IN THE SUPREME COURTSTATE OF FLORIDA

FLORIDA POWER & LIGHT COMPANY )) CASE NO. 95,446

Appellant, ))

vs. ))

FLORIDA PUBLIC SERVICE COMMISSION, ))

Agency/Appellees. ))

___________________________________)

ANSWER BRIEF OF APPELLEEFLORIDA PUBLIC SERVICE COMMISSION

ROBERT D. VANDIVERGeneral CounselFlorida Bar No. 344052

RICHARD C. BELLAKAssociate General CounselFlorida Bar No. 341851

FLORIDA PUBLIC SERVICE COMMISSION2540 Shumard Oak Blvd.Tallahassee, FL 32399-0850850-413-6092

ii

TABLE OF CONTENTS

PAGE NO.

TABLE OF CITATIONS . . . . . . . . . . . . . . . . . . . ii

SYMBOLS AND DESIGNATIONS OF THE PARTIES . . . . . . . . . iv

STATEMENT OF THE CASE AND FACTS . . . . . . . . . . . . . 1

SUMMARY OF THE ARGUMENT . . . . . . . . . . . . . . . . . 9

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . 11

I. FLORIDA’S REGULATION OF UTILITIES INCLUDES BOTH THEREGULATION OF RETAIL UTILITY SERVICE BASED ON NATURALMONOPOLY THEORY AND THE CO-REGULATION WITH THE FEDERAL ENERGY REGULATORY COMMISSION (FERC) OF WHOLESALE POWER . . . . . . . . . . . . . . . . . . 11

A. This Court Has Jurisdiction . . . . . . . . . . . . 11

B. FPL’s Analysis of Commission Regulation Is Inaccurate and Incomplete . . . . . . . . . . . . . . . . . . . 15

II. DUKE MADE THE REQUIRED ALLEGATIONS APPLICABLE TO ITSPETITION AND OFFERED AMPLY SUFFICIENT EVIDENCE OF NEED . . . . . . . . . . . . . . . . . . . . . . . . 31

A. Duke Made the Required Allegations Applicable to ItsPetition . . . . . . . . . . . . . . . . . . . . . . 31

B. The PSC’s Determination of Need Is Supported by Competent Substantial Evidence and Is Not ClearlyErroneous . . . . . . . . . . . . . . . . . . . . . 36

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . 44

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . 45

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . 47

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TABLE OF CITATIONS

PAGE NO.

CASES

Bricker v. Deason, 655 So. 2d 1110 (Fla. 1995) . . . . . 8,36

California Retail Liquor Dealers Ass’n v. Midcal Aluminum,Inc., 445 US 97 (1980) . . . . . . . . . . . . . . . . . 17

Florida Cable Television v. Deason,635 So. 2d 14 (Fla. 1994) . . . . . . . . . . . . . . . . 9

Gulf Coast Electric Cooperative v. Johnson,727 So. 2d 259 (Fla. 1999) . . . . . . . . . . . . . . . 7

Gulf Power Company v. Florida Public Service Commission,453 So. 2d 799 (Fla. 1984) . . . . . . . . . . . . . . . 37

Nassau Power Corp. v. Beard,601 So. 2d 1175 (Fla. 1992) . . . . . . . . . . . . . . . 26

Nassau Power Corp. v. Deason,641 So. 2d 396 (Fla. 1994) . . . . . . . . . . . . . . . 25,26

Northern Pacific Railway Co. v. U.S.,356 US 1 (1958) . . . . . . . . . . . . . . . . . . . . . 16,42

Panda-Kathleen, L.P. v. Clark,701 So. 2d 322 (Fla. 1997) . . . . . . . . . . . . . . . 11

