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PSC plan upsets Florida Power

A PSC staffer's proposal would prevent the utility from locking in higher rates to pay for a new plant.

By STEVE HUETTEL

© St. Petersburg Times, published October 4, 2000


State utility regulators traditionally bless construction of new power plants under a standard deal.

Utilities establish there's a need for the electricity and show regulators how they will provide it at the lowest possible cost. In return, regulators let them recoup the capital and operating costs through higher electric rates over a plant's 30-year life.

Now, a Florida Public Service Commission staffer has created a stir by suggesting his bosses change the formula to better protect ratepayers.

In his review of a plan by St. Petersburg-based Florida Power's Corp. to build a $198-million plant in Polk County, regulatory analyst Billy R. Dickens says the commission should refuse to lock the utility's customers into decades of higher rates.

He proposes the PSC grant rate increases for the Hines 2 plant for only the first five years of operation. Then, commissioners should periodically compare the cost of power generated at the plant with other sources, including competing utility companies, Dickens says.

If less expensive electricity is available, he says, the PSC could refuse to let Florida Power charge the plant's cost to ratepayers.

Florida Power doesn't like the idea.

Even if plans to build the Hines 2 plant make perfect sense today, the proposal could let the PSC second-guess the decision and force Florida Power to absorb the cost, argues John J. Flynn, the utility's manager of regulatory policy.

"This would represent a critical change in the way utilities and regulators do business in Florida and in the industry, and would make owning and operating regulated utilities absolutely untenable," Flynn said in testimony filed with the PSC on Sept. 25.

The issue could throw a monkey wrench into Florida Power's plan to build the 530-megawatt plant next to an existing one on the Hines Energy Complex.

Florida Power sped up plans for the plant in 1998 after the PSC expressed concerns that the state's utilities weren't building power plants fast enough to meet Florida's future demand for electricity. The utility wants to begin construction next year and complete the plant in 2003.

Florida Power is asking the PSC for a "determination of need," a critical first step in winning permission to build a plant in the state. The governor and Cabinet ultimately decide if and where utilities can build power plants.

As part of their review of Hines 2, PSC staffers threw in a new issue: Should ratepayers be obligated for the cost for the life of the plant? Dickens was assigned to examine the question and decided the answer was no.

The electric power business is changing so quickly that ratepayers could get stuck paying too much as less expensive sources become available, he said. Among the possibilities: new generation technology, fuel price swings and companies that will build plants in the state and sell power wholesale to Florida utilities.

The state Supreme Court ruled this year that Duke Energy Corp. could not build such a "merchant plant" in New Smyrna Beach. But a commission created by Gov. Jeb Bush to study the state's energy needs decided last month to look at opening up the wholesale electricity sales to competition. The panel agreed to present recommendations to lawmakers by January.

Florida Power officials counter that wholesale deregulation is far from a done deal.

Even if the state makes merchant plants legal, Flynn said in his testimony, there's no assurance that the price of electricity will go down.

Changing the ground rules so the utilities might not be able to recover their costs would encourage them not to build new plants at a time when the PSC wants more electric generation in the state, Flynn said.

Florida Power has asked the PSC to strike Dickens' testimony from the record and not consider the issue of whether ratepayers should be obligated to pay the cost of Hines 2 for the plant's life.

"We feel the whole issue is misplaced as part of this (need determination) process," said Melanie Forbrick, a Florida Power spokeswoman. She declined to say if Florida Power would build the plant without a guarantee it could recover the costs.

The commission is scheduled to rule on the case Dec. 19.

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