Florida Panel Backs Merchant Plant Development

A special commission formed by Florida Gov. Jeb Bush is recommending the state break up its monopoly utilities and pave the way for competition in the power generation market by doing away with certain laws and amending others.

The Florida Energy 2020 Study Commission approved a plan that would result in a "systematic transition to a competitive wholesale market, but [would be] designed to avoid the problems experienced in California." The plan, which is expected to be submitted to the Florida legislature next month, recommends the removal of statutory barriers to entry for merchant power plants and provides a transition to a "level playing field" for all generation assets.

Investor-owned utilities in the state would be required to spin down generation assets at book value to an affiliate. They also would be required to buy their power through a competitive acquisition process, including bilateral agreements, RFPs, short-term spot purchases and a variety of other methods.

Commission members took great pains to point out the differences between what they are proposing and California's recipe for power failure. Unlike California's utilities, Florida's utilities will not be forced to rely only on the spot market for their power purchases.

However, Florida does face a potential power shortage. Commission Chairman Walter Revell echoed the concerns of the state's governor that Florida faces a significant increase in power demand over the next decade or two and needs to remove barriers to generation plant developers.

The latest estimates show that Florida will need 11,000 MW of additional power generation in the next eight or nine years to meet rapidly growing demand.

"There's definitely a need to get generation on the ground there and I think by opening up the wholesale market to the merchant facilities that you can put Florida in the position to have enough generation to meet [its] needs as [it moves] forward with total deregulation," said Duke Energy spokesman Rick Rhodes.

The Florida Supreme Court last year ruled against Duke Energy's New Smyrna Beach merchant generation project, a decision that effectively stopped dozens of proposed merchant power projects in their tracks.

Florida's wholesale power market is basically closed to competitors because its power plant siting laws state that wholesale generation plant developers cannot be "applicants" without a "determination of need," which the state Supreme Court interpreted last April as meaning "fully committed" to serving retail customers in the state.

To remove the barriers to entry, the Florida Energy 2020 Study Commission's plan recommends changes to the "need determination statute" and the Power Plant Siting Act. Last May, Bush ordered the formation of the commission to determine the power needs of the state over the next 20 years and to provide recommendations to the legislature on how to serve those needs in the most efficient and reliable manner.

The commission's plan also would involve changes to Chapter 366 of the Florida statutes to allow the utilities to transfer existing generation assets out of their rate bases and to allow them to buy power as specified in the plan. Statutory changes also are needed to smooth the way for the formation of GridFlorida, the regional transmission organization that is being set up by the state's utilities next year. The commission also recommends that ratepayers be protected from any adverse impacts from restructuring by a three-year rate freeze.

"It's a good first step," said Duke's Rhodes. "We were at the table several times and were asked to provide input from a developer's side. We'd like to commend Walter Revell and his staff. This is a good package. We feel pretty confident that the recommendations in the package are directionally correct and the interests of the consumers are being well represented" so it should move through the legislature. "The ball has been punted. I would think it would be one of the first issues [the legislature] tackles," he added. "It's an issue that affects every consumer in Florida."

Rhodes said Duke's 514 MW combined cycle New Smyrna Beach plant still is on the drawing board, as are a couple simple cycle peaking plants, which run around 640 MW each. "Once the gates are open it will be interesting to see how many more plants are proposed," said Rhodes.

Rocco Canonica

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