 's average net heat rate for the del'.very month, the calculation of wr.ich is based on total '
O- .
~
l c' A - L4 7- 4) p. 37 bg' 34 _
. 270953 . - fuel consumption with gas consumption,8 if -
any, being adjusted to an oil equivalent basis. k{} 3 (b) 12-month (ending month preceding delivery 4 month) average combustion turbine (or diesel) 5 operation and maintenance expense, excluding. 6
- ~ fuel, for the p'lant assigned to generate the s .
' ~
,7 energy.
8 (c) Compensation for transmission losses equal 9 to 5% of the sum of (a) and (b) above. . o . (d) Administrative and general expenses as 1 allocated to' interchange energy ch'arges, based
.2 ~
on the most recent fiscal year data. 3 (e) Transmission operation and maintenance expenses ,
- 4 '
as' allocated to interchange energy charges, .
.'S basNd on the most recent fiscal. year data. '~
1-6 Each year, prior to May 1, the rates for A2.1.l(d) and
.7 -
(c) and A2.1.1(d) and (e) above shall_be reviewed' and _ updated by the parties. Such rates sha11' apply"for the
~ )
8 3 succeeding year. . O A2.2 Start-up Cost - If the Sell,er is required to start up a , 1 fossil steam unit (s) to s,upply Eniergency Interchange . 2 Se rvice , "the Buyer shall be advised and any additional . , 3 cost so incurred shall be included in the payment schedule 4 in A2.1 above. . 5 A2.3 Purchased ?cwer Cost - If the' Seller purchases capacity 6 and/or energy from other parties for the supply of O . _4_ o 1 .
wt-*7);P a c; b -
'= 3 _
270954 .. lg Emergency Interchange Service, the charge reflected 2 in the payment schedule provided pursuant to A2.1 shall 3 be: Seller's cost of such purchased capacity and/or 4 energy, plus compensation for transmission losses equal. 1 5 to 5% of said cost, plus items ('d) and (e) of A2 '.1. 2
~ ~
s above. . ATTEST: FLORIDA POWER & LIGHT COMPAN'l
/
Sy By Secretary - Vice President ATTEST: CITY OF HCMESTEAD, 'FLORIDI -
- 1 .
By By - City Clerk Mayor , 5
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1 t O l l I i Exhibit GT-34 (S1. Op. at 23; 32 PUR 4th l at 329) i ( I
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R-1.1Cs (CT-34) 1 4TER-OFFICE CORRESPONDENCE 120239 d f
. toc.Arior. Merritt Island To Mr. L. C. Hunter, Group Vice President omre . September 10, 1976 ree. Mr. T. R. Moffett, Jr. - NCD ce,,es vo "
ouweer. VERO BEACH DISTRICT . ENGINEERING REQUIREMENTS e The impact potential of the Vero Beach acquisition on the franchise election in Daytona Beach and other Municipal operations such as Ft. Pierce, Homestead, etc. makes it imperative that we not under achieve with our Vero Beach operation. Engineering paper-work is so complex that it requires an extensive training period for even qualified personnel to master. We need to staff the Vero Beach District with trained engineering personnel. The list of personnel that will be offered positions with us shows only two people that might be considered enginecring type and their caoabilities are extremely doubtful. We have trained engineering . personnel on hand . hat are scheduled to be separated at the end of this year. Notices should be withdrawn on five of our trained Engineers and/or Technicians to provide for the needs of the Vero Beach District. Taking on the Vero Beach personnel will no doubt result in excess personnel . We propose to schedule implementation of TLM in the Vero Beach District during 1977 to obtain optimum persunnel utilization. We would prefer to over achieve in the operation of the Vero Beach District than take a chance on fallint :,hort. (
, r --
.S- ;
, (3% C CM s- -
,i Division General Manager TRM,JR:HRL:bbe !
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- 209823[, cohrE-EXEC
- . 4 ( (~ '
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JUN 81976 U Miami, Florida i June 4,.1976 e* -~'(GI-3ff l*
.J 2 3 .7" TO: Mr. R. G. Mulholland
/
AI FRCM: Tracy Danes 4 d,. r RE: Interutilit" Task Grouc . The following is a list of areas in which I feel that I personally need some updating from others of the Group. Also, there are items in which I am involved which affect others and which perhaps need to be updated to them. If each of us in your Group can go through sort of a "show and tell," it might provide us with an overall understanding of where FPL is now in regard to its relationships with other t .t ilities . I believe that we need to know where we are presently befcre we seriously address the questions con-cerning where we want to go in the future.
- 1) South Dade Intervention: FPL has advised all systems expressing interest in sharing South Dade that it (FPL) will utilize the entire capacity and not offer South Dade as a joint venture. The Justice Department;has completed the antitrust review and advised the NRC that the NRC will have to determine whether or not public hearings are necessary. The letter was ambiv-alent and it neither found any violation to the anti-
' t r u.s t law nor did it s tate that there. were no 'vlolations" '
or practices inconsistent with the antitruct law. Twenty-one municipal 1 ties have filed a joint intervention c,laiming part of South Dade due to monopolization, etc., on part of
. FPL. Seminole Electric Cooperative and its member coops have filed a petition for intervention. FPL has responded denying that it has violated the antitrust laws or acted inconsistently with the policies of those laws (whatever that policy may be) . Lead attorneys are Jack Mathews and Lon Bouknight. The matter is presently in the. legal pleading stage. The next stage will be discovery pro-ceedings. FPL individuals who will be directly involved are: Ernie Bivans, Ralph Mulholland, Tracy Danese, Ben
(]) Fuqua, Bob Fite, Dick Fullerton, Bob Gardner, Harry Page, Orin Pearson, Ted Blount. The firm of National Economic Research Associ~ation has been retained by Lon Bouknight's
Et.-__.cg_q l J - 209824 A363-po . () Mr. R. G. Mulholland June 4, 1376 L) (,//
, Page Two j .
firm as economic consultants. Likewise, I have submitted a requ est for approval to retain Dr. Jay Kennedy as an economic consultant also. The FPL manager of this matter is Tracy Danese. In my absence during June and July; rha . matter will be managed by Ted Blount.
- 2) S t'. Lucie 2 Particication Acreement: FPL agreed with Justice Department that New Smyrna, Her.estead and six cooperatives could have a " reasonable" entitlement of the capacity of St. Lucie 2. The agreement has not yet been implemented. A draft participation agreemen: has been circulated throughout the Company and is being finalized by Tom Capps and Lon Bouknight. This draft has not been submitted to potential participants as of yet. The issue of whether or not FPL will deal with Seminole exclusively and it act on behalf of its member cooperatives is still unresolved. Our main concern is that of fina*ncial responsibility in regard to that issue.
We have of fered New Smyrna and Homestead two megawatts each. Both have tentatively accepted but their acceptance is equivocal and attempts to reopen the full negotiations. , Individuals of FPL directly involved in this matter are: Tracy Danese, Ralph Mulholland, Ernie Bivans, Lloyd Williams, Joe -Howard, Will Coe, Ken Buchanan, various individuals from Nnclear Affairs.
. . , _s Questions to be resc1ved are:
a) Reserve, b) Delivery Service and Charge, c) When participants must commence putting up money, d) Role of Seminole Electric Cooperative.
, 3) Crvstal River Wheeline: The person primarily responsible is Ralph Mulholland. To my knowledge, FPL is responding ,
to most recent letter of Bob Bathen. Lloyd Williams is looking again at cost of service and will determine, among other things, whether or not Bathen had good points in his response. This matter will have ef fects on future bilateral {} wheeling arrangemen'ts when and if they occur. FPL har
Gr. (cT-.2y) 209825 . 1 db5 (_- ' (]) Mr. R. G. Mulholland June 4, 1976 Page Three p - committed that in the event of a joint venture in north
, Flor ida, it will undertale to transmit power over its system from such a joint venture to participants therein who are located within the FPL transmission system. This commitment encompasses only bilateral arrangements.
- 4) Georcia-Florida Tie at Kincsland: The p~erson primarily responsible is Ernie Bivans. To my knowledge, FPL entered into contract which has been consummated for the purchase of sixteen miles of transmission, in conjunction with that contract, FPL agreed to certain matters having to do with wheeling of the power over a proposed tie to Georgia for JEA. I do not know the exact status at this time. The persons involved are: Ernie Bivans, Lloyd Williams, Tracy Danese, perhaps others that I dc not know of.
)
- 5) St. Johns County Discute - JEA & Jax Beach: JEA and Jax Beach engaged in a territorial dispute pending before PSC.
St. Johns County Commissioners want FPL to serve ' disputed area. FPL not directly involved. I assume the person directly responsible is Ralph Mulholland with Howard Rowlett being the man on the scene. JEA (Ron Snyder) . advises me that they hope we are staying out of the matter and th.at,,, we do not srart getting involved behind the scenes. At present, he is sure we are not involved and does not have any bad feelings for us in that regard. The PSC is not directly involved insofar as the matter concerning FPL. However, St. Johns County Commissioners are trying to get the PSC to take some stand regarding FPL service in the area. FPL has a territori.il agreement with JEA which governs, to an unknown extent, what we may or may not do 4 in this regard. Persons from FPL directly involved are: Ralph Mulholland, Howard Rowlett, Ken Daniel.
- 6) Central Florida Joint Venture: FPL initiated discussions on a' proposed nuclear joint venture. The basis of these f')
discussions is that if the other systems in the State wish to develop a true Joint venture, FPL will cooperate. At
-AT-
~
G.N. 20D826
" p.rps l
( Mr. R. G. Mulholland n s-June 4, 1976 Page Four k, 1 V . / . a minimum, FPL will provide its engineering, environmental and nuclear expertise on a fee basis. take to provide transmission service for FPL will also under-participants in such aour within joint venture where transmission those participants are wholly system. FPL has not a build transmission capacity for this purpose. greed FPL will to consider taking a part of the output on 'various bases. A ' steering committee has been formed consisting of: JEA, Seminole, Florida Gainesville, FPL. Pcwer Corp, TECO, Orlando, Tallahassee, for FPL has been Tracy Danese.Thusfar, the person primarily responsib Mcwever, in my abs'nce,e the matter will be in the charge of Bob Gardner. Other FPL people directly involved are: Orin Pearson, Bob Uhrig, Jim Dager. Bob Gardner, Ernie Bivans, will undoubtedly be involved in the near Other FPL individuals future. 7) FPL Intercennection Aareements: As I understand it, FPL is trying to approach uniformity in its interconnection ' agreements. assisted by Ken The matter is primarily handled by Will Coe Buchanan. that seme, It is, complicated by the fact if not all, of the interconnection agreements have been rejected for various reasons (mos tly ' procedural, I think) by the FPC. Harry Poth and Bob Hall are- the lead 4 attorneys.
- FPL individuals directly involved are: Will l
I Coe, Ken Buchanan, Lloyd Williams, Ernie Bivans, Ralph Mulholland. 1
~
* -- -- %Tn*- '
8) Resconses to C'.her Svstem Procosals for FPL to Purchase: ! The person primarily responsible is Ralph Mulholland. Other FPL individuals involved are "a cast of thousands." l TD:m' I __ . _ , _ . . . . _ . . . - - - - - - - - - - " ' - ~~
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M D. pod @n M b. - ine%eCaty llall med p.wi ..me.nced en.na., e mono. f nc. n.uon eodayot! uo M'c'I"o"s*c'$ It,'."s2.n's 7, ,f,; . . . . .. 3 al.e sale nt the nnes pas.healde tu l'f ant to the lituadnatang Co. ECEI). ., ubish the city owes to 01:8 for pur. ifor other uses when the debts are 'the 11 S Justice Depastmeurs anti.
