FPL to shut three Vero Beach power units soon, others later

The Federal Energy Regulatory Commission is seeking more information from Florida Power & Light on the proposed acquisition of the Vero Beach, Fla., municipal power system – which includes Vero Beach generating assets FPL eventually plans to shut.

The proposed transaction involves the sale by Vero Beach of its municipal electric system to FPL. As a result of the sale—which was endorsed by Vero Beach’s citizens by a wide margin in a recent referendum—Vero Beach customers will be charged FPL’s retail rates, which are significantly lower than those charged by Vero Beach.

FERC sent a May 13 letter to FPL asking for more information on the rate impacts of this plan, which was first filed with the commission on April 12. “In particular, please explain the impact of the $111.5 million purchase price of the Vero Beach facilities (i.e., the ‘Acquired Assets’) on wholesale requirements and/or wholesale transmission customers,” said FERC, which gave FPL 14 days to respond.

FPL in this deal will acquire five small units with a total capacity of 150 MW, three of which (with a total capacity of 102 MW) are old, inefficient boiler units that operate only on an infrequent basis (with an average capacity factor below 1%). FPL will also enter into a new three-year contract for the purchase of an additional 38 MW of capacity. Thus, in total, FPL told FERC it is acquiring 188 MW of capacity, most of which almost never runs.

An integral part of the transaction from Vero Beach’s perspective is that the five Vero Beach units must be retired within four years after the closing of this deal and the prime waterfront site returned to Vero Beach for public use. Although FPL has four years to retire the units under its agreement with Vero Beach, FPL said it commits to retire the three most inefficient units, representing 102 MW of the Vero Beach capacity, immediately upon the closing of the deal.

Further, the power purchase agreement (PPA) for 38 MW of capacity from the Orlando Utilities Commission (OUC) will expire three years after the transaction closes (and in any event no later than the end of 2017). When all the generation units are retired and the OUC contract terminates, FPL said it no longer will retain any of the generation capacity that it acquired under the transaction.

The additional retail load that FPL will be obligated to supply as a result of the transaction is greater than the amount of Economic Capacity (EC) being transferred to FPL, even before considering the retirement of the Vero Beach units. As a consequence, FPL will be obligated to serve a portion of the Vero Beach load from its existing generation fleet, and the transaction will actually reduce FPL’s Available Economic Capacity (AEC) and thus reduce its market power—a reduction that will be even greater when all of the Vero Beach generation is retired and the OUC contract terminated, the utility told FERC. And, although there is a temporary increase in FPL’s EC, that increase is miniscule compared to the 27,000 MW of capacity that FPL owns or is constructing that will come on line in the near future.

Vero Beach currently owns and operates a municipal utility system that includes generation, transmission and distribution facilities. This includes 150 MW of generation capacity and 42 miles of 138-kV and 69-kV transmission lines. Vero Beach’s peak demand was 180 MW in the winter and 153 MW in the summer. Though the city owns electric generating units, Vero Beach primarily purchases the power necessary to serve its load under long-term power purchase agreements.

Vero Beach to give up power plant entitlements

Details of the deal include:

  • FPL will acquire Vero Beach’s owned generation (150 MW).
  • Vero Beach will relinquish its current entitlements to portions of the St. Lucie 2, Stanton 1 and Stanton 2 generating units. FPL will enter into a contract with OUC for the equivalent capacity from Stanton 1 and 2 (38 MW), for a contract term not to exceed three years (and, in any event the contract will terminate no later than Dec. 31, 2017).
  • FPL will acquire sole responsibility for serving Vero Beach load, and Vero Beach’s existing partial requirements contract with OUC will be terminated.
  • FPL will retire the Vero Beach generating station (150 MW) within three years and return the site to the city for public use. The three least efficient of the Vero Beach generating units, comprising 102 MW, will be retired immediately upon the closing of the deal.
  • Vero Beach will assign to OUC its existing firm natural gas transportation agreement with Florida Gas Transmission (FGT).

Vero Beach owns five generating units, consisting of a two-unit combined-cycle plant (48 MW) and three natural gas-fired steam units (102 MW). Vero Beach also has generation entitlements through its participation in the Florida Municipal Power Agency to shares of St. Lucie Unit 2 (operated by FPL) and Stanton Units 1 and 2 (operated by OUC). Vero Beach’s share is 12 MW of St. Lucie Unit 2, 21 MW of Stanton Unit 1 and 17 MW of Stanton Unit 2. The remainder of Vero Beach’s load is served under a partial requirements contract with OUC. For planning purposes, OUC assumes 102 MW of peak load being supplied to Vero Beach in 2014.

FPL is a subsidiary of NextEra Energy (NYSE: NEE), which is one of the largest electric power companies in North America, with over 42,000 MW of generating capacity in 26 states in the U.S. and four provinces in Canada. 

NextEra discussed the Vero Beach deal in its last quarterly earnings call.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.