|
UTILITY MONITORING REPORT
January 2010
This is the current monthly monitoring report prepared for the FRF by Schef Wright, an experienced utility attorney with the Young van Assenderp firm. For further information, please contact Randy Miller, Executive Vice President, or John Rogers, Senior Vice President & General Counsel. The most immediately significant matters include the following:
Changes on the Public Service Commission
Apparently because of alleged improper contacts between PSC Staff and FPL personnel, including attendance by a senior PSC Staffer at a Kentucky Derby party hosted by a senior FPL officer and allegations of improper "pinning" using untraceable cell phone messaging, Governor Crist appointed 2 new Commissioners, David Klement and Benjamin "Steve" Stevens, to replace Commissioners Matt Carter and Katrina McMurrian, whose terms expired at the end of 2009. Additionally, Commissioner Nancy Argenziano was elected the new Chair of the Commission effective in January 2010. The Governor also asked the PSC to postpone its decisions in the FPL and Progress rate cases until the new Commissioners were seated, and the PSC granted that request.
FPL Rate Case
In summary, FPL sought total increases of nearly $1.5 Billion a year, on an annualized basis, in 2010 and 2011. Fortunately, the PSC largely followed the recommendations and testimony of the Consumer parties and only allowed FPL an annual increase of $75.47 Million a year in 2010, or about 5.1% of FPL's total requests, with no subsequent increases. Largely because of public relations and political fallout surrounding allegations of improper contacts between PSC Staff and utility personnel, the PSC's decisions in both the FPL and Progress rate cases were postponed until the 2 new commissioners were seated, so that the rate increases were also postponed until March 2011.
FPL asked the PSC for a "base rate" increase of $1.044 Billion to take effect next January, plus a "Subsequent Year Adjustment" of $247.4MM/year to take effect in January 2011, plus the permanent implementation of its "Generation Base Rate Adjustment," which the consumer parties agreed to – for the duration of the 2005 Stipulation only - as part of the package that resulted in no base rate increases in the 2005 rate case. FPL requested an after-tax rate of return on equity ("ROE") of 12.5%, which equate to a before-tax ROE of about 20%. "Base rates" are generally designed to recover the costs that a utility incurs:
- to own and operate its power plants and transmission and distribution facilities;
- to run central engineering and administrative functions, including accounting, management, legal, and the like; and
- to read customer meters, issue bills and provide customer service.
"Base rates" are separate from the numerous "cost recovery charges" that the utility is allowed to impose to recover various specific costs. For example, in 2009 FPL recovered more than 64 percent of its total revenues through such "cost recovery charges," i.e., more than $7.5 Billion out of FPL's total annual revenues of about $11.7 Billion. FPL's cost recovery charges include:
● Fuel & Purchased Power Cost Recovery Charge
● Capacity Cost Recovery Charge
● Environmental Cost Recovery Charge
● Energy Conservation Cost Recovery Charge
● Storm Cost Recovery Charge
FPL is also permitted to collect the State Gross Receipts Tax on its sales through a separate line item charge. In addition to these individual charges, franchise fees, sales taxes, and local utility taxes are added to customer bills.
All things considered, if the PSC had granted FPL's increases, FPL would have been allowed to increase its base rates by about $1.473 Billion per year, on an annualized basis, as follows: $1.044 Billion/year in January 2011, $247 Million/year in January 2011, and another $182 Million/year in July 2011 as the first installment of its proposed Generation Base Rate Adjustment provision.
Fortunately for consumers, the PSC followed most of the Consumer representatives' recommendations and denied the vast majority of FPL's requests. Specifically, the PSC:
- Granted FPL an increase of only $75.47 Million a year, to take effect in March 2011;
- Denied entirely FPL's proposed "Subsequent Year Adjustment" of $247 Million/year in January 2011; and
- Denied entirely FPL's proposed Generation Base Rate Adjustment provision.
