Case Background
On November 8,
2024, Florida Power & Light Company (FPL or the Company) filed a petition
for approval to transfer FPL’s 50 percent share of Plant Daniel Units 1 & 2
(Units 1 & 2) to Mississippi Power Company (MPC). This follows a 2019
acquisition of Gulf Power Company (Gulf) by NextEra Energy, Inc. (NextEra),
where NextEra gained control of Gulf’s 50 percent share of Units 1 & 2 and
transferred ownership to FPL. After Gulf’s acquisition, FPL announced it would
continue with plans made by Gulf to retire its shares of Units 1 & 2 by
January 2024. FPL has stated that while its shares of Units 1 & 2 have been
retired, based on a 2022 operating agreement made between FPL and MPC, the
Company is responsible for Common Facilities costs, related to common
ownership, until MPC retires its shares in 2031. On November 8, 2024, FPL
entered into a purchase and sale agreement (PSA) with MPC to transfer its shares
of Units 1 & 2 to MPC and pay MPC $45 million (the Transaction), to
alleviate FPL’s ongoing Common Facilities costs. FPL has stated that this PSA will
result in approximately $10 million in avoided costs per year for the years
2025 through 2031.
In the Petition,
FPL also requested the Commission to authorize the Company to continue to
accrue its proportional share of dismantlement costs in base rates.
FPL is not
requesting a regulatory asset for the remaining net book value of its ownership
share of Units 1 & 2 in the instant docket. Since FPL’s retirement of the
units, the Company has reflected the estimated remaining investment as a
negative amount in the accumulated reserve for the respective plant accounts,
and has continued its depreciation for the retirements using rates approved as
part of its 2017 rate case settlement.
In FPL’s
petition, the Company proposed the creation of a regulatory asset worth $39.3
million, representing the proportion of the transfer price associated with base
rate components, to be collected over 10 years, beginning at FPL's next base rate
adjustment. Until this adjustment, FPL has requested to continue recovering
dismantlement and decommissioning costs related to Units 1 & 2 in base
rates. FPL also proposed the creation of a regulatory asset worth $5.7 million
representing the proportion of the transfer price associated with environmental
costs, to be recovered through the Environmental Cost Recovery Clause (ECRC)
over 10 years, beginning January 1, 2026. FPL has stated that it is still
responsible for environmental costs for anything that occurred before the
transfer, and has requested to continue recovering these costs through the
ECRC. Until the balance on the regulatory assets has been fully recovered, FPL
has requested that it receive a return based on the unamortized balances of the
regulatory assets.
The Office of
Pubic Counsel (OPC) intervened in this docket on March 17, 2025, and its
intervention was acknowledged in Order No. PSC-2025-0083-PCO-EI, filed March
18, 2025.
The Commission has jurisdiction pursuant to
Sections 366.04, 366.06, and 366.07, Florida Statutes.
Discussion
of Issues
Issue 1:
Is FPL’s
proposed transfer of its 50 percent ownership in Units 1 and 2 to MPC
reasonable and cost-effective?
Recommendation:
Yes. The PSA
between FPL and MPC transferring FPL’s 50 percent ownership in Units 1 & 2 to
MPC should be approved as the PSA appears cost-effective. (Davis)
Staff Analysis:
FPL is requesting Commission approval of the PSA
with MPC which transfers FPL’s 50 percent ownership share of Units 1 & 2 to
MPC. Such approval would alleviate FPL’s share of ongoing cost responsibilities
associated with the common facilities at Units 1 & 2. FPL is asking the
Commission to determine that the PSA is in the best interest of its customers.
To evaluate this, staff reviewed both the initial decision by FPL to retire its
share of Units 1 & 2 and the PSA terms and conditions.
Ownership Interests in Plant Daniel Units 1
& 2
Gulf acquired 50 percent ownership in Units 1 & 2 by
sharing in the construction and operating expenses with MPC in 1976. A
subsequent Plant Operating Agreement was established in 1981 between the two
parties. In 2019, Gulf’s ownership in Units 1 & 2 was transferred to FPL
following the acquisition of Gulf by NextEra Energy, Inc., the parent company
of FPL. Following this transfer, FPL provided a notice to MPC that it intended
to retire its share of Units 1 & 2 in January 2024. According to FPL’s
petition, Units 1 & 2 were not needed for reliability and were inefficient
compared to the other generating units in FPL’s fleet. In 2023, the average
heat rate for Units 1 & 2 was 11,210 British thermal unit per kilowatt-hour
(Btu/kWh) compared to an average of 7,032 Btu/kWh for the other FPL generating
units. Therefore, FPL claims it was not feasible to consider using Units 1
& 2 for economic dispatch, and that FPL’s retirement of Units 1 & 2 was
reasonable since the units were not needed at the time by FPL for reliability
purposes and the retirement was projected to result in a net present value
(NPV) of $229 million for FPL’s customers based on a cumulative present value
of revenue requirements (CPVRR) analysis.
