Recommendation

PCS Phosphate believes that the proposed changes will remove unnecessary barriers to the development of renewable generation and minimize the need for potential renewable energy providers to expend resources in an effort to achieve equitable terms and conditions. (PCS Phosphate BR 6-7)

The eight modifications proposed by PCS Phosphate are addressed below.

(1) Appropriate performance characteristics of the avoided unit:

PARTIES' ARGUMENTS

PEF must accept power from the renewable generator whenever the facility is on-line. (TR 47) As a result, the capacity factor of the renewable generator is essentially the availability of that unit and is compared with the availability factor of the avoided unit. (PEF BR 3) PEF’s standard offer contract would pay a renewable generator full capacity payments for achieving a capacity factor of 89 percent and would reduce capacity payments on a sliding scale down to a minimum performance level of a 69 percent capacity factor. Below the minimum threshold capacity factor provided in the contract, the renewable supplier is not really supplying the capacity necessary to avoid PEF's next unit. (TR 47-48)

PCS Phosphate argues that the terms “availability factor” and “capacity factor” are distinctly different measures of unit performance and claims that PEF is using these terms interchangeably “in order to require a level of performance from a renewable energy provider that is virtually impossible to achieve.” (PCS Phosphate BR 19) Further, PCS Phosphate claims that PEF requires the renewable generator to meet standards that differ from the anticipated performance of the avoided unit, in violation of Rule 25-17.0832(4)(e)(8), F.A.C. (PCS Phosphate BR 19-21) PCS Phosphate observes that existing combined cycle units operated by PEF have “achieved” average capacity factors in the 40 percent to 50 percent range (TR 96, PCS Phosphate BR 21) and recommends that the capacity factor should be a matter negotiated by the parties.

ANALYSIS

The standard offer contract is required by statute to provide compensation to the renewable provider based upon the utility's avoided cost. The avoided cost for any future generating capacity cannot be determined from the operating records of existing generating units. (TR 48) The historical capacity factors for any units in service are determined by economic dispatch, which is dependent upon many factors including weather, fuel costs, heat rates, etc. Further, the operating history of existing units does not define the manner of dispatch or the costs that will actually develop after the next generating unit is built.

The projected availability of the planned unit is a performance benchmark. If the next planned generating unit is expected to have an 89 percent availability, the unit would be expected to be able to generate at 100 percent capability up to 89 percent of the time. (TR 32) The 89 percent availability is derived from careful assessment of such factors as the life cycle of various mechanical components and known requirements for maintenance associated with the type of unit. The intent of the standard offer contract is to require the renewable generator to operate in a manner similar to the utility’s avoided unit. If a utility-owned generating unit were not constrained by economic dispatch parameters, then the unit’s availability and capacity factor would be equivalent.

Under the standard offer contract, PEF must accept power from the renewable generator whenever the facility is on-line. (TR 47) When a renewable generator provides electric power, the measure of the service provided is the energy produced, measured in kilowatt-hours, which can be used to calculate a capacity factor. The utility is not able to “call upon” or economically dispatch a renewable provider. Owners of renewable generators typically seek to maximize payments through maximized energy production. Therefore, the capacity factor and the availability factor of the renewable generator are virtually the same and can be compared to the availability factor of the avoided unit.

PCS Phosphate witness Marz testifies that the availability factor of the avoided unit is 89 percent and the anticipated capacity factor is 65.3 percent based on PEF’s 2009 Ten-Year Site Plan. He concludes that PEF requires performance better than that of the avoided unit for any level of capacity payment. Witness Marz contends that the standard offer contract imposes an unreasonable standard upon renewable generators. (TR 97) The resulting capacity factor that appears in a Ten-Year Site Plan is a calculation based on the availability performance benchmark as well as projected values of many other factors such as fuel prices and load forecasts. Thus, the estimate of capacity factor that appears in the Ten-Year Site Plan does not serve as a benchmark, because the underlying factors are highly variable. In other words, if an economic dispatch were modeled today, the resulting capacity factor could be higher or lower, but the availability of the avoided unit would remain at 89 percent. The only performance benchmark is the projected availability factor. As discussed above, the intent of the standard offer contract is to require the renewable generator to operate in a manner similar to the utility’s avoided unit. The capacity factor and the availability factor of the renewable generator are virtually the same and can be compared to the availability factor of the avoided unit.