Immediately following the decision, FPL decried the "politicization" of the PSC's processes and announced that it was halting construction on two major power plant projects at Canaveral and Riviera Beach, as well as on its nuclear power plant project at Turkey Point. FPL also indicated that it would be laying people off. Since the original responses, FPL has softened its rhetoric somewhat, now saying only that it will "suspend" construction on the Canaveral and Riviera Beach projects, and that it will continue with necessary expenditures to obtain a construction license for the Turkey Point nuclear plants. Relative to the PSC's rate case decisions, one should objectively keep in mind the following: (a) there was nothing in FPL's rate increase requests for either the Canaveral or Riviera Beach projects; (b) the costs for the Turkey Point nuclear projects are entirely recovered through the Nuclear Cost Recovery Charge; and (c) the PSC was careful to make clear that it was providing sufficient funding to cover all of FPL's currently filled positions, and also to provide raises and incentive pay for non-management employees. The PSC was also careful to note, on the record, that there has never been an instance where a Florida utility was denied the opportunity to recover the reasonable investment and operating costs of a power plant.
In terms of what the future holds, FPL may file a new rate case this year, or it may seek reconsideration of the PSC's decisions, or it may appeal the decision to the Florida Supreme Court.
Progress Rate Case
Progress Energy Florida sought a permanent rate increase in January 2011 of $500MM per year, with an ROE of 12.54%. The Consumer parties, including the Florida Retail Federation, opposed the increase. Progress also sought an "interim rate increase" of $13.1 Million annually, which the PSC granted in July, plus additional revenues of $126.2 Million a year for its Bartow repowering project (a major refurbishment of an old plant to make it burn natural gas much more efficiently), which the PSC also granted in July. The PSC followed many of the Consumer parties' recommendations and only allowed Progress to retain the $126.2 Million a year increase that it had implemented in July. This represents about 25% of Progress's request, and the net result will be a slight decrease from current rates, effective February 10 – the decrease results from removing the previous interim increase.
The PSC set Progress's rates using a 10.5% ROE and followed virtually all of the Consumers' recommendations on depreciation expense, as well as disallowing requested management incentive pay and other expense items. The ROE and depreciation adjustments accounted for most of the reductions from Progress's request.
Progress was much less outspoken in its reactions to the PSC's decisions. Progress has the same options available to it as FPL – reconsideration, appeal, or a new case.
TECO Rate Case
The FRF intervened in the TECO rate case last year. After a 5-day hearing, the PSC Staff initially recommended that TECO be granted an increase of $87MM/year, with no mention of any step increase. However, at the agenda conference when the PSC voted, a new proposal surfaced and the Commission voted to give the utility an extra $33.5MM in January 2010. The PSC also voted to override its Staff's recommendation for a 10.75% ROE and to give the Company 11.25%; this and an increase in the Company's storm accrual, also overriding the Staff's recommendation, increased the May increase to $104MM/year.
The Consumer Parties subsequently appealed to the Florida Supreme Court, which is standard practice for PSC orders affecting electric, natural gas, and telecommunications utilities, and that appeal is pending. Public Counsel is carrying the bulk of the load on the initial brief, which is due to be filed on February 24, 2010. By the time that the PSC and TECO file their answer briefs, the Consumers' side files its reply brief, the Court hears oral argument, and then issues its decision, it will likely be late in 2010 before we know the outcome.
Cost Recovery Clauses: Fuel and Purchased Power Costs, Environmental Costs, and Energy Conservation Costs, Docket Nos. 100001-EI, 100007-EI, and 100002-EI
Each year, the PSC has proceedings in these general dockets, which address various types of costs indicated in the dockets' titles. Generally, assuming that they qualify for recovery through these "clauses" or "charges," these costs are all eligible for recovery on a dollar-for-dollar pass-through basis, and disallowances are both very rare and very small relative to the billions of dollars recovered through the clauses.
As of January 1, 2010, and including the recently approved rate changes (some increases and some decreases in the cost recovery charges), the following percentages of a "typical" 1,000 kWh/month residential customer's bill are recovered through such charges. (The 1,000 kWh value is a standard benchmark, dating back 20-25 years when that was the average for Florida residential customers; actual average consumption is more like 1,200 kWh/month.)
