Florida Power, LS Power duke it out over recent power RFP

Florida Power & Light on March 31 told the Florida Public Service Commission that objections to a March 16 request for proposals (RFP) for new capacity from DeSoto County Generating Co. LLC are not viable under Florida statute.

DeSoto County Generating, an affiliate of LS Power Development with a 310-MW gas/oil-fired power plant in Florida, had on March 26 objected to the commission about certain terms of the RFP, which covers new FPL capacity needs beginning in 2019.

DeSoto has five objections to the terms of the RFP. “Before addressing the dubious ‘merits’ of DeSoto’s individual objections, three initial observations are warranted,” said FPL’s March 31 response. “First, the standard the Commission has set forth [under state code] (hereinafter referred to as ‘the Bid Rule’) for the RFP objection process is whether the RFP violates the Bid Rule. It is not whether the terms of the RFP are consistent with the RFP terms of another electric utility in or outside of Florida or with any other criterion that (a) has not been subjected to the rulemaking requirements and procedures of the Florida Administrative Procedure Act (‘APA’) and (b) is not included in any form in the Bid Rule. Second, the objections contain many unsupported assertions. If there was support for these unfounded assertions, Desoto should have provided it. In the absence of such support, Desoto’s assertions should be viewed skeptically. Third, the objections request more relief than the Commission contemplated providing when it adopted this process for addressing objections to an RFP. In considering the relief requested in this rule-created objections process under [state code], the Commission should recognize that it is not making a decision that determines parties’ substantial interests under the requirements of [state code]. It is simply offering guidance on the compliance of the terms of the RFP with the Bid Rule and is not authorized under the Bid Rule to grant any other relief.”

In addressing DeSoto’s specific objections, FPL responded in part:

Existing or new new turnkey units

DeSoto asserts that FPL should be forced to consider the sale of existing units as well as new third party units constructed on a turnkey basis. “To the contrary, FPL appropriately decided against soliciting bids for the sale of existing and new generating units in this RFP,” said the utility. “As a factual matter, DeSoto’s contention that FPL should consider new turnkey projects is a ‘red herring.’ DeSoto is not proposing such a project, and no one else is contesting this point in the RFP. Regardless, constructing a power plant is a complex endeavor: one that can involve significant risks as to cost and schedule. FPL’s track record is solid in constructing new state of the art combined cycle facilities on time and under budget. There is no compelling case at this time for FPL to place its trust in another developer for a new plant that FPL has the best experience and capability to build here in Florida and neither has anyone proposed any such opportunity. Second, and more to the point, however, DeSoto is not proposing a new plant, but an older unit that is not even currently in service.

“FPL’s customers would be disadvantaged by being served by older units, with higher heat rates (less efficiency), years of use (‘more than a decade’ according to Desoto), and likely deterioration. Such units likely have not been maintained in a way that would allow FPL to maximize its system reliability. In the case of DeSoto in particular, the unit has not even operated recently due to its inefficiency and high cost (which DeSoto euphemistically refers to as ‘lack of commercial interest’) and currently is in inactive reserve status with the Florida Reliability Coordinating Council. FPL’s unit will run as something close to a base load unit, which DeSoto’s unit could not achieve from a performance standpoint. In the end, there are no negotiable contractual provisions in a Purchase and Sale Agreement for such a unit that could protect against performance better than will be achieved through a new, state of the art unit such as FPL’s Next Planned Generating Unit (‘NPGU’).”

The NGPU is a 1,622 MW (summer) combined-cycle facility that FPL has in the works as its next major capacity addition.

Risks of buying an existing unit

“There are significant risks to FPL’s customers associated with FPL purchasing an existing generating unit that FPL’s customers are expected to rely upon for safe, reliable operations for many years, when that unit was built, operated, and maintained by other entities (or even if they propose that FPL operate the unit after the sale),” said FPL. “These risks do not exist when FPL builds, maintains, and operates its unit. This does not mean that there may never be other reasons to acquire a third party generating asset; however, an acquisition through an RFP such as this to meet a substantial reliability need presents significant risks that outweigh any potential benefits, particularly in considering the one asset raised by this complaint.

“While thorough due diligence might allow FPL to reduce the risk of future problems and/or appropriately evaluate the costs associated with existing units built, maintained, and operated by others, such an endeavor does not easily lend itself to the typical RFP process that to date has worked very well for FPL customers. At a minimum, it would complicate and unduly lengthen the entire process. For instance, FPL’s recent agreement to purchase the Cedar Bay facility was the result of many months of negotiations and extensive due diligence. The fact that the DeSoto unit (due to its inefficiency) has not operated recently and has been ‘mothballed’ only serves to add to the uncertainty regarding what it would take to return the unit to service, as well as how such a period of inactivity would affect future operations. Even the availability of current or recent operating data could not eliminate all of the uncertainties discussed above; of course, the reality is that there are no such data.

“Finally, and perhaps most important, there are no existing units that can meet the operating characteristics and advantages of FPL’s NPGU. FPL’s NPGU is a state of the art facility with a lower heat rate and greater efficiency than virtually any existing combined cycle generating unit. FPL’s NPGU will have a projected service life that is longer than virtually any remaining life of existing combined cycle generating units. FPL’s NPGU will have manufacturers’ warranties that protect FPL and its customers, but many existing units would not have such warranties or would have shorter warranties, providing less protection to customers. FPL’s NPGU would have no prior operation or maintenance and would be subject from its inception to a sophisticated and proven maintenance and operational system.”

