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Florida Court Decision Jeopardizes Merchant Power, New Pipes

Florida Court Decision Jeopardizes Merchant Power, New Pipes

The Florida Supreme Court dealt a serious blow to the development of merchant power in the state and proposed new gas supply lines in a 6-1 decision issued last Thursday, reversing the state Public Service Commission's authorization for Duke Energy's construction of a $160 million, 514 MW power plant at New Smyrna Beach. (See NGI, Aug. 24, 1998)

The court found that applicable state laws were "not intended to authorize the determination of need for a proposed power plant output that is not fully committed to use by Florida customers who purchase electrical power at retail rates." The PSC exceeded its authority, the court said, in granting a determination of need based on only 30 MW of the plant's total output dedicated to in-state use through the New Smyrna Beach municipal utility.

The court ruling effectively blocks a string of about 25 merchant power facilities being planned by a number of companies, including Dynegy, Panda International, Reliant Energy and Calpine Corp., and brings into question the scheduling and viability of two new gas pipeline projects.

"This decision vindicates our belief that state law never contemplated the construction of power plants whose output was not committed to meet the needs of the State of Florida," said Paul Evanson, president of Florida Power & Light, which challenged the PSC ruling before the court.

Joseph H. Richardson, president of Florida Power, which also opposed the Duke plant in court, said, "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."

Duke spokesman Bryant Kinney said the company would have to study the ruling and its options. "We're surprised and disappointed. We were planning to build in Florida to serve Florida."

Steve Crain, a vice president for Panda International, which announced plans last month for two 1,000 MW power plants in Florida (See NGI, March 13), said the decision "represents a step back not only for Florida as a state but for every resident's future ability to benefit from lower electric rates."

"At the same time we ...hope that Senate Bill 2020 will move forward toward a meaningful evaluation of Florida's electric industry. We also commend Gov. Jeb Bush's promise to act, even if the legislature doesn't," Crain said. Crain's reference was to a power study bill, which was voted out of a state senate committee earlier this week after a vigorous battle defeated an amendment that would have slowed development of merchant power. The governor has expressed an interest in setting up his own study bill commission to make recommendations to the legislature in 2001.

The amendment would have required merchant plants to comply with the same rules as Florida's regulated utilities, including dedicating power to Florida residents first and showing the need for the plant by having 10-year contracts for the bulk of the power. The amendment was submitted by state Sen. Buddy Dyer, D-Orlando, and then withdrawn after a heated committee debate. Even though the study bill was voted out of committee, observers gave it little chance of passing the legislature this year. It now appears the governor will take the initiative toward developing legislation for next year.

The outside generators have been defending their proposals with a government study that shows the need for between 8,000 and 10,000 MW of new power capacity in the state in the next 10 years. An FP&L spokesman said, however, that the study was taken directly from reports to the PSC by the state's IOUs on their own generation building plans. The report listed "every plant addition the utilities are planning to meet power needs."

The IOUs believe merchant power operators should be required to contract their power to regulated utilities, which are dedicated to serving Florida residents first and which must return any profits they make selling excess power into the wholesale market to ratepayers.

A spokesman for the PSC said the commission currently is studying measures that would provide incentives by allowing regulated utilities to retain some of the profits gained by selling into the wholesale market. Part of the Commission's rationale for approving the Duke plant was the fact that electric power prices for Florida residents generally average a few cents a kilowatt-hour more than prices paid in surrounding states.

Meanwhile, the Federal Energy Regulatory Commission is set to consider preliminary determinations for two proposed natural gas pipelines to fuel the growing generation load at its open meeting this week. Buccaneer Pipeline and Gulfstream Pipeline are each proposing about 700 miles of underwater lines from Mobile, AL to the west coast of Florida and between 100 and 300 miles of pipe in the Sunshine state to deliver the gas. Buccaneer is equally-owned by Duke Energy and Williams. (See NGI, Feb. 14) There is some question as to the future of Coastal Corp.'s Gulfstream, since that company is in the process of being taken over by El Paso Energy, which has an interest in Florida Gas Transmission (FGT), currently the only pipeline into the state, which has its own expansion plans.

The court decision strikes at the heart of the Buccaneer project which has as a main underpinning a committed load of about 250 MMcf/d from Duke Energy North America, the company's wholesale power generation development business unit. Delay of the Duke plant already has cut into FGT's expansion plans. Duke had signed on for space in FGT's Phase IV expansion due for deliveries in May, 2001, but dropped back earlier this year to its Phase V capacity addition due in 2002. (See NGI, Feb. 28)

While some landowners are opposing the merchant power plants, at least one group of residents apparently favors the projects. Friends of the Manatees, a group supporting Florida's underwater elephants that live in spring-fed lakes in the northwestern part of the peninsula, are in favor of construction of a nearby plant because the manatees will appreciate the warm water emanating from the plant.

Ellen Beswick

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