Case Background
On May 13, 2015,
the Florida Public Service Commission (Commission) approved Gulf Power
Company’s (Gulf or Utility) petition requesting approval for cost recovery of a
negotiated Energy Purchase Agreement (Kingfisher I EPA) with Morgan Stanley
Capital Group, Inc. (Morgan Stanley). The Kingfisher I EPA obligates Morgan
Stanley to deliver a fixed number of megawatt hours (MWh) to Gulf in each hour
of each month of each year throughout the 20 year term of the agreement. Morgan
Stanley’s energy delivery commitment is shaped to match the projected hourly
and monthly output of a 178 megawatt (MW) portion of the Kingfisher Wind Farm
that was constructed in Oklahoma. Annually, Morgan Stanley’s energy delivery
commitment totals 674,437 MWh.
Morgan Stanley’s
energy delivery commitment under the Kingfisher I EPA is separated into two
tiers: Tier 1 Hourly Energy and Tier 2 Hourly Energy. Tier 1 Hourly Energy is
delivered using a dedicated transmission pathway which originates in the
Midcontinent Independent System Operator balancing authority area and
terminates at the Southern Company/Entergy Interface. Tier 2 Hourly Energy may
be delivered from any resource available to Morgan Stanley and to any delivery
point on the Southern Company Transmission System, provided that such resource
and/or delivery point meets the defined contractual availability and delivery
criteria.
Under the Kingfisher I EPA, Gulf is only
required to pay for energy which is received from Morgan Stanley on the
Southern Companies Transmission System. Energy delivered under the Kingfisher I
EPA to the Southern Companies Transmission System is assigned to Gulf at the
prices designated in the agreement.
Following execution of the Kingfisher I
EPA, Gulf executed a second Energy Purchase Agreement (Kingfisher II EPA) with
Morgan Stanley which was approved by the Commission on November 3, 2016. The Kingfisher II EPA is similar to the
Kingfisher I EPA, with the primary exception that all energy delivered under
the Kingfisher II EPA follows the Tier 2 Hourly Energy model. Therefore, there
was no obligation to deliver energy using the Tier 1 Hourly Energy model as
there was in the Kingfisher I EPA.
Upon further discussion among the parties, a
Waiver and Scheduling Agreement (Waiver Agreement) was executed on October 13,
2017. On October 20, 2017, Gulf filed a petition for approval of the Waiver Agreement
with Morgan Stanley. Beginning January 1, 2019, the Waiver Agreement will allow
Morgan Stanley to relinquish the Tier 1 Hourly Energy commitment included in
the Kingfisher I EPA, making it more comparable to the Kingfisher II EPA by
exclusively utilizing Tier 2 Hourly Energy.
The Commission
has jurisdiction over this matter pursuant to Sections 366.051, 366.91, and
366.92, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Gulf Power Company’s
petition for approval of the Waiver and Scheduling Agreement with Morgan
Stanley Capital Group, Inc.?
Recommendation:
Yes. The Waiver Agreement will result in monthly
credits to Gulf from Morgan Stanley, which results in an estimated total net
present value (NPV) savings to ratepayers of approximately $17.2 million from
2019 through 2035. Through the Waiver Agreement, energy deliveries under the
Kingfisher I EPA will operate in the same manner as the Kingfisher II EPA,
previously approved by the Commission. In addition, the core provisions of the
Kingfisher I EPA, including total energy delivery amounts, pricing,
reliability, security, and risk allocation remain unchanged. Therefore, staff
recommends that the Commission approve Gulf’s petition for approval of the Waiver
Agreement with Morgan Stanley. (Thompson)
Staff Analysis:
Gulf’s petition requests approval of modifications
to an existing contract. The Utility has provided the information required to
be submitted along with a request for a contract modification in accordance
with Rule 25-17.0836(1), Florida Administrative Code (F.A.C.). As required by
Rule 25-17.0836(6), F.A.C., staff should evaluate modifications and concessions
of the Utility and developer against both the existing contract and the current
value of the purchasing utility’s avoided cost.
Efficiency Determination
Morgan Stanley has informed Gulf that it must make a
decision on or before January 1, 2018, to either reserve firm transmission
service for Tier I Hourly Energy deliveries for an additional five-year period
or to allow the reservation to lapse. Regarding the latter, Morgan Stanley is
unsure that the pathway will be available in the future. The modification
included in the Waiver Agreement is to waive Morgan Stanley’s obligation to
deliver Tier 1 Hourly Energy from January 1, 2019, through December 31, 2035,
under the Kingfisher I EPA. Morgan Stanley will continue to supply Tier 1
Hourly Energy through December 31, 2018, after which it will begin to
exclusively supply Tier 2 Hourly Energy for the duration of the Kingfisher I EPA
term.
Morgan Stanley currently exclusively supplies Tier 2
Hourly Energy under the Kingfisher II EPA. Gulf has not experienced any
difficulties scheduling or facilitating energy under the Kingfisher II EPA or
the Kingfisher I EPA, which currently utilizes Tier 1 Hourly Energy and Tier 2
Hourly Energy, demonstrating that the dedicated transmission pathway utilized
to deliver Tier 1 Hourly Energy is not necessary for reliability purposes.
Therefore, staff recommends that the transition to exclusively utilizing Tier 2
Hourly Energy under the Kingfisher I EPA will not negatively affect the
efficiency of the Kingfisher I EPA.
Cost-Effectiveness
The pricing of the Kingfisher I EPA remains unchanged
under the Waiver Agreement. Relinquishing Morgan Stanley’s obligation to
deliver Tier 1 Hourly Energy from 2019 through 2035 will result in $2 million
in savings annually to Gulf’s ratepayers in the form of a monthly credit to
Gulf. The estimated total NPV savings to customers under the Waiver Agreement
during this timeframe is approximately $17.2 million. This will ultimately
place downward pressure on amounts collected from ratepayers through the Fuel
and Purchased Power Cost Recovery Clause. Seeing as the ratepayers will benefit
from approval of the Waiver Agreement, staff recommends that it is
cost-effective.
Conclusion
The Waiver Agreement will result in monthly credits to
Gulf from Morgan Stanley, which results in an estimated total NPV savings to
ratepayers of approximately $17.2 million from 2019 through 2035. Through the Waiver
Agreement, energy deliveries under the Kingfisher I EPA will operate in the
same manner as the Kingfisher II EPA, previously approved by the Commission. In
addition, the core provisions of the Kingfisher I EPA, including total energy
delivery amounts, pricing, reliability, security, and risk allocation remain
unchanged. Therefore, staff recommends that the Commission approve Gulf’s
petition for approval of the Waiver Agreement with Morgan Stanley.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no person whose substantial interests are
affected by the proposed agency action (PAA) files a protest within 21 days of
the issuance of the PAA Order, a Consummating Order should be issued and the
docket should be closed. (Cuello)
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 PAA Order, a Consummating Order should be issued and the docket
should be closed.
