Review of 2008 Ten-Year Site Plans - Public Service Commission

As shown in Figure 11 below, between 1980 and 2000, moderate fuel prices, as well as a
balanced planning approach used by Florida’s utilities, resulted in relatively stable average electricity
prices for Florida’s ratepayers with real prices actually declining. Starting in 2001, natural gas prices
began to increase nationwide. The actual cost of natural gas for FPL more than doubled between
2002 and 2007, rising from approximately $4.06 per MMBtu in 2002 to $9.70 per MMBtu in 2007.
The increase in natural gas prices, coupled with Florida’s growing dependence on natural gas
generation, reversed the trend of stable electricity prices causing an increase in the average electric bill
in recent years, a trend illustrated in Figure 11 below.
$ per 1000 KWh
120
100
80
60
40
20
Figure 11. Average Residential Electric Bill: 1980 to Present
0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Nominal Real
Moreover, in 2005, hurricanes and tropical storms in the Gulf of Mexico caused short-term
spikes due to gas supply disruptions. The effects of higher, volatile gas prices have been dramatic on
customer bills. Such events illustrate the importance of a balanced fuel supply since fuel diversity can
serve as a risk mitigation strategy by providing a dampening effect on fuel price volatility caused by
daily market conditions.
Over the last 20 years, Florida’s utilities have turned to natural gas to satisfy the state’s
growing energy demand. The recent volatility of natural gas prices, however, has shown that the
overdependence on a single fuel can lead to an unacceptable risk of supply disruptions and rate
increases. Unfortunately, fuel diversity cannot be achieved overnight.
Proposed Generating Units
In addition to meeting projected load, the FRCC has a resource adequacy standard requiring a
15 percent reserve margin, above peak demand, which the utilities must meet. Since the summer of
2004, the three IOUs in the FRCC region (FPL, PEF, and TECO) have employed a 20 percent reserve
margin criteria. Figure 12 shows the summer peninsular reserve margin, which includes DSM, energy
efficiency, renewable generation, and traditional utility generation. Since the reserve margin exceeds
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