Case Background
On March 15,
2023, Duke Energy Florida, LLC (Duke) and Peace River Electric Cooperative,
Inc. (PRECO), (jointly, the Parties) filed a joint petition for approval of a temporary
territorial agreement variance (2023 Agreement). The 2023 Agreement would enable
Duke to provide temporary electric service to an industrial customer’s planned
eastern phosphate mining expansion project (project) south of State Road 64 (SR
64). The area south of SR 64 is located in PRECO’s service territory; however,
PRECO does not have the transmission facilities necessary to serve the planned
mining load. The 2023 Agreement also includes a provision to transfer Duke’s
Lake Branch substation and 1.84 acres of land on which the substation resides
to PRECO.
In 1994, the
Commission approved a territorial agreement that established service territory
boundaries for the Parties in Hardee, Highlands, Polk, and Osceola counties
(1994 Agreement). The 1994 Agreement contained a provision
permitting Duke (formerly Florida Power Corporation) to provide transmission
level electric service to certain phosphate mining companies in PRECO’s service
territory, because PRECO did not have the appropriate facilities to meet the industrial
customers’ service needs. In 2006, the Commission approved an amendment to
certain sections of the 1994 Agreement to clarify the Parties’ obligations with
respect to the existing phosphate mining customers in PRECO’s service
territory.
In 2019, the
Commission approved a territorial agreement between the Parties which replaced
the prior territorial agreement in its entirety (2019 Agreement). The 2019 Agreement modified the
territorial boundaries, transferring customers to better eliminate duplication
of service and creating operational efficiencies for both utilities.
Furthermore, the 2019 Agreement incorporated many provisions from the previous
agreements, including Section 2.5, which allows Duke to provide electric
service to a phosphate mining industrial customer in PRECO’s service territory
north of SR 64. The 2019 Agreement was negotiated for an initial term of 30
years, which would expire in 2049 and would remain in effect for succeeding
periods of five years.
Order No.
PSC-2023-0127-PCO-EU, acknowledges the Office of Public Counsel’s (OPC) intervention
in this docket. Duke and PRECO responded to Staff’s First Data Request on April
21, 2023 and to Staff’s Second Data Request on May 18, 2023. On May 17, 2023, the
Parties responded to OPC’s First Set of Interrogatories and First Request for
Production of Documents.
This is staff’s
recommendation regarding the joint petition for a temporary territorial
variance agreement. The 2023 Agreement and map providing the proposed
territorial boundaries are included in the recommendation as Attachments A and
B. The Commission has jurisdiction pursuant to Section 366.04, Florida Statutes
(F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Duke and PRECO’s joint
petition for a temporary territorial variance?
Recommendation:
Yes. The Commission should approve Duke and PRECO’s
joint petition for a temporary territorial variance, entered into by the Parties
on February 28, 2023, because it is in the public interest and will avoid
uneconomic duplication of facilities. For the term of the variance agreement,
Duke will temporarily serve the mining load south of SR 64 in the eastern
expansion project area until the mining project is completed. The mining
project south of SR 64 is estimated to begin in 2024 and continue until 2028.
The Parties should notify the Commission once the mining operations subject to
the variance are concluded. (P. Kelley, Hampson)
Staff Analysis: Pursuant to Section 2.5 of the 2019 Agreement, Duke provides
service to the industrial customer in PRECO’s service territory north of SR 64.
The eastern expansion project’s site includes areas located both north and
south of SR 64. The part of the project located south of SR 64 is currently
within PRECO’s service territory. The project is an industrial phosphate mining
operation and associated pump operation. Phosphate mining companies operate
draglines that excavate phosphate used to produce fertilizer and other
commercial products. Once a specific mining area has been depleted, the
companies move to another location.
The Parties request that Duke, instead of PRECO,
temporarily serve the industrial customer’s entire project area including the
area south of SR 64. The Parties estimate the customer will conclude its mining
operations in the project south of SR 64 by December 31, 2028. The Parties
stated in response to Staff’s Second Data Request that they will notify the
Commission once the mining operations are concluded.