Utility As of January 1, 2010
Progress Energy 61.5
FPL 56.0
Tampa Electric 50.8
Gulf Power 60.9
For reference, as of January 1, the utilities' rates for a 1,000 kWh/month residential customer will be as follows. Note: Although this is the "typical" value that the utilities and the PSC quote, it is not truly representative, because: (a) an average residential customer uses more like 1,200 kWh/month, and (b) the utility's charge a higher rate (like 2 cents/kWh higher) to residential customers for kWh above 1,000 kWh/month
Utility 9/1/2008 7/1/2009 1/1/2010
Progress $ 110.59 $ 122.79 $ 127.32*
FPL $ 110.77 $ 107.04 $ 95.43*
Tampa Electric $ 114.38 $ 114.06 $ 112.73
Gulf Power $ 113.47 $ 121.47 $ 126.17
NOTE: Progress's rates will decline slightly on February 10, when the interim increase is removed from its rates, and FPL's rates will increase slightly on or about March 1, when it implements its $75.47 Million a year increase in base rates.
Fuel Cost Recovery Docket
In last year's hearings in the Fuel Cost Recovery Charge Docket hearings, which were held in early November, the PSC heard oral argument on the disposition of the $364.8 Million in surplus Fuel Charge revenues that FPL collected during 2009, as a result of their approved Fuel Charges being higher than their actual fuel costs for the year. FPL wanted to apply the usual PSC treatment of crediting this surplus back over 12 months. Following discussion in which the Retail Federation's counsel, the Attorney General's representative, and FIPUG's counsel argued strongly for the one-time credit, the PSC voted unanimously to make the refund to customers using the one-time credit methodology. The net result is that customers received credits of approximately 4.4 cents per kWh or $44.00 per MWH (with slight variances based on average class voltage levels, which incorporate different line-loss factors) on their January bills.
Nuclear Cost Recovery Clause, Docket No. 100009-EI
The statutory changes that the utilities supported in 2006 provided for advance cost recovery of certain nuclear costs, including construction interest before the plants ever come on line, and also for recovery of the costs for abandoned plants. The PSC has now established an ongoing docket, Docket No. 100009-EI, to process Nuclear Cost Recovery issues. In January 2009, Progress implemented its Nuclear Cost Recovery Charge as a component of its Capacity Cost Recovery Charge, which increased the charge from $11.92 to $21.66 per 1,000 kWh of residential service; FPL's increase was about $2.50 per 1,000 kWh. Public outcry led Progress to roll back its increase, choosing to spread it out over several years. (This year's charge is $6.69 per 1,000 kWh for residential customers.) Additionally, Progress did not obtain a "Limited Work Authorization" from the Nuclear Regulatory Commission, which means that Progress cannot begin early construction on its Levy units, which in turn means that those units will not come on line before 2018-2019. The case schedule for this year's Nuclear Cost Recovery Clause docket has not yet been established. I will keep you posted in future reports.
Power Plant Activity
The generating utilities file their Ten-Year Site Plans on April 1 of each year, or shortly thereafter. Per their 2009 Ten-Year Site Plans, all together, the utilities were projecting to add approximately 17,500 MW of generating capacity through 2018. I will update this information when the utilities file their 2010 Ten-Year Site Plans in early April.
FPL Natural Gas Pipeline
Last April, FPL filed a petition requesting the PSC's determination of need for its proposed Florida EnergySecure Pipeline, a 280-mile long, 30-inch diameter, high pressure transmission pipeline that it proposed to own and operate to transport natural gas to its electric generating units in Cape Canaveral and Riviera Beach. FPL intended to put the entire $1.53 Billion investment into its rate base, such that FPL's customers would pay for that investment plus the operating costs of the pipeline. FPL indicated that it needed about two-thirds of the pipeline's initial capacity for its own use, and that it would offer to sell the remaining capacity to other Florida utilities; however, there was no guarantee that those sales would cover the full cost of the remaining capacity, such that FPL's customers were potentially at risk for the extra costs.
Analyses showed that FPL's alleged cost-effectiveness of the pipeline was significantly sensitive to certain variables, including the alternative pricing offered by FGT and also on FPL's ROE. Considering all of the evidence, the PSC concluded that "FPL has not adequately shown that the proposed Florida EnergySecure Pipeline is the most cost-effective option" for obtaining needed gas transportation, and accordingly denied FPL's petition.
Renewable Energy
The 2009 Legislature did not ratify the PSC's recommended Renewable Portfolio Standards Rule, which passed the Florida Senate and died in the Florida House. A "Renewable Portfolio Standard" ("RPS") is a standard or regulatory requirement that an electric utility obtain a specified percentage of its electricity supply from renewable sources. As of this writing, some 26 states have adopted an RPS in one form or another. In its proposed RPS rule, the PSC adopted an aggressive RPS standard matching the Governor's goal: 20% of energy from renewables by 2020, albeit subject to a 2% rate impact cap. Even with the rate cap, the 4 large utilities would have about $370 million a year to spend on renewable power based on current consumption and sales levels.