In 2022, FPL and MPC negotiated an amendment to the 1981
Plant Operating Agreement between Gulf and MPC. This negotiation resulted in
the 2022 Second Amended and Restated Plant Daniel Operating Agreement (2022
Operating Agreement) which was used to adjust the cost allocation between FPL
and MPC due to FPL’s announced retirement of share of Units 1 & 2. MPC had
an option to purchase FPL’s 50 percent ownership of Units 1 & 2 for one
dollar ($1.00) at any time 120 days prior to and including the retirement date
of January 15, 2024, but did not exercise this option. In 2024, FPL engaged in
discussions and negotiations with Southern Company, the parent company of MPC,
to reduce or eliminate costs associated with FPL’s share of Plant Daniel. These
discussions and negotiations culminated in the PSA to transfer FPL’s share of Units
1 & 2 to MPC.
Purchase and Sale Agreement
Under the 2022 Operating Agreement, FPL pays common
facilities costs for ownership of Units 1 & 2 through MPC’s proposed
retirement of Units 1 & 2 in 2031. These costs are approximately $10
million per year regardless of whether Units 1 & 2 are providing service to
FPL customers. The PSA required a $45 million payment by FPL to MPC, if the
transaction closed on or before December 31, 2024, and eliminated all ongoing
common facilities expenses and capital costs, including ad valorem tax
associated with Units 1 & 2. If the transaction occurred after December 31,
2024, the Ad Valorem liability for the accrual year 2025 would stay with FPL
and the transfer payment would be reduced by the same amount. In response to a
staff data request, FPL stated that if the Commission approves this petition in
April 2025, the most probable closing date would be July 2025, resulting in a
transfer payment to MPC of approximately $36.02 million.
Under the PSA, FPL will relinquish its 50 percent interest in Units 1 & 2
and MPC will assume FPL’s share of certain operating costs and incremental
liabilities created after the closing date.
PSA Cost-Effectiveness
While FPL has retired its share of the Plant Daniel Units,
it is still responsible for maintaining the site and associated environmental
concerns until Plant Daniel has been decommissioned as a whole, including MPC’s
ownership share. Operation and maintenance exposures and capital costs for
projects such as security and water management are ongoing. FPL will not be
obligated for most common facilities costs, but it will remain obligated for
common costs related to coal combustion residuals produced prior to the closing
and decommissioning of Units 1 & 2. In addition FPL is liable for 50
percent of the decommissioning costs both pre-closing and post-closing. FPL’s
petition asserted that the PSA results in an NPV savings to FPL’s customers of
$13.4 million based on a 2031 retirement date by MPC and the PSA closing before
December 31, 2024. The actual savings could be impacted by FPL’s future cost
obligations identified above. Staff reviewed MPC’s initial retirement date and
reasons for subsequent retirement date extensions, which is discussed in
greater detail below.
MPC Retirement Date of Remaining Ownership
Interest in Units 1 & 2
At the time the 2022 Operating Agreement was approved,
MPC’s planned retirement date for its ownership share of Units 1 & 2 was
2027 based on its April 2021 Integrated Resource Plan (IRP) update.
Subsequently, MPC’s 2024 IRP revised this retirement date to 2028 to meet
near-term and medium-term capacity needs while new generation was being built,
with further changes possible if capacity needs arose. On January 9, 2025, MPC
notified its regulator, the Mississippi Public Service Commission, that it had
entered into two separate electric service agreements, totaling approximately
600 MW of load, that would require extending the retirement date for Units 1
& 2 beyond 2028 and into the mid-2030s. Without the PSA, a retirement date
beyond 2031 would increase the cost obligation of FPL’s customers, while
consummation of the PSA would further increase the economic benefit to the same
customers.
MPC’s retirement of Units 1 & 2 in 2031 is currently
the most probable scenario due to existing US Environmental Protection Agency
(EPA) greenhouse gas (GHG) rules which were finalized in April 2024. The rules
require coal plants to convert to 100 percent gas operation or to install
carbon capture equipment in order to remain operational beyond 2031. These
costly modifications would most likely require MPC to retire Units 1 & 2 in
2031. However, if the EPA GHG rules are repealed, it may be economical for MPC
to continue operating the units beyond 2031. The NPV savings would increase and
make a retirement beyond 2031 more beneficial for FPL’s customers. Based on staff’s
review, it is reasonable to assume that MPC’s share of Units 1 & 2 will
continue to operate until at least 2031 based on currently available
information and regulatory filings.
