Discussion
of Issues
Issue 1:
Should the Commission approve cost recovery of the
negotiated purchase power agreement between Tampa Electric Company and
Hillsborough County?
Recommendation:
Yes. Based on staff’s review, the negotiated PPA
improves TECO’s fuel diversity with the addition of renewable energy and is
cost-effective based on current forecasts, saving approximately $2.9 million in
Net Present Value (NPV). The PPA has adequate security and performance
guarantees to protect ratepayers in the event of a default or non-performance
by Hillsborough. (Wooten)
Staff Analysis:
Hillsborough proposes to sell 16 MW of firm capacity
and energy from its WTE Facility to TECO for ten years, commencing upon
approval of the PPA by the Commission through February 28, 2035. The WTE
Facility uses municipal solid waste as its primary fuel, a source of renewable
energy pursuant to Section 366.91(2)(b), F.S. The price structure in the
Contract has no capacity payment, but features an “all-in” $37.00 dollars per
megawatt-hour (MWh) energy rate payment with no escalation factor.
Rule 25-17.0832(3), Florida Administrative Code (F.A.C.),
states that in reviewing negotiated firm capacity and energy contracts for the
purposes of cost recovery, the Commission shall consider factors relating to
the contract that would impact the utility’s customers, including: the need for
power by the purchasing utility and/or Florida utilities statewide; the
cost-effectiveness of the contract; security provisions for early capacity payment;
and, performance guarantees associated with the facility. These factors are
evaluated below.
Need For Power
Based on TECO’s 2025 Ten-Year Site Plan (TYSP), the next
planned capacity addition that could be avoided is a 247 MW natural gas-fired
combustion turbine with an in-service date of January 2031. Therefore, the
PPA’s firm capacity of 16 MW would help avoid or defer the construction of
future generation capacity for the duration of the PPA. In addition to firm
capacity, the PPA would improve the Company’s fuel diversity by increasing the
contribution of renewable resources. TECO is forecasted to rely upon natural
gas for up to 84.3 percent of its energy during the contract period, according
to its 2025 TYSP. Therefore, staff believes the proposed PPA will enhance
TECO’s system reliability and increase its fuel diversity.
Cost-Effectiveness
Rule 25-17.0832(3)(b), F.A.C., states, in part, that the
Commission should consider whether the cumulative present worth of the payments
to the QF are not greater than the cumulative present worth of the purchasing
utility’s avoided cost of capacity and energy. This cost-effectiveness
evaluation is thus based on the differential between TECO’s internal system
costs under two scenarios, both with and without the PPA. In response to
staff’s data request, TECO provided its cost-effectiveness analysis that
estimated the net cumulative benefits of the PPA at $3.1 million on an NPV
basis using the base fuel and emission price forecasts based on a March 2025
begin date. As
mentioned previously, the effective date of the contract will be the date of
the Commission’s approval, which if approved in July 2025, would result in a
revised estimated net cumulative benefit of approximately $2.9 million. In
addition, TECO will receive at no cost any Renewable Energy Credits (RECs)
generated by the WTE Facility from its associated energy. In response to a
staff data request, TECO stated that if it sells any of the RECs it will pass
on any revenue to ratepayers.
These potential revenues are not included in the economic evaluation of the PPA.
Security Capacity Payment
Rule 25-18.032(3)(c), F.A.C., requires the Commission to
consider security factors relating to the contract for early capacity payments.
Security guarantees in the contract include provisions to ensure repayment of
firm capacity and energy payment in the event that the QF fails to deliver firm
capacity and energy in adherence with the terms and conditions of the contract.
The Contract is slated to commence in the year 2025, and, based on TECO’s 2025
TYSP, the next avoided unit is scheduled to be in-service in 2031. If the QF
defaults during this time, the Contract includes a termination security table
for determining compensation due to TECO. Staff reviewed the security terms and
conditions contained in the negotiated Contract and found them adequate to
protect ratepayers.
Performance Guarantees
Rule 25-17.0832(3)(d), F.A.C., requires the Commission
consider whether the utility’s ratepayers will be protected by the contract’s
terms. Performance guarantees included in the contract detail how the QF is to
operate and further impose financial penalties or other remedies should the QF
fail to adhere to the contract’s terms and conditions. The protections include
a lower energy rate if Hillsborough does not provide a monthly energy
availability of at least 95 percent during peak months and 90 percent during
off-peak months. Also, if the Hillsborough WTE Facility has availability of
less than 70 percent for any 6 months in a calendar year during the Contract,
this failure will be considered a default, and TECO may recover the cost of obtaining
replacement power for the balance of the contract from Hillsborough. Staff
reviewed the performance guarantees contained in the negotiated Contract and
found them adequate to protect ratepayers.
Other
Considerations
Section 5 of the Contract holds TECO responsible for
potential transmission studies, if required, as well as for possible upgrades,
if needed (although TECO would have the option to terminate the contract in
lieu of incurring upgrade costs). However, as stated previously, the QF is within
TECO’s service territory and, therefore, TECO is the sole transmission
provider. TECO was required to conduct a transmission study in order to secure
the related transmission and has no plans for requesting recovery of the
transmission study costs from customers. Furthermore, in response to a staff
data request TECO stated that no transmission upgrades are required to have
power delivered from the facility.
Conclusion
Based on staff’s review, the negotiated PPA improves
TECO’s fuel diversity with the addition of renewable energy and is
cost-effective based on current forecasts, saving approximately $2.9 million in
NPV. The Contract has adequate security and performance guarantees to protect
ratepayers in the event of a default or non-performance by Hillsborough.
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 interest are affected by
the Commission’s decision files a protest within 21 days of the issuance of the
proposed agency action. (Augspurger, Marquez)
Staff Analysis:
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
proposed agency action.
