DATE:	June 13, 2013
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Engineering (Matthews) Division of Economics (Garl) Office of the General Counsel (Murphy)
RE:	Docket No. 130070-EQ – Petition for approval of new standard offer contract for purchase of firm capacity and energy from renewable energy facilities or small qualifying facilities and approval of revised tariff schedule REF-1, by Gulf Power Company.
AGENDA:	06/25/13 – Regular Agenda – Proposed Agency Action – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Administrative
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\ENG\WP\130070.RCM.DOC

 

 Case Background

Section 366.91(3), Florida Statutes (F.S.) requires that each investor-owned utility (IOU) continuously offer to purchase capacity and energy from renewable energy generators.  Rules 25-17.200 through 25-17.310, Florida Administrative Code (F.A.C.) require each IOU to file with the Commission by April 1 of each year a standard offer contract based on the next avoidable generating unit or planned purchase.  Gulf Power Company (Gulf or Company) filed its petition for approval of a new standard offer contract for purchase of firm capacity and energy from renewable energy facilities or small qualifying facilities on April 1, 2013. 

The Commission has jurisdiction over this standard offer contract pursuant to Sections 366.04 through 366.06 and 366.91, F.S.

Discussion of Issues

Issue 1: 

 Should the Commission approve the revised standard offer contract filed by Gulf Power Company?

Recommendation: 

 Yes.  The provisions of Gulf’s 2013 standard offer contract and related rate schedule REF-1 exceed the requirements of Rules 25-17.200 through 25-17.310, F.A.C.  Gulf does not have any avoidable fossil fueled generating units or avoidable power purchases in the upcoming ten-year planning period.  However, in an effort to encourage renewable generation, Gulf has identified its next avoidable unit rather than offer only energy payments in its standard offer contract.  The standard offer contract provides flexibility in the arrangements for payments so that a developer of renewable generation may select the payment stream best suited to its financial needs.  As such, the revised standard offer contract and rate schedule REF-1 submitted by Gulf should be approved as filed.  (Matthews)

Staff Analysis: 

 Rule 25-17.250, F.A.C., requires that Gulf, an IOU, continuously make available a standard offer contract for the purchase of firm capacity and energy from renewable generating facilities (RF) and small qualifying facilities (QF) with design capacities of 100 kilowatts (kW) or less.  Pursuant to Rule 25-17.250(1), F.A.C., the standard offer contract must provide a term of at least ten years, and the payment terms must be based on the utility’s next avoidable fossil-fueled generating unit identified in its most recent Ten-Year Site Plan or, if no avoided unit is identified, its next avoidable planned purchase.

Gulf’s 2013 Ten-Year Site Plan does not include any avoidable fossil fueled generating units, nor are there any planned purchases to be avoided or deferred during the 2013-2022 planning period.  As a result of this lack of any avoidable unit or purchase, Gulf could opt to offer only a standard contract for energy payments based on its as-available energy cost.  However, in an effort to encourage renewable generation, Gulf has identified its next avoidable unit which is a 803 megawatt (MW) natural gas-fired combined cycle (CC) unit with a projected in-service date of June 1, 2023.

Any RF/QF operator may elect to make no commitment as to the quantity or timing of its energy deliveries to Gulf, and have a committed capacity of zero (0) MW.  In such a case the energy is delivered on an as-available basis and is eligible for only the energy payment.  Alternatively, the RF/QF operator may elect to commit to certain minimum performance requirements based on the avoided unit, such as being operational and delivering an agreed-upon amount of capacity by the in-service date, and thereby become eligible for capacity payments in addition to the payments for energy.  The standard offer contract often serves as a starting point for a separately negotiated contract by providing payment information to RF/QF operators that wish to have contract terms which differ from those of the standard offer contract.

