Figure 1. The Outlaws: Florida combined cycle merchants
Independent power developers are desperate to get into the Florida marketplace, where power demands and rates are both high. A recent state court ruling, however, is a setback for companies seeking to build combined cycle units in the Sunshine State.
When most people hear the word Florida, the first things that come to mind are sunshine, oranges and Mickey Mouse. Others, conversely, think of violence against tourists, remembering the killings of some European visitors a few years ago. This, unfortunately, more closely resembles the image that comes to merchant power developers’ minds.
“Florida is the last state to even look at restructuring,” said Andy Bertron, an attorney with Huey, Guilday & Tucker who is representing Florida Alert – the Alliance for Electricity Restructuring Today. “But the real question is not “why Florida?”, but “why are FP&L and Florida Power so adamantly opposed to IPPs?” Frankly, it’s their own self-interest. They want to keep wholesale competition out of the state, because they see competition in the retail environment coming down the road.”
Bertron also represents Panda Energy, a Dallas-based IPP that is trying to build two 1000 MW, combined cycle plants in Florida. Panda’s plans – and those of many other merchant plant developers – were waylaid in April by a decision at the Florida Supreme Court. The court reversed last year’s approval by the state Public Service Commission (PSC) of the New Smyrna Beach power plant, a 514 MW combined cycle facility being developed by Duke Energy of Charlotte, NC.
The court’s ruling was based on the 1997 Florida Electrical Power Plant Siting Act, which requires power projects larger than 75 MW of capacity to seek a “determination of need” from the PSC. The Siting Act authorizes the PSC to approve plants that will meet “a specified demonstrated need of Florida retail utilities for serving Florida power customers”.
In other words, proposed plants must first have a commitment from a retail utility to buy their power output – i.e., a power purchase agreement, something that has been an anachronism in the United States since the late 1990s.
Same thing, different day Longtime observers of the US IPP industry noted a familiar ring to the Florida imbroglio. This familiarity comes from the early days of independent power in the country. The industry was essentially launched when the US Congress passed PURPA
Utilities, of course, revolted against the law, challenging it all the way to the US Supreme Court. The court ruled in 1993, however, that PURPA was constitutional and that utilities and the states would have to comply. They did – many only grudgingly – and the IPP industry was born.
For years afterward, however, some utilities continued to fight QFs entering their territories, saying that the owners of QFs were “fly-by-night” companies who did not have the same obligation to serve customers that they did. Others fought QFs on environmental grounds, suggesting that each new plant was a new pollution source that did not have to comply with the same federal laws that governed utility plants – an argument that seemed disingenuous at best, given the fact that QFs were permitted under much stricter environmental regulations than the utilities’ own aging fleet.
It’s deja vu all over again in Florida, as the state’s major investor-owned utilities – Florida Power and Florida Power & Light (FP&L) – have fought prospective merchant plants with a vengeance. While the PSC has tended to favour wholesale competition, the state’s legislators and courts seem to be on the utilities’ side.
“The [Siting Act] was interpreted to read that to qualify for a site certification, you must be a retail-serving entity within the state. No merchant plant is such, and the ruling outlaws the whole category of power plants,” Bertron noted.
Strangely, the Siting Act appears to exempt merchant plants that do not generate more than 75 MW of steam i.e., simple cycle plants don’t need to jump through the PSC need-determination hoop.
As a result, one option for Panda and other companies planning combined cycle plants is to go ahead with the construction of simple cycle phases, with later plans for adding heat recovery equipment and steam turbines. But Panda and other companies are exploring legal remedies to the conflict. One argument involves the law’s effect on interstate commerce; by effectively excluding non-Florida utilities from participating in the state’s wholesale power market, the law might violate federal interstate commerce laws dating back to the mid-1800s.
Perhaps the most obvious legal angle, however, involves more recent federal statutes. “The Energy Policy Act of 1992 gives FERC [the Federal Energy Regulatory Commission] jurisdiction to control rates and order transmission access,” Bertron said. “States have siting authority, but there will be wholesale competition.” Whether the FERC will intervene is unclear – it has thus far remained silent on the matter. IPPs are considering pressing the issue with an appeal in federal district court or even the US Supreme Court.
Meanwhile, Florida’s Governor Jeb Bush (younger brother of the presidential candidate) signed an executive order in early May that created a new commission to propose a new energy strategy for the state. The Energy 2020 Study Commission is charged with analyzing current and future reliability of the state’s electric and gas supply; emerging supply and delivery options; industry competition; environmental impacts; energy conservation; and financial effects of energy supply options on taxpayers and energy companies.
Panda Energy applauded the governor’s order, but continued its search for legal remedies. While the company has not begun construction on its projects in Florida, Panda’s vice president of merchant plant development, Steve Crain, sees the state court’s ruling as a major roadblock.
“Right now there’s a three-year backlog for gas turbines. As soon as we stop our progress, the turbines we’ve ordered will be committed elsewhere,” Crain says. “FP&L recently announced that they have 66 turbines on order from GE. By the time the door opens for us to come in, they will have the market need filled.”
Fighting the future
Electric industry restructuring is taking the United States by storm. All but two of the 50 states have initiated electric deregulation at some level. Only Florida and South Dakota remain unmoved. But while the South Dakota situation makes sense – little major industry, few people and very low electric rates – Florida stands out as an ideal location for competition.
First, the state is heavily populated and boasts considerable commercial and industrial load. Also, Florida’s consumers are paying among the highest rates in the country, according to the US Energy Information Administration. Only 15 other states have higher rates, and adjacent states Georgia and Alabama have rates ten per cent and 22 per cent cheaper, respectively, than Florida.
So why is Florida lagging so far behind? Bertron emphasizes that it’s not Floridians, but the state’s big utilities, that are trying to maintain the status quo. “From a consumer’s perspective, we need to see more merchants in the state. We need more power, and we don’t need it on somebody’s rate base,” he said.
FP&L and Florida Power, on the other hand, assert that they are in the best position to fill the state’s power demands, and that allowing merchant plants to spring up across the landscape without oversight would endanger the reliability of the power grid and would harm the environment.
“Our position all along has been that Florida law clearly doesn’t allow for merchant plants,” said Joseph H. Richardson, Florida Power’s president and CEO. “Florida Power is not opposed to merchant plants or to competition in the power generation market as long as these kinds of policy-making decisions are considered in a comprehensive study of all the issues. Anything other than this approach is piecemeal and potentially detrimental to Florida’s electric customers.”
Companies like Panda, however, see this argument as a delay tactic, so the utilities can position themselves to dominate the Florida market even more completely. “We’re on the road to competition at the wholesale and retail level,
“As a consumer,” he concluded, “I don’t want one more kilowatt of rate-base power put into Florida.”