FLORIDA PUBLIC SERVICE COMMISSION ORDERS

Order No. PSC-92-1210-FOF-EQ . . . . . . . . . . . . . . 26

FLORIDA STATUTES

Chapter 361 . . . . . . . . . . . . . . . . . . . . . . . 8,28

Chapter 366 . . . . . . . . . . . . . . . . . . . . . . . 14,21

Chapter 403 . . . . . . . . . . . . . . . . . . . . . . . 8

Section 350.128 . . . . . . . . . . . . . . . . . . . . . 12

Section 366.02(1) . . . . . . . . . . . . . . . . . . . . 17

iiiiii

Section 366.03 . . . . . . . . . . . . . . . . . . . . . 17

Section 366.041(3) . . . . . . . . . . . . . . . . . . . 17

Section 366.05(1) . . . . . . . . . . . . . . . . . . . . 17

Section 366.10 . . . . . . . . . . . . . . . . . . . . . 12

Section 366.11 . . . . . . . . . . . . . . . . . . . . . Passim

Section 366.051 . . . . . . . . . . . . . . . . . . . . . Passim

Sections 366.80-366.86 . . . . . . . . . . . . . . . . . Passim

Section 366.82(1) . . . . . . . . . . . . . . . . . . . . 27,28

Section 366.83 . . . . . . . . . . . . . . . . . . . . . Passim

Section 403.519 . . . . . . . . . . . . . . . . . . . . . Passim

Section 542.19 . . . . . . . . . . . . . . . . . . . . . 15

FLORIDA ADMINISTRATIVE CODE

Rule 25-6.035(2) . . . . . . . . . . . . . . . . . . . . 38

Rule 25-22.081(1) . . . . . . . . . . . . . . . . . . . . 31,32

Rule 25-22.081(3) . . . . . . . . . . . . . . . . . . . . 34

Rule 25-22.081(5) . . . . . . . . . . . . . . . . . . . . 35

Rule 25-22.082 . . . . . . . . . . . . . . . . . . . . . 35

OTHER AUTHORITIES

Article V, Section 3(b)(2) of the Florida Constitution . 12,14

Fla. R. App. P. 9.030(a)(1)(B)(ii) . . . . . . . . . . . 12

16 U.S.C. § 2601-45 (1997) . . . . . . . . . . . . . . . 18

106 Stat. 2776 (1992) - 16 U.S.C.A. §§ 796 (22)-(25),824 (I)-(e) (West 1994) . . . . . . . . . . . . . . . . . 18

iviv

SYMBOLS AND DESIGNATIONS OF THE PARTIES

Appellee, Florida Public Service Commission is referred to

as the Commission. Appellee, Duke Energy New Smyrna Beach Power

Company Ltd., L.L.P. is referred to as Duke, Duke New Smyrna or

Duke EWG. The Utilities Commission, City of New Smyrna Beach,

Florida is referred to as the City. Appellant, Florida Power and

Light Corporation is referred to as FPL.

References to the transcript of the hearing are designated

Tr.___. References to the Record are designated R.____.

References to the oral argument on January 28, 1999 are

designated O.A. Tr.____.

Acronyms:

Epact - Energy Policy Act of 1992 (Public Law 102-486, 106Sdat. 2776, 2905-21 (1992))

EWG - Exempt Wholesale Generator

FEECA - Florida Energy Efficiency and Conservation Act

FERC - Federal Energy Regulatory Commission

FRCC - Florida Reliability Coordinating Council

MW - Megawatt

MWH - Megawatt Hours

PPSA - Florida Electrical Power Plant Siting Act

PURPA - Public Utility Regulatory Policies Act of 1978 16 U.S.C. §§ 2601-2645

QF - Qualifying Facility

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STATEMENT OF THE CASE AND FACTS

Appellee Florida Public Service Commission (Commission)

rejects appellant Florida Power and Light Company’s (FPL)

Introduction and Statement of the Case and of the Facts, appearing

at p. 1-20 of the Initial Brief, as inaccurate, misleading and

argumentative. The Commission will respond to FPL’s Introduction

as argument. The Commission’s Statement of the Case and Facts is

as follows:

In the challenged Order, the Commission granted a

determination of need to joint petitioners Utilities Commission,

City of New Smyrna Beach, Florida (City) and Duke Energy New Smyrna

Beach Power Company, Ltd., L.L.P. (Duke). App. 1. In so doing,

the Commission found that, on the basis of the extensive record and

applying the facts therein to the statutory criteria in Section

403.519, Florida Statutes, petitioners had demonstrated that their

project was needed. App. 1, p. 35-54.

