In flip-flop, Duke Energy will buy existing power plant, not build one

The energy company had said earlier that such a move would not be cost-efficient.
The effect on customers from Duke Energy Florida's decision to buy the Osprey natural gas plant in Polk County is not known. LARA CERRI | Times
The effect on customers from Duke Energy Florida's decision to buy the Osprey natural gas plant in Polk County is not known.LARA CERRI | Times
Published August 26 2014
Updated August 27 2014

TALLAHASSEE — In a major reversal, Duke Energy Florida said Tuesday that it agreed to buy an existing, independent natural gas plant in Polk County and withdraw its proposal to build $190 million in peak power units of its own in 2016.

The proposed agreement with Calpine Finance Construction Co. would allow Duke Energy to purchase the 10-year-old Osprey natural gas plant in the Auburndale area of Polk County. Details of the surprising deal were not yet disclosed, and its impact on ratepayers remained unclear during the first of two days of hearings held at the Florida Public Service Commission.

Duke earlier stressed that such an acquisition was a bad idea. Responding in mid August to Tampa Bay Times coverage, Duke Energy Florida president Alex Glenn wrote that the Osprey plant was "an electrical island" ill suited to purchase. He also criticized a Times story for quoting company critics whose comments were "unfounded in fact" and for articles "misleading to readers who deserve unbiased reporting."

The Times reported in July that purchase of the Calpine plant and two other existing plants could save customers $1 billion, compared with Duke's proposals to build all of the projects it had proposed.

Whether Tuesday's flip-flop by Duke to endorse the Osprey deal reflected a new fire-sale price for the plant remains unclear. Sterling Ivey, a Duke spokesman, said the latest deal struck with Calpine appeared that "it could be more cost-effective."

Duke still wants the state PSC to approve a separate and larger $1.5 billion natural gas facility in Citrus County in 2018 as well as $200 million in improvements to the utility's existing plants.

"No matter what happens here, Citrus is needed," John Burnett, a Duke lawyer, told the commission after announcing the agreement.

But Duke's decision to abandon, at least for the near future, its plans to build new peaker units — power needed when demand is highest — threatened to derail all three proposed projects because the utility had argued that they were a package needed to meet future electricity demand. Some opponents of Duke's deal with Calpine said the agreement raises questions about the need for any of the utility's plans, given that there still are other independent plants for sale and other ways to meet demand.

Duke also must meet an Oct. 2 deadline for approval of the remainder of its projects in order to move forward on the schedule it had proposed.

"We have a problem with the way Duke handled the entire procurement," said Marsha Rule, a lawyer representing NRG, another independent plant owner trying to sell a facility to Duke. "Now at the 11th hour, they say we've reached a deal. I think it is the wrong decision to sever part of (Duke's plan) unless you send Duke back to the negotiating table."

James Brew, a lawyer for PCS Phosphate, said: "What is the . . . need going forward? We feel the record is at best incomplete."

The five-member Public Service Commission, however, approved Duke's decision to withdraw the Suwannee plant proposal from consideration but does not have authority to force the utility to negotiate. The agreement with Calpine still must receive final approval by the Federal Energy Regulatory Commission, which oversees purchases of independent or so-called "merchant" power plants by utility companies.

Duke originally proposed to tear down three of its own 1950s-era units at its Suwannee power plant and replace them with new natural gas-fired, peak-demand units. It also wants to make improvements to another plant to improve its efficiency. Duke insisted it needed both by 2016.

Then in 2018, Duke plans to retire two coal units at its Crystal River power station in Citrus County and replace them with a big natural gas plant.

Total cost for new plants and improvements: $1.9 billion.

Calpine had offered its Osprey plant for $300 million but repeatedly said it was willing to negotiate a lower price. In addition to the cost of the plant, Duke would have to spend about $150 million for transmission lines.

No matter what — whether Duke builds or buys — the utility will collect a return on its investment, generally about 10 percent. The existing plant would mean less money for the utility.

"Duke is 100 percent responding to the bad attention to their effort to build unnecessary power plants," said Susan Glickman of the Southern Alliance for Clean Energy, which is participating in the hearings. "The PSC and lawmakers should force them into a transparent process to see if there is demand for new power and if they couldn't meet that demand with the least cost resource — energy efficiency."

Tuesday's decision to abandon the Suwannee peaker units and purchase the Calpine facility comes after a series of public relations mishaps for the utility.

Duke is seeking to build more plants, even as it continues to collect on $3.2 billion from customers for botched nuclear projects that will never produce a kilowatt of electricity.

"Let's not forget how we got here," Charles Rehwinkel, deputy state public counsel, who represents consumers before the PSC, told the commission. "We ask that the commission be especially vigilant" to ensure Duke really needs to spend more money for more plants.

In addition to the troubles with its nuclear operations, the utility over the last week faced a burst of criticism from ratepayers and state lawmakers over a temporary change in its meter reading system.

Duke is making changes to its meter-reading routes to make them more efficient. Those changes led the utility to temporarily extend as many as 267,000 customers' billing cycles, typically a month, by as many as 12 days. Customer bills revealed additional charges in some cases of $100 or more for the extended days. For some customers, the additional days bumped them into a higher rate class.

That's because Duke charges customers $11.34 for every 100 kilowatt hours of usage up to 1,000 kilowatt hours. But above that, it charges $13.70 for every 100 kilowatt hours. That's before taxes and other government fees.

Contact Ivan Penn at ipenn@tampabay.com or (727) 892-2332. Follow Consumers_Edge.

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