Keeping the lights on in Florida

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Keeping the lights on

Will Florida face the rolling blackouts that plagued California? The utilities don't think so. They say their plans will satisfy the state's future energy needs. Out-of-state power suppliers aren't so sure. By STEVE HUETTEL

© St. Petersburg Times, published April 22, 2001

-------------------------------------------------------------------------------- Will Florida face the rolling blackouts that plagued California? The utilities don't think so. They say their plans will satisfy the state's future energy needs. Out-of-state power suppliers aren't so sure. If you believe the big out-of-state power companies, you'd better stock up on batteries for your flashlight because the lights may be going out in Florida.

They say more than 1-million homes on energy-saving programs could have their air conditioners and water heaters shut off more and more often this summer.

In years to come, power-gobbling, job-producing industries, such as computer chip manufacturers, will shun the Sunshine State.

And consumers could see California-style rolling blackouts this decade if the weather throws Florida a curve and utilities keep low-balling projections of the state's growing electricity appetite. Or so the power companies trying to break into Florida contend.

Florida's established utilities offer a far different, much more comforting vision.

The state will enjoy plentiful power this summer, 20 percent more than customers paying full retail price should need on the hottest day.

And the utilities say they've got the state's future energy needs well under control as they build more power plants to keep up with demand. After all, they plan 10 years ahead and tweak the blueprint every year.

The question of how much energy Florida needs is central to the political debate between out-of-state power suppliers such as Duke Energy and entrenched utilities such as Florida Power Corp. that want to keep them out. Although the Legislature appears unlikely to open the state to energy competition this year, the issue is not likely to go away.

So will Florida have enough electricity?

That largely depends on how you define "enough electricity."

Even the most ardent critics of Florida's big utilities don't predict that the power will go off anytime soon for regular retail ratepayers.

But some large industrial customers argue they're suffering now because the state's power companies don't generate enough electricity.

They are on "interruptible service," which provides a discounted rate. In return, the utilities can cut off their juice or charge a premium for power during periods of peak demand by regular retail customers.

Tampa-based AmeriSteel Corp. says its Jacksonville mill was forced to buy pricier power the equivalent of an hour every day last year.

That usually happened on extremely hot or cold days when Jacksonville's municipal utility had to fire up expensive-to-run "peaking generators," says Bob Muhlhan, AmeriSteel's vice president for procurement.

"The deal was never represented as an opportunity for sustained or repetitive price increases," he says. "Our expectation ... was that the utilities would maintain reasonable reserve margins."

Debating the state's future needs is a more complicated exercise.

Investor-owned utilities such as Florida Power and Tampa Electric Co. acknowledge that the state's "reserve margin" -- the difference between the projected peak demand from regular retail customers and the power that utilities generate or buy wholesale -- got too low in the late 1990s.

The utilities agreed with state regulators to build new generators to boost the margin. They say they're well on their way.

In all, those plants will boost the state's generating capacity about 30 percent by 2009. That's an increase of 11,000 megawatts, enough to power nearly 3-million homes.

But the out-of-state power companies warn that those plants may not be enough to keep up with Florida's appetite for electricity.

As they lobby legislators to change a law that keeps them from building so-called "merchant plants" in the state, giants such as Duke and Calpine argue that Florida's big utilities underestimate how much electricity the state will need over the next decade.

The utilities predict that electricity demand over the next decade will increase at about half the rate of the 1990s. That estimate relies on forecasts that Florida's population growth rate will slow and the economy won't expand as quickly as last decade. Both are iffy assumptions, the outsiders say.

"If you're uncertain about the future and it takes three years to build, aren't more plants better than less?" asks Michael Green, vice president of Duke's Florida operations.

The utilities defend the projections, and their state regulator, the Public Service Commission, agrees. Even if the numbers are off, they say, the 10-year planning process gives them plenty of time to adjust for surprises.

They say the merchant plant operators are raising the specter of California-like blackouts to scare legislators into changing the law and letting them into the state.

"The easiest answer is to say there's a capacity crisis," says Richard Lehfeld, senior vice president of external affairs for Tampa Electric's parent, TECO Energy. "But this (capacity question) has an objective answer. We're starting spending the money and turning dirt. The plants are going to be there."

* * * Imagine running a business and not knowing whether electricity will be on the next day or how much it will cost. Add to the equation that power is 20 percent of your expenses.

That's the predicament IMC Phosphates president Rich Krakowski finds himself in as he oversees the company's four phosphate mines in Central Florida. IMC buys most of its power as an interruptible customer of Tampa Electric.

The company receives a price break on power. Tampa Electric says discounts for interruptible customers average about 30 percent but won't disclose IMC's rate.

IMC has to operate in uncertainty many days, especially when home air conditioners run overtime from June through September. When demand from full retail customers approaches the maximum that Tampa Electric can generate or buy on contract, things can go haywire.

