State of Florida

pscSEAL

 

Public Service Commission

Capital Circle Office Center ● 2540 Shumard Oak Boulevard
Tallahassee, Florida 32399-0850

-M-E-M-O-R-A-N-D-U-M-

 

DATE:

August 31, 2016

TO:

Office of Commission Clerk (Stauffer)

FROM:

Division of Engineering (Lee)

Office of the General Counsel (Lherisson)

RE:

Docket No. 160070-EQ Ė Petition for approval of renewable energy tariff and standard offer contract, by Florida Power & Light Company.

AGENDA:

09/13/16 Ė Regular Agenda Ė Proposed Agency Action Ė Interested Persons May Participate

COMMISSIONERS ASSIGNED:

All Commissioners

PREHEARING OFFICER:

Administrative

CRITICAL DATES:

None

SPECIAL INSTRUCTIONS:

None

 

Case Background

Section 366.91(3), Florida Statutes (F.S.), requires that each investor-owned utility (IOU) continuously offers to purchase capacity and energy from renewable generating facilities and small qualifying facilities. Florida Public Service Commission (Commission) Rules 25-17.200 through 25-17.310, Florida Administrative Code (F.A.C.), implement the statute and require each IOU to file with the Commission by April 1 of each year, a standard offer contract based on the next avoidable fossil fueled generating unit of each technology type identified in the utilityís current Ten-Year Site Plan. On April 1, 2016, Florida Power & Light Company (FPL) filed a petition for approval of its revised standard offer contract and rate schedule based on its 2016 Ten-Year Site Plan. The Commission has jurisdiction over this standard offer contract pursuant to Sections 366.04 through 366.06 and 366.91, F.S.

 


Discussion of Issues

Issue 1: 

 Should the Commission approve the revised renewable energy tariff and standard offer contract filed by Florida Power & Light Company?

Recommendation: 

 Yes. The provisions of FPLís revised renewable energy tariff and standard offer contract conform to all requirements of Rules 25-17.200 through 25-17.310, F.A.C. FPLís revised standard offer contract provides flexibility in the arrangements for payments so that a developer of renewable generation may select the payment stream best suited to its financial needs. (Lee)

Staff Analysis: 

 

 Rule 25-17.250, F.A.C., requires that FPL, an IOU, continuously makes available a standard offer contract for the purchase of firm capacity and energy from renewable generating facilities (RF) and small qualifying facilities (QF) with design capacities of 100 kilowatts (kW) or less. Pursuant to Rules 25-17.250(1) and (3), F.A.C., the standard offer contract must provide a term of at least 10 years, and the payment terms must be based on the utilityís next avoidable fossil-fueled generating unit identified in its most recent Ten-Year Site Plan or, if no avoided unit is identified, its next avoidable planned purchase.

FPL has identified a 1,622 megawatt (MW) natural gas-fired facility of the combined cycle (CC) technology type as the next fossil-fueled generating unit in its 2016 Ten-Year Site Plan. The projected in-service date of this unit is June 1, 2024.

The RF/QF operator may elect to make no commitment as to the quantity or timing of its deliveries to FPL, and to have a committed capacity of zero (0) MW. Under such a scenario, the energy is delivered on an as-available basis and the operator receives only an energy payment. Alternatively, the RF/QF operator may elect to commit to certain minimum performance requirements based on the identified avoided unit, such as, being operational and delivering an agreed upon amount of capacity by the in-service date of the avoided unit, and thereby becomes eligible for capacity payments in addition to payments received for energy. The standard offer contract may also serve as a starting point for negotiation of contract terms by providing payment information to an RF/QF operator, in a situation where one or both parties desire particular contract terms other than those established in the standard offer.

In order to promote renewable generation, the Commission requires the IOU to offer multiple options for capacity payments, including the options to receive early or levelized payments. If the RF/QF operator elects to receive capacity payments under the normal or levelized contract options, it will receive as-available energy payments only until the in-service date of the avoided unit (in this case June 1, 2024), and thereafter, begin receiving capacity payments in addition to the energy payments. If either the early or early levelized option is selected, then the operator will begin receiving capacity payments earlier than the in-service date of the avoided unit. However, payments made under the early capacity payment options tend to be lower in the later years of the contract term because the net present value (NPV) of the total payments must remain equal for all contract payment options.

 

Table 1 below, contains FPLís estimates of the annual payments for each payment option available under the revised standard offer contract to an operator with a 50 MW facility operating at a capacity factor of 94 percent, which is the minimum capacity factor required under the contract to qualify for full capacity payments. Normal and levelized capacity payments begin in 2024, reflecting the projected in-service date of the avoided CC unit (June 1, 2024).

