FPL seeks to terminate power deal with Waste Management facility

Florida Power & Light (FPL) on Dec. 3 petitioned the Florida Public Service Commission for approval to terminate the Wheelabrator North Broward Inc. Power Purchase Agreement (called the “WNB Second PPA” or “WNB Second Contract”) for the North Broward Resource Recovery Facility (“NBRR Facility”).

In 1986, twenty two municipalities in Broward County signed an interlocal agreement with the county establishing a Resource Recovery Board which would be responsible for the collection and disposal of all solid waste produced by those municipalities and the county.

In 1987, FPL entered into two standard offer contracts to purchase energy and capacity from Wheelabrator North Broward and Wheelabrator South Broward Inc., respectively. One contract (“Original WNB PPA”) was entered into between FPL and WNB for the purchase of energy and capacity from the Wheelabrator NBRR Facility. The NBRR Facility went into service in 1993.

The other contract (“Original WSB PPA”) was entered into between FPL and WSB for the purchase of energy and capacity from the Wheelabrator South Broward Facility.

Both the NBRR Facility and the Wheelabrator South Broward Facility were designed to burn municipal solid waste as a fuel source, with the NBRR Facility solely dependent upon the waste stream generated under the interlocal agreement. Both the Original WNB PPA and Original WSB PPA expired on Dec. 31, 2010.

In 1991, FPL and Wheelabrator North Broward entered into a separate agreement, the WNB Second PPA, to purchase an additional 11 MW of energy and capacity from the NBRR Facility. This WNB Second PPA expires on Dec. 31, 2026 and is the subject of this petition. Additionally, FPL and Wheelabrator South Broward entered into a separate agreement, WSB Second PPA, to purchase an additional 3.5 MW of energy and capacity from the Wheelabrator South Broward Facility. The WSB Second PPA also expires on Dec. 31, 2026. The Florida PSC approved both the WNB Second PPA and WSB Second PPA.

In July 2013, the interlocal agreement governing waste disposal expired, despite attempts to negotiate a new agreement or an extension to the existing agreement. Waste Management (the parent company of Wheelabrator North Broward) had, under the interlocal agreement, sole control of the waste streams. Now the cities which were parties to this agreement began to contract with other entities to handle their waste. As a result, Wheelabrator North Broward no longer had a dedicated waste stream to fuel the NBRR Facility.

By the end of 2014, more than 37% of the waste in Broward County was shipped out of the county for disposal, FPL noted. Additionally, since the inception of the interlocal agreement, the energy content of the waste stream has declined due to success in recycling high energy content feedstocks such as paper and plastics.

In December 2014, Waste Management sold Wheelabrator to Energy Capital Partners. However, while the sale included the South Broward Facility, it did not include the NBRR Facility, which was retained by Waste Management. The majority of the waste still handled by Waste Management is transported to the South Broward Facility. The NBRR Facility was only allocated enough of the waste stream to meet its 11 MW obligations to FPL under the WNB Second PPA.

FPL said its low avoided cost further means that the NBRR Facility cannot economically operate by selling additional energy to FPL on an as-available basis, even if fuel could be procured. It is very difficult (or perhaps impossible) for Wheelabrator North Broward to economically justify maintaining and staffing the 68 MW NBRR Facility based only upon the revenue stream from generating 11 MW under the WNB Second PPA, the utility added.

Because of these unfavorable economics, the NBRR Facility has not delivered energy or capacity to FPL since the beginning of August 2015. Even if the NBRR Facility produces no energy or capacity, a capacity payment is due under the WNB Second PPA as long as the Annual Billing Capacity Factor (ABCF) is above 60%. If the ABCF is below 60%, however, then the contract is in default and FPL can terminate the contract. The ABCF is a rolling twelve month average of the Monthly Capacity Billing Factors (MCBF), which, in turn, is calculated as a combination of the on-peak and off-peak Monthly Capacity Factors (MCF). With the NBRR Facility producing no output, the ABCF declines month by month, and in December 2015 will drop below the 60% threshold at which FPL is entitled to terminate the WNB Second PPA.

On Sept. 9, 2015, Waste Management contacted FPL to advise the company of its decision to shut down and close the NBRR Facility because it lacked a dedicated waste stream. On Nov. 3, 2015, FPL and Wheelabrator North Broward entered into an agreement tetminating the WNB Second PPA as of Nov. 3, 2015.

The termination of the WNB Second PPA is projected to produce $30.2 million in savings for FPL customers on a NPV basis. The projected savings are a result of comparing the cost to FPL of (a) declining to terminate the WNB Second PPA and continuing to receive 11 MW of capacity and energy under that contract from the beginning of 2016 until its expiration at the end of 2026, with (b) terminating the contract now and replacing the energy and capacity over the same period of time at FPL’s avoided costs (as reflected in FPL’s current Standard Offer Contract).

Shutting down the NBRR Facility will result in some of the waste stream being released and available for use at the South Broward Facility, which could increase the output of that facility. However, this increase would not reduce the savings to FPL customers from terminating the WNB Second PPA.

Currently, only the WSB Second PPA is still in effect, and it is only for 3.5 MW of capacity and energy. The South Broward Facility can generate that much output with its existing waste stream, so additional waste freed up by closure of the NBRR Facility could not result in any additional contract capacity payments under the WSB Second PPA. There may be an increase in energy payments, but these would be at FPL’s avoided cost and thus FPL is economically indifferent as to whether it makes additional energy payments for output from the South Broward Facility or generates the equivalent amount of energy from its own system.

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.