. trust division. . -
t .- pt.ut. .id< h in renent scars kas a sir $tI.,.*e'd ' N ' thortsinglhe sale of the plant laosu will bep'escated to City Council within "*hased ce*er. 58 m'8Haa * *uld enussdered he ;p dde Imastclal dssaster ec e several weeks . . . . . . dedutted the 538 5 mHhen pay. .,8 - The mayor said the annual pay. . fitUl ta tie negattathd ere the avus- the c H y. . , 7'3
- t)nder terms of lhe sale ptoposal encnt and the remainder would be .
' Perk. City law Dhector V6ncent announced by re-s k, the city. would . betueen siew and the year 200G. p rnentsof $4 uuthonwould La Idsedused to h n. ber h M elW launy w Is 1.tcht
% 'u%Wm wesLers %dne to be l Camnenetta and CEI offklats were receive en Inunedsate payment of - l'erk said the $38 5 ml1 Hon would P"II " " # "I **"#'#'** . deal that many. U mot all, el the 348 posed. el.e eliy ls e spected to dre "
meetmc et CHy itsil Ihas morning to $38 5 mitflon The hahence would t.e h uwd to pn Shney's debts, hertud- . 'the icniative screcenent. widch is Stuny empte3ecs seuld be set.sincel 8121 enelhem entHrust salt CV8. which is pendfag to fron eest Imal dttaata of lho Stuny . paid at the rain c' 14 milbon asuiual* Sug about $14 milt. oat to bonethold. ' capccted to encet httle reOstance in by C8:f. - J ers Ife 6.sid the city would prob.dity Council. is also sub)cet to approval,. Also bcInc discussed is the eate 1)cht saln * ' . ,
,1y for 30 years. .'
from the CEI t.oard of directors and stuch Cleveland would pay for tight ' Ceest.
- Turule i '.Of the appresimately $18 tad!Uen ' not liese any of the funds terri.alnirig .
,ls caretted that IcC slation .. ais , .
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@r scue et Muny'150
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/ Corittauc'd freM Pace'l he[ M i, And. of couran the cHy would j etry store composed to a C@astle' top sts threats to purahaw CEl. a . supericashel chehe." -
. "- ( ~'
snove whlch Pern saed was was snade - '3 P 3" " "3"
- arne.asut,se by hech intesest rates * -I" I3"'U"8 U*' "3 i 3
. . said that as recently as thrt;e months PerL said the *tional stra.v" whic an . eco Ot'J was offering ondy $GO, md. .
f'ersisa.h d him to se11 kluny was a . hon for htuny laslate 1973 CEI offer. Ifdcealedset to st+ sad $20 mHhoes for j ed lhe city $30 tidthon, accosdang to I and tailluteen efpulsynent for Atuny . gy,g -
- I* W1.cn nfuny h d its best years no j
- luny thlet 15 much too small se one could have g:ot this nun h money t r trati a to he prefstable in t* Jay s . for esf sahl the mayor. "We will re.
s eric t y, ( sold l'erk. "If we betit is ' ceive the most money possthte for
- ra 'l intch henger at wouldel be worth '- ll o tho gitant * -
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i to,.,. , . . . , . Iloo a year over the nest 30 years,. *,'were agatast the sale, four liaid ,. CEI bnard of direttors is espected ,. $4 7 million to pay utility debts, . , , . .
. ,,g'Plant sell Cleveland's llunicipal Licht;(" Clly Council 5 President GeorCeAs agreernent le princ,ple shghdy 'lew thanY. 88 t to the Cleveland Dcctric II., U they weie undecided. ,
supported the sale and four. . to consider the purchase Sept. 28. . - 'such as wages tent 61 the salc is ' par. .s.' 3 l' .*M es 00 / luminating Co. for $153 5 million . L Forbes. [120. sant be would . .. .,,'. - com,unmaated and $4 l nullion to* . Canipaneita concede secommend approving the sale it ; The federal Justice 'Departenent? ' ' "."" ' ' P'I'"'"I * ' P27 Past of the city's debt to CCt. . 84 million a jear weg . er a b hta) alpli J. e k-
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., administration 1:gurcs.
'"'d. most al ps ove the sale. l.aw Duec-the el 's c'ncrat fue d Ins cad ' -
i an e e st of. baying y f or Vintent C. Campanella sa'.d. . .. s e
. he figure includes $5B S'sull5 because of powhle antHrust cle- 512.2 enallinn woutJ be used to pay The city owes another $19 mil. "' I'E"q'"'I' D' 'dI 8 A Plain ik'alcr Imil of auunril. nff utshty revenue tww.ds. 53 2 mil. "** "'" 't mHHoa a y ho$ en mterest. l'erk wid The city snen shomed some o,iposition to ments.
- Ison to CEl. This will be apphed I would get 838 5 milhon when final lion to schre strect lighterig notes. against the le mitflon a ) car fur to CEI and half to Alun the sale. Sesentres of the 33 coun.
- Council is espectr< tu be gisen 814 3 milhon to pay vem'nts and j agreement is reached and It mil. , .cilmcp commented. Nane said they the sale pregesal by Sept 20. The 30 ye.ars. Campanella said. This CEI would take over,a
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l ""he sale of the Enterpal Light . items such as demolition of vacant 'g
- A *~a ' . E kT *. E *, 3 .E= ji b l p! ant to the Cese!ano E:ectne !!. and vandalized buildings. im. ;2c. sgo 4 *. Q= E.r4 l Jumi ater Co. was inevitatie, prosed parks and recreation - g g 8 E; E e *A l
i
.%ny Li ht was' outmedad, too areas. expansion of runways at c:suy to e;erate and a!so one of Ceveland Hopkins It' raatier.si ,
gr o1}n 3
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the 10 t;ggest po!!uters .in the Airport and downt' improve. 04 g I ** T2 g {~d 3 gta I Creater Ceseland area. rnents. Inefuding ' renovation of F . fr 8 . 44 ? " .Y I . K = ? E r' v 4. Te ig
. - ".*'.6 . N '. . ,
- The only surprise in the safe Puttie square. f. . , .-
seas t.'e purchase price, and for It is to te hoped that CEI wil! * ?I , 9 3 0- 52
- r "
- y *T-s c . g 'C M = - _
. tiis Mayor' Perk deserves credit. te able to take the may Light ..E g 3 *.,.;; 9 M 3 2 g J:- E:? 9' = i- "
for str: Leg a. except.o-al targain - plant generators oot of service ex- g IE* Tr fg-in,e,8, g 2 a{22E E"3 C s. y n l (or Cleve'acd lat;ayers. cept for emergencies. The great . ,E E )b g *E r , I _ g E :: p - bi!!ows of black smoke that daily , ** iCEI tas agr'eed-to L pay8158.5 ' blow acress Memenal Shoreway ; 5:.4 ,2 = 2 3E g,, g ? g.:. 3 w 2, j j .,g . sg -{ g j g g, ,
. ml!! ion for. . Lay I.ight. about ,
3100 minion more"than stas pre . .NE are both ursightly and harm-., g1 o; E . gg j ~ .g ,.; g4 y g*3g3; , g ! ,j j'g e go ,,. ful. The Environt ental Protection . . = a g = a g'* a *a
'surned could he obtaiced by tha ' Ngency has mandated about $20 . . g
' ety. .- . 4'..'.* .-
- D. 1' !.e million is pol'ution control devices e
- f .
=r- - ws .- e 53o
.. C4ty Council should give ,its a for.that fact!!tf whickis one of *-g. = ,' E v , tai 7 b'ess.ng to this agree nent withect ; the reasons that contributed to 4 - E ** ! "I 5 y. M* !7(.'. N !5 ;[9 4*% E* 4 g '
E*A* E. E . - 3,h- E' *TEK 2 "{E (... T g g[ g
' unhe delay. The argurnent that Mayer Perk's decision to s. ell the s ;4 E .j tp
,) 13
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,.ht'y Light, forserws yardstick, CETs arnes has not fun:::co aspg3ng,a -
r;.
. . .. .....a.g ,
teen the case fcr rcany years. Andd. A recent consulting report said. 3 r, ., ,j
-8 N=v serves but a sma' J sectaen cf e of Muny: -The take road plant ,isj .,,g;,g, $ ;;. 9 g .t *'g y Q* ,g, l C e v' e la nd. ' . .~
>i~ ..<g
- small by ladustry standards arid / . " = 2 '.s j. 3 3 h 3 !.O.- *.
" r t 1- u,",- f y,Ep a E' g ar% ., ,;-.
h g CoGnell she'cI.!.$. der::aad,
.- cannot ach: .how eve .econormes of scale.
either in c;e.ratirg or r .aintenance f#-I . ( I E b "e* 5 e
-C-3- t 8
, ever. that some or all of ,the . ,f3;,, 3 .per kilowa;t basis.", ' 'I!a*E1!.I[EEEKfE-=NE."}.
s *- 3 *I E$ 3 g money that CEI wi!! pay the c2ty,r? ,This situation certainly would Aot! 5 . .f
- .
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over the nert 30 years be set asidr improve as CEI and *ther onvate 'l4
- l** E'AE*EI w., *".-S E Fm.o*N 3 E .',
for *mtal ;mprcmtets for e . , utilities moved tr. ore'towar[! the . '. J .4 , 3-E [I- C. -- cih. It should not be squandered - , g ,,g g, ,, P,,,,, s .O F #r e [ bl* I M'," .h z . [ 2 ~; g in the general hour.thttpsng budg- ,3,, N Main Dealed longAaa ,, ,
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0 K, .J.'THE % ji8., W F1.AIN h 5 V.. ;DEAtE.R, . THURSDAY. Mid SEPTEMBER istepuildJ: 9,1976al
. N T.@'. f '..
, 7y JosrpiLS Usgo'cr g . . .
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- The decision to put the city out i Muny Ug'ht's' profits were 'tEd to',' en the i.tilities paysoll..
. palers. CEI oHicials han repeat. ,
The Perk adminhtration fought I""
- There is asase techling this ' of the power business is a ma}or; ~ maie rehef payments to the poor. : Cgg s interference le Mun
.t problem with half measures. : '3Cy for CEl. a foe of pubite Whde a nobte and humane ges. . Light affairs was frequent! -' against it by C;evelamt. ' gme Many Ucht. % hen it was ts.
- t7 to ese scoding good ownnslisp of uutilics for decades ' ture. it estab! I a preccdent for. reported.
While maynrs. over the years, sued. the city could not sett the
- yber bad. Victe ct t Mich has consNuty oppo:cd . raids on Mun- ght's treasury. InInt,whm necd.y was pusb bunds. Perk accused CEI of sabo.
favored hecping Nupy ught, d ofveit o de. measun Haal enlarged Muay . taging the hand issue as well es
> .'tSe 'robl
~
Mayw Carl IL Stones pfedged to j hat h.is the ria: of Council , ,, , ,I.lght or improved itsj stererate und . Durlog for pay the Isles, for cityplant profits Ing for a CEt $2.5 milhon bondWith issue lobbylog to stall the measere in
,,,,,, , raises for a Many Ught additjon. sell the ptant. its profits alJent George t l'usbesitL20 . **
employm la other dep.artou-nts de. sent its contoircrs a notice to vote being r.aadeJ by the general fund c"' 83 '
- tificating abot t the Cluctand Muny I.lg 3 stMy has been spite the protests of councilnnen against the proposal because of its generatio( capalpment bad f allI* Itecent studies ,howed that
.alapal u;ht Plant. * my e en o t as four" who nd it was illegal This com.