Duke asserts in the petition
that it has sufficient capacity to serve the industrial customer’s load south
of SR 64 and can provide immediate electric service to the project from an
existing substation located within Duke’s electric service territory located in
Hardee County. PRECO asserts in the petition that it does not have sufficient
capacity to serve the load and will need Duke’s assistance to provide immediate
electric service to the project. To serve the new load south of SR 64, PRECO
would need to construct a new substation, estimated to cost approximately $4
million. Due to these circumstances, the Parties agree Duke should serve the load
as the industrial customer estimates that the project would add approximately
20 megawatts (MW) of load south of SR 64.
No customers are being
transferred as a result of the proposed variance. Therefore, Rule 25-6.0440 (1)
(d), Florida Administrative Code, regarding customer notification of
transferred customers, does not apply.
Lake Branch Substation Transfer
The proposed variance includes a provision that PRECO will
acquire Duke’s Lake Branch substation (substation) by December 31, 2025. The substation
is located in PRECO’s service territory north of SR 64 by the intersection of
Lake Branch Road and Platt Road (County Road 664A) in Hardee County. Pursuant
to Section 2.5 of the 2019 Agreement, Duke serves the phosphate mining load in certain
areas north of SR 64. Specifically, the industrial customer receives electric
service for its South Meade mining operations from Duke at multiple delivery
points, including Duke’s Lake Branch substation. Pursuant to the 2019
Agreement, Duke only has the right to serve the industrial customer’s load in
the particular area served by the Lake Branch substation; PRECO has the right
to serve any other load.
Section 4 of the 2023 Agreement includes a provision that
the Lake Branch substation would be transferred to PRECO on or before December
31, 2025, dependent on if the substation’s pumping load ceases before the
stated date. The Parties have agreed upon a transfer of the Lake Branch
substation and the 1.84 acres of land on which the substation resides for the
nominal consideration of $10. The Parties explained that nominal consideration
is a legal formality commonly employed to ensure that a contract is
enforceable. The details of the substation transfer are contained in the Asset
Purchase Agreement that was included with the petition. The Parties stated that
they are not seeking Commission approval of the Asset Purchase Agreement.
The Parties assert that the nominal consideration was
determined by considering the exchange of benefits between the Parties. Duke
would have the benefit of serving the industrial customer and associated
additional 20 MW of load, south of SR 64, for approximately five years
(2024-2028) in PRECO’s territory. In exchange, PRECO would acquire the substation
to serve its customers. Duke stated that the substation only serves the industrial
customer and will have no other benefit to Duke once the mining operations served
by the substation cease. PRECO stated that it would be able to tie the
substation into its distribution system with minimal additional construction,
because the utility has feeder lines adjacent to the Lake Branch substation.
To support the transfer of the Lake Branch substation, the
Parties assert that by agreeing to convey the substation to PRECO, Duke’s
customers would no longer have the obligation for the cost of removal of the
substation. Further, the revenues Duke is projected to receive from the
additional 20 MW of load will more than offset the estimated $1.9 million net
book value of the substation as of December 31, 2025. Duke provided an analysis
showing that the future expected non-fuel revenues from the additional 20 MW of
load total $6.4 million on a nominal basis, or $4.3 million on a net present
value basis. Based on Duke’s analysis, the expected revenues offset the net
book value of the substation. Therefore, Duke’s general body of ratepayers is
not being harmed by the transfer of the substation to PRECO for nominal
consideration.
Conclusion
Based on the assertions made in the petition and the Parties’
responses to staff’s and OPC’s Data Requests, staff believes the Commission
should approve Duke and PRECO’s joint petition for a temporary territorial
variance, entered into by the Parties on February 28, 2023, because it is in
the public interest and will avoid uneconomic duplication of facilities. For
the term of the 2023 Agreement, Duke will temporarily serve the mining load
south of SR 64 in the eastern expansion project area until the mining project
is completed. The mining project south of SR 64 is estimated to begin in 2024
and continue until 2028. The Parties should notify the Commission once the
mining operations subject to the 2023 Agreement are concluded.
Issue 2:
Should this docket be closed?
Recommendation:
If no protest is filed by a person whose substantial
interests are affected within 21 days of the issuance of the Order, this docket
should be closed upon the issuance of a Consummating Order. (Brownless)
Staff Analysis:
If no protest is filed by a person whose substantial
interests are affected within 21 days of the issuance of the Order, this docket
should be closed upon the issuance of a Consummating Order.