The Commission heard testimony from the Director of the City’s

Utilities Commission as to the City’s need for the project. The

City owns and operates power plants with a total capacity of 18.8

MW. (Tr. 389) However, the City’s capacity needs are for 92 MW

currently and expected to grow to 97 MW by 2003. (Tr. 392)

The Commission heard testimony from the General Manager of the

Florida Municipal Power Agency (FMPA) as to the need of its All

Requirements Project (ARP) for an additional 80-100 MW of power and

22

the prospective role of the Duke/City project in meeting that need.

(Tr. 534-5; 540-1) The witness specifically expressed his support

for a vigorous wholesale market, noting that,

anything that puts a limitation on the potentialsuppliers to our wholesale power needs is not in the bestinterest of FMPA.

(Tr. 537)

A question from Commissioner Deason and the answer made in

response demonstrate the timely importance of that point:

Commissioner Deason: Mr. L’Engle, you indicated that the[Peninsular Florida] reserve margins have declined fromwhat they historically had been, and I think youindicated that a reason ... is that there is the concernover the possibility of competition even at the retaillevel; is that correct?

Witness L’Engle: I think that is one of the drivingforces.

Commissioner Deason: O.K. And with that threat,utilities are trying to reduce costs, and obviously thehigher [the] reserve margin, the higher [the] overallcost; is that also correct?

Witness L’Engle: Yes, sir. [e.s.]

(Tr. 559)

Testimony by the General Manager for Florida and Southeast of

Duke’s development affiliate expanded on that point:

With its growing population, growing electric demand andpeninsular geography, Florida needs additional generatingcapacity in the peninsula, and will benefit significantlyfrom additional efficient cost-effective gas-fired power.This need is particularly evidenced by the shortages andinterruptions (of interruptible and load managementcustomers) during this summer’s hot spell. [e.s.]

(Tr. 581; 584-85)

33

The testimony presented also addressed the nature of the

wholesale electric market in Florida:

Q. And you’re aware, aren’t you, that as we sit heretoday, that there is some competition in the wholesalemarket in the State of Florida?

A. A wholesale market exists today in Florida.

Q. And that some of that wholesale market is made up ofthe state’s investor-owned utilities who are sellingtheir excess capacity; isn’t that correct?

A. That is correct.

. . .

Q. And isn’t it your belief that if you had moreplayers and more competition in the wholesale market thatthat would drive the price downward?

A. Absolutely. More players in a wholesale market willhave a downward pressure on pricing. [e.s.]

(Tr. 596-7)

The Commission also heard testimony from the President of

Altos Management Partners, Inc., a consulting firm whose services

include short and long run models of North American gas, North

American electricity, world and North American oil markets, a World

Gas Trade program, a Western European gas program, a Southern Cone

of South America Gas Model, a Southeast Australia Gas Model, an

Electric Asset Operational Model, an asset valuation model, and a

risk management and probabilistic analysis model. (Tr. 694) The

consultant testified that there was a need for the project’s 500 MW

of electric generation capacity and energy in the Peninsular

Florida market, that the need was immediate, that the natural gas

44

combined cycle technology of the City/Duke project was the most

cost effective option to provide it, that prices in the Florida

market would be reduced by virtue of City/Duke’s entry and that the

energy would be sold in state. (Tr. 697)

The consultant noted that his model predicted

few places in North America where the need for new gas[combined-cycle] generation is more acute and moreimmediate than in Peninsular Florida. Florida is growingand Florida electricity is expensive. New capacity suchas the [City/Duke] project is needed to meet inevitablegrowth in the State, ameliorate the current and futuremarket price, and provide economic benefits via reducedmarket prices to the State of Florida.

(Tr. 706; 713-714; 729-30).

The Commission also heard the testimony of a former Chairman

of the Federal Energy Regulatory Commission [FERC] address the

policy issues which this case presented. That testimony

characterized the “merchant plant” aspect of the Project as

consistent with,

economic efficiency, with federal energy policy, and withthe fundamental purposes of utility regulation, as wellas with the current structure of the electric utilityindustry in the United States.