- unf air competitlen." Muny Ughti generating probleins
.nd the statement vn. tnatie set o!! the howls of car'6ca by the emachng of snoney Mcuned to Sanal ynes ago. an intunal , en Along into dnrepair, cam' Pcrk Stokes argued.were virtsatly incurable and the in 1971 7 t fJuny Ught but it u as made . revolubonary pioposal in 1903 to pea y shough Perk refined De CM memo stating that it was CEI sale w lease of Muny Ught agnie
)cara ago by Council Piestdent "E I pohey to ehminate promning renovateit. to be.p Mucy taght and'. -
became a mapt hsue. yton C. Towncs. : put the city la the power busmess. u ht c money to pay for general . co8Porate Muay Ucht as a competitoc was De d" Pow 1 of Muny Ught Muny ught finalty was built in .c employes, Perk put the eseptoyes intcicepted and pubhshed in news. Jnstead. Muny IQht started hcnes was opposed is enlarg. , ISH showing deficits which lacreased seemed to be assured several and Jarard $30,000 its first .
- thi then seven yeas-r.ld plant, year. The rate for clearicity was -
~ '
. .- to snore than 310 m.;Lon a year. . months age when Perk said bo favosed se!!)ng the plast if the
- po:ents of calarping it were . 3 cents a kibwatt hour. Tbo .r.te . (I p0W0i' S0tirC2 COSih Ind.110n not sacruding its bonded indeut d.
price was right. gressive.2 inf atuated with the now b 5 cW = . . . .
, ness. -
r esperunent of put.fic utdatics %-.-- - * - Though it was e t rg mor.eygnak.9 Cuyahoga C aty commh'ston. .. Consty Commbsloner Seth C. 11 g such ownership providcJ s
.ef fro.n the begber prices er,it once was advertbed at ehet. crs spent as catra Il milhon so Ta(tM sas) be lchevel then and now W etua npenw wa* *a A try 03cveland Electric II. Hrs sale to pay a W canart W Jushu &nter enld get dec. justificJ. business adjustme nt" ; .E Judgment awarded a womse tr6 cal power finen two seoirecs, waibeg Ca (CEI). ,7 whose busband was killeJ ls a c.ar Those two sources now ruay be, auteneq to get the city to
;-..! Y .
,e:ther faction. ideologically - accident. Jconue one. '. I
- ased to putdic f.d:rvenhoe in * {. .e . . "
t Mayor Italph J. Perk opprove4. 'g,uildi"C- . .: plans for the' coupuste
, .e ' on i n e;terp;ise was not only op. The judge ipbd th city inti ': b. j ed to enlarging ILisny Ught but gent becauw a rolfy trcel @ SMe yc$tuday of the klunicl~ y Tall $ald the hgl system still
' caused the actidergt. 4 .*f r ;*. l al Ught Plant to the Clesetand . M inesit becatoe if one source ]' <
fedit cold. i C b " th' build **g can
- lus, f. layer italph J. Perk's City Conoc'il(titchij s'ypropstath ' . 'I 9'W "6'i"I ' " E l'. f/ ('g YgcM s.c {
, 3 btlee agreement to sell Muny ed the money botj fieny ttsht ether was I.s Sever =l.3earo Cle elagd eff 4rahl: at cAcr4 and,,
q61sted, .. iTaft s.u,d %st because of the g
- 68. to CEI appears to have . taken of f the enailcl by S'aefill ' that the estra rustwy 1., spent C 1svo systene.TItnoers emdd chme.
rd a battle of more thae ball a ( Charles R Dwa .*. ',1 e 7.;I h~
,I that ** Ja** Crat" "t'd 8*yf't' 'a '*'tte 7 P*ree' 575t'= ij
'tury4 * , . : . > "~ . - .l. ..: pering gw fn t>f;."..Le j7'fullits
' Iyt pwer trem r;te.n; Uptc.ny"oi.ttie buddy'(.y .g , ,
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_ 67-3
- P Il et',s JLR 3/25/76 L fd 'h-e)s l', INFORMATION NEEDED ON THE ELECTRIC SYSTEM OF THE CITY OF HOMESTCAD ff ..
281304 Nt. 'ob .
- 1) Rate Information .
a) Presently effective rate ' schedule e b) Current fuel adjustment amount
- 2) Electric Sale.s by Customer Classes (Res. , Com'l. , etc. )
a) KWH sold prior fiscal year b) KWH sold estimated / actual current fiscal year c) KWH sold to customers by class outside city limits (percentages acceptable)
- 3) Current Financial I.aformation - Prior Fiscal Year and Estimated / Actual for Current Fiscal Year (? orm M-1, and Audit Statements 1975, Budget 1976) a) Revenue and expense statements b) Balance sheet (Break out of production plant) c) Funds paid to city by electric utility
- 4) Schedule of Debt Issues Outstanding which are Secured by Electric Properties a) Interest rates b) Sinking fund payments
. c) Maturity d) Call provisions (including premiums and any restrictions)
- 5) Generation Equipment a) Steam units - number, size, fuel type, age b) Peaki3g (diesel units) - number, size, age
, c) Kilowatt hours produced by each type genera-tion d) Gas available under contract e) KWH purchased or interchanged
- 6) Customers a) Customers by class of service
- 7) Any restrictions or special requirements to be met in order to sell electric system
\
- 8) Copy of City Charter as it relates to electric system.
s.
. I O
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..n s.mm w7 i- Jts c:um.m: hl-w 44 ..,%e. - c e p ~- .
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@W-N W $li?w!4d+sh.'80s!M@w!G. kw;-w.
N h.is NN N & m -as= - + m. -.p., w,, R1;2.- % ' %. % :. , s.m = .-=c: WJ:1
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CBTV 0F HOMETMDWADA. /2 790 HOMESTEAD BOULEVARD, hot.tES TEAD, FLORID A 33030 (305) 247-1801 March 17, 1976 CCy1.E.yA - 29 jog
~
Mr. Wi11is Irwin GV Florida Power and Light Company (G.T3( P. O. Box 570760
. Miami, Florida 33157 231507 # /2- a
Dear Mr. Irwin:
At the meeting of the Homestead City Council on Monday, March 15, the Council did, by resolution, request contact with Florida Power and Light Company to discuss disposition of the Homestead Electric Cenerating Utility system. The City Council requested that a meeting be conducted in the near future with officials of the Florida Power and Light Company. . P ease take appropriate steps to initiate this action and advise this office as soon as possible as to a date and time such a meeting could be conducted. I would suggest that such a meeting take place on Tuesday
, through Thursday in any given week.
Ve- ruly yours,
/
/ e' w . ..
_/ - O. R. Pearson City Manager ORP:mlf l bdGNY.Q l,Df.1 G WT: l n k/ t.".;in; ,*
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h, f e MAPSHAtt Muse.L'AtCo seg - Au n4 L caseEtt. Coua:: twou4N Nicmtes A so .on. vcr .t.wC4 vsGWE SRASS AEto. COUNC two'.'AN g
";} .g* STANLEY w wiTTxce.Counc"JuN JACx T AE2CAA. Cot /40!LPMN WALTER AUTZKE. COUNCILMAN g , [, , t '
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O . . . ,= . _ . . .c., = _.. . INTER OFFICE CORRESPONDENCE '. 281312 , Misel, Floride - Mr. Ralph 8. Mulhollane C ' * " October 23,1375 no, Finance Department ,y, FCRT PIEP.CL Messrs. Joe L. Howard 5C:T' Ken Denial The updated analysis of the Fort Plerce Electric System has been concluded. A copy of the paclage regarding that evaluatlon is enclosed. The package includes the probanle terms that should be included in any proposal to Ft. Pierce. This f aciudes an updated calculation of the value to the City of the sale of the system in a fornwt sinflar to the one prepared in the proposal for Yaro Beach. We have expanded this calculation to show the ne t cash to the City af ter the sale, as we feel that this is an important number to be explained to the City. . The append!x at the and shows the swthod that wuld be usec to calculate the antwal cash flow to the City af ter the sale and it also shcvs a conparlson of montaly bills the average res!dential custo.or of Fort Plcrce, under TPL's rate and the current Fort
?!srce rate (for the month of July 1976). Threa additional schacules have also laen locluded for your review. One is a calance sheet for i
Fort Pierca and the other is a detalled aridlysis of the value to Fort Plerce Elec tric Sys ters. The third is a calculation of not wrkis-g
, pit:I and other funds In the fort.at of txnibi t A of the Yaro t>each repos a l .
This calculatlon is still preliminary in nature. tefore a (Irul cal-cuJation could be prepared, discussions would be required with Fort Pierce to analyze their audited financial statenents as of Sep tembe r TO . 1976. If yw have specific ques tions or wuld like to discuss the package In its entirety, please call m. s." John-M, Jantac Fin 4ncial Analyst JKJ:rb O cnci sures M PACYED ST:
"~
%\l eA . _ _ . .. . .- ..
209138 i
^**"*"*""*^
tI {! }lI "fJf fN n\d a ~71 "Qt k a m FLORIDA P9WER & UGHT COMPANY h N~ b f $#/ y , April 1, 1976 ,) U ' W-
. hT-Q Mr. Ewell E. Menge, Chairman !
77 Fort Pierce Utilities Authority P. O. Box 3191 Fort Pierce FL 33450
Dear Mr. Menge:
I am informed that the Utilities Authority of the City of Fort Pierce has instructed its counsel to petition the Nuclear Regulatory Commission to convene an antitrust hearing regard-ing FPL's application for licenses for our South Dade nuclear generating plant and to allow Fort Pierce to participate as a party in such proceeding, our attorneys advise us that a request for an antitrust hear-ing, in order to be accepted by the NRC, must contain specific allegations of activities by FPL which are inconsistent with the antitrust laws of the United States. By their very nature these kinds of charges are extremely serious. We believe that they cannot be sustained against our Company, and we are fully prepared to defend ourselves vigorously in any antitrust pro-coeding conducted by the NRC. However, I am informed that an NRC antitrust proceeding is likely to be lengthy and complicated. Indeed, the first such proceeding, which has not yet been completed by the NRC, has been in progress for nearly five years. Thus, in addition to the time and resources which would be consumed, it appears likely that the City and FPL will be engaged in litigation against one another for several years foll' your petition. o wing the filing of I deeply regret that the Utilities Authority has elected this course. Of course, I respect the responsibilities of the Utilities Authority and the City Cc==ission to take such action as you deem necessary, based on the information and advice before you, to protect the interests of the citizens of Fort Pierce. However, your action has the unfortunate effect of creating an adversary relationship between the City and FPL while the anti-trust proceeding is in progress. O O f%
209139 EX _ (G7_3 V w Mr. Ewell K. Menge Page Two April 1, 1976 In these circumstances, I believe that it is necessary to suspend our work on a further response to the City's request fer a proposal for acquisition of the City's electric facili-ties. Perhaps after the antitrust matters which you intend to raise have been resolved, we can once again turn our mutual atter; tion to this matter. In closing I would like once again to express my regret about this turn of events. If there is any possibility at this date of avoiding the adversary proceedings described above, I would certainly be interested in pursuing it. Please let me know if I can be of any assistance in providing information to the City. Sincerely, R. G. Mulholland Senior Vice President RGM/dw cc: Messrs. Charles Jackson Charles R. P. Brown Walter Baldwin Robert N. Skinner City Commissioners Utilities Authority Members l l , ! (1) Y
E
" '** 261h6 cmoiecv.ta a usat ::wearn @, ~d 7 3 j P.Ihfys INT ER4F FICE CORRESPONDENCE f tocArion oats M'.ami, Florida April 28, 1976 ,
FILE Mr. R. G. ulholland 70 r aons J. K. Daniel m
.' copies To c
,suSEcT FT. PIERCE o On April 27th I contacted Bob Skinner and advised him that at the present time we would resume our efforts leading to Pierce a further hernination of the possible purchase of Ft.I made it clea Electric Systera.
that future legal situations aroso that in our opinion would be detrimental to our continuing these efforts that we would I also asked him to make sure that very likely withdraw. Walter Baldwin was advised of this condition. Later on that same day Bob Skinner called back and said that he had passed this by Walter Baldwin and that they saw no problems in this area. Some of the dates that Skinner had open in the next two wee are May 6, 7, 12, 13 and 14. making the necessary arrangements for our visitation to be ? either on the 6th or 7th. o 1 O JKD:re
l . . a, n t
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UTILITIES COMMISSION 4 g AopU
' CITY O F N EW SMY RN A S EACH
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_~ .. annat,a.agt &..W.. lf - January 3,1974 ,s_. o===
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Mr. R.~ G. Mulholland Group Vice President Florida Pcwer & Light Company
~
Post Office Box 3100 . 4 Miami, Florida 33101 . I Docr Mr. Mulholland: i. Recent conversations between ytilities Commission personnel and Robert A.
