Electric exit

Whatever motives Florida Power and Light has for trying to escape from its $846 million deal with Central Maine Power, the decision exposes how far everyone involved in the electricity business has to go to understand the effects of deregulation. In the FPL case, this lack of knowledge may cause Maine consumers to lose out on significant savings.

The offer last summer from FPL to buy most of CMP’s generating capacity was a shocker. The $846 million far exceeded the book value of the facilities and was way above what the Maine company hoped to receive. A happy CMP announced subsequently that ratepayers should see a 10 percent decrease in charges once the sale went through.

Under the old regulatory system of public utilities, FPL number-crunchers may have been able to justify the purchase price. A utility could count on a customer base and receive whatever rate hikes it could wring from the Public Utilities Commission. With a lot of patience, FPL could get its investment back and more.

But that was under the old system. With deregulation, customers can’t be counted on, the market helps set the rates and competition comes from all sides. For FPL to compete after paying, perhaps, $200 million more than the assets were worth would be extremely difficult. That may be why the company woke up last spring and demanded that CMP write a letter promising that it would support FPL’s “right” to have preferential and unrestricted access to the New England Power Pool transmission grid.

CMP agreed, but it too found that circumstances had changed. It had a long-running battle with Champion, which wanted to sell power on the grid from a gas-fired plant it was planning to build and didn’t think it had to get approval from CMP to access the power lines. That fight recently was decided by the Federal Energy Regulatory Commission, which not only agreed with Champion but told NEPOOL that its current system for selecting new generators of power had to go.

Goodbye system; goodbye preferential treatment; goodbye, maybe, FPL.

For CMP, the challenge now is to decide whether to go to court to fight FPL’s decision. The Florida company’s reasoning is fairly transparent: It paid more than it should have for CMP’s assets and wanted a reason to back out. FERC’s Champion decision served as the reason. The risk CMP takes is that courts can be hard to predict. Coming down in price a bit to make the sale acceptable to FPL could save it months of hassle.

That, of course, means less of a rate reduction for customers, who are likely to pay for the lessons in this deal: FPL learned the old certainties of the regulated system are going or gone; CMP learned that upstart power generators will get treatment equal to the longtime players; and the PUC could not have failed to notice that a swifter decision on whether to approve the sale could have obviated many of the problems that now exist.

Welcome to deregulation.