. . .

For the past twenty years, the vast majority of newgeneration in this country has been provided by non-traditional competitive sources. Indeed, passage of thePublic Utility Regulatory Policies Act in 1978effectively declared that electric generation was nolonger a natural monopoly.

. . .

Pursuant to the Energy Policy Act of 1992, competition inwholesale generation is one of the express goals of

1 Both transmission and distribution retain thecharacteristics of natural monopolies. (Tr. 882-3)

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national energy policy, and it is thus effectively thelaw of the land. [e.s.]

(Tr. 967; 971)

The witness noted that no special accommodations were required

to allow FERC-regulated public utilities operating as merchant

plants to operate in Florida. Wholesale competition in power

supply markets can exist with or without retail competition and is,

therefore, unrelated to the issues of deregulation, restructuring

or retail competition:

Indeed, there is already some wholesale competition inFlorida among vertically integrated public utilities andmunicipal utilities, wholesale public utilities, and QFs[“Qualified Facilities” established pursuant to PURPA]that have extra capacity to sell at various times.

. . . In summary, merchant plants can and do exist incurrent wholesale markets, completely independent of theexistence or non-existence of retail competition.

(Tr. 972-4)

The witness indicated that, at least since the passage of

PURPA in 1978, Congress and the FERC have favored competition in

the supply of bulk electricity. That objective was furthered by

the Energy Policy Act of 1992, which created a new regulatory

category of suppliers, “Exempt Wholesale Generators” (EWG). In

Order No. 888, FERC also implemented Congress’ policy of assuring

access of all wholesale suppliers to transmission facilities.1 In

short, federal policy has, for the past 20 years, favored and

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encouraged competition in the wholesale generation and supply of

electricity in the United States. Moreover, limiting or

restricting the participation of merchant plants in the Florida

wholesale market, e.g., by requiring merchant plant developers to

enter into contracts with existing retail utilities as a condition

of building a power plant in Florida, would be inconsistent with

and contrary to federal energy policy, as would excluding merchant

plants completely. (Tr. 974-6)

The witness also characterized the argument that the

“obligation to serve” retail customers vests control over access to

the wholesale market in existing retail - serving utilities as a

red herring:

Utilities gave up this argument when they started buyingand selling power between and among themselves: it makesno difference whether the seller of power is anotherutility that serves at retail and wholesale or a utilitythat sells at wholesale only. Consider, for example, theTennessee Valley Authority, the Bonneville PowerAdministration, the Southeast Power Administration,generation and transmission cooperatives, wholesale jointpower projects, and other entities that provide bulkpower to retail-serving utilities in the presentwholesale power markets. FERC-regulated public utilitiesoperating merchant plants are fundamentally andfunctionally no different than these other, existingentities that provide bulk wholesale power to retail-serving utilities.

(Tr. 985)

. . . the purchasing utility still has the obligation toserve. Not necessarily the obligation to generate.

(Tr. 998)

77

Finally, in support of the case demonstrating the ability of

the project to meet the statutory need requirements of Section

403.519, witnesses were presented who spoke to reliability issues

(Tr. 1097-8; 1111-14), the technological efficiency of the project

and the resulting lower environmental impacts. (Tr. 1056-7; 1138-

9).

STANDARD OF REVIEW

Commission orders come to this Court clothed with the

statutory assumption that they have been made within the

Commission’s jurisdiction and powers, and that they are reasonable

and just and such as ought to have been made. Moreover, an

agency’s interpretation of a statute it is charged with enforcing

is entitled to great deference. The party challenging an order of

the Commission bears the burden of overcoming those presumptions by

showing a departure from the essential requirements of law. Gulf

Coast Electric Cooperative v. Johnson, 727 So. 2d 259 (Fla. 1999).

This Court, in reviewing a Commission order will not reweigh

or re-evaluate the evidence presented to the Commission, but should

only examine the record to determine whether the order complained

of complies with essential requirements of law and whether the

agency had available competent, substantial evidence to support its

findings. Bricker v. Deason, 655 So. 2d 1110, 1111 (Fla. 1995).