If the renewable generator is available for 89 percent of the time, the operation of the renewable generator is approximating the avoided unit and the renewable provider should be compensated accordingly. (TR 32) PEF's 2008 standard offer contract would pay the renewable generator the full capacity payment if the renewable generator achieved an 89 percent capacity factor. (TR 32) While not required by Commission rules, providing an opportunity to receive reduced capacity payments for performance that is below that of the avoided unit is often referred to as a sliding scale. (TR 48) PEF has included a minimum threshold level of a 69 percent capacity factor to receive capacity payments. While this value is arbitrary, it serves to provide the renewable generator with a partial capacity payment if the renewable generator’s performance falls below that of the utility’s avoided unit.

PCS Phosphate has stated that renewable energy production may depend on other considerations including a manufacturing schedule. (EXH 3, p.3) PCS Phosphate further stated that many variables, including the electrical needs of the renewable facility, will influence the operation and availability of the renewable generator. (EXH 3, p.4) The standard offer contract is based on replacing utility-owned capacity with similar capacity from a renewable supplier. The Commission is required, by statute, to provide compensation to the renewable provider based upon the utility's avoided cost; not the cost of power produced by the renewable generator. The changes to the standard offer contract that are proposed by PCS phosphate appear to staff to be a major departure from the concept of paying avoided costs for similar capacity.

CONCLUSION

Staff recommends that the sliding scale for capacity payments in PEF's 2008 standard offer contract should be approved.

(2) Right of first refusal to purchase renewable energy credits:

ANALYSIS

As stated in their briefs, the parties agree that provisions relating to renewable energy credits should be revised. Standard offer contracts should not include the right of first refusal for renewable energy credits. (PEF BR 4-5; PCS Phosphate BR 10-11) Therefore, this issue is moot.

(3) Use of interruptible power to meet startup requirements:

PARTIES' ARGUMENTS

Section 6.3 of PEF's standard offer contract prohibits a renewable provider from relying on interruptible standby service to enable start up of the renewable generator. In an event where PEF was interrupting customers in order to reduce load, the value of generation from PCS Phosphate would be lost if that facility were interrupted and could not restart due to lack of grid power. (TR 11, 35)

PCS Phosphate agrees with PEF that interruptible standby service could expose the utility and its customers to a risk of not receiving generating capability that the customers have paid for. (TR 116-118) However, PCS Phosphate says that no tariff provision prevents an interruptible customer from drawing power to start its generator. (PCS Phosphate BR 12-13) PCS Phosphate claims it currently purchases the majority of its standby electrical energy under the Rate SS-2. (TR 111, PCS Phosphate BR 12-13)

ANALYSIS

PCS Phosphate claims that no tariff provision prevents a customer from drawing power to start a generator during a power interruption. (PCS Phosphate BR 12-13) However, such a claim is not consistent with Special Provision 2 of the SS-2 tariff, found on Sheet No. 6.318, which requires that interruptible equipment will be installed. The SS-2 tariff is available on a first call basis, and the required equipment is subject to availability. If an interruption is needed for reliability, it is executed by use of the special equipment installed, with the result that no power is available on the customer's side of that equipment. Witness Gammon comments that “the generating unit could not return to service because it would not have power from PEF.” (TR 35) The lack of available power for startup would be a matter of function rather than a matter of tariff prohibition. There is no provision for some alternate connection to get around the equipment that is used to accomplish an interruption of electric service when reliability issues demand an interruption.

