Discussion
of Issues
Issue 1:
Should the Commission approve Gulf Power Company’s
petition for approval of a negotiated renewable energy power purchase agreement
(PPA) with Bay County, Florida?
Recommendation:
Yes. Payments for energy are expected to produce net
present value (NPV) savings of approximately $250,000 over the term of the Contract.
Also, the Contract is substantially similar to the contracts between Gulf and
Bay County previously approved by the Commission. Therefore, staff recommends
that the Commission approve Gulf’s petition for approval of a negotiated
renewable energy PPA with Bay County, Florida. Staff further recommends that
Gulf should be permitted to petition for recovery of costs associated with the
Contract through the Fuel and Purchased Power Recovery Clause. As part of the
Contract, Gulf will receive any renewable attributes or RECs resulting from
electrical energy generated at the Bay County facility during the Contract
term, but any proceeds received from these items should be returned to the
ratepayers. (Thompson)
Staff Analysis:
The Bay County Resource Recovery Facility uses municipal
solid waste (MSW) as its primary fuel. MSW is considered a renewable fuel and
the facility is a renewable generating facility as defined by Rule 25-17.210,
Florida Administrative Code (F.A.C.). Gulf has contracted to buy all of the
energy from the facility at fixed prices for six years beginning on July 23, 2017.
An interconnection agreement between Gulf and Bay County has been in place
since 1987. Gulf maintains the interconnection between Gulf’s system and the
facility. Bay County pays Gulf for the cost of maintenance of the
interconnection site. These costs, therefore, do not impact this analysis.
The Contract is substantially similar to two prior
contracts between Gulf and Bay County, which were previously approved by the
Commission. Changes since the last approved contract include a revision of the
commencement date of the Contract, adding clarifying terminology, and deleting
redundant language. For example, section two of the Contract clarifies the
meaning of the terms “Approve” and “Approval” to reflect a Final Order from
this Commission and deletes redundant language with the same meaning.
As required by Rule 25-17.0832(3), F.A.C., review of a
negotiated contract requires staff to consider the following: the need for
power, the cost-effectiveness of the contract, security provisions for payments,
and performance guarantees. Each of these factors is evaluated below.
Need for Power
After
serving internal loads, the facility will provide net generation of
approximately 13.65 MW to Gulf. It should be noted that this capacity will not contribute
to Gulf’s reserve margin as it is a non-firm contract. However, Section 366.91,
F.S., states that it is in the public interest to promote the development of
renewable energy resources. Doing so helps diversify fuel types in order to
reduce Florida’s growing dependency on natural gas for electric production. Rule
25-17.001(5)(d), F.A.C., encourages electric utilities to:
. . . [a]ggressively integrate
nontraditional sources of power generation including cogenerators with high
thermal efficiency and small power producers using renewable fuels into the
various utility service areas near utility load centers to the extent cost
effective and reliable.
Staff recommends
the characteristics of the energy associated with this Contract are desirable
and encourage the use of renewable fuels in Florida.
Cost-Effectiveness
Gulf and Bay
County have agreed upon an energy rate fixed at $30.59 per megawatt hour (MWh)
for the entire six year term of the Contract. No capacity payments are involved
with the Contract, so the price paid is only for the actual energy provided by
the facility. Staff compared the Contract’s rate with the cost of generating or
purchasing the same amount of energy from an existing source, known as the
as-available energy cost, provided by Gulf. As Table 1 below shows, the Contract
rate makes purchasing energy from the facility more cost-effective overall than
Gulf generating the same amount from existing resources. Although Gulf
estimates a negative difference in 2017 and 2018, the total savings over the
six year period of the Contract are predicted to result in a NPV sum of $246,234.
Table 1
Avoided Cost vs PPA Cost
|
(A)
|
(B)
Avoided Cost
($/MWh)
|
(C)
MWh
|
(D)
Total Avoided Cost
(B x C)
|
(E)
PPA Revenue
(C x $30.59)
|
(F)
Margin
(D - E)
|
|
2017
|
$28.73
|
35,000
|
$1,005,518
|
$1,070,650
|
($65,132)
|
|
2018
|
$28.27
|
60,000
|
$1,696,373
|
$1,835,400
|
($139,027)
|
|
2019
|
$30.75
|
60,000
|
$1,844,899
|
$1,835,400
|
$9,499
|
|
2020
|
$32.03
|
60,000
|
$1,921,820
|
$1,835,400
|
$86,420
|
|
2021
|
$33.35
|
60,000
|
$2,000,892
|
$1,835,400
|
$165,492
|
|
2022
|
$34.24
|
60,000
|
$2,054,527
|
$1,835,400
|
$219,127
|
|
2023
|
$36.26
|
25,000
|
$906,578
|
$764,750
|
$141,828
|
|
|
Total
|
360,000
|
$11,430,606
|
$11,012,400
|
$418,206
|
|
|
NPV
|
279,453
|
$8,794,691
|
$8,548,457
|
$246,234
|
Source: Gulf’s Response to Staff’s First Data Request
The Contract
requires that Bay County maximize its generation and that Gulf is the exclusive
purchaser for all of the facility’s net generation. In addition to the energy
provided by the facility, the Contract states that RECs associated with the
electric energy produced from the facility will belong to Gulf, consistent with
the prior contract. In response to Staff’s First Data Request, number 2, Gulf
stated that it did not assign any monetary value to the RECs in its economic
evaluation of the PPA. Staff
would note that, as part of the Contract, Gulf will receive any renewable
attributes or RECs resulting from electrical energy generated at the Bay County
facility during the Contract term and recommends that any proceeds received as
a result of selling RECs should go to the benefit of the ratepayers.
Security for Payments
No capacity
payments are associated with this Contract; provisions are only for Bay
County’s delivery of energy to Gulf. The security of this energy-only Contract
is that payments from Gulf are directly proportional to the amount of energy
provided. If no energy is provided, no payment is due.
Performance Guarantees
As noted
above, the Contract states that Bay County must maximize its generation. Consistent
with the prior contract, the Contract lists conditions which must be met to
avoid default or termination, such as using good engineering and utility
practices. Bay County is also obligated to maintain a specified reactive power
flow, annually provide Gulf with a schedule of planned generation outages or
reductions, and promptly notify Gulf of any forced or unplanned outages for longer
than three days. If these obligations are not met, Gulf would notify Bay County
of the default condition, which Bay County would be allowed 60 days to remedy. If
not remedied after 60 days, Gulf may terminate the Contract without further
liability to either party. Staff recommends the terms of the Contract are
sufficient to protect Gulf’s ratepayers if Bay County fails to deliver the net
generation of energy from its facility.
Conclusion
Payments for energy are expected to produce NPV savings of
approximately $250,000 over the term of the Contract. Also, the Contract is
substantially similar to the contracts between Gulf and Bay County previously
approved by the Commission. Therefore, staff recommends that the Commission
approve Gulf’s petition for approval of a negotiated renewable energy PPA with Bay
County, Florida. Staff further recommends that Gulf should be permitted to
petition for recovery of costs associated with the Contract through the Fuel
and Purchased Power Recovery Clause. As part of the Contract, Gulf will receive
any renewable attributes or RECs resulting from electrical energy generated at
the Bay County facility during the Contract term, but any proceeds received
from these items should be returned to the ratepayers.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the Order, a Consummating Order should be issued and the docket
should be closed administratively. (DuVal)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the Order, a Consummating Order should be issued and the docket
should be closed administratively.