Response to FPL’s Preliminary Argument (Initial Brief, p. 1).

88

FPL’s assertions in its Introduction, Initial Brief, p. 1, are

unsupported, contrary to the record and inaccurate. Duke Energy

New Smyrna Beach Power Company Ltd., L.L.P.’s wholesale sales are

authorized by a FERC (Federal Energy Regulatory Commission) tariff

which, while a pro-competitive form of regulation, is “regulation”.

(R. 4-6; 592). Moreover, the siting of Duke’s joint electrical

power supply project with the Utilities Commission, City of New

Smyrna Beach (City) is subject to this Commission’s regulatory

purview pursuant to Section 403.519 specifically and Chapters 403

and 361 as well as other provisions of the Florida Statutes.

Therefore, it would be accurate to describe Duke’s wholesale

activities in Florida as co-regulated by FERC and this Commission,

as are the wholesale activities of FPL pursuant to its FERC

wholesale tariff. See, Section 366.11. The process by which need

determinations are granted or denied is regulatory in effect, not

“free-market”.

The Legislature has authorized the siting of plants that meet

the requirements of the statute, not some narrower category self-

servingly announced by FPL with no citation of authority. Indeed,

in Section 366.83, the Legislature precluded any interpretation of,

inter alia, Section 403.519 like FPL’s which would preempt federal

law. In this case, Section 366.83 embodies the Legislative policy

that such provisions as those in the Energy Policy Act of 1992

which encourage EWGs like Duke to seek participation in Florida’s

wholesale markets are not to be preempted. While merchant plants

99

cannot participate as of right, the Commission can review an EWG

application on the merits and approve such participation by

granting a need determination when the statutory criteria are met

and siting the plant would be consistent with the public interest.

The Commission could also deny such participation when appropriate.

The Commission’s interpretation of a statute it is charged

with enforcing is entitled to great deference and will be approved

by the Court unless it is clearly erroneous. Florida Cable

Television v. Deason, 635 So. 2d 14, 15 (Fla. 1994).

FPL’s unsupported assertions neither identify errors in the

Commission’s statutory interpretation nor provide any basis to

challenge the Court’s jurisdiction over this appeal.

SUMMARY OF ARGUMENT

This appeal concerns the Commission’s initial regulatory

response to the federal Energy Policy Act of 1992 and a pro-

competitive regulatory initiative by Congress in the form of Exempt

Wholesale Generators (EWGs). As FPL itself admits, federal

regulation of wholesale power has been increasingly pro-competitive

for decades. Moreover, as indicated by Section 366.051, the

Commission, in accord with the directives of the Florida

Legislature, has been implementing those pro-competitive federal

regulatory initiatives in Florida’s wholesale markets for decades.

Thus, pro-competitive wholesale regulation exists cheek-by-jowl

with the Commission’s natural-monopoly-based regulation of retail

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power. This regulatory mixed metaphor, again, has existed for

decades.

Regulation can be either anticompetitive or pro-competitive.

In evaluating the initial EWG applicant, the Commission reviewed

the application on the merits. The determination of need and

consistency with the statutory requirements and the public interest

is as well supported as an exhaustive process could possibly

document.

FPL’s undefined rhetoric concerning monopolies and

deregulation is not relevant to any jurisdictional or merits issue

in this case. FPL simply never untangles concepts relevant to

retail regulation from those which concern wholesale regulation; or

the pro-competitive regulation at issue in this case from dire

warnings about “free-market” deregulation, which is not at issue

here.

What is clear is that FPL and co-appellants would like to

utilize some version of formulaic regulatory-sounding incantation

to deprive Florida’s ratepayers of the benefits of EWGs which the

record exhaustively documents. FPL seeks that result in its own

parochial interest, not the public interest. Those efforts do not

identify any error in the Commission’s Order. The Commission

correctly rejected FPL’s attempts to preempt the reach of the

federal EWG initiative from Florida’s wholesale markets and, in

doing so, carried out the Legislature’s identical policy as stated

in Section 366.83:

1111

nor shall ss. 366.80-366.86 or 403.519 preempt federallaw. . . .

