Florida Power & Light on Sept. 9 filed a prehearing statement at the Florida Public Service Commission, ahead of an Oct. 3-4 hearing, arguing for approval of its plan to buy out a power purchase agreement with the coal-fired Indiantown power plant, under which it would buy the plant itself and then retire it around the end of 2018.
Indiantown Cogeneration LP (ICL) holds an approximately 330-MW, coal-fired cogeneration facility in Indiantown, Florida. It is a qualifying facility (QF) under the Public Utilities Regulatory Policy Act of 1978 (PURPA) and began commercial operation in 1995. FPL’s payments to ICL for the purchase of electricity are made under a long-term power purchase agreement (PPA), which the parties originally executed in 1990 and the Florida PSC approved under its QF rules in 1991. The PPA expires in December 2025.
FPL on June 20 sought commission approval of a Purchase and Sale Agreement that will allow FPL to mitigate the impact of the existing PPA with ICL, which presently requires FPL to continue making above-market payments through the end of 2025. In May 2016, FPL entered into an agreement to assume ownership of the ICL Facility through a transaction with ICL’s upstream owner, Calypso Energy Holdings LLC.
Said the Sept. 9 FPL statement: “Approving the ICL Transaction is projected to produce an estimated $129 million in savings for FPL customers on a cumulative present value revenue requirements (‘CPVRR’) basis ($205 million nominal savings). This CPVRR estimated customer savings amount is nearly $60 million greater than that projected by FPL in the Cedar Bay Transaction (Docket No. 150075), a similar transaction that the Commission approved in 2015.”
Cedar Bay is another coal-fired plant in Florida that FPL plans to retire.
FPL added: “Under the Agreement, FPL would purchase 100% of the ownership interests of ICL from Calypso at a price of $451 million (including assumption of existing debt), thereby making FPL sole owner of the ICL Facility. Upon closing on the Agreement, FPL would acquire the existing PPA and become both the ICL Facility owner and the PPA counterparty. As owner of the Facility, FPL would continue to be entitled to economically dispatch the Facility as needed to meet its system needs. FPL anticipates that it will continue to dispatch the ICL Facility, but at a substantially lower capacity factor, through the end of 2018 to meet FPL’s capacity needs.”
Office of Public Counsel: FPL hasn’t proved yet this is the best possible deal
The Florida PSC staff filed a Sept. 9 prehearing brief that took no positions pending the arguments raised at the hearing.
The Florida Office of Public Counsel (OPC) acknowledged in its Sept. 9 prehearing brief that the proposal appears to provide material incremental benefit to customers above and beyond the level of total payments that would have been made under the Indiantown PPA.
“Nevertheless, the process under which the proposed buyout (or its equivalent) has occurred in this case and in the previous similar transaction with the Cedar Bay coal plant is lacking in several areas,” the OPC added. “The utilities regulated by this Commission – including Florida Power & Light (‘FPL’) – receive the certainty of the cost recovery for approved Purchased Power Agreements (‘PPA’) of all contracted payments to the independent power provider. This certainty of recovery is important for project financing and the availability of the resources that are deemed cost effective when originally contracted for and approved.
“There is an unbroken line of Commission policy decisions in this area that all avoid the application of hindsight to the transactions like the one at issue here that are not evaluated anew in light of changed circumstances. In transactions like the one at issue here, there is no corresponding obligation imposed upon the utility to seek and negotiate the lowest possible buyout price because they are provided with the incentive to maximize shareholder return by converting a portion of the capacity clause pass-through cost stream into a shareholder return that is increased by paying the seller the highest possible price that manages to come in under the ‘business-as-usual’ PPA revenue requirement.
“FPL’s burden in this case should be to demonstrate that the buyout is not only ‘better’ for the customers but that it is the best deal that FPL can achieve. OPC does not believe that FPL has met its burden to prove that the method used to eliminate the PPA is the most cost effective one available, that the proposed buyout price is the lowest possible buyout price, and that this transaction is in the best interest of FPL’ s customers, and thus is prudent.”