 

Table 1 Ė Estimated Annual Payments to a 50 MW Renewable Facility

(94% Capacity Factor)

Year

Energy Payment

Capacity Payment (By Type)

Normal

Levelized

Early

Early Levelized

$(000)

$(000)

$(000)

$(000)

$(000)

2017

9,110

-

-

-

-

2018

11,560

-

-

-

-

2019

11,658

-

-

-

-

2020

11,149

-

-

3,303

3,759

2021

12,988

-

-

3,370

3,759

2022

12,441

-

-

3,437

3,759

2023

13,460

-

-

3,506

3,759

2024

15,540

5,230

5,830

3,576

3,759

2025

13,979

5,341

5,830

3,647

3,759

2026

15,069

5,455

5,830

3,720

3,759

2027

16,326

5,572

5,830

3,795

3,759

2028

15,421

5,691

5,830

3,870

3,759

2029

15,646

5,812

5,830

3,948

3,759

2030

16,055

5,936

5,830

4,027

3,759

2031

17,330

6,063

5,830

4,107

3,759

2032

17,813

6,193

5,830

4,190

3,759

2033

17,626

6,325

5,830

4,273

3,759

2034

17,632

6,460

5,830

4,359

3,759

2035

18,702

6,598

5,830

4,446

3,759

2036

19,077

6,739

5,830

4,535

3,759

Total

298,581

77,417

75,791

66,109

63,908

NPV (2017$)

141,046

28,521

28,521

28,521

28,521

 

FPLís revised renewable energy tariff and standard offer contract, in type-and-strike format, are included as Attachment A to this recommendation. In addition to the revisions to reflect the 2024 CC unit based on FPLís current generation plan, the revised standard offer contract also includes updated provisions regarding the completion/performance security, enhanced notification requirements, and energy price projections. Staff conducted four data requests to address those changes. FPLís response to the last data request was dated August 12, 2016.

In response to staffís data request, FPL described and explained the specific changes that affect the payment amount. FPL projects that the costs associated with power plants will marginally increase in the coming years with the escalation rate for plant costs increasing from 2 percent to 3 percent, as shown in the proposed tariff page 10.311.1. This escalation rate is a factor determining the capacity payments by FPL, so an increase in the escalation rate under the revised standard offer contract results in an increase in capacity payments to the RF/QF operator.

FPLís proposed tariff increases the required initial completion/performance security from $30/kW to $50/kW. This security will then increase to $100/kW two years before the guaranteed capacity delivery date. The current level has not been adjusted since 1999. FPL evaluated the cost to obtain alternative power arrangements in the event of a performance failure using the same methodology for the avoided cost provided in Rule 25-17.0832(6), F.A.C. Based on that, FPL then assessed the appropriate level of completion/performance security to be the proposed amount, so that there is reasonable assurance that the RF/QF operator will satisfy its pre-commercial operation date obligations and compensate FPL and its customers adequately in the event of a performance failure by the operator. Further, the cost for obtaining the letter of credit for the completion/performance security is a fraction of the security amount, therefore this requirement would not cause undue financial burden to sellers.

For similar reasons, the revised standard offer contract contains changes intended to reduce and manage the ratepayerís exposure to risks. Changes were made in notification provisions to shorten the timeframe or to enhance the requirements for the RF/QF operator. For example, in the proposed tariff page 9.037, paragraph 9.3, the timeframe to provide a replacement letter of credit is reduced from 30 days to 10 days.

The revised tariff sheets provide the required capacity payment pricing information, but the as-available energy cost projections and fuel cost projections on tariff pages 10.304 and 10.311 have been removed. FPL has elected to eliminate these as-available energy cost projections, because the tariffs are typically revised only once a year while forecasted energy prices are volatile throughout the year. FPL noted that the fuel costs used in calculating avoided costs for the 2016 standard offer contract have dropped more than 25 percent from those used for the 2015 standard offer contract. Removing these projections only clarifies that as-available energy cost pricing information will be provided upon request to reflect the most current market pricing. Staff notes FPL files actual as-available energy cost monthly with the Commission pursuant to Rule 25-17.0825(4), F.A.C.

Conclusion

The provisions of FPLís revised renewable energy tariff and standard offer contract conform to all requirements of Rules 25-17.200 through 25-17.310, F.A.C. FPLís revised standard offer contract provides flexibility in the arrangements for payments so that a developer of renewable generation my select the payment stream best suited to its financial needs.
Issue 2: 

 Should this docket be closed?

Recommendation: 

  Yes. This docket should be closed upon issuance of a consummating order, unless a person whose substantial interests are affected by the Commissionís decision files a protest within 21 days of the issuance of the Commissionís Proposed Agency Action Order. Potential signatories should be aware that, if a timely protest is filed, FPLís standard offer contract may subsequently be revised. (Lherisson)

Staff Analysis: 

 This docket should be closed upon the issuance of a consummating order, unless a person whose substantial interests are affected by the Commissionís decision files a protest within 21 days of the issuance of the Commissionís Proposed Agency Action Order. Potential signatories should be aware that, if a timely protest is filed, FPLís standard offer contract may subsequently be revised.