Avoided Costs
The common facilities expense includes FPL’s 50 percent allocation
of common facilities O&M and capital expenses, such as Jackson County
(Mississippi) Port Authority’s Black Creek Cooling Facility maintenance
projects, administrative and general expense, and property insurance. The
Property/Ad Valorem Tax of $15.32 million NPV includes two years following
retirement for decommissioning of Units 1 & 2. FPL assumes the transaction
closing date takes place on July 31, 2025, which FPL identified as the expected
closing date with an April 2025 Commission approval. These costs includes both
expenses covered in base rates and the ECRC. Using this date and its preferred
recovery of the regulatory assets beginning January 1, 2026, FPL projects the
estimated net benefit to customers is $13.4 million, assuming a complete retirement
of Units 1 & 2 by MPC in 2031. Table 1-1 outlines the annual and total NPV
values by category.
Table 1-1
Cost-Effectiveness Analysis
for PSA ($ Millions)
|
|
2025
|
2026
|
2027
|
2028
|
2029
|
2030
|
2031
|
2032
|
2033
|
2034
|
2035
|
SUM (NPV)
|
|
Avoidable Costs
|
|
Common Facilities
|
(2.9)
|
(6.5)
|
(6.6)
|
(6.9)
|
(7.0)
|
(7.1)
|
(7.3)
|
0.0
|
0.0
|
0.0
|
0.0
|
(33.15)
|
|
Property/Ad Valorem Tax
|
-
|
(2.8)
|
(2.8)
|
(2.8)
|
(2.8)
|
(2.8)
|
(2.8)
|
(2.8)
|
(2.8)
|
-
|
-
|
(15.32)
|
|
Avoidable Costs
|
(2.9)
|
(9.3)
|
(9.4)
|
(9.6)
|
(9.8)
|
(9.9)
|
(10.1)
|
(2.8)
|
(2.8)
|
-
|
-
|
(48.47)
|
|
Regulatory Asset Costs
|
|
Amortization of Reg Assets
|
-
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
3.6
|
23.09
|
|
Interest, ROE, Income
Tax
|
1.4
|
2.8
|
2.5
|
2.2
|
1.9
|
1.6
|
1.4
|
1.0
|
0.7
|
0.5
|
0.1
|
11.98
|
|
Regulatory Asset Costs
|
1.4
|
6.4
|
6.1
|
5.8
|
5.5
|
5.2
|
4.9
|
4.6
|
4.3
|
4.0
|
3.7
|
35.07
|
|
Net Customer Costs/Savings
|
(1.5)
|
(2.9)
|
(3.3)
|
(3.8)
|
(4.3)
|
($.7)
|
(5.1)
|
1.8
|
1.5
|
4.0
|
3.7
|
(13.40)
|
Source: FPL’s Response to Staff’s Second Data Request
Conclusion
The PSA between FPL and MPC transferring FPL’s 50 percent
ownership in Units 1 & 2 to MPC should be approved as the PSA appears
cost-effective.
Issue 2:
Should the
Commission approve FPL's request to create regulatory assets representing its
payment to MPC?
Recommendation:
Yes, the Commission should approve FPL's request to
create a regulatory asset, in the amount of $31.04 million, representing the
base rate portion of the transfer price and allow recovery to begin when base
rates are next reset. The Commission should also authorize the creation of a
separate regulatory asset, in the amount of $4.98 million, representing the
portion that would have been recovered through the ECRC, to be recovered
through the ECRC beginning January 1, 2026. Both regulatory assets should be
amortized over a period of 10 years. Furthermore, staff recommends allowing FPL
to begin recovery at its next base rate reset, which has been filed as Docket
No. 20250011-EI, with a recovery period of 10 years, as well as earn a return
on the unamortized asset balance at the Company’s overall weighted average cost
of capital. (Mason)
Staff Analysis:
The amount originally requested by FPL to cover the
portion of the transfer price related to otherwise recoverable base rate
expenses was $39.3 million. The original amount requested by FPL related to
environmental costs otherwise recovered through the ECRC was $5.7 million. FPL
has proposed a recovery period of 10 years for both the base rate and ECRC
regulatory assets, commencing at the resetting of base rates and January 1,
2026, respectively. On February 28, 2025, FPL filed a petition for a base rate
increase, with new rates requested to be implemented January 1, 2026. In its
petition, FPL highlighted previous Commission Orders approving settlements that
established regulatory assets for the purpose of exiting unprofitable
generation agreements and thereby creating customer savings.