Witness Marz testifies that “PCS purchases interruptible standby service for existing on-site generation.” (TR 111) The witness goes on to say that if interruptible standby service is provided to a renewable generator, this arrangement for service will subject the body of ratepayers to a risk that the contracted capacity would not be available when needed to alleviate a generation shortage. (TR 117-118) Under the Commission's rules currently in force, the standard offer contract utilizes the next planned generator as a performance benchmark to assure “equal pay for equal performance” and so guard the interests of the ratepayer. Staff believes that the interruptible standby service is intended as an option for self-service generators who may sell excess energy on an as-available basis, rather than for generators selling firm power pursuant to a standard offer contract. In the view of staff, the testimony of PCS Phosphate witness Marz is describing a generation asset operated in a manner which does not match to the requirements of a standard offer contract under Rule 25-17.250, F.A.C. (TR 98, 111)

CONCLUSION

Staff recommends that Section 6.3 of PEF's 2008 standard offer contract complies with Rule 25-17.250, F.A.C., and is appropriate as to prohibition of interruptible standby service.

(4) Number of capacity tests:

ANALYSIS

The parties have reached agreement regarding arrangements for capacity testing if there is good cause. PCS Phosphate accepts the revised Section 7.4 as provided by PEF witness Gammon in his rebuttal testimony. (TR 136-137, PCS Phosphate BR 13-14) Staff therefore recommends that this provision be incorporated in PEF’s standard offer contract filed in Docket No. 090162-EQ.

(5) Period for capacity testing:

PARTIES' ARGUMENTS

The 24-hour test period required by PEF is less than the reliability testing that would be required of the avoided unit. PEF points out that the renewable facility is obligated to ensure that it is capable of producing power in a manner equivalent to the avoided unit, at all times. (PEF BR 6-7)

PCS Phosphate seeks to revise the requirements in the standard offer contract to provide flexibility as to the time period for the committed capacity test. (TR 101-102, PCS Phosphate BR 14-15) The expectation of PCS Phosphate is that the standard offer contract will be changed so that various renewable providers can execute the contract with minimal resources invested in negotiation. (TR 15) PCS Phosphate explains that if the standard offer contract requires that renewable providers match the operating characteristics of a gas combined cycle generator, the development of alternative technologies will be excluded rather than encouraged. (TR 15-17) PCS Phosphate offers the power purchase agreement between PEF and Vandolah Power as an example of a successful agreement relating to the incorporation of limited discretion to set testing periods. (TR 102, PCS Phosphate BR 14-15)

ANALYSIS

PEF witness Gammon testifies that PEF's standard offer contract sets the test period for establishing the renewable generator's capacity to ensure that PEF's customers receive all the capacity that they have contracted to purchase. (TR 36) The 24-hour test period required by PEF is less than the reliability testing that would be required of the avoided unit. Witness Gammon testifies that if a renewable supplier cannot generate for 24 hours, the supplier is not avoiding the planned unit. (TR 51) If the renewable technology is unable to achieve a specified committed capacity over a 24-hour test period, it cannot serve to replace that specified capacity portion of the avoided unit. The typical planned unit is able to run for several days at 100 percent capacity. PCS Phosphate claims that varying operating characteristics of renewable generators must be integrated into the standard offer contract and seeks to revise the requirements in the standard offer contract to provide flexibility as to the time period for the committed capacity test. (TR 101-102)

Staff agrees with PCS Phosphate that the standard offer contract does not bridge the gap between the operating characteristics of renewable generators and the generation units planned by a utility. If the renewable generator's technology is able to match the performance and costs of the avoided unit, the utility would likely opt for the renewable technology and thereby obtain additional benefits, such as might accrue from smaller units widely distributed close to load centers. While the development and support of renewable generating technologies underlie Sections 366.91 and 366.92, F.S., as well as Rule 25-17.250, F.A.C., the rules and regulations also require that the provisions of the standard offer contract must be designed so as to not compromise the principle of providing reliable service at least cost. The information provided in the standard offer contract does support the development of renewable technologies by acting as a benchmark for performance. A negotiated contract can provide accommodation for varying performance, illustrated by the Vandolah contract. (TR 102). This includes shorter periods for generating committed capacity. However, replacing the terms of the standard offer with terms excerpted from various negotiated contracts would distort the information in the contract and render it inaccurate with regard to essential factors. The complaints listed by PCS Phosphate do not lead to a conclusion that an abbreviated period is sufficient for a committed capacity test.