- Jablon of Spiegel and McDiarmid, counsel for such commission on electric service purchases by it, suggests that you are still unclear as to why your .
company is asked to (1). submit!a proposal to bily or lease the electric system of the City of New Smyrna Beach and ,(2) also conclude negotiations with the above commission as to the basis on which the Company will furntsh, directly and/or indirectly, el'ectrir service to this comn}ission. . 19,1973; to Mr. Robert A. Jablon stated, in part, that Your letter of October situation when' two separate governmental "It is very difficult to analyze '.a bodies purportedly representing the same city are making overtures based on two entirely different approaches to solution of problems apparently present with reference to New Smyrna Beach. We feel it might be well if the two b'odies, 6.* that is, the City Commission of New Smyrna Beach and the Utilities Commission, f .. would get together ano decide on a united approach to let us knowInwhat the of i-cial position of the City is, so that we can intelligently respond the'reto. ~
- view of Mr. Mcdonald's representation,'we are sche'duling meetings."
Mr. Jablon's letters to you dated. October 16 and December 14 of 1973,'ex-plained why we are seeking definite answers to the aforestated Items 1 and 2. We believe that the following additional information will'be useful in clarifying our situation and requests. ,, 67-1754) creating a New
~1'he Florida Legislature passed an enabling act (Chapter Smyrna Beach Utilities Commission as a part of the government of said City and
' prescribing its authority, etc. .
S
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o 24224:1 Mr. R. G. Mulholland ~ Group Vice President p*~ Florida Power & Light Co. -
-h ,
January 3,1974 Paga 2 . [fg Such act provides, among *** other things, have the that " The Co right 'o acquire, ell of the City's utilities *** " (Section 6),t " construct, maintain, extend, improve and develop ele cipality, public body, corporation, partnership or individual for s poses " (section 9) . owned or acquired by the commission shall be vested Smyrna Beach. You will appreciate that although the Utilities Commission has a high degree of autonomy, it does not have the authority to sell or lease the electric system inasmuch as it does not own it. A referendum and affirmative vote by a majority of the City electorate is re-Only the separate City Commission can in-quired for such sale or lease.stigate such procedure which is why that of the Utilities' Commission, requested your proposal for sale or lease.- l The herein above request No. 2 is a matter exclusively within the Utilities Commission. l pnd Anociates as engineers, and Spiegel and McDia SR now pending with the Federal Power Commission (Docket No. E-8008). i It should be self-evident that any offer to buy or lease our electric system
- l j could not be submitted to our electorate without full disclosure relevant to alternative methods of sup' plying electric service.
Our request No. 2 does not require that request No. I be answered first, or l that the two re. quests be answered simultaneously. l : Hence we Definite answers to both requests haVe =- dragged out unduly long. O - -. e 6
**x l
R. l
24224G >r. G. Mulholland . oup Vice President orida Power & Light Co. -
@'. (g7. ~3%
>nucry 3,1974 ..
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aga 3 bl$ Vf 2S . . 2 arnestly ask that your responses be expedited as unwarranted delay can eo harmful economically to this city. ' o i . Sinceiely yours,. p
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W$fUh William E. Swcope,'Jr. Chairman Utilities Commission City of New Smyrna Beach Coner . In and approve
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f/7f Lowell A.' Han'/s / Mayer - City of New Smyrna Beach-r WIS/w . cc: R.L. Pringle, Jr. Division General Manager Flcrida Pcwer & Light Co.
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< UfhVORSITY OF (D NORTH FLORIDA v ,
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Mr. Marshall McLv.iald, President y o} Florida Pcwer & Light Company e! Post Office Box 3100 Miami, Florida 33101
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Dear Mr. Mcdonald:
As a result os the recent severe ihcreases in the price of fuel oil and the fact that the Jacksonville Electric Authority de-pends entirely upon fuel oil for th~ generation of electricity, rates '- in the par t few months and are new' anong the highest in the nation. Since the Jacksonville Electric Authority is a munfripal ., agency, pub'lic indignation 1er hasappointed been focused upon local a Comnittee goverment of c.3: ens to and, t in response, Mayor Hans Tan: investigate the situation and recorrend, if possible, any eneasures which would bring relief in terms of Icwered costs to consumers. Among other questions raised by the Conmittee for considera-We recognize that tion is that of public versus private ownership. the type of analysis appropriate for a subject of this magnitude would require many months of study by a competentunless team it experts, therefore* of appears we would prefer not to undertake such a proje' ndertaking prelisninary wort 1while. Under these circumstances we a of an in-depth exploration simply to determine the feasibi analysis. One of the first and most ou.'mus, matters to be ascertained is the degree of interest of existing ir estor-owned utilities in acquiring an operation such as the Jacksonville Electric Authority. , I As Chair: an of this Committee, I would very comm e nts'.'. much appreciate yourWe This early study l an actidE and, if so, under what general conditions. l
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N JACK.SONvlLLE FLORioA 37216
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[ This is the presentation made to the City
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Com:tission a'nd Utilities Cocmission. workshop meeting of January 13. 1975. I -
.- j J. K. Daniel -
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c 1/13775-- - ERS OF THE CITY UTILITIES COMMISSION, FO [p.g YOR HANKS, CENTLEMEN AND M 243709 : NAME IS J. K. DANIEL .0F FLORIDA POWER 6 LIGHT r 7gCOMPANY A TUNITY TO MAKE HANK THE COMMISSION ASATWELL AS THE UTILITIES COMMISSION FOR THE OUTSET, I WOULD LIKE TO REVIEW'BRIEFLY 315 BRIEF PRESENTATION AT THIS MEETINC.
- AS YOU KNOW, MANY MONTHS AGO, THIS CITY COM EE HISTORY OF THE PRESENT SITUATICN.
ER FOR THE PURCHASE OF MISSION REQUESTED FLORIDA PO'/ER & LIGHT COMPANY TO S BMIT AN OF , PURSUANT TO THAT REQUEST, MADE AS A RfSULT OF OFFICIAL ACTION YOUR ELECTRIC SYSTEM. YOUR SYSTEM. OF THIS CITY CCMMISSION, FPL DID SUBMIT TO YOU AN OFFER FOR THE PURCHASE O NY THIS OFFER WAS THE END RESULT OF ' NEGOTIATIONS BEIVEEN AND YOUR CITY COVET 5 MENT. OUR OFFER CONTAINS A PURCHASE PRICE WHICH w'E FEEL IS FAIP. AND REASONA3LE TO THE CITY AND ITS CITIZENS I-AS WELL AS SINCE THAT OFFER WAS TENDERED TO YOU, IT HAS IBEEN SUBJECTED TO A MO ION.! THE TERMS ANALYSIS BY CONSULTANT'S OF BOIE CITY YOUR
- COMMISSION l LOCAL NEWS MEDIA AND , UTILITIE AND CONDITIONS OF OUR OFFER HAVE RECEIVED WIDE SCALE PUBLICITY ITY OFFICIALS, ,
AND HAVE APPAREhTLY DEEN THE SUBJICT OF INTENSE DISCUSSION B THISISEXACTLY[THEMANNERIN UTILITIES CCMMIS' ION.ERS, AND THE CITIZENS OF THIS i:ITY.-;. E PROP,ER COURSE OF 3 I. WHICH WE ANTICIPATED OUR PROPOSAL WOULD BE HANDLED AND IS IN i CONDUCTING THE PEOPLES BUSINESS. ! SULTANTs 'FOR THE WITHOUT DISCUSSING OUR PROPOSAL AND THE MASSERTIONS OUR MADE BY UTILITIES COMMISSION IN DETAIL, I WOULD LIKE TO STATE NOW, IN SCEARY FOR , COMPANY'S POSITION. . FIRST, FLORIDA POWER & LIGHT COMPANY IS NdT TRYING TO T/ LK THE PE WE HAVE RESPONDED TO A REQUEST FOR A PROPOSAL. THIS CIIY INTO ANY PROPOSITION. CONSISTENT WITH THE WE HAVE RESP,0NDED IN THE BEST MANNER IN WHICH WE KNEW HOW, INTEREST OF OUR COMPANY AND WE BELIEVE, CONSISTENT WITH THE INTERE C S a 2-4
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2Q$QQ &_ . EQ OF NEW SMYRNA BEAC!i. O
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THE PUBLIC DISCUSSION AND DEBATE AS WELL AS THE '
?COND,
/2 bETAILED EXAMINATION OF OUR PROPOSAL SHOULD PROD N THIS INFORMATION FOR THE PEOPLE OF THIS CITY TO MAKE A D IMPEDE OR ,
THIS COMPANY WILL NOT DO ANYTHING TO HINDER, MATTER. UNITY EMBARRASS THE POLITICAL PROCESS WHEREIN THE PEOPL , WILL EXPHESS THEIR OPINION BY THE B ALLOT BOX. , THIRDLY, FPL AS A RESULT OF ITS OFFER HAS BEEN ACCUSSED OF ~
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ANTICOMPETITIVE ACTIVITY AND VIOLATIONS OF THE ANTITRUST LAWS, WE STATE HERE THAT THESE - VIOLATIONS OF.THEl FEDERAL POWER ACT. L BASIS. t ACCUSATIONF ARE GROUNDLESS AND, WITHOUT ANY FACTUAL OR LEGA WE API NOT HERE T'ODAY TO' DEBATE POINTS OF LAW. D , WE FEEL THAT ONE PARTICULAR MATTER SHOULD BE PO EMPHASIZED. FREQUEN REFERENCE HAS BEEN MADE 'THAT FLORIDA TE AN
' LIGHT H.3S I.CONTINUOUSLY AND PERSISTENTLY REFUSED i l
AS.YOU CAN SEE FROM OUR. INTERCCNNECTION NITH NEW SMYFNA BEACH. 1974, WE CONSIDER SPIEGEL'S LETTER OF DECEMBER 20,
.RESPCNSE TO MR. FLORIDA POWER & LIGHT HAS THIS TO BE INACCURATE REPRESENTATION. '
MADE AND NOW HAS OUTSTANDING WHAT IT CONSIDERS TO BE. A THIS WAS PARTICULARLY REASONABLE INTERCONNECTION AGREEMENT OFFER. v ON BEFORE THE NOTED IN THE MOST RECENTLY COMPLETED SSION WAS STAGE OF LITI FEDERAL POWER CCMMISSION WHEREIN THE UTILITIES CO SPIEGEL. THE ADMINISTRATIVE LAW JUDGE FOUND REPPISENTED BY MR. THROUGH THE THAT THE OFFER OF FPL WHICHACCORDINGLY, HAD BEEN OUTSTANDING A HE ENTERED .- LITIGATION,TOBEREASONABLEAND{ ROPER. ORDER SINCE THE OF 'iER WAS THEN "AND IS' NOW OUTS
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s . '* - .. .243801 Au 7_,1 0 - 1 F30W THAT WE JOIN WITH YOU AND YOUR COMMISSION TN EXPRESSING THE BELI fLE OF NEW SMYRNA BEACH WILL MAKE A PROPER AND INTELLIGENT DECISION IF T _ CUR P)(OPOSAL,' DRDED FULL AND COMPLETE INFORMATION ON 40TH SIDES OF, THE QUESTION. 2 ANALYSES THEREOF FURNISHED TO YOU BY YOUR CONSULTANTS AND THOSE OF MISSION, THE PUBLIC HEARINGS WHICH HAVE BEEN HELD AND OUR 1.ETTER OF JANUARY 9 IN . PONSE TO MR. SPIEGEL'S LETTER, SHOULD PROVIDE AN ADEQUATE BASIS FOR THIS COMMISSION THE PEOPLE TO DECID5 THIS ISSUE. 'wE WILL, OF COURSE, CONTINUE TO STAND READY TO
$ POND TO ANY REASONABLE REQUEST FOR ADDITIONAL DATA OR, CLARIFICATION OF THAT ALREADY h
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JVIDED. FURTHER, OCR POSITION IS NOW AND SHALL REMAIN ONE OF WILLINGNESS TO NEGOTIATE GOOD FAIC4: WITH THE CITY 'AND THE UTILITIES COMMISSION AND TO FULFILL BOTH .