Since then, attention has been focused on the U.S. Congress, where the House passed H.R. 2454, the American Clean Energy and Security Act of 2009, which would impose a federal 15% Renewable Energy Standard on most utilities. However, the legislation hasn't gone anywhere in the Senate, apparently because the Congress's and President's primary focus has been on health-care legislation. With the Democrats' recent loss of their "filibuster-proof" 60-seat majority in the U.S. Senate, the prospects for health care legislation have faded, with the result that legislation on debt, financial services regulation, and energy, likely including pro-renewable measures promoted as job-creating measures, are moving up on Congress's priority list.
Supported by the PSC, the Florida Governor's Energy Office, and Lawrence Berkeley National Lab, Navigant Consulting has prepared a draft report assessing the "technical potential" for developing renewable power in Florida. A couple of key nuggets from this report are as follows. First, the "technical potential" of solar, wind, and biomass technologies exceeds Florida's total electricity demand by 2020. However, this "technical potential" does not include considerations of cost and cost-effectiveness, merely technical capability. Even so, it defeats the argument that "we just can't do it" and changes that debate to what we can afford to do.
Second, the cost of solar photovoltaic is projected to fall by more than 50%, in real terms, from $8,000/kW in 2008 to $3,300/kW in 2020. Assuming amortization over 20 years at a reasonable interest rate, this would make the un-subsidized cost of solar electricity into the home or business about 15-17 cents/kWh in 2020, and it's fairly likely that the real cost of utility-supplied power will be greater than that at an earlier date. (For reference, if not for the dramatic fallback in world fuel prices over the last half of 2008, both Tampa Electric's and Progress's total residential rate would already be in the 14-plus cents/kWh range.)
The renewable power sector is picking up a lot of momentum – including biomass, large-scale solar, landfill gas, wind, and other technologies. Progress has signed at least 5 contracts that would provide about 400 MW of biomass-generated electricity. FPL was planning a 300 MW solar-thermal power plant, but has scaled back to a solar-thermal plant around one-fourth that size, along with two solar photovoltaic (PV) projects that total 35MW (large for solar PV). (Solar thermal technology concentrates the sun's heat to make steam, which then powers a turbine; the other common technology, solar photovoltaic, converts the sun's energy directly to electricity in "solar cells.") FPL is also working toward installing several wind turbines (essentially giant windmills) on the Treasure Coast. The Florida Municipal Power Agency plans to add 100 MW of solar capacity over the next five years. JEA has signed an agreement to purchase the output of a 12.6MW solar PV facility and is planning to meet 7.5% of its energy needs with renewable energy by 2015. Florida Atlantic University has a research center working on harnessing the Gulf Stream's energy – which is tremendous – to turn hydroelectric turbines; the main proposals that I've heard of would use modular submerged turbines. Tampa Electric has signed a contract to purchase the output of a 25MW solar PV facility, and Gainesville Regional Utilities has signed a contract to purchase the output of a 100MW biomass-fired power plant to be fueled primarily with forest residues and the woody materials from land- and road-clearing activities. Gainesville has become the first utility in Florida, and one of the first – if not the first – in the U.S. to offer Germany-style purchase rates for solar power called "feed-in tariffs." Under these feed-in tariffs, GRU will purchase solar power at a price that is estimated to cover the cost of producing solar electricity, including a reasonable return on investment. GRU's program is fully subscribed for at least its first three years of operation.
Climate Change Issues
I previously reported that I believed that we would have a meaningful federal-level cap-and-trade program for reducing greenhouse gas emissions, and that legislation would probably pass in 2010 for implementation beginning in 2011 or 2012. Although the President mentioned his intention to deal with climate change in his State of the Union address, with the floundering economy, this prospect seems much less likely as of this writing, although a federal RPS/RES bill appears likely to pass this year. I'll keep you posted.
The key point for Florida retailers is to stay abreast of developments on all fronts and to make informed decisions on energy usage, energy conservation, and self-generation alternatives. I will keep you posted.
|