ARGUMENT

I. FLORIDA’S REGULATION OF UTILITIES INCLUDES BOTH THE REGULATIONOF RETAIL UTILITY SERVICE BASED ON NATURAL MONOPOLY THEORY ANDTHE CO-REGULATION WITH THE FEDERAL ENERGY REGULATORYCOMMISSION (FERC) OF WHOLESALE POWER.

A. This Court Has Jurisdiction.

FPL’s argumentation fails to account for the Commission’s co-

regulation with FERC of wholesale power in Florida. See, e.g.,

366.11 and 366.051. Likewise, FPL incorrectly fails to account for

this Court’s exercise of jurisdiction in cases where Commission

actions concerning wholesale power are claimed to potentially

affect the rates and services of utilities providing electric

service. See, e.g. Panda-Kathleen, L.P. v. Clark, 701 So. 2d 322

(Fla. 1997). (Court had jurisdiction over appeal concerning

Commission interpretation of PURPA provision governing cogeneration

of wholesale power).

This case involves the rates and services of Duke, a tariffed

electric utility providing wholesale electric service, the

Utilities Commission of the City of New Smyrna Beach (City), a

municipal electric utility providing retail electric service and,

inter alia, appellant FPL, a public utility providing retail

electric service and an electric utility providing wholesale

service. The Court has jurisdiction over this case based on

Article V, Section 3(b)(2) of the Florida Constitution. See also,

2 The Commission incorporates by reference, p. 1-8, l.2 ofits Memorandum in Opposition to Florida Power and Light Company’sMotion to Transfer Appeals to the First District Court ofAppeals, filed June 22, 1999.

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Sections 350.128 and 366.10, Florida Statutes (1997); Fla. R. App.

P. 9.030(a)(1)(B)(ii).

As is often the case, FPL’s argument is based on appellant’s

self-amended version of the statutes, not the statutes themselves.

Thus, FPL adds the word “directly”, even though the jurisdictional

statutes do not include the word. According to FPL:

The challenged order . . . does not relate directly torates or services of utilities providing electric . . .service [e.s.]

Initial Brief, p. 22-3.

Of course, in this case, the Order does relate “directly”

because Duke is, itself, a utility providing such service, as are

the City and FPL, and Duke’s rates to the City are a relevant

issue. Even were that not the case, FPL, rather than the

Legislature, supplied the word “directly.” That requirement is,

however, not FPL’s to impose. Section 350.128 states:

(1) as authorized by s. 3(b)(2), Art. V of the StateConstitution, the Supreme Court shall, upon petition,review any action of the Commission relating to rates orservice of utilities providing electric . . . service.

Based thereon, this Court has jurisdiction.2

FPL’s further claims contesting the Court’s jurisdiction

illustrate FPL’s misunderstanding of the Commission’s regulatory

responsibilities. FPL states:

1313

The order does not set, establish or affect the ratesDuke may charge for wholesale sales of electricity.Duke’s sales are not subject to PSC determination at all.The Federal Energy Regulatory Commission, not the PSC,has jurisdiction over Duke’s sales.

. . .

The Order does not regulate Duke’s provisions of service.Duke has no service obligation. [e.s.]

Initial Brief, p. 23.

This argument is misconceived. The Commission does not tariff

Duke’s wholesale rates, FERC does. But the Commission does not

tariff FPL’s wholesale rates either. FERC does. Moreover, if

Duke’s plant is not sited, it cannot deliver any wholesale service

and the Commission is responsible for that aspect of wholesale

regulatory oversight shared with FERC. Similarly, the Commission’s

siting decisions with respect to FPL’s plant proposals will

determine, inter alia, whether any wholesale service will be

available from that plant as well. Indeed, though Duke’s wholesale

sales are not the subject of an “obligation to serve,” FPL’s

wholesale sales are not subject to that obligation either. If the

Commission were not participating in siting a FERC-tariffed

wholesale electric utility each time it reviews FPL’s need

determinations, FPL would not be able to sell wholesale power from

plant so sited. FPL’s theory is simply without any foundation.