<) LETTER OF ANY AND ALL OBLIGATIONS TO PROVIDE SERVICE TO THE PEOPLE OF WHETHER IT RESULTS IN THE PURCHASE SCH RECARDLESS OF THE OUTCOME OF.THE REFERENDUM, YOUR SYSTEM OR AN INTERCONNECTION.
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Draft 7/17 f JLH SCOPE OF ENGINEERING WORK ro 1" rsca ^re uzw sxra"^ scac>r 24G795 O FACILITIES INTO FPL's SYSTEM G. -- -(GT-39 ) M to upgrade"and I 1JECTIVE: To determine the direct and' indirect t cost j l I tie the New Smyrna Beach into FPL's sys em. . ed as 1 i i t i b? POSE: To establish the costs that will be encoun d to compute er l result of purchasing the NSB sys' tem, in or er ! FPL can afford to pay to purchase the System. the amount 5 million to ,
; I FPL can afford to invest approximately $ . .
l The costs to tie-in acquire and integrate the system. d from the SS and improve the system is to be deducte t we l The balance remaining represents the amoun million. Using this concept, can afford to pay NSB for the system. ' tely , i it is imperative that the tie-in costs be accura .
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estimated. , tem The plans for upgrading and tieing the sys be SCHEDULE FOR COMPLETIchi: along with cost estimates for the work to together, This data will be done should be prepared by August 6. ' for the NSE system [ used to compute the price we will offer k to be done. and to prepare budget items for the wor mission The costs to be included would be any trans d changing WHAT TO BE INCLUDED: facilities required, substations, tieing inf the an acquisition. l any distribution facilities as a resu t oh t costs will be
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, Also, estimates will be required as to w a rovide de-l 1 incurred to upgrade or improve the system to p () pendable and reliable service. The timing of expenditures
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to construct these facilities should be set.oum. F.
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. ~jff' FLORIDA POWER & UGHT COMPANY r 243415 O -a .
Daytona Beach, 71erida June 16, 1967 E*. ---- Gr-34) 4~
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gg I Mr. E. W. Brocianbrough, Jr. City 1hna::eu - City ofken Cova Springs) Creen Cova Springs, nori'da
Dear Mr. Brockenbrough:
12, 1967 in nis vill acknowledge and thank you for iyour letter oftoJune roposal the l i distribution regard to the possibility of our Cenpany i f the system. sub=itt ng a p systen, including franchise terns for the operat oni o the discussion I regrot that there was an apparent nisunderstanding d' Mayor durJenscu, ng betveca Mr. E. L. Pringle, our Palatha District IIcnager, anIt ville, under contract, is our understand k relative to an offer of this kind. ce vould be a dup-nov receives electric serviceinfrca the City of Jac soncud our opinion, he in the best lication of traes=iasics facilities. tain costs being duplicated, which vould not, interest cf ete consuncr. lines into an area out-Accordin;.ly, ve. could not consider extension lof our tric service from an-side of our servico ares, which is now receivint e ecd desire on the part of the other sourco, unless there was a villingness an vare authorized to do prese.nt supplier for us to do so and also unicss we so by the FJorida Public Service Cct=ission. ill underst nd our Again, va appreciata your interest and entst that you v position in regard to your inquiry. . Tours very truly. .
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DY h A. B? Wright Vice President 1 . . I ' AE'1/m b BC: Mr. R. L. Pringic , Mr. A. G. Putnas-1
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. o e r. erg gIty.of glew gmyrna g3each g Q POST OFFICE SOX 490 kdh7h7 ,
NEW 5W.t'R N A B E ACH, F L O RID A 370(,9 .,, .
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- E. IRENE SECKH AM, ceiv CLses
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LCwf LL A. H ANES. wavoa. cow iss owt= - . HENRY C. SWQQP C, west u ngon
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NEN27 A. RMODES, cowwissionsa May 31, 1973 s
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Mr. Robert L. Pringle, Jr. Division General Manager - Florida Power and Light Company Post Office Box 151 Daytona Beach, Florida , -
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Dear Mr. Pringle:
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t ilities 4. At a joint meeting of the City Cormissiod and Utthe matter of reque
' Cornis'sion on May '30,'1973, for the sale or
- ibution .
posal lfrom Florida Power and Light Companylease of th , system was discussed. The City Commission has expressed.a desire that yourThe Utilities C . est this.
. company submit such a proposal.
', concurred with the City Cornission's right to requ ,
l propo$al and interposed no objection thereto. oposal I would appreciate The Utilities information Coraission,as toatwhen this such aispr time, rtion of
~ might be made. i improvements.
proceeding with plans for a major. bond .ssue, a po l is requested
, which'will be allocated for electricalby systemTime making is th at the earliestpossible date. *
..- mission have indicated that they will i' -
' assist for you this purpose.
.P- available whatever information you des re Sincerely yours,
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6:i V. -;- ,;;:* //,~.'., R .: W. Buck
- City Manager 4,'
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UTILITY PLANT ACQUISITIONS ATIAC 2 -l 'f - 7Y (]3 The cecounting for the purchase of electric plant constituting an operating unit
- or system is specifically dealt with in the Federal pcVer Cc= mission's Unifom We ultimate System of Accounts (portions of which kre attached. herewith). i ths accounting cust be approved by the Federal cility shall Fover file withCommission the Co= and within mission the s x mon propose d
fro the date of acquisition the journal entries. The Florida Public Service Cor ission should also be advised. ' A detailed anatlysis of the accounting necessary to record the acquisition of utility . '. plant depends .to a ;reat. extent upon the classification of. the property d being acquired and the de$ree of existing records relating to the property acquire . ~ The utility shall procure, if possible, all existing records and of rscords of its own construction. A brief su:-mary of the accounting for plant acquired or purchased can best 5- be acco=plished by quoting certain sections of Electric Plant Instructions No. Electric Plant Purchased or Sold.
'Ynen electric plant constituting an operating unit or system
. the cost is accuired by purchase, merger, consolidation . .extenses incidential c.ereto urot of accuisition. including in:1udibic in ci::tric p10.nt, sh:11 be charsdd to A : cunt 100 Electric Plant Purchased or Sold."
3. The accounting for the acquisition shall then be co=pleted as folic rs: (1). The original cost of plant, estimated, if not kncvn, shall be - credited to Account 102, Electric Plant Purchased or Sold and concurrently charged to the appropriate electric plant in service accounts and to Account 10h, . . . ,105, . . . ,107, l as appropriate. ) (2). Thecost depreciation and amortization applicable to the original of the properties purchased shall be charged to . Account
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~102, Electric F1mt Purchased or Gold, and concurrently credited to the appropriate account for accumulated provision for depreciation and amortization. ,
Note: Provision is made in 3 (1) for esti=ating the original cost however a similar provision is not made in 3 (2) above for estimating the depreciation and amortization. " The amount remaining in Account 102, Ziectric Plant Purchased (5) or Sold shall then be closed to Account 114, Electric Plant Acquisition Adjustments. . ihe a. mounts recorded in this account shall be amorticed, or otherwise disposed of, (S(,/ns the Comission =ay approve or direct. i 4 4
l MUUl04 - count h00 - Amos 'zaticn of Electric Plant Acqui:. icn Adjust = nts, which is
' op3rstin5 account, shall ba dsbited er credited as the casa ncy b2 with amounts ludiblo in operating expenses, pursuant to approvalamount or order of the1114, in Account Co==issied r tha purpose of providing for the extinguishment of + .:
ectr 5 Plant Acquisition Adjustments. U count 115 - Accu =ulated Provision for A=ortization of Electric Plant Acquisition ust=cnts shall be credited or debited with amounts which are includible ,in gcount hC6, A=ortization of Electric Flant Acquisition Adjustments or Account
-5, Miscellaneous A=ortization, for the purpose of providing for the extinguishment amounts in Account lik, Electric Flant Acquis,ition Adjust =ents, in. instance's era the amortication of Account ilk is not being =ade by direct write-off of .
e account. Account h25 is a below the line account.
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I RATE MAX 17G TREADG'NT d19d77 e Cc=pany has not had a balance in the Utility Plant Acquisition Adjust =entHe sco'unt since the early 1960's. In this Docket the Florida Commission uring the year 1957 in Docket No. 5093-EU.neluded the balance in account for F The fo11ovin6 was taken
<nding reserve balance as allovable rate base ite=s.
rc= the Report and Reco==endations of the Cec =ission Staff concerning Utility's esponse to 5hev Cause Order in Docket No. 5098-EU.
"There are sece instances when inclusion of the ite= is justified, others when it is not. ' Ibis ite: represents the amount or amounts paid by a utility acquiring additional existing plant over and above the cost of the plant
'When when a utility it was first dedicated to public service.
nas ceen trucent in = axing suen invest =ents anc tne s.ccu 3-
- ition vas the result of arns lenrth bargaining and was heneficial to the tublic, the adjustment should be
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included in the rate base. The statute specifically recognizes that this =ay constitute an element of value for rate =aking purposes, and authorizes its inclusion r to the extent of the actual a= cunt honestly and prudently paid for the property." f The inclusion of the a=ortitation as an operating expense and the acquisition ! adjustment and reserve as rate base ite=s vould also appear to be dependent Won whether or not the related property was in service and utility or non-
,__4, lutilityproperty.