CONCLUSION

The committed capacity test required by a standard offer contract should be based on the performance of the avoided unit, and matched to the avoided cost associated with that performance. The provisions of PEF's standard offer contract are in compliance with this requirement.

(6) Allowance for maintenance outage:

PARTIES' ARGUMENTS

Section 10.2 of PEF’s standard offer contract provides for 15 days of scheduled maintenance outage per year, based on the allowance for maintenance of the avoided unit. (TR 137-138)

PCS Phosphate believes that the 15-day allowance for maintenance is unduly restrictive and not justified by the Commission's regulations. (PCS Phosphate BR 15-16)

ANALYSIS

The maintenance period is one of the performance standards associated with each specific generating unit. Rule 25-17.0832(4)(e)8, F.A.C., provides that minimum performance standards of the renewable generator shall approximate the performance standards relating to the avoided unit.

PEF explained that allowing an additional 15 days outage, as requested by PCS Phosphate, means that replacement power must be obtained for those 15 days. The costs for replacement power would be borne by PEF's customers. (PEF BR 7) PEF essentially claims that the customers pay for power for 350 days throughout the year under the standard offer provisions, although PCS Phosphate wants the maintenance allowance changed so that power would only be required for 335 days. (PEF BR 7)

PCS Phosphate claims that the 15-day allowance may be unduly restrictive because it may not be sufficient to perform the essential maintenance on the renewable provider’s equipment. (PCS Phosphate BR 15-16) Witness Marz testifies that PEF’s requirement is one-sided and not responsive to the specific circumstances of renewable energy producers. (TR 110)

The projected outage for the avoided unit appears reasonable in the view of staff. The Commission is required, by statute, to provide compensation to the renewable provider based upon the utility's avoided cost; not the cost of power produced by the renewable generator. Staff believes that extending the allowance for permitted maintenance outage as requested by PCS Phosphate would not be in accord with Commission rules just cited. As previously stated, this provision means that the standard offer contract utilizes the next planned generator as a performance benchmark to assure “equal pay for equal performance,” and so guard the interests of the ratepayer.

CONCLUSION

The arrangements for maintenance provided by a standard offer contract should be based on the maintenance requirements of the avoided unit. PEF's contract provides for 15 days of scheduled maintenance per year, which is based on PEF’s avoided costs.

(7) Concerning the performance security retained:

PARTIES' ARGUMENTS

Section 11.1 of the standard offer contract requires a performance security from renewable generators that will be in place for the life of the contract. PEF states that, without performance security retained for the term of the contract, the general body of ratepayers will bear all risk relating to a possibility that the renewable generator might not deliver capacity and energy as specified in the contract. (PEF BR 8)

PCS Phosphate acknowledges that the renewable producer is required to provide security in the event that the renewable supplier fails to deliver firm capacity and energy in the amount and time specified in the contract. (TR 105) PCS Phosphate claims that the termination fee is a separate fee that protects the PEF ratepayers in a case of poor performance by a renewable supplier, and explains that the termination fee may be assessed to a renewable supplier in default. (PCS Phosphate BR 9) PCS Phosphate believes that completion security is to be returned upon successful completion of the capacity test and that PEF should post a bond if the credit rating drops to a certain level. (TR 124-127)

ANALYSIS

In his testimony, PCS Phosphate witness Marz provided an assessment of risks, and the management of those risks, involved with a renewable generator operating under a standard offer contract. The risk assessment and management proffered by witness Marz differs from the risks to ratepayers recognized and managed by the provisions of Rule 25-17.0832, F.A.C.