Since FPL’s argument lacks any legal merit, FPL turns to scare

tactics based on “the experiences of those states that have adopted

1414

deregulation.” However, that experience is not relevant since

Florida has not deregulated:

Merchant plant applicants do not have a right to buildmerchant plants in Florida. Each applicant mustdemonstrate [through the siting act regulatory process]that its project conveys a benefit to Florida, given theexistence of the prior power plant additions.

App. 1, p. 44.

FPL’s assumption that entry has been “deregulated” is baseless.

Though FPL claims to know what the framers of Article V,

Section 3(b)(2) “never could have dreamed,” the Commission believes

that the Constitutional provisions and jurisdictional statutes

themselves are a far better guide to legislative intent than FPL’s

self-amended versions. Moreover, FPL itself appears to be dreaming

about an unreal regulatory world in which retail power is regulated

by the Commission, but wholesale power is only subject to FERC

tariffs. That view is incorrect and would not only create an

unnecessary regulatory gap, but render the statutes listed in

Section 366.11 nugatory. Those statutes indicate that the

Commission co-regulates wholesale power with FERC and that, with

the exception of some specific natural monopoly provisions within

Chapter 366 not suited thereto, all of the statutes administered by

the Commission, including Section 403.519, are applicable to the

Commission’s regulation of both retail and wholesale utility

service. FPL’s jurisdictional attack is baseless and should be

rejected.

1515

B. FPL’s Analysis of Commission Regulation Is Inaccurate andIncomplete.

1. The Regulatory Mixed Metaphor.

At p. 26-31 of the Initial Brief, FPL provides an essay on the

Commission’s regulation of retail service. It should not surprise

the Court that this material is largely irrelevant to this case,

which concerns wholesale, not retail, service.

The essay makes a point of repeating as often as possible, the

phrase “monopoly utility.” However, regardless of the number of

times repeated, it represents an inaccurate and incomplete analysis

as relevant to this case.

The word “monopoly” is legally intensive. It can imply

anything along a broad continuum from highly proper conduct at one

end of the continuum to highly improper conduct at the other. See,

e.g., Section 542.19, Florida Statutes. Therefore, a more careful

analysis is required than tossing the phrase around as rhetoric.

The first step in the analysis is to point out that, since

1890, when the Sherman Act was enacted, the policy of this country

-- in the absence of an exceptional circumstance -- has been

competition, not monopoly:

The Sherman Act was designed to be a comprehensivecharter of economic liberty aimed at preserving free andunfettered competition as the rule of trade. It rests onthe premise that the unrestrained interaction ofcompetitive forces will yield the best allocation of oureconomic resources, the lowest prices, the highestquality and the greatest material progress, while at thesame time providing an environment conducive to thepreservation of our democratic political and social

1616

institutions. But even were that premise open toquestion, the policy unequivocally laid down by the Actis competition.

Northern Pacific Railway Co. v. U.S., 356 US 1, 7 (1958).

Petitioners’ economic consultant and former FERC chairman

witnesses both addressed aspects of the evolution of the “natural

monopoly” exception in the area of utilities to the policy of

competition. As noted by the economic consultant,

Electricity, the way it has been set up, and the realreason, as I understand it, regulation started wasbecause when we first had an electric business, it was anatural monopoly.

. . .

It was probably a natural monopoly, most people think, ingeneration. When we started this business, every plantwas field fabricated. Every plant was a special islandunto itself.

. . .

T[ransmission] and D[istribution] is a natural monopoly,most people think. Most people think you don’t want tohave four different lines into every house in Florida,because that would be senseless duplication of a naturalmonopoly facility.

(Tr. 882-3)

However, as a legal matter, what “most people think” would not

have repealed either the Sherman Act or the Florida Antitrust Act,

which, inter alia, incorporates federal Sherman Act precedents.

Even if the Commission’s regulation of the generation, transmission

and distribution aspects of electric power embodied the natural

monopoly approach, the replacement of competition with regulated

monopoly would have to be “clearly articulated and affirmatively

1717

expressed as state policy” to be immune from antitrust scrutiny

under the “state action” doctrine. California Retail Liquor

Dealers Ass’n v. Midcal Aluminum, Inc., 