1 - l A review of Gulf Power's recent rate case filing A review of Appendix of Florida A, E & R revealed Public l no provision for utility acquisition adjustment. h t lSe:wico Cc==ission rate orders for other Florida Electric Co=panies Florida Power Corporation's FR:-1 for 1972 reveals for t e pas I threa years was negative. several purchases of distribution facilities resulting i,n acquisition adjust =ents being closed to Income Deductions Account h25 or closed to 3eserve for repreciation Account 108.1, during the year. Tao Florida Public Service Co==ission has adopted the Federal Power Co==ission's System of Accounts and would therefore presumably Ecwever, accept for rate the Federal
=aking Power purposes, Cor~.ission approved accounting treatment.
J tha Florida Co==ission acts as an independent body. O 1 .
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- PELIMINAM FROPOSAL
. OF ELECTRIC UTILIM M CZ . .
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SUMMARY
OF FLORIDA POWER & LIGHT C'OMPANY PRESENTATION Before the New Smyrna Beach City Commission as4212 o. bf-Ralph G. Mulholland, FPL Group Vice President: N "Thank you for providing us the opportunity to speck to you tonight concerning a preliminary proposci for electric service,... for purchosing your system and operating os port of Florida Power & Light Company .... The presentation tonight is on informa proposal ." Michcel C. Cook, FPL Treasurer:_ t-
"We estimete that, for the 12 months ended April 1974, the omount paid by New e
>( Smyrne Beech customers for electric service wcs more then 5600,000 in ocess of wh they would have paid using FPL's rotes. According to our estimates, on..vol savings have been over $32 for your overage residentici customr ... and better than 5300 for your overcge commerciel customer. That is the kind of savings the consumers would have even citer ellowing for the addition of a utility tox."
- h Cook said FPL c=n provide more dependeble electric service et lower cost then the city
- utility because FPL.hos grecter power picnt cepocity and uses a wider diversity of oil, naturcl gas, jet fuel and nuclect fuel.
* "ihe crrengement thct we envision," Cook odded, "would provide increcse'd municipa income ... cs much es a $48,000 increase over the city's current revenues, with oddition
( yectly increcses projected to follow. And the proposal would provide more inco city, while reducing tcxes, when the municipclity's utility-ielcted bonds cre fully p '
- "Under ihe prelimincry propescl, FPL would pey New Smyrno Beach $3.1 rhillio buy'those essets of the loccl utility which FPL would need in order to serve the ' c and FPL would invest on additional sum of up to 52 million to integrete the two electric anergy systems. The city would ccll its existing electric cod wcter bonds for 56.6 million and would issue 52.9 million of new revenue bonds. Tne increased tex revenues to the ci
* ~ would be more then odequete to pcy the costs of the new revenue bonds. At the seme time l the people of New Smyrna Beof.h would save more than 5600,000 a year on s '
k Jerry .J. Scur, FPL Personnel Directo'r: -
If the New Smyrne Beech' electric system becomes pcrt of Florida Power & Light Co i
employees of the existing systep would become employees of Frl. As a member of Sunshine Service Tecm, you would be offered c job with wcges equel to or better tha d . you nCW C'){oy . -
"Our Compcny believes thct employees should be considered for o career and not ju~
job. More ' hon 80 percent of (::11 our employees hcve at Icost five years of s 15 percent have 20 or more yects. We feel thet this reflects the job satisfactio i opportunities et Floride Power & Light." - J . 1: p . n _
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. [6 _
9 Oity of 91ew e3myrna f/3each 230407 POST OFFIC! 80X 490 g g NEW $MYRN A BE ACH, FLORID A 32069
)
YN R. W. BUCX, civv w awas an L A. H ANRS, w a vo n . C ouui s siom te
- L IRENE BECKH AM, c vv cuanic C. 5:003 E, vic e wavo n. c owwissionsa CHARLES A. HALL, c .v av vomm6v RICK DC5TER, co ssionsn 02 ucDON ALD, CCwwststow Em - -
A. RHOCES, co wissionsa January 8, 1974 [ 0 078/7 ( 4 E /Sp g, Mr. R. G. Mulholland #cU A g Florida Power & Light Co. ,
- /p O fa :::
0 44 Post Office Box 3100 OR Miami, Florida 33101 Ok - . -
Dear Mr. Mulholland:
82)2G Thank you for the copies of your letter of December 28,
~ 1973, to Mr. Jablon and his letter of December 14, 1973, to you. Copies of these two letters were distributed immediately to the Mayor and to my fellow Commissioners.
By this time, you should have received a letter, dated, January 3, 1974, from Mr. William E. Swoope, Jr.As , Chairman you will of the New Smyrna Beach Utilities Commission. note, this letter was " concurred in and approved" by Mayor Hanks and by the other City Commissioners. I believe some confusion has arisen as a result of1973. the wording of Mr. Jablon's letter to you of Decemberas 14,noted in More specifically, the last paragraph on page 2, your ar.swer to his letter. My fellow Commissioners and I do ' not believe "that before consideration may be given to any sale of the system to Florida Power & light, the City must have before it tN alternatives to a sale". While it would be highly desirale that all alternatiives be available for consideration, we do not feel that we must have the alterna-tives in order to discuss the sale of the system with your company. In my letter of October 2, 1973, to Mr. Marshall Mcdonald, I stated, "we do not believe that any major,ex-pansion of our generation capacity should be undertaken without a complete evaluation of all possible alternatives". Possible alternatives certainly include the furnishing of electric service by FP&L under an agreement presently being O nesotiated and discussed in Mr. swoope's letter as request Nember 2.- e* n 0
[ ($ 0 0-January 8, 1974230408 \ R. G. Mulholland (2) a- Gr-5O A3cv77D-Mr. Jablon further states in his letter,in the last para-ph on Page 2, "therefore, it .is necessary for us to completeWhile we agree that it is ntgotiations first". t the negotiations be completed before any proposal for sale - leaso of.the system 's presented to the electors of the City - approval, we do not feel that they mus* be complete before L and City representatives can constructf.vely discuss any r.s and conditions which might be contained We believe in athat proposal negotiations for
> pur chase or lease of the system. .ativo to sale or lease and also to arriving at an agreement
- h FP&L to furnish electrical power to the City can be I wish to pursued.
emphasize
- currently without jeopardy to each other.
there has been no change whatsoever in the attitudes or de-res of the City Commission. We would like to see both studies tt 1 in process with FP&L carried to completion at the earliest wticable date. ' Please note on page 2 of Mr. Swoope's letter in the third cagraph, "with the concurrence of t,he Utilities Commission" . - is is the first written a'cknowledgment of the concurrence of e Utilities Commission to the request by the City Commission We
- a proposal for sale or lease of the elec*eical system.
nsider it a most significant expression anc certainlyAindicates new animity between the tuo Commissions an this matter. mosphere of cooperation appears to exist between the CityI believe there is now much les d the Utilities Commissions. Both ance of a political dispute between these two bodies. maissions appear new to be approaching the problem of the
.ture of the electrical generation and distribution system with This mutual regard for the responsibilities of each Commission.
elationship is being further strengthened throug h joint effortsi i resolve the financing problems of the proposed improvements our water and sewer systems. In Resolution No: 861, adopted by the City Commission on
- tober 25, 1973, the Co:nmission appointed our City Manager, Mr. i W. Buck, as the official representative of the Commission in Lscussion with FP&L concerning the sale or lease of the electri-1 system. Should you desire any further information or ex-cession concerning this matter from the City Ccmmission, I would articually appreciate your corresponding with Mr. Buck since it s a part of his responsibility to maintain a f ami]iarity with F.e g'elings of all Commissioners and can therefore Further, offer he isin-in ormation from a broader base of outhority.
l
- _- - - - - - - - ____ __ ^ ^ ^ ^ - - __
U-Mr. R. G. Mulholland (3) January 8, 1974 23040 o - *so continuing contact with the Utilities Director and members of the Utilities Com.ission en this subject. I will, of course, welcome , further correspondence frem you, however, I believe correspondence with Mr. Buck would be preferred'for coordination purposes. Thank,you for your continued interest and assistance in this . matter. . ! Si cerely urs,
,$ L,b '
, S. Victpr Mcdonald
- City Commissioner A
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- FLORIDA POWER' d
- LIGHI Lumtany lNTCR OFF>CC CORRCSPONDCNCE
* -Gr- 34).
l.3 8 0[45' g h' Mr. Tracy Danese t oc a tio n Daytona Beach November 5, 1974 h'/
\-
e.vc w J. K. Daniel - comas to Mr. R. G. Mulholland l New Smyrna Beach - , Mr. Ben H. Fuqua + ' Mr. J. T. Blount +
.; c e r, Accuisition o ' Electric System j Mr. E. L. Bivans +
Mr. John E. Matthews +
. Mr. Harry Poth + -
230434 Enclosed is a ecpy of a news clipping reporting the Utilities Cor: mission of New Sr.yrna Beach has appointed John R. Kelly as Inter 1= Director of Utilities. It is perhaps significant that Mr. Kelly was previously Utilities Director for the City of Gainesville for 22 years with a great deal of e.xperience in interconnection negotiations, etc. Perhaps you are acquainted with Mr. Kelly. If so, I would appreciate any infor=ation that cay have a bearing on the subject. h
^
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j JKD:ic Encl. . l 6 O . a u
R. W. BECK AND AssoclATES 230 W " O'v raNNiNC ANALYTICAL AND CON 5UtfiNC ENCantit$
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5 g * * , 1510 CA37 COLONIAL Dervt w xty5g$ , POST offsCI tox 6417
- vat u= 7:ONS oggx HANAClutNT ot:.AN0o ttot10A rim 3 Cotus4 yngpgoug 3;3.gg4911 ~
toSTON. -
!RE NO. FF-5149-EGI-MW *
. November 4,1974 Mr. R. G. Mulholland . .
Group Vice President- . Florida Power & Ligid Ccmpany
- P. O. Box ;100 -
Miami, Florida 33101 '
Dear Mr. Mulholland:
R. W. Beck and Associates has been instructed by the Utilities Commission of New Smyrna Beach, Florida, to evaluate Florida Power & Light's proposal to the City of New Smyrna Beach made on August 27 1974, to acquire.the City's electric utility system. ,
$1,821,000 As pa-t of that proposal you indicated that FP&L will spend to integrate the system into the FP&L system. This will involveSmyrnathe construction of a transmission line and a new substation the.New Beach area.
- that FP&L intends to supply the New Smyrna Beach custo ,'
- proposal-is accepted, we would appreciate your furnishing us as soon as possibic a complete description of these facilities including a cost break down and a one line diagram showing the completed facilities to integrate the two systems. ~
Very truly yours, R. W. BECK AND ASSO,CIATES ( .; REB /ebf ./ r M Robert E. Eathen
, Manager,' Orlando Regional Office
( cc Mr. John R. Kelly, Director of Utilities ~
8 ou .w.r.s. ga m. , : .1. .x -
'W 230996 , pc FLORIDA PUBLIC SERVICE COMMISSION g gg TA LLW.ASSEE YO if w i ssie w c a s. . LEWIS W. P ETTE W A'T.
- p wtN t,. M ASO S. CM atmas AM **
k [[$46 [[[dsk E RRY W. CARTER sot. LING C. ST ANLEY.
.it.t.i4% T. uAve May 17, 1956 =^== = = == "-a' DoTKER CoFT W~~~
- -
- 5ES UNsER 1-Mr. c _an H. Fuqua tc;e r, City of -
Ed =*at _. 2' ' Vice President FLORIDA PUBLIC SERVICE
- Florida Fower & Light Company COMMIs sION-GENERAL Post Office Box 3100 Miami, Florida 33101
Dear Mr. Fuqua:
C I am pleased to acknowledge receipt of your letter of May 13, which is your notification to the Commission of the acc,uisition,by Florida Power and Light Company of the facilities of the City of New Smyrna Beach located in the City of Edgewater. N" You are to be congratulated on this forward step, which adds about 1,000 to your family of active accounts. The information will be transmitted to interested Departments of the Commission as roc,uested. With best wishes and kind regards, I am Very ' sincerely,
/
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-- L. 4 ':. h n.< : .Tl'c j ' '
7 HAssistant oward 3. Carraway Executive Secretary HEC /a' cc: Chairman Mason Commissioner Carter Ccamissioner Mayo Mr. Lewis W. Fanteway 0' o
~ 230997 po .