No reason to turn over the job of developing a new plant to an outside party

“A bidder selling a new unit to FPL would not have the same degree of motivation as FPL to ensure that the unit operates effectively during its entire operating life. It is FPL and only FPL that has the obligation to serve its customers,” the utility wrote. “An essential part of providing that service is developing and contracting to construct new generating plants. FPL is very experienced in conducting competitive solicitations for equipment, materials, and services related to the construction of generating units to be operated and maintained by FPL, and in selecting the best suppliers to effectively serve FPL’s customers. FPL’s experience in power plant development and contracting associated with power plant development has served FPL’s customers well. FPL has a long history of successfully developing new power plants, particularly gas-fired combined cycle units, on time and at or under budget.”

Replacement of Gas Turbine Units at FPL’s Ft. Myers Plant Site

Citing FPL’s resource plan included in the RFP, DeSoto argues (without any analytical support or economic analysis) it would be more cost effective for FPL to purchase its facility in the Ft. Myers area than for FPL to replace its retired gas turbine (GT) units in Ft. Myers with a new combustion turbine (CT) unit, said FPL. DeSoto alleges the Bid Rule has been violated in the RFP because FPL will not consider its unit as an alternative to the Ft. Myers GT replacement and claims this is an unfair restriction on participation in the RFP process.

“DeSoto’s contention misses the mark by a wide margin,” said FPL. “In no way, shape, or form does this allegation represent a violation of the Bid Rule. The instant RFP addresses a 2019 FPL capacity need, which represents FPL’s earliest and next capacity need. It does not address FPL’s planned replacement of GT units in Ft. Myers, which is scheduled to be completed in 2016 and, importantly, does not represent a capacity need as suggested by DeSoto. Simply put, the Ft. Myers GT replacement raised by DeSoto is not at issue in FPL’s RFP for its 2019 capacity need. As noted above, DeSoto is not restricted from proposing in this RFP to sell FPL capacity and energy under a PPA from DeSoto’s facility to meet FPL’s 2019 capacity need.”

DeSoto says the RFP has a number of issues

The DeSoto Facility is a 310 MW (summer net) simple-cycle combustion turbine plant capable of operating on both natural gas and No. 2 fuel oil. It is located in Arcadia, Florida, and is interconnected to FPL’s transmission system and to the Florida Gas Transmission Co. natural gas pipeline. It consists of two GE 7241FA combustion turbine units with a combined summer net capacity of 310 MW when firing natural gas. The facility achieved commercial operation in June 2002 and has operated reliably, though it is currently on inactive reserve.

“DeSoto is a potential participant in FPL’s RFP process,” said DeSoto in its March 26 complaint. “Specifically, DeSoto would like to offer to sell capacity and energy from the DeSoto Facility to FPL to meet part of its generating capacity needs over the relevant planning horizon. Such sale could potentially come in the form of a sale of the DeSoto Facility itself or pursuant to a power purchase agreement (‘PPA’), as it has done in the past.

“DeSoto objects to FPL’s exclusion of proposals offering the sale of an existing generating unit or a new turnkey generating unit from consideration in the RFP process. This RFP constraint is unfair and violates Rule 25-22.082(5), F.A.C., because it is facially anti-competitive, as well as facially contrary to the public interest, because it limits the universe or population of generation supply alternatives that FPL will even consider as being potentially cost-effective alternatives for its customers. It is also unduly discriminatory because it plainly forecloses an entire class of potential suppliers – those who would offer to sell FPL a power plant – from consideration in the RFP process.

“The sound basis for DeSoto’s Objection is proven by the recent experience of Duke Energy Florida, which, having gone through an RFP process for certain power supply needs, eventually determined that the purchase of an existing facility, Calpine‘s Osprey Energy Facility in Auburndale, Florida, represents the most cost-effective alternative available to Duke and its customers.

“According to its RFP, FPL indicates that it intends to retire certain gas turbine units at its Lauderdale, Port Everglades, and Ft. Myers plant sites and to replace that capacity with new CTs at its Lauderdale and Ft. Myers sites. The DeSoto Facility is located electrically in the same transmission area as the Ft. Myers units, and DeSoto believes that it would be more cost-effective for FPL to purchase the DeSoto Facility instead of adding some (possibly all) of the proposed CTs at the Ft. Myers site. Clearly, FPL’s overall generation expansion plan over the relevant planning horizon, which is probably from now through 2049 (30 years after the proposed in-service date of the Okeechobee Clean Energy Center), is at issue in this RFP process and in any subsequent need determination proceeding, yet in a conference call with bidders on March 24 , FPL’ s representative stated that no proposals in the instant RFP process would be considered as potential cost-effective alternatives to FPL’s proposed CTs. This is another example of an FPL-imposed restriction on participation in its RFP process that is unfair and violates Rule 25-22.082(10), F.A.C., because it limits creative, and potentially cost-effective, responses to the RFP from potential participants.”

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.