June 1 , 2002
The Regulators Forum - States to Feds: Don't tread on Me
units which are exempt from the requirement to obtain a certificate of need from the Florida PSC. As a result, Florida has not experienced a substantial increase in merchant generation.
In May 2000, Gov. [Jeb] Bush recognized the need for a comprehensive review of the state energy policy in relation to furthering competition in the electric industry. He appointed the 2020 Study Commission, a blue ribbon panel, to investigate the issue and make recommendations to the Florida legislature. Their work was completed in December 2001. The panel suggested a series of integrated steps to encourage the development of robust wholesale competition in the state. They suggested it was not appropriate for Florida to move toward retail competition until a fully developed wholesale market was established.
Within the authority of the Florida PSC, we have taken steps to promote wholesale competition. We have encouraged Florida's investor-owned utilities (IOUs) to participate in wholesale energy markets by revising the shareholder incentive mechanism on economy energy sales that has been available to utilities since 1984. The previous mechanism allowed companies to keep 20 percent of the gains on non-firm economy wholesale sales as an incentive to maximize the amount of economy sales and provide a net benefit to the ratepayer. We modified this incentive structure to reflect the changes in the electric industry and the level of competition in the wholesale market since 1984. We now allow the 20 percent incentive to be applied to all wholesale sales, firm and non-firm, excluding emergency sales. In addition, we established a threshold for determining shareholder incentive gains based on a three-year moving average. All gains at or below this threshold are credited to the ratepayers and all gains above this threshold are split 80/20 between ratepayers and shareholders, respectively. Under this new incentive structure, ratepayers continue to receive the cost reduction benefits achieved through the current level of wholesale sales, and IOUs are rewarded only for performing better than they performed on average over the previous three-year period.
We also promote wholesale competition by requiring our IOUs to issue Requests for Proposals (RFP) for any capacity requirements that involve constructing new generating facilities with a steam cycle greater than 75 MW. This past January, the Florida PSC adopted revisions to our bid rule which are designed to make the rule more effective within the existing regulatory framework.
The most significant modifications to the rule were designed to make the RFP process more transparent and understandable to participants. For example, language was added to ensure that no term of the RFP shall be "unfair, unduly discriminatory, onerous, or commercially infeasible." The utility is also bound by the terms and conditions listed in the RFP absent a "showing of good cause." Finally, the commission included language that provides potential RFP participants with an opportunity to file specific objections. By rule, these objections must be addressed by the commission within 30 days. We believe these changes go a long way to helping us ensure that ratepayers are getting the absolute, lowest-cost new capacity.
With respect to natural gas, beginning in the