GRU recently proposed a plan to reduce costs while providing a pathway to 100 percent renewable energy by 2045. Under the plan, GRU would sign what’s known as a Network Services Agreement with Florida Power & Light to gain access to FPL’s affordable power throughout the state. The questions below are based on feedback GRU received in public meetings with the Gainesville City Commission and Utility Advisory Board and based on terms presented in those meetings.
GRU already has access to transmission tie line interconnections with Duke and FPL, so why is this necessary?
While it’s true that GRU has transmission interconnection lines with both Duke and FPL, providing up to 224 megawatts a piece, we can't reliably satisfy our peak load through the combination of these two interconnections. At best, they are vehicles to manage the economic opportunities of buying and selling small lots of power.
The largest issue is that neither Duke nor FPL will enter into an NSA to provide the partial load these interconnections can supply. Without the NSA, GRU must battle with other utilities to access transmission through points that are often congested when GRU needs the power most and accessible during low-use months when we need it the least.
What are the terms of the Network Services Agreement?
In a nutshell, the Network Services Agreement is a 30-year contract at an estimated $9 million per year, based on a federally regulated utility tariff. GRU gets an interconnection, or "tie line," to FPL's transmission lines that provides "firm" access to 450 megawatts of state-wide transmission, no different than a retail customer. This gives us access to enough power to satisfy the maximum amount GRU needs during peak periods. The interconnection should be completed by 2022.
Why is GRU asking for an NSA obligating the utility for 30 years?
GRU could either pay $200 million to construct the interconnection and be obligated to pay $9 million every year to access the full benefits or FPL could bear the costs to construct the interconnection and GRU would be obligated for 30 years under the NSA. Either way, to fully benefit from the interconnection, GRU would need a 30-year NSA to protect its 30-year (or more) asset, the interconnection. Because the interconnection is so important to FPL, they are bearing the $200 million cost while GRU gives up nothing.
Why wasn’t a competitive bidding process required for the NSA?
Only two utilities can provide full transmission access to GRU, Duke and FPL. Both utilities offer NSAs based on non-negotiable Federal Energy Regulatory Commission-regulated tariffs at approximately $12 million for Duke and $9 million for FPL. Connecting to Duke’s transmission with full access was estimated at approximately $400 million several years ago, plus GRU would have to pay for the construction.
FPL, on the other hand, will pay whatever cost it incurs to provide a tie line that provides GRU full access and will be able to complete it in 2022. Duke has no such plans, and its tariff rates are higher. Due to the nature of this arrangement with FPL, it is proper for GRU to "sole source" the transmission access.
Does the NSA save GRU money?
GRU has identified several ways in which the utility would save money by entering into this agreement. 1) The interconnection FPL is constructing for free would cost GRU about $200 million to build; 2) Without this agreement, GRU is facing up to $1.95 billion in capital expenditures in order to meet the city's renewable energy goals; 3) By buying market-priced power through the grid, GRU could save up to $14 million a year in fuel costs; 4) By retiring or mothballing aging fossil fuel plants, GRU could save up to $8 million a year in operations and maintenance costs.
Why is GRU asking for quick approval of such an important agreement?
The approval period may seem quick, but research has been ongoing for years, as the general manager and his staff have met with numerous parties to evaluate expanding GRU’s input transmission capacity. FPL actually approached GRU about building a new interconnection more than a year ago, but the terms of the agreement were unacceptable to us. With FPL’s recent purchase of Gulf Power and a more urgent need to connect its transmission in Central Florida to its transmission in the Panhandle, GRU was able to negotiate a more favorable deal.
What if language in the NSA places GRU in a bad spot, similar to the biomass power purchase agreement?
The NSA is a fully transparent agreement available for all to review, and its term is an industry standard used to recover costs. The rates charged are governed by the Federal Energy Regulatory Commission. The biomass deal was unique to the industry, whereas, FPL has several network customers across the state who benefit from the utility's economies of scale.
What if GRU doesn’t see the savings it estimates?
The savings are the difference between what it costs GRU to generate its own power and FPL’s anticipated price of wholesale power generation. The inherent risk in recognizing these savings would be if GRU’s costs fall below those of FPL’s prices, which is highly unlikely.
When would customers see any impact from this plan?
Since the interconnection won’t be constructed until 2022, changes are still years away. However, the projection of reduced costs and lower capital expenditures are positive signs to rating agencies and will bolster GRU's ratings, which will place downward pressure on rates. This is the beginning of long-term change, not overnight change.
Will the NSA slow GRU’s ability to reach its renewable goal?
The Gainesville City Commission established a goal of 100 percent renewable energy by 2045. The NSA actually paves a clear path to achieve this goal by giving GRU access to solar plants outside its current territory. FPL and others are adding more and more solar to their generating portfolios, and GRU would be able to take advantage of this generation rather than build its own solar plants. If GRU chose to build its own plant, the NSA would give us access to build anywhere in FPL's vast territory rather than in our comparatively tiny territory.
Won’t GRU be devalued by giving up generation assets?
Using the market to our advantage will increase GRU’s value to the city. GRU has taken on a lot of debt over the years, which is considered a liability to the credit agencies who determine our interest rates when borrowing money for large projects. We intend to use savings to pay down debt, which credit agencies will view this as a step in the right direction.
What happens to employees at plants that are retired or mothballed?
GRU's general manager has met or is meeting in person with employees who may be impacted by this agreement in 2022 or beyond. In addition to other creative solutions, GRU hopes to transition as many employees as possible into other positions in the utility, the city or potentially FPL, as they are amenable to working with displaced workers.
Won’t this action diminish GRU’s exemplary storm response?
GRU is and will continue to be dedicated to safety and reliability, including our outage response during storms or other events. This agreement adds generation transmission capability, it does not reduce GRU's crews of line workers and emergency personnel.
Is this the first step toward FPL buying the utility?
This NSA creates an economic partnership with FPL, which actually reduces FPL’s incentive to buy the utility. The city sees no advantage to selling its electric utility.