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. . . j May 13, 1966 W
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. C'oniEn con . * /9 J R ic .iss unors p y, ;
=
Florida h:bliC_._ Servi _ce Co - - - - - - t u.
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g Tallahas see , Florida
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p- A f I i - . s Attn: Mr. Eclling ytanley - P. i t
.. Gentle =en: t ef fective raidnight, /
Smyrna 1.e are pleased to advise h you tha1966, we purch . 1,pril 30, Beach all of their facilities in t e service to
. . i As of the same date we began supply ngd ciater which were fo those c'ustomers in the City of E g .S=yrna These E?ach. include 916 In addition,
. served by the City of New ,
residential. , active accounts, of which 800 are ew inactive. there are 124 accounts which are n sfer has beenti=e. sure you are aware that this tranf Edgevater for som2
' - ' I am tusen the City .od "
openly advocated by the citizens oir',e took no
,'Edgewater and the City o cerving that part of Edgc. tater
'For raany years ue have been visiens of a fra"chise o lying west of the railroad 19 57 undar the proThe franchise will no
, effective April 25, - l the entirc city. t to note this - <
#4 lod Electric Please red.ucst v.our Tariff Departmenon ea I ,
change I , Tariff. . . Sincerely yours,
~
Ben H. Fucua Vice President . 4 j n- . .
~
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( , 2 G149'? n U ex __ 3r- 1 }) ~ AV2 73 _ CCMPARAITVE MRLYSIS OF MUIECIPAL A?D IIT7ES~'OR GGED UTILITIES A?O TE BE!2 FITS TO "uGIR CUSTO.'OS Finaneial Pla- *-4 p v Dece=ber 1.1, 1973
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co:GARATIVE ANUXSIS oF MUTTICIPAL AIO IWESTOR 04IED UTILITIES 261498 AIO (S v' THE HETETITS TO TdEIR CUSTCtERS ex. - cu-3O 3 78 Su==arv and Conclusion _ Analysis of the relative ecoce=ies of cunicipal' utilities co= cared to investor e ned utilities revealed that size was more i=portant than the legal structure. The specific e=phasis of the analysis vas directed tcriard Florida e
! power & LiS ht and the =unicipal utilities in or near its service area. The
, analysis was based on 1972 data and the conclusions relating to the higher cost 5
a I of cost =unicipal service vill undoubtedly' beco=e even stronger as a result of i increases in fuel prices. . I The data used indicated that the custc=crs of the smaller =unicipal utili-ties paid core per thousand 17d than custaners of 17L. The cust'ocers of Orlando and Jacksonville paid cc= parable ecounts per thousand }~,iH to the $19 73 that 1 I custo=ers of FPL paid. But custeners of the other municipal utilities paid enounts ranging frce $22.79 to $28.97 per thousand Ewn. Those utilities with the highest average usa.ge also had icver costs per }7d sold. l l The size of nost municipal units is limited by the size of the city. This j limit on size prevents the s= aller tunicipal utilities frem realizing =any of the econo =ies of scale available to large utilities. This fact was clearly t . revealed in the analysis. The s-allar utilitie.s had less efficient heat rates i end higher fuel e.nd operating costs per 13iH of power sold. These higher costs appeared to be the =ajor contributics factor in the high cost of power to their custo=ers.. Tne inefficiencies of the sna11 utilities core than offset the tax benefits 3 that are available to t unicipal utilities. Municipal utilities are exe=pt frcu , (V i j Federal inecce tax and can obtain lover cost debt financing since the interest l L- I
( 261499 l on their bonds is tax exe=pt. 'Ihese tax exemptions result in substactial tax savings for municipal utilities. These exe=pti,ns resulted in savings ran6it6 O d from $2.69 per thousand F.4 sold for Cleviston to $k.83 per thousani E4 sold for Starke. Yet even with this substantial acount of tax savings, the custc=ers -
. 1 of all the =unicipals examined except for Jacksenville, Orlando and Cleviston (which purchased all its power) would have tenefited more in ter=s of actual rates paid and revenue received by the municipality if they had been serted by
~
4x. l (cf-3G FPL- \ If these =unicipalities had been serted by m, additional benefits -utid
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have been realized by society. The core efficient use of fuel by FFL veuld
~
have resulted in a fuel savings equivalent .to approximately 628,CCO, barrels of oil. In additien, FPL veuld have paid its share of Federal taxes while providing loverratesand/orgree.termunicipalrevenue. Thus, the overall tax burden - on the balance of the econc=y would have been lightened. The results of this study indicated that the tax benefits available to municipal utilities are culy fully realized by the custe=ers when the =unicip-al utility has cu'ficient size to operate an efficient <1ectric system. If the
=unicipal utility is not large enough for efficient creratien, then the tax l
benefits cerely serte as a subsidy which shields the custc ers frem the ineffi-i
, ciencies associated with a s=all utility. Eevever, in either case, these tax, benefits =ust be absorbed by the entire country in the form of either reduced c
I l Federal serrices or increased Federal taxes, e i . l . - x [1INSIO Tb.UMID J
. 62#M i
J. H. Jantac l Financial Specialist p i i d p f . Jce L. Ecvard
! Mansser, Financial PD ~ irs I
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/ . tocario Daytona Beach 1 3
o Mr R G Mulholland , ,, oarc June 5,1973 R L Pringle, Jr co ics to ,k
,.s r> City of New Smyrna Beach 2305 G -- f'31)3g p. 4, Attached is a letter from the City of New Smyrna Beach requesting a proposal ef7 5' from Florida Power & Light Company for the sale or lease of their electrical-
~
facilities . Also enclosed, some other information out o'f our files in regards to previous discussions we have had with New Smyrna along these lines. I am sure that our files in Miami have the information that I am sending yea R
. plus some other, but I felt that the copies of the stuff I am sending you now will kinda update you and others on some of the happenings in the past.
g, One thing that I would like to bring cut is that during 1970 when .ee got in-
., volved with this thing before it was finally dropped because of th6 City Charter stating that it required 75% of the freeholders' a proval before any of the City facilities could be leased or so'id. In Janary of this year by referendum the Charter was changed and now only requires a simple majority of those voting .
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jJ O. SGZ-f } Mr. R. W. Wall, Jr. [vf y Vice President Florida Power & Light Company 4200 Flagler Street Miami, Florida 33134
Dear Mr. Wall:
f With reference to your telephone conversation with Mr. F. L. Bradley, Jr. , we are looking forward to working with you on the evaluation for pessible purchase of an REA Coop *erstive system. Mr. M. W. Dorow and I and another ecountant will meet with you in your office at about 9 A.M. on Monday morning, January 17. We will plan to be there the entire week, and longer if necessary, to gather the casic information necessary for this analysis. Very truly yours , ga l, /b l
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e47=. . October 25, 1968 n a ( ; v ..
. .. . ce..c> ro Mr. R. H. Fite
- v. MEMO TO FILE .Mr . R. C. Fullerton
,.e, R. D. Hill . . .:..... . . _ - _ . _ -..
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su sJ t e rs 1 '/ O d 4'S. (5T.& Yesterday afternoon Mr. Fite called me in response to a phone call he had from Mr. Richard C. Marshall, III, member of Hill gD and Marshall, attorneys at law, Washington, D. C. Mr. Marshall also owns considerable water-front property, in particular the Gulf Stream Hotel, in Lake W arth.
.4 Mr. Marshan advised Mr. Fite that he had been in discussion with f
three members of the City Commission and that they were interested in a proposal of purchase or lease of Lake Worth's electric utilities. I visited Mr. Marshall on this date and he advised me he had talked to Mr. Fite and that he had mentioned the conversation with Mr. Small, Mr. Thomas and Mr. Miller, all of whom are Commissioners of the City of Lake Worth. He said Mr. Small advised him, after he told them they ought to get out of the electric utility busine ss, that they had never received a favorable proposal from us. He indicated that the other two members were silent in discussion of this subject.
'.. I pursued this further with Mr. Marshall on this visit and related to I.'. him experiences of some ten years ago and also that we had made a .
proposal within the last few days for an interconnection of power of
*J three steps; i. e. , firm power purchase, emergency tie, and scheduled l 3 interruption service. This has been received by the City and is being investigated at this time.
i . Mr. Marshall then told me we should pursue further the purchase or < l 1 ease of the City's electric p roperties and he attempted to get hold of Mr. Small, the Commissioner he considered he knew better than any of the Commis sioners. Mr. Small was not in and Mr. Marshall said he would advise me later of conversation with Mr. Small and that he would propose that Mr. Small get in touch with me. Mr. Marshall has just called me and he has now been in touch with l Mr. Small. Mr. Small advised Mr. Marshall that, while he was inclin-d to be fsvorable, it was not timely and with the attitude of the
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c other 'C'o m$is'sion me:hYers and City staff people there was no opportunity of getting majority approval on sale or lease of the ' () - --property at this time. , ,
.Mr. Maeshall said Mr. Small also told him if there were ahf-changes he would get in touch with him; of course, Mr. Marshall said he would advise me.
~ ~
231783 Mr. Marshall apologiz ed for giving Mr. Fite encouragement in
- thi s matte r. ,
I will continue to follow the proposal for interconnection of power within the City. , gy, _ _gg i . s. vs op.s-t .4 N . 47 . TA l RDH:mj i 1-1 i' n D c I o 6 O * . 6 D 1 . t
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TREAsuit creo= nemo l 7 - ' ,, (. P.O. BOX 3100 DEPARTMENT Lester e g Fase i
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T'ae Honorable O. R. Pearson, City Manager ' NfC 77 City of Homestead , Homestead, Florida u
Dear Olaf:
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. Thanks very much for vour letter of September,28. -
The vacation was fine . The only trouble with vacations is that they finally come to an end. I am scheduled to be in New York October 9-10-11 at the Annual Meetinc- of clients of Ebasco Services Inc.
- c I have agreed to participate in the ' program and am sorry
'that the Ebcsco Meeting conflicts uith the dates you sug-gested for a Reeting with the Homestead Council. ,
You will recall when ve met last that the Council, v in addition to requesting proposals for an iriterconnection or a wholesale power contract, agreed (without too much d enthusiasm I admit) to consider a. proposal at the same , time to purchase or lease your system. We have been work-e
~
ing on such a proposal in addition t'o the arrangements *~ coverincj' interchange or vfnolesale contract. , In view of the time required to get these various < proposals in shape, I would like to see us set a, meeting for the 1,ast_ n.r.r t. of Nove:r.ber o.r .the first k- aart of DdE$er as a time to sit down and discuss all these matters. If this is agreeable, we would like, in the meantime, to send one or tuo of our ac' counting and chginecring people '- (y_3_) .
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The Hon. O. R. Peirson October 3, 1967 l O. . 242138
- to Homestead for several days to get further information
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ab6ut Eo~ur sy5te'itioTe~ used in making a proposal to pur- , , chase or lease'. Would it be agreeable for y,s to do this? . . . l I am told that we ' have now completed physical arrange-ments to make an interconnection uith your system at a 3 second connection point and that as much as 3,000 kilowatts AS/[JS could be delivered through the new connection. Therefore, there are ample physical facilities to make available emergency power for your requirements in the event of any
,43 breakdown or overloading of your system. If the neept .
i.
