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<title>Florida Public Service Commission Rejects Standard Offer Contract Using
Hypothetical Measure For Avoided Cost Rate</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
August 1999<br>
</u><font face="Arial"><big><big><big>Florida Public Service Commission
Rejects Standard Offer Contract Using Hypothetical Measure For Avoided Cost
Rate<br>
</big></big></big></font>
</b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
10/99</em>)</font></p>
<font FACE="Palatino" SIZE="2"><p ALIGN="JUSTIFY"></font><font face="Arial">On July 27,
1999, the Florida Public Service Commission (PSC) voted to adopt its Staff’s
recommendation to deny the petition of Florida Power & Light (FPL) for approval of a
standard offer contract for qualifying cogeneration and small power production facilities,
although FPL may develop an acceptable standard offer contract to comply with Staff
recommendations. The PSC also rejected FPL’s "regulatory out" clause, a
clause which would permit FPL to adjust payments to qualifying facilities and small power
producers based on some unforseen regulatory action. The PSC granted FPL’s request
for a variance to the administrative rule requiring standard offer contracts to contain a
ten year minimum term, and permitted FPL to have a five year fixed term in its standard
offer contract. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Under Florida and federal law, each investor-owned
utility is required to file a standard offer contract with the PSC by which certain
smaller qualifying facilities and small power producers may sell power to the utility.
Large qualifying facilities and non-utility generators, by contrast, must bid to sell
their power to utilities under a request for proposals process. These standard offer
contracts satisfy requirements of the Public Utilities Regulatory Policies Act (PURPA) and
Florida law, which require promotion of solid waste facilities, energy efficiency,
cogeneration, and the use of renewables.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Florida law requires that the rate provided in the
contract must be based on the utility’s next planned generating unit addition, which
is its "avoided unit." In its filing for approval of a standard offer contract,
FPL used a hypothetical 209 MW combustion turbine generating unit with an in-service date
of January 1, 2001 as the avoided unit. However, FPL’s actual next planned generating
unit under its ten year plan is much different: a repowering project in which it will
replace existing steam boilers with six 150 MW combustion turbines and heat recovery steam
generators with an in-service date of January, 2002. The hypothetical facility also bears
no relationship to other projects in FPL’s ten year plan. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The purpose of the standard offer contract pricing
is to encourage energy efficiency while avoiding or deferring utility generation facility
construction. According to the PSC Staff, this purpose is rendered meaningless by the use
of a hypothetical next generating unit rather than the use of the actual next planned
generating unit. FPL was required to file a revised standard offer contract consistent
with this policy.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">FPL also requested that the PSC approve a 5 MW
subscription limit for its standard offer contract, which would preclude some facilities
from selling their full output to FPL. While the PSC’s rules do not prohibit such a
limitation, the Staff found that the limit could exclude facilities from the standard
offer contract and FPL had not substantiated the need for this limit. However, because FPL
delayed filing of its standard offer contract until late in the planning of its next
generating facility, the standard offer contract was unlikely to avoid or delay
construction. Therefore, the standard offer contract, particularly without a subscription
limit, could result in FPL purchasing unneeded capacity. Given the
"untimeliness" of the filing, the Staff did not recommend a different
subscription limit.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">FPL’s petition for approval of a standard offer
contract also included a "regulatory out" clause, which would permit FPL to
adjust payments to facilities under the standard offer contract based on unforseen
regulatory action. The Staff recommended that this provision be struck, noting that the
Florida Supreme Court upheld the PSC’s removal of a "regulatory out" clause
in an earlier standard offer contract of FPL. The PSC’s cited reason for striking the
earlier provision is the PSC’s "commitment to allow recovery of the mandated
payments" and their opinion of such clauses as "unnecessary surplusage."</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The PSC rules require that a standard offer contract
be for a minimum ten year term. This term was selected because the PSC determined it was
of sufficient length to permit cogenerators and utilities to plan. FPL requested a
variance from this ten year minimum, seeking instead a five year fixed term in its
standard offer contract. FPL argued that the ten year minimum worked a substantial
hardship on FPL and that the ten year term would create an unreasonable risk and burden
for its customers. FPL claimed as potential hardship that Section 210 of PURPA could be
repealed and that the standard offer contract would not avoid or defer construction of
generating facilities in any event. While the Staff stated FPL did not meet its burden of
proving a substantial hardship, the PSC voted to grant the variance for a five year
minimum contract term.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The PSC’s Order is expected to be filed August
16, 1999.</font></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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