The provisions of Rule 25-17.0832, F.A.C., recognize and address three distinctly different risks associated with power purchase contracts. The first risk is associated with a possibility that the renewable provider enters into a contract, but is then unable to make available the committed capacity and energy by the date specified in the contract. This risk relates to the completion security provided by Rule 25-17.0832(4)(f)1, F.A.C. Upon timely demonstration that the renewable supplier has achieved the capability to deliver capacity and energy as specified in the contract, the rule directs that the completion security should be returned to the renewable provider, if it has been required in association with the execution of the contract. (TR 105)

The second risk relates to performance by the renewable provider, after successful completion of the capacity test, for the duration of the contract. Staff agrees with PEF witness Gammon that performance security is required throughout the term of the contract and is not finished when the capability of the renewable generator is originally demonstrated. (TR 55) If a renewable provider is unable to comply with contractual performance requirements at a time of high demand, the utility may be forced to purchase energy in order to serve load. If a purchase of replacement energy becomes necessary, the incremental cost of the purchase would be subject to recovery from the retained performance security. Without the retained performance security, the risk associated with the additional cost of the purchase falls to the ratepayer. The provisions of Rule 25-17.0832(3)(d), F.A.C., apply to this situation, and are included in the standard offer contract by Rule 25-17.0832(4)(b), F.A.C. Section 11 of PEF's standard offer contract provides for performance security, in accordance with the rule.

The performance security may differ from completion security, in terms or arrangements. For example, cash may be required for completion security while a bond is permitted for performance security. Upon satisfactory performance in the committed capacity test, the special requirements of the completion security are no longer needed. In the instant case, the completion security is the same as the performance security. Section 11 in the standard offer contract proffered by PEF has a single security provision which is called “Completion/Performance Security,” to be undertaken by the renewable provider at the time conditions precedent are satisfied and remain through the term of the contract. (PEF BR 7-8) Staff recognizes no separate completion security, to be returned upon satisfactory completion of the capacity test by the renewable generator.

The third risk is associated with optional payment streams, whereby the renewable provider selects one of the early payment options available. Rule 25-17.0832(4)(e)10, F.A.C., requires a surety bond or equivalent to assure repayment of any energy or capacity payments that exceed the year's annual value of deferring the avoided unit. Rule 25-17.0832(3), F.A.C., provides multiple options for early payment, subject to the constraint that the cumulative present worth of payments made by PEF for capacity and energy must not exceed the cumulative present worth of the year-by-year deferral associated with the avoided unit. The early payment options create a deficit compared to the value of deferral, and that deficit is gradually extinguished over the term of the contract. The standard offer contract provides for termination security that is directed at remedy of any deficit created by early capacity payments, in the event of default during the term of the contract. (TR 40)

Creditworthiness provisions are offered by PCS Phosphate witness Marz as a means to provide performance security in case of default by the renewable provider. (TR 124-126) Staff recommends that the view of witness Marz is not in accord with the provisions of Rule 25-17.0832, F.A.C. In a worst case scenario where a renewable provider would default, the provisions set out in the rules of the Commission protect the ratepayer through a process that recovers damages in a simple and direct manner, under the jurisdiction of the Commission. An effort to liquidate damages based on a previous assessment of creditworthiness would likely involve assets not under the jurisdiction of the Commission. The effort could entail extended court proceedings and increase both costs and risks borne by the ratepayer.

CONCLUSION

Rule 25-17.0832(3)(d), F.A.C., requires completion and performance security throughout the term of the contract. Staff recommends that if the same security serves for completion and performance, it must continue throughout the term of the contract.

(8) Symmetrical credit and collateral provisions:

PARTIES' ARGUMENTS

PEF is obligated to sign the standard offer contract with any renewable provider who is willing to accept the terms of the contract. (PEF BR 8) PEF observes that the suggestion by PCS Phosphate to add a provision requiring PEF to post a bond (if the credit rating of the utility drops) would merely add a financial burden on PEF's customers because PEF is mandated by rules and regulations to pay for the power it receives. (PEF BR 8-9)

PCS Phosphate believes that the standard offer contract constitutes one-sided treatment of potential renewable providers, inflicting prejudicial and disproportionate treatment. (PCS Phosphate BR 16-17) The brief cites the power supply agreement with the city of Mount Dora to demonstrate that the proposed reciprocal creditworthiness provisions have been acceptable to PEF. (TR 106, PCS Phosphate BR 18)