,should arise, we will make an emergency connection imme-diately upon advice from you. I assure you that you need
, , have no ccncern of being without power while we are pre-paring for our next meeting.
Please let me know if these suggested dates are agree- ,, able with you. . i With best wishes. , l - l
, sincerely yours,
.y -
/
440 l r 1 v C,\ n Robert H. Fite President & General Manager RFS :bj c m 0
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a .. . , , , pyu r.- 2 K c ~ s W anIDA POWERIC&ELEGMT COMPANY O . Yh$7 . P' West Palm Beach. Florida
~ May 5,1965 q~
~ - City Commissioners
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City of Fort Pierce
- Fort Pierce, Florida h
Dear Cornmissioners:
This refers to our recent discussion in connection with your We power feel g . problems and the manner in which thesehich problems might would 3 requirements of the City of Fort Pierce with the type of ser it that some form of lease or sale agreement be developed which would perm , our Company to operate the City's electric plant and distribution system.
' It is realized that at t'his time, it is impossible to submit definite figures, and also that any agreernent'would be subject f theto approval of the Florida
. qualified voters of Fort Pierce and the Board of Directors o Power & Light Company, but in an endeavor of at least establishing the framework, in ohr opinion,,this agreement should cover the following salient factors: -
4
- 1. If a lease, 'it shov1d be for a period of 30 years which t would coincide with the term of a standard electric J franchise to be granted by the City to the Company, ,
- and should becorne effective as early as possible.
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- 2. A lease, upon its effective date, should provide that the Company immediately proceed to install necessary - -
transmis sion, substation and other facilities to tie in Likewise, it with the City's distribution system. should provide for necessary improvements to the system and thereafter for expansion of it in order to serve all customers and repair existing facilities as they wear out. ,
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- 3. Any sale or lease should providi the City with appro-priate financial remuneration. .
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- City Cornm ssion City of Fort Pierce May 5,1965 ,
- 4. An agreement should provide for the application of Florida Power & Light Company Rate Schedules, as ,
f filed with Florida Public Utilities Commission, which are now or later effective th'roughout the Company's system. The application of these rates would result N -----.---(CF ~$ f'
- in an annual savings to the electric customers of g 78_
. Fort Pierce. ,
- 5. A lease sho Id provide at the end of its term that the ,
City would have the option to acquire the property at h
- depreciated value which the Company has installed during the term of the lease except for the substation j L .4 and transmission system tie. Also, if the City did f, .l not exercise this option, then the Company would S have the right to acquire the City's electric property , ij
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at depreciated value. l1 i' Other matters of interest and advantages to the people of Fort , Pierce are as follows: - Under Florida Power & Light Company policy there are no connection charges and we have no plans for :- instituting such charges. Normal extensions are made without charge to the customer, f Florida Power & Light Company would establish a 4 district office in Fort Pierce suitably housed and well '
'$ staffed, which would be an asset to the City. Trouble M calls would be covered on a 24-hour basis.
9 . All present Electric Department employees would . - -- m _n.., be taken over by Florida Power & Light Com'pany at salaries and wages equal to or above the remuneration now received by these employees and all regular Company benefits including pension plan, group life insurance, hospitalization insurance, paid vacation, sick leave, etc. , would be made available to them. i Florida Power & Light Company as a Company and i through its employees will contribute to the support of all community activities, Chamber of Commerce, Merchant's Bureau, and other activities relating to , L civic and community progres s, and will lend its full g) t u support toward attracting industry to the area. e O
44Ul68
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- City Commission City of Fort Pierce
' May 5,1965 We will continue our negotiations in an attempt to reach a mutually -
satisfactory agreement with respect to granting a 30-year electric franchise , and e.lso to permit the sale or lease of the utility facilities. In the meantime, I it will be in order to plan the emergency connections necessary by the City ?
. and us to supply the power require =2ents which you have requested. EX Q !
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Very truly yours, 75 ,. 1 1
. R. D. Hill Division Manager i . i
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crune 2,1965 ~. - JUN3 - 1955 EASTERN DMS!DN s Mr . R. D. Hill 6P, [$7y Division Manager ' .s FloridaPalm Power & Light Company Beach, Florida
,/ SS 'fg ; ,, West
Dear Mr. Hill:
25, 1965 regarding the requirements Thank you for your letter of 'MayPierce for electrical energy during an; emergency of the City of FortThis letter was distributed' to members of i the io n .City AtCommission period. in advance of the June 1,1965 meeting of the City Comm ss the June 1, 1965 meeting there was a lengthy disc'ussion of the letter. C Following this disdussion the regarding a tie line for emergency power.
~
with Florida Power & Light h Co mpany ,
$ In addition , the Commission voted to invite Florida Power & Lig tto present to u already b een given, 7 if the invitation has not f acilities with 3 a proposal for the lease or sale of the City's electricalcommitted in any way for anyth the understanding that the City is net i ith n
- else but to consider the proposal and that any future meet - -** ,ew .. ngs
.. wwere to Florida Power & Light and the City Manager. -
For your information and files attached is a certified copy h t ofis 'an excerpt , of the minutes of the June 1,1965 City Commission meeting t a ,g3.g related to the above. Very truly yours, 3 l jk A - Alfred S. Harding (,) 91TY MANAGER - ASH /an: , cc: .Mr. J ohn L aw
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' HG 7S IXCERPT FROM THE MINUTES OF THE REGULAR MEETING Or THE CITY CO:EISSION oOF THE CITY OF FORT PIERCE, FLORIDA, HELD IN THE MUNICIPAL COURT ROOM, CJORTH SEVENTH STREET, FORT P.T.ERCE, FLORIDA, ON TUESDAY, JUNE 1, 1965 Those present: Mayor Dannahower, Co=dssioners Castle, Nelson, Tucker, and White; City Fanager Harding, Assistant City Attorney McCain, City
. Clerk James, Chief Christianson, and Mrs. Lowry, Secretary.
, Motion was made by Mr. Tucker, seconded by Mr. Nelson that we terminate ~
our talks with Florida ?ower & Light regarding the tie line for emergency
~
power. Those voting in fav'or of the motion were: Messrs. Nelson, Tucker, and Danrahower. Those opposed: Messrs. Castle and White. Motion was mde by Mr. Tucker, seconded by Mr. Castle that we invite Florida Power & Light,.if the invitation has not already been given, to present to us in writing a proposal for the lease and sale of our 4 electric facilities with the understanding that we are not co=1tted in any aay, in any respect, to anything else but to consider and study 4 their proposal. , w ' Motion was made by Mr. Tucker, seconded by Mr. Nelson, that his motion be amended "that any further meetings with Florida Power & Light be attended by the entire Co=.ission and the City Manager. " Motion to amend was unanimously carried.' Those voting in favor of the motion, as amended, were: Messrs. Castle, Nelson, Tucker, White and Danrahower. Those opposed: none.
. g.
a 7 This is to certify that this is a true ar i accurate copy of an excerpt ' '. frca the r.dnutes of the Regular Meeting of the City Commission of the City of Fort Pierce, Florida, held on Tuesday, June 1, 1965 , n
" Witness my hand and the Official Seal of the City of Fort Pierce,
! . Florida, this the 2nd day of June A.D., 1965 - O AKm Citygerk - x~
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Februa.ry 19, 1965 GA - - IG1Y3f) Clty Commission A 57[J S-City of New Smyrna Beach New Smyrna Beach, Florida
Dear Commissioners:
Th'is refers to our recent discussion in connection with your power problems and the manne'r in which these problems might be solved. We feel confident that our Company can adequately serve the present and future requirements . of the City of New Smyrna Beach with the type of service which would defi-nicely promote the growth of your City, and towards that end we suggest that some form of lease or sale agreement be developed which would permit our Company to operate the City's electric plant and distribution system. It is realized that at this eine; it is impossible to submit definite figurest and also that any agreement would be subject to approval of the qualified voters of New Smyrna Beach and the Board of Directors of the Florida Power & Light Company, but in an endeavor of at least establishing the framework, in l our opinion, this agreement should cover the following salient factors: l 1 - If a lease, it should be for a period of 30 years wh,ich would coincide with the term of a standard electric franchise to be granted by the City to the Company, and should become effective Cepte=ber 1, 1965, or earlier, if possible. . 2 - A lease, upon its effective date, should provide that the Company i= mediately proceed to install necessary transmi~ssilin?, substation and other facilities to tie in with the City's distribution system. Likewise, it should provide for ne-cessary improvements to the system and thereafter for ex-pansion of it in order to serve all customers and repair existing facilities as they wear out. 3 - Any sale or lease should provide the City with appropriate financial remuneration. 4 - An agreement should provide for the application of Florida Power Li bht Company Rate Schedules, as filed with Florida Public
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' W& w autto - Daytona Beach Page 2 February 19, 193 5 City Coc=ission - *** b I~S Y City et New Smyrna Beach g yg Utilities Commission, out the Company's which are now or later effective through-system.
It is now estimated that application of these rates would result in an annual savings to the electric cus. comers of New Smyrna Beach in excess of $100,000. 5 - A lease should provide at the end of its term that the City would have the option to acquire the property at depreciated value which the Company has installed during the term of the lease except for the substation and transmission system tie. Also, if the City did not exercise this option, then the Company would have the right to acquire the City's electric property at depreciated value. Other matters of interest and advantages to the people of New S=yrna Beach ' are as follows: Under Florida Power & Light Company policy there are no con-nection charges and we have no plans for instituting such charges. customer. Normal extensions are made. without charge to the Florida Power & Light Company would establis'h a district office in New be Smyrna an asset Beach to the suitably housed and well staffed, which would City. a hour basis. Trouble calls would be covered on a 24 Florida Power & Light Company atAll present Electric Departme salaries and wages equal to or above the remuneration now received by these employees and all regular Co=pany benefits including pension plan, group life in-surance, etc., wouldhospitalization insurance, be made available to them, paid vacation, sick leave, h&- e=1 as"} <
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EUILO Daytona Beach February 19, 1965 2l0364
? E* : GY City Co:m:n..s s 2. o n fc.T- 3 Y h
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City of New Smyrna Beach A Ife[7 g Florida Power & Light Company as a Company and through its en-playees will contribute to che support of all community activities, _ Chamber of Commerce, Merchant's Bureau, and other activities re-lating to civic and cotenunity progress and will lend its full support toward attracting industry to the area. . The City has already initiated the necessary procedure to profide certain charter changes with respect to granting 30-year electric franchises and also to permit the sale or lease of utility facilities, when approved by a simple maj ority of freeholders or qualified electors. We will continue our negotiations to attempt to reach a mutualy satisfactory agreement, and in the meantime we are immediately making an emergency connection to the City's distribution facilities on a temporary basis to supply the power requirements which you have requested. , Yours very truly, A 3 Wright
.Vice President I
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Location Daytona Beach, Florida February 23, 1965 Y(r DATr y U M'
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' 3-'/ ro Mr. R. C. Fullerten f
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- ",' ,rneu A. B. Wright .
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Attached is copy of letter which was handed to Mayor Hathaway,
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of New S=yrna Beack _last Saturday, and it is my understanding that he is very well satisfied with its contents. He apparently feels that it forms at least a starting point for oitr negotiations.
'I am also attaching copies of several news clippings fran recent -
editiens of the Orlando Sentinel, which I thought you would 'be interested in.
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