DATE:	January 13, 2010
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Regulatory Analysis (Graves, Matthews) Division of Economic Regulation (Lee, Roberts) Office of the General Counsel (Bennett)
RE:	Docket No. 090505-EI – Review of replacement fuel costs associated with the February 26, 2008 outage on Florida Power & Light's electrical system.
AGENDA:	01/26/10 – Regular Agenda – Decision on Stipulation Prior to Hearing – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Skop
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\RAD\WP\090505.RCM.DOC

 

 Case Background

            On February 26, 2008, a fault occurred at Florida Power & Light’s (FPL) Flagami substation.  The fault created conditions on the transmission grid that caused three of FPL’s fossil-fueled generating units and FPL’s Turkey Point Nuclear Units 3 and 4 to trip offline.  The fault and tripping of generators is referred to herein as the “February 26, 2008 outage.”

As a result of the February 26, 2008 outage, FPL was required to:  1) operate several less efficient and costlier peaking units, 2) replace nuclear-fueled generation with more costly gas-fired generation, and 3) purchase power at a cost greater than the Company’s marginal cost of power production.

In the 2008 fuel and purchased power cost recovery proceeding (Docket No. 080001-EI) the replacement power costs attributable to the February 26, 2008 outage, were included as part of FPL’s approved fuel cost recovery factor.  The following issue, identified as Issue 2C in the 2009 fuel and purchased power cost recovery proceeding (Docket No. 090001-EI) was raised to address the potential refund of replacement power costs associated with the February 26, 2008 outage:

 

With respect to the February 26, 2008 outages, should FPL or its customers be responsible for replacement power costs associated with the outages?

By agreement of FPL and the Office of Public Counsel (OPC), consideration of this issue was deferred to the 2010 fuel and purchased power cost recovery proceeding (Docket No. 100001-EI) to allow completion of a Federal Energy Regulatory Commission (FERC) investigation into the causes of the February 26, 2008 outage.  FPL and FERC reached an agreement closing the investigation on October 8, 2009.

            On October 30, 2009, the Prehearing Officer in Docket No. 090001-EI issued Order No. PSC-09-0723-PHO-EI, which directed the following:

Issue 2C shall be spun-out and addressed in a separate proceeding as early as practicable in [the] 2010 calendar year.  In addition, FPL shall comply with all outstanding discovery requests served by OPC and Staff related to this issue within 30-days of October 20, 2009.

Docket No. 090505-EI was established to satisfy the requirements of Order No. PSC-09-0723-PHO-EI.  The OPC and the Attorney General (AG) have intervened in Docket No. 090505-EI.

            On December 16, 2009, FPL filed a Proposed Resolution of Issues (Attachment 1).  The Proposed Resolution of Issues also signed by the OPC and the AG, seeks Commission approval of a resolution agreeing that FPL should bear the cost of replacement power attributable to the February 26, 2008 outage.[1]

            On December 17, 2009, an informal preliminary issue identification meeting involving Commission staff, FPL, OPC, and the AG was held.  All parties involved verbally identified the following issues for deliberation in this docket:

1. Should FPL credit to customers the replacement power costs attributable to the February 26, 2008 outage?

2. How should the replacement power costs attributable to the February 26, 2008 outage be measured, and what is the amount of such costs?

3. What is the appropriate method to credit customers for the replacement power costs determined pursuant to Issue 2?   

In past proceedings the Commission has determined the refunding or crediting responsibilities, such as those discussed in the first issue listed above, based upon a prudence review.  If the Commission approves the parties’ Proposed Resolution of Issues, the first issue listed above would be moot.

            This recommendation is meant to address the Proposed Resolution of Issues.  This recommendation is not meant to recommend a determination regarding prudence with respect to FPL’s actions relative to the February 26, 2008 outage.

Discussion of Issues

Issue 1: 

  Should the Commission approve the Proposed Resolution of Issues found in Attachment 1?

Recommendation: 

 Yes.  The Commission should approve the Proposed Resolution of Issues.  Pursuant to the Proposed Resolution of Issues, FPL will be responsible for the cost of replacement power attributable to the February 26, 2008 outage.  The issues remaining for this docket should be limited to the appropriate measure of replacement power costs and the appropriate method of refunding customers.  (Bennett, Graves, Matthews)

Staff Analysis: 

 By the Proposed Resolution of Issues, FPL and the intervening parties agree that FPL will be responsible for the cost of the replacement power attributable to the February 26, 2008 outage.  While the Proposed Resolution of Issues acknowledges that FPL will pay for replacement power costs, it does not admit imprudence or improper actions on FPL’s part.  The language found in paragraph 1.a. of the Proposed Resolution of Issues would not preclude further actions against FPL arising from the February 26, 2008 outage in another administrative or judicial forum.

            FPL and the parties agree that, if the Commission approves this resolution, then the remaining issues for decision are how much FPL must repay and how that repayment will be refunded to customers.  At the December 17, 2009, informal meeting, all parties agreed to proceed assuming approval of the Proposed Resolution of Issues.  Therefore, testimony filed on the January 13, 2010, filing date will deal with how much FPL must repay and how that repayment will be refunded to customers.  If the Commission does not accept the parties’ Proposed Resolution of Issues, the parties agree that the current hearing date of March 17, 2010, will need to be moved to a later date to allow for the filing and review of supplemental testimony dealing with the issue of whether FPL or its customers should bear the replacement power costs attributable to the February 26, 2008 outage. 

            Staff believes that approving the attached Proposed Resolution of Issues is appropriate as it promotes administrative efficiency.  Therefore, staff recommends that the Commission approve the Proposed Resolution of Issues.  As discussed in the Case Background, approval of the Proposed Resolution of Issues will resolve the matter of the first issue listed in the Case Background and will obviate the need for the Commission to make a prudence determination.  In the event the Commission does not agree with staff’s recommendation, staff recommends that the Commission establish new hearing dates and filing deadlines.                  
Issue 2: 

 Should this docket be closed?

Recommendation: 

 No.  This recommendation is only meant to address FPL’s Proposed Resolution of Issues which reconciles one issue in this docket.  (Bennett)

Staff Analysis: 

 FPL’s Proposed Resolution of Issues only addresses one issue in this docket.  Other issues in this docket should be resolved in accordance with the procedures and schedule presented in Order No. PSC-09-0854-PCO-EI.[2]  As such, these issues will be presented to the Commission in a hearing scheduled for March 17-18, 2010.