ANALYSIS

PCS Phosphate witness Marz testifies that default provisions apply only to the renewable provider. The witness stated, “There are no provisions that permit the renewable producer to declare a default by PEF.” As an example, the witness describes a hypothetical situation where PEF could stop paying a renewable, and the renewable would have no contractual right to declare PEF in default. The renewable provider must continue to provide power or risk being declared in default by PEF. (TR 106-107) Witness Marz notes that approval of the contract by the Commission only guarantees recovery of the cost of the contract by PEF, while the renewable producer must assume risk of non-performance by PEF. (TR 108) In his testimony filed February 18, 2008, witness Marz lists seven circumstances that can give rise to a default situation: (1) failure to make timely payment; (2) false or misleading representation or warranty; (3) failure to perform any obligation; (4) bankruptcy of a party; (5) failure to satisfy creditworthiness provisions; (6) merger or consolidation without assumption of prior obligation; and (7) breach by a guarantor. (TR 107) The brief mentions that in case of dispute not resolved by executives, the standard offer contract specifies binding arbitration. (PCS Phosphate BR 17) Witness Marz suggests that PEF should be required to post a bond if the utility's credit rating drops below a certain level. (TR 126) Witness Marz also testifies that PEF's ratepayers would bear the costs of such credit security. (TR 126-127)

As a regulated utility, PEF operates under Commission oversight. PEF is obligated to sign the standard offer contract with any renewable provider who is willing to accept the terms of the contract. Further, PEF is mandated to pay for the power it receives from the renewable provider. (PEF BR 8) The credit ratings of regulated companies are monitored by Commission staff. While the future cannot be guaranteed, intervention by the Commission would be expected long before a regulated utility became involved in a situation of decline that might result in default on contractual payment obligations. Mergers and activities with affiliates can obscure problems that presage default, but the Commission seeks to forestall problems through diligent regulatory oversight. Cost recovery proceedings are conducted annually to insure prompt recovery of prudently incurred costs. In contrast, the Commission has no jurisdictional authority over a non-regulated provider and no means of direct influence over any decisions or actions by that entity, other than by oversight of the contractual arrangements that may impact a utility's ratepayers.

CONCLUSION

Staff finds no support in the record for a proposal that PEF should be required to post bond as a security for capacity or energy payments that are obligated under the standard offer contract.

Issue 2:

Does the standard offer contract filed by PEF on July 15, 2008, contain terms and conditions that are not consistent Rules 25-17.001 and 25-17.200 through 25-17.310, F.A.C.?

Recommendation:

No. As discussed in Issue 1, including the changes suggested by PEF in its post hearing comment, the standard offer contract filed by PEF on July 15, 2008 is in compliance with Rules 25-17.200 through 25-17.310, F.A.C. (Sickel)

Position of the Parties

PEF:

No. PEF has demonstrated that its standard offer contract terms and conditions are consistent with Rules 25-17.001and 25-17.200 through 25-17.310, F.A.C.

PCS Phosphate:

Yes. PEF’s standard offer contract is inconsistent with the Commission's regulations because it imposes incorrect performance requirements, fails to include all costs associated with the avoided unit, wrongly retains a renewable generator's performance security, and improperly burdens the ownership rights to Renewable Energy Credits.

Staff Analysis:

In its position on Issue 2, PCS Phosphate lists four items of concern. Three of those concerns relate to terms and conditions which were addressed in Issue 1. Refer to Issue 1 for analyses and conclusions relating to performance requirements (item 1); the right of first refusal for purchase of renewable energy credits (item 2); and performance security retained by the utility (item 7). The remaining concern regarding evaluation of costs associated with the avoided unit is addressed in this issue.

PARTIES' ARGUMENTS

PEF witness Gammon explains that the avoided costs are calculated in accordance with the formula and requirements in Rule 25-17.0832(6), F.A.C. He explains how some of the factors are evaluated and values obtained. Witness Gammon testifies that the methodology is unchanged for a number of years. (TR 31-32)

In its brief, PCS Phosphate states that the calculation of avoided costs by PEF is inaccurate because it does not include all of “the incremental costs to the facility” including the costs relating to engineering and design of the facility, as well as interconnection and transmission costs. (PCS Phosphate BR 23) PCS Phosphate says that PEF calculated the avoided cost payment from data in the Ten-Year Site Plan and failed to identify either total projected facility cost or cost components. (PCS Phosphate BR 23)