The Commission has cited Financial Accounting Standards
Board's Accounting Standards Codification 980 Regulated Operations (FASB ASC
980) in previous decisions regarding the approval of regulatory assets. The
recognition and establishment of regulatory assets are addressed in FASB ASC
980, which allows a regulated entity to capitalize all or part of an incurred
cost, provided that: 1) it is probable that future revenue in an amount at
least equal to the capitalized cost will result from inclusion of that cost in
allowable costs for ratemaking purposes; and 2) based on available evidence,
the future revenue will be provided to permit recovery of the previously
incurred cost rather than to provide for expected levels of similar future
costs. Based on staff’s recommendation on the prudence of the transaction
transferring ownership of Units 1 & 2 to MPC, as addressed in Issue 1,
staff believes the recognition and recovery of each regulatory asset should be
approved.
As FPL stated in its initial petition, due to the PSA
approval going beyond the original requested date of December 31, 2024, the $45
million transfer price has been reduced to approximately $38.1 million to
reflect the $6.9 million in property taxes that FPL was required to pay.
Furthermore, FPL has stated that it is responsible for approximately $0.3
million in monthly operating costs, which will also reduce the transfer price. According to FPL in its response to staff’s
second request for data, if approved in April 2025, the PSA would have a price
of $36.02 million, with $31.04 million being the new value for the portion of
the transfer price that represents base rates and $4.98 million being the portion
that represents the environmental costs that would otherwise be recovered
through the ECRC. Staff agrees that the creation of regulatory assets worth
$31.04 million and $4.98 million is the appropriate accounting treatment for
recovery of the transfer price related to base rates and environmental costs,
respectively. Furthermore, staff recommends allowing FPL to begin recovery at
its next base rate reset, which has been filed as Docket No. 20250011-EI, with
a recovery period of 10 years, as well as earn a return on the unamortized
asset balance at the Company’s overall weighted average cost of capital.
Issue 3:
Should the Commission approve FPL's request to
continue recovering eligible pre-closing environmental costs through the ECRC?
Recommendation:
Yes, the Commission should approve FPL's request to continue
recovering eligible environmental costs incurred through the closing date of
the PSA through the ECRC. (Mason)
Staff Analysis:
In its petition, FPL requested the Commission’s
authorization to continue recovery of eligible prudently incurred pre-closing
environmental costs pertaining to FPL’s proportionate share of Units 1 & 2
through the ECRC. While the PSA shifts most Common Facilities costs to MPC, FPL
remains obligated to cover common costs related to Coal Combustion Residuals
produced prior to the Transaction’s closing date, as well as other
environmental liabilities arising from pre-closing activities. As discussed in
Issue 1, staff believes the transaction transferring ownership of the units is
prudent. As such, obligated environmental costs incurred prior to the
Transaction’s closing date should be eligible for recovery through the ECRC.
Those costs are still reviewed as part of the annual ECRC proceeding.
Issue 4:
Should FPL be permitted to accrue Units 1 & 2
dismantlement costs in base rates until the annual accrual is next reset with
the support of a dismantlement study?
Recommendation:
Yes. Staff recommends approval of FPL’s request to continue
to accrue its proportionate share of dismantlement costs associated with Plant
Daniel Units 1 & 2 in base rates. (Wu)
Staff Analysis:
In its Petition, the Company stated that under the PSA,
FPL will retain dismantlement and asset retirement obligations on the existing
plant, including decommissioning liabilities related to dismantling Plant
Daniel and restoration of the plant site. These obligations are calculated as a
percentage of FPL’s pre-closing ownership interest. As
such, FPL requests that it be permitted to continue to accrue Units 1 & 2
dismantlement costs in base rates until the annual accrual is next reset with
the support of a dismantlement study. The Company claimed that this request is
consistent with Paragraph 19 of FPL’s 2021 rate case settlement agreement that
was approved by the Commission.
Both Orders specify that the base rates, in which the dismantlement accrual amounts
are incorporated, in effect at the beginning of the settlement’s term will
remain in effect until FPL’s base rates are next reset in a general base rate
proceeding.
On February 28, 2025, FPL filed a new petition for a
general base rate proceeding.
With the rate case petition, the Company also submitted an updated
dismantlement study which includes the updated dismantlement costs and accruals
pertaining FPL’s ownership share of Units 1 & 2 for Commission approval.
Staff believes that FPL’s request discussed in this issue is
in accordance with Rule 25-6.04364(1), Florida Administrative Code, which
provides that “[e]ach utility that owns a generating unit is required to
establish a dismantlement accrual as approved by the Commission to accumulate a
reserve to meet all expenses at the time of dismantlement.” Further, the
request is inline with Rule 25-6.04364(6), Florida Administrative Code, which specifies
that “[a] utility shall not establish a new annual dismantlement accrual,
revise its annual dismantlement accrual, or transfer a dismantlement reserve
without prior Commission approval.”
Based on the above, staff recommends approval of FPL’s
request to continue to accrue its proportionate share of dismantlement costs
associated with Plant Daniel Units 1 & 2 in base rates.
Issue 5:
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. (Stiller)
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