To promote RF/QF generation, the Commission requires IOUs to offer multiple options for capacity payments so that an RF/QF operator may select the payment stream that best suits its financial requirements, including the options to receive early or levelized payments.  If the RF/QF operator elects to receive capacity payments under the normal or levelized contract options, it will receive as-available energy payments only until after the in-service date of the avoided  unit (June 1, 2023), and thereafter will begin receiving capacity payments in addition to the energy payments.  If either the early or the early levelized option is selected, the operator will begin receiving capacity payments sooner than the in-service date of the avoided unit.  However, payments made under either of the early payment options tend to be lower in the later years of the contract term because the net present value (NPV) of the total payments must remain equal for all contract options.  In addition, any capacity payments made which are greater than those called for under the normal option require additional performance security from the RF/QF operator.

Table 1 estimates the annual payments for each payment option available under the current standard offer contract to an operator with a 50 MW facility and an in-service date of January 1, 2014, and operating at a capacity factor of 90 percent, which is the minimum capacity factor required to qualify for full capacity payments.

Table 1-- Estimated Annual Payments to a 50 MW Renewable Facility (90% Capacity Factor)

Year	Energy Payment	Capacity Payment (by Type)
		Normal	Levelized	Early	Early Levelized
	($000)	($000)	($000)	($000)	($000)
2014	13,624	0	0	1998	2304
2015	15,677	0	0	2046	2322
2016	16,602	0	0	2100	2334
2017	18,074	0	0	2154	2352
2018	19,655	0	0	2208	2364
2019	21,113	0	0	2262	2382
2020	22,321	0	0	2322	2400
2021	22,915	0	0	2376	2418
2022	23,806	0	0	2436	2436
2023	19,887	5502	5940	2502	2448
2024	21,784	5610	5964	2562	2472
2025	23,025	5754	6012	2628	2490
2026	24,472	5898	6054	2694	2508
2027	25,879	6048	6102	2766	2526
2028	27,365	6198	6144	2832	2544
2029	28,796	6354	6192	2904	2568
2030	30,381	6516	6246	2976	2586
2031	31,918	6684	6294	3054	2610
2032	33,769	6852	6348	3132	2634
2033	34,500	7026	6402	3210	2658
Total	475,563	68,428	67,698	51,169	49,352
2013 NPV	241,481	26,867	26,867	26,867	26,867

 

Gulf’s petition includes thirteen revised rate schedule sheets which, along with the existing unaltered sheets, constitute Gulf’s revised Renewable Standard Offer Contract and related Rate Schedule REF-1.  The revisions include updates for the avoided unit, dates, and payment information which reflects the current economic and financial assumptions for the avoided unit.  All of the changes made to the revised rate schedule sheets, as well as the economic and financial assumptions used in the contract, are consistent with the updated unit.  The type-and-strike format version of the revised standard offer contract and related rate schedule sheets are included as Attachment A to this recommendation.

The standard offer contract and related tariffs exceed the requirements of Rules 25-17.200 through 25-17.310, F.A.C.  Gulf does not have any avoidable fossil fueled generating units or avoidable power purchases in the upcoming ten-year planning period.  However, in an effort to encourage renewable generation, Gulf has identified its next avoidable unit rather than offer only energy payments in its standard offer contract.  The standard offer contract provides flexibility in the arrangements for payments so that a developer of renewable generation may select the payment stream best suited to its financial needs.  As such, staff recommends the revised standard offer contract and rate schedule REF-1 submitted by Gulf should be approved as filed.
Issue 2: 

 Should this docket be closed?

Recommendation: 

 Yes.  This docket should be closed upon issuance of a Consummating Order, unless a person whose substantial interests are affected by the Commission’s decision files a protest within 21 days of the issuance of the Commission’s proposed agency action order.  Potential signatories should be aware that, if a timely protest is filed, Gulf’s standard offer contract may subsequently be revised.  (Murphy)

Staff Analysis: 

 This docket should be closed upon the issuance of a Consummating Order, unless a person whose substantial interests are affected by the Commission’s decision files a protest within 21 days of the issuance of the Commission’s proposed agency action order.  Potential signatories should be aware that, if a timely protest is filed, Gulf’s standard offer contract may subsequently be revised.