ANALYSIS

The basis and methods of cost projection used in the pending matter appear similar to the cost projections that have been utilized for previous contracts, both negotiated and standard offer contracts, by various utilities over the years. (TR 31-32) The appropriate values of the parameters shown on Schedule 2 of COG-2 were included in the filing for both 2007 and 2008. In comparing the values for the parameters in year 2007 with those in year 2008, the variation appears reasonable. The components themselves were not called into question and scrutinized during discovery. Staff finds no basis for a conclusion that the cost projections are seriously flawed. The claim by PCS Phosphate that some incremental costs are omitted from the costs associated with the avoided unit is not supported in the record.

CONCLUSION

Staff finds no support for a claim of inaccuracy as to calculation of avoided costs in the Rate Schedule COG-2 filed by PEF. Staff recommends that the payment schedules included in PEF's standard offer contract are valid based on the assumptions stated, and provide typical or approximate payments that could be expected by a renewable provider.
Issue 3:

Do the non-price terms and conditions of PEF's standard offer contract that are specifically addressed by Florida Statutes or regulations comply with the policies and purposes set forth in Section 366.91, F.S., and Rules 25-17.001 and 25-17.200, F.A.C.?

Recommendation:

Yes. As discussed in Issue 1, the non-price terms and conditions relating to the use of interruptible power, the capacity testing periods, the arrangements for maintenance outage, and the credit and collateral provisions are in compliance with Section 366.91, F.S., and Rules 25-17.001 and 25-17.200, F.A.C. (Sickel)

Position of the Parties

PEF:

Yes.

PCS Phosphate:

No. The provisions concerning the use of interruptible power, the number of capacity tests, the capacity testing periods, planned maintenance outage period and credit and collateral are not consistent with Florida's statutory and regulatory policies toward renewable energy because they are unwarranted, onerous and one-sided.

Staff Analysis:

The concerns regarding non-price terms and conditions, itemized by PCS Phosphate in its position on this issue, have been addressed in Issue 1. In summary, interruptible standby service is not appropriate for a renewable generator operating under a standard offer contract. (TR 35) This would impose additional and unnecessary risk to the body of ratepayers. The required capacity test period of 24 hours and the allowance of 15 days of scheduled maintenance outage per year are based on the performance of the avoided unit and is in compliance with Rule 25-17.0832(4)(e)8, F.A.C. (PEF BR 6-7) Staff found no support in the record for a proposal that a utility should be required to post bond as a security for capacity or energy payments that are obligated under the standard offer contract.

Issue 4:

Does the standard offer contract's methodology for determining a RF/QF’s capacity payments comply with the requirements of Rules 25-17.200 through 25-17.310, F.A.C.?

Recommendation:

Yes. As discussed in Issues 1 and 2, the evaluation of avoided costs in PEF's 2008 standard offer contract is in compliance with Rules 25-17.200 through 25-17.310, F.A.C. (Sickel)

Position of the Parties

PEF:

Yes.

PCS Phosphate:

No. The proposed performance standards do not properly differentiate between “availability factor” and “capacity factor,” and do not distinguish between on-peak and off-peak performance. Also, PEF’s calculation of the capacity payment fails to include all incremental costs of the avoided unit.

Staff Analysis:

The concerns relating to the definitions and use of the terms “availability factor” and “capacity factor” were addressed in Issue 1, (item 1). As recommended in Issue 1, staff believes that PEF's standard offer contract uses the availability factor and the capacity factor in a meaningful and appropriate manner to rationally assess the cost for capacity and energy avoided as a result of the renewable generator's contribution to grid power. (TR 47-49)

As discussed in Issue 2, the costs related to the avoided unit were determined using the same methodology that has been used for a number of years and were calculated using the formula in Rule 25-17.0832(6), F.A.C. (TR 31-32)

Staff recommends that the estimates of value of deferral payments, based on avoided costs associated with the avoided unit, are calculated in an appropriate manner and are reasonable. The methodology for determining an RF/QF’s capacity payments is in compliance with Rules 25-17.200 through 25-17.310, F.A.C.