On some occasions -- for eight hours last year and 40 hours in 1999 -- the power went off to drag lines that dig phosphate and to a vast system of pumps that push a slurry of rock, sand and water to separating plants.

More often, Tampa Electric buys power for IMC on the wholesale market and passes along the increased cost.

If it's that big a problem, why don't the mines, which typically run around the clock, just switch to the full retail, or "firm," service?

Because Florida's industrial power rates are among the highest in the Southeast, Krakowski says, and the mines couldn't operate profitably at full rates. IMC Phosphates' annual power bill is $60-million, he says, including $7-million in premium charges for peak power.

Like many interruptible customers, Krakowski contends Tampa Electric wouldn't run into shortages as often if the utility generated enough power.

A Plant City manufacturer of concrete building materials has sued the utility in Hillsborough County Circuit Court over the same issue.

James Hardie Building Products contends it signed an interruptible power contract in 1993 after Tampa Electric gave it misleading assurances that its power would seldom be shut off.

Yet, the suit charges, power outages became frequent occurrences for interruptible customers as the utility failed to build enough new plants to keep up with growing demand.

* * * A record-setting summer heat wave in 1998 brought the power supply issue home to thousands of residential customers on "load management" programs.

In return for a credit on their monthly bills, customers let utilities periodically shut off air conditioners, heaters, water heaters and pool pumps.

Back then, Florida Power aggressively sold load management and had enrolled 540,000 customers, about half of all residential ratepayers, on the program by 1998. A lot of them complained about repeatedly losing their air conditioning. About 70,000 quit the program.

State regulators already were concerned about the state's power reserve margins, which were projected in 1997 to decline from 19 percent to 8 percent in 2006.

In December 1998, Florida Power, Tampa Electric and Florida Power & Light agreed to boost their margins to 20 percent by 2004.

They pledged to do that by building more generating capacity. The utilities also agreed not to rely so much on load management customers, PSC chairman E. Leon Jacobs Jr. said.

The danger, as Florida Power found out, was that large numbers of those customers can drop out of the program on short notice and quickly reduce a utility's reserve margin.

Florida Power and Tampa Electric say their margin for this summer is 18 percent, with about half of that coming from interruptible and load management customers.

"We will still use load management to account for some of the reserve margin," said Florida Power president William Habermeyer, whose company has stopped accepting sign-ups for the summer program. "But our plan is to rely less on load management and provide more generation."

National experts recommend a minimum 15 percent reserve margin. Any number of variables can rapidly drive up demand or cut supply for power: extremely hot or cold weather, plants shutting down unexpectedly or power imports drying up.

That makes forecasting electricity demand, especially more than a few years ahead, a tricky business.

Each Florida utility annually submits a 10-year estimate of the amount of electricity its customers will need, plus the peak amounts for summer and winter. The reports also list anticipated new power plant construction and wholesale electricity purchases.

A group representing utilities and power merchants, the Florida Reliability Coordinating Council, compiles the reports into a single document submitted annually to state regulators. (The estimates cover all of Florida except a corner of the Panhandle served by Gulf Power.)

The latest combined forecast shows peak summer demand increasing from 38,445 megawatts this year to 45,810 in 2009. The winter peak should rise from 41,811 megawatts to 49,478 over the same period.

Both are comfortably within the capacity the utilities have pledged to provide. The utilities say their numbers are based on projections by the University of Florida's Bureau of Economic and Business Research.

But critics such as Green, the Duke Energy vice president, contend the estimates are low and could put Florida behind the power curve.

Through the 1990s, summer peak demand grew 4.2 percent annually and the winter peak jumped 6.8 percent. But the utilities estimate growth at about half that rate this decade: 2.4 percent annually for summer and 2.3 percent for winter.

The projections, Green says, are based on questionable assumptions. The utilities estimate Florida's population will grow 1.5 percent annually this decade. During the 1990s, the growth rate was nearly 2 percent a year.

The power demand projections also are based on a state economy that won't grow as fast as Florida's did in the past decade.

"These are absolutely minimum demands," Green says. "If you miss it, you get in a crisis mode where the PSC is ordering the utilities to build more generation."

The coordinating council's executive director, Ken Wiley, says the out-of-state companies are using fuzzy math.

The 1990s started in an economic recession and ended in a boom, he says, and those extremes exaggerated the growth rate.

So far, Jacobs of the PSC and the state's large utilities seem to be winning the debate over whether Florida is facing a dire power shortage. With two weeks left in the legislative session, the House and Senate committees overseeing utilities have taken no action on legislation to open the state to merchant companies.

"It seems clear to me that there is not a capacity crisis today," said Jeff Miller, the Milton Republican who chairs the House Telecommunications and Utilities Committee, "though we may need to take steps to make sure there's not one in the future."

- Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.

http://www.sptimes.com/News/042201/news_pf/Business/Keeping_the_lights_on.shtml

-- Martin Thompson (mthom1927@aol.com), April 22, 2001


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