Costs for FPL’s Okeechobee plant covered by new rate hike

The Florida Public Service Commission on Nov. 29 unanimously approved a comprehensive four-year rate settlement agreement developed jointly by Florida Power & Light, the state’s Office of Public Counsel and major customer advocacy organizations.

The agreement is expected to keep FPL’s typical bills lower than they were in 2006 through at least the end of 2020. The agreement takes effect in January 2017 and will support continued investments in FPL’s infrastructure, including the implementation of innovative technologies that help reduce and shorten outages, generate power more efficiently and curtail fuel consumption and air emissions.

Said FPL President and CEO Eric Silagy in a Nov. 29 statement: “FPL’s combination of low bills, outstanding service and clean generation is among the very best in the country, and this important agreement will help us continue delivering superior value for customers.

The agreement, which was also supported by the South Florida Hospital & Healthcare Association and the Florida Retail Federation, resolves FPL’s current base rate proceeding and addresses related matters, including natural gas hedging and universal-scale solar investment.

The agreement reflects a reduction in FPL’s proposed January 2017 base rate revenue increase of more than 50%, from $826 million to $400 million, driven partly by a reduction in the company’s originally proposed return on equity midpoint from 11.5 percent to 10.55 percent.

The agreement also includes the gas-fired, 1,600-MW FPL Okeechobee Clean Energy Center, which is expected to begin serving customers in mid-2019, with a $200 million revenue adjustment upon entering service. This is a reduction of $9 million compared with FPL’s original proposal. The FPL Okeechobee Clean Energy Center will use advanced combined-cycle natural gas technology to help meet Florida’s growing energy needs.

The agreement also positions Florida for a significant expansion of solar energy, enabling 1,200 MW of new solar capacity. FPL will be allowed to adjust base rates to accommodate up to 300 MW of new solar capacity annually during the agreement’s four-year term. Each proposed solar project must be determined to be cost-effective – meaning the base rate impact is expected to be offset by fuel and other benefits so that the project produces a net savings for customers over its operating lifetime.

Other components of the approved agreement include:

  • Encourages a 50-MW pilot program to expand on FPL’s battery storage initiatives to enhance operations of existing and/or planned solar facilities, among other potential benefits.
  • Terminates FPL’s natural gas hedging program during the settlement’s term – a key condition of the Office of Public Counsel’s support. Although FPL said it continues to support the idea of hedging as a means to protect customers during times of higher fuel price volatility, the company accepts the termination of the program until the end of the settlement term as part of the broader compromise.
  • Continues FPL’s successful asset optimization incentive mechanism with a minimum sharing threshold of $40 million. Created as part of 2012 base rate settlement, FPL’s enhanced program saved FPL customers more than $124 million during the 2013-2015 period – $22 million more than would have been saved under the previous program.

Annually from 2018 through 2021, relatively small rate adjustments for new solar energy centers would have an average net impact of less than 50 cents a month or 2 cents a day on a typical bill, depending on the actual amount of new solar capacity completed in a given year. Importantly, the solar capacity additions would result in no net increase to customer costs over the life of each project because the plants would generate savings on fuel and other costs that would begin offsetting the base rate impact immediately, with the offset increasing over time.

Said a Nov. 10 post-hearing brief filed by FPL in this case about the Solar Base Rate Adjustment (SoBRA) provision: “The SoBRA is very similar to the generation base rate adjustment (‘GBRA’) mechanism the Commission has approved in past settlements. For purposes of SoBRA cost recovery pursuant to the Proposed Settlement Agreement, FPL may construct approximately 300 MW of solar generating capacity per calendar year, projected to go into service no later than 2021. The cost of the components, engineering and construction for any solar project undertaken pursuant to the Proposed Settlement Agreement must be reasonable and may not exceed $1,750/kWac. FPL intends to demonstrate that its costs for components, engineering and construction are reasonable by conducting competitive solicitations to ensure that it is contracting on the most favorable terms. This is the same process that FPL used for the solar projects that are entering service in 2016, which applied to roughly 90% of the installed cost of those solar projects. Moreover, the $1,750/kWac cap will require FPL to continue aggressively to seek out cost reductions, as it is approximately $100/kWac less than the already-favorable pricing that FPL was able to achieve for the 2016 projects.

“For solar projects 75 MW or greater that are subject to the Florida Electrical Power Plant Siting Act (‘Siting Act’), FPL would file a petition for a Determination of Need with the Commission. If approved, FPL would calculate and submit for Commission confirmation the SoBRA amount for each such solar project using the annual Capacity Clause projection filing for the year in which that solar project is scheduled to go into service. Solar projects less than 75 MW, and therefore not subject to the Siting Act, would be subject to Commission approval through the annual Fuel Docket. The petition for approval would be made in the annual true-up filing in March. The cost effectiveness will be determined by whether the solar project lowers FPL’s projected system cumulative present value revenue requirement (‘CPVRR’), evaluated on the same basis as FPL’s other generation additions.”

Said the Nov. 10 brief about the battery demonstration program: “The battery storage pilot program would allow FPL to deploy up to 50 MW of battery storage technology designed to serve commercial, industrial and retail customers. Through this program, FPL would be able to gain a better understanding of how battery storage can improve the reliability and efficiency of the system. FPL has agreed that the average installation cost of the battery storage projects will not exceed $2,300/kWac during the Term of the Agreement, and FPL will not seek incremental recovery of the revenue requirements associated with the pilot program until its next general base rate increase. The Signatories have agreed that this pilot program will provide benefits for FPL’s customers and have committed that they will not challenge the prudence of investments under the program at that time, but the Commission and other parties would not be bound by that commitment.”

Florida Power & Light is the third-largest electric utility in the United States, serving more than 4.8 million customer accounts or more than 10 million people across nearly half of the state of Florida. FPL is a subsidiary of Juno Beach, Fla.-based NextEra Energy (NYSE: NEE).

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.