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Progress Energy's Coal Costs in Dispute

Posted on: Tuesday, 4 October 2005, 21:00 CDT

By Louis Hau, St. Petersburg Times, Fla.

Oct. 5--Progress Energy Florida paid significantly more for coal to a related affiliate company than it did to other suppliers, raising questions about the validity of the utility's request for a significant hike in electricity rates in January, according to the state Office of Public Counsel.

The St. Petersburg utility denied Tuesday that it had done anything wrong, saying the price disparities stemmed from differing market conditions.

In a filing with state utility regulators, the public counsel's office, which represents the interests of Florida utility customers, said Progress bought "significant quantities of coal" from its affiliate Progress Fuels Corp. during the first six months of 2005 "at prices substantially higher than the prices it paid other suppliers."

The concerns about higher coal prices are important to Progress Energy customers because the power company is asking for regulatory permission to raise its residential electricity rate on Jan. 1 by $10.53, or 11 percent, from $97.78 to $108.31 for the first 1,000 kilowatt hours. Nearly all of the requested increase stems from higher costs for oil, natural gas and coal the utility uses to generate electricity.

Utilities are allowed to pass such costs through to customers. In Progress Energy's case, higher coal costs account for about a one-fourth, or more than $2.50, of the proposed rate increase.

As a result, the public counsel's office has asked the Florida Public Service Commission to hold separate deliberations on Progress' coal purchases, which are part of the commission's broader examination of requests by Progress and other electric utilities to pass through higher fuel costs to customers.

"We would like to thoroughly air out this affiliate transaction deal," public counsel Harold McLean said Tuesday. "We can't do that in the time frame we're allotted in the fuel docket."

Progress spokesman C.J. Drake said any concerns of wrongdoing by the company are "without merit." Differences in the prices the company obtained from its coal suppliers were because of fluctuations in market conditions at the time of the purchases, he said.

"All coal purchases we made were prudent, reasonable, competitive and were done with the goal of getting the lowest price for our customers," Drake said.

Progress Energy Florida and Progress Fuels are wholly owned subsidiaries of Progress Energy Inc. of Raleigh, N.C. Progress Florida expects to buy about 840,000 tons of coal from Progress Fuels in 2005, accounting for about 14 percent of its projected coal purchases for the year, Drake said.

Progress' dealings with Progress Fuels aren't the first time in recent years that consumer advocates have raised questions about inter-affiliate dealings at local utilities.

Last year, the PSC ordered Tampa Electric to absorb more than $15-million in annual coal transport costs it had planned to pass through to customers over five years. The decision came after consumer advocates argued that Tampa Electric had unfairly favored sister subsidiary TECO Transport in the bidding for a coal-transport contract. Both affiliates are owned by Tampa parent TECO Energy.

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Copyright (c) 2005, St. Petersburg Times, Fla.

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PGN, TE,

Source: St. Petersburg Times

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