Issue 5: Should Docket No. 070235-EQ, Petition for approval of standard offer contract for purchase of firm capacity and energy from renewable energy producer or qualifying facility less than 100 kW tariff, by PEF, be closed?

Recommendation:

Yes. Docket No. 070235-EQ, Petition for approval of standard offer contract for purchase of firm capacity and energy from renewable energy producer or qualifying facility less than 100 kW tariff, by PEF, should be closed. (Hartman, Sickel)

Position of the Parties

PEF:

Yes. The Hearing conducted on April 16, 2009 consolidated the issues contained in both Docket No. 070235-EQ and Docket No. 080501-EQ [sic]. Docket No. 070235-EQ should be closed and a final determination should be made in Docket No. 080501-EQ [sic].

PCS Phosphate:

Given the Commission’s acceptance into the record of this proceeding of the Direct Testimony of Martin J. Marz, yes.

Staff Analysis:

Previously, PCS Phosphate had filed a timely protest to PEF’s 2007 standard offer contract in Docket No. 070235-EQ. PEF and PCS each filed testimony in that docket. A hearing in that matter was continued for purposes of administrative efficiency, at PCS Phosphate’s request and without PEF’s objection, without date in light of the filing of PEF’s 2008 standard offer contract. Docket No. 070235-EQ remained open and the testimony submitted in that docket was later re-filed as exhibits in Docket No. 080501-EI. Staff therefore recommends that Docket No. 070235-EQ be closed.

Issue 6:

Should this docket be closed?

Recommendation:

Yes. As PEF has already filed its 2009 renewable energy tariff and standard offer contract, and in the interest of administrative efficiency, the Commission should direct PEF to file within 30 days of the Commission’s vote at the Agenda Conference, a revised 2009 renewable energy tariff and standard offer contract in accord with the Commission's decision herein. (Sickel, Hartman)

Position of the Parties

PEF:

Yes, upon resolution of the issues raised in this case and upon the filing of any necessitated changes to PEF’s currently proposed standard offer contract in Docket No. 090162-EQ.

PCS Phosphate:

This docket should be closed following Commission review and acceptance of all standard offer contract revisions required by the Commission’s order in this docket.

Staff Analysis:

This docket should be closed. As PEF has already filed its 2009 renewable energy tariff and standard offer contract, and in the interest of administrative efficiency, the Commission should direct

PEF to file within 30 days of the Commission’s vote at the Agenda Conference, a revised 2009 renewable energy tariff and standard offer contract in accord with the Commission's decision herein.

[1] See Docket No. 080187-EQ, In re: Petition for approval of amended standard offer contract and COG-2 rate schedule, by Progress Energy Florida.

[2] PEF’s withdrawal of its initial standard offer contract was acknowledged by Order No. PSC-08-0695-FOF-EQ, issued October 20, 2008.


DATE:	August 6, 2009
TO:	Office of Commission Clerk (Cole)
FROM:	Office of Strategic Analysis and Governmental Affairs (Sickel) Office of the General Counsel (Hartman) Division of Economic Regulation (Kummer)
RE:	Docket No. 080501-EI – Petition for waiver of Rule 25-17.250(1) and (2)(a), F.A.C., which requires Progress Energy Florida to have a standard offer contract open until a request for proposal is issued for same avoided unit in standard offer contract, and for approval of standard offer contract. Docket No. 070235-EQ - Petition for approval of standard offer contract for purchase of firm capacity and energy from renewable energy producer or qualifying facility less than 100 kW tariff, by Progress Energy Florida, Inc.
AGENDA:	08/18/09 – Post-hearing Agenda – Participation is Limited to Commissioners and Staff only
COMMISSIONERS ASSIGNED:		McMurrian, Edgar, Argenziano
PREHEARING OFFICER:		Argenziano
CRITICAL DATES:		90-Day Deadline Waived
SPECIAL INSTRUCTIONS:		None
FILE NAME AND LOCATION:		S:\PSC\SGA\WP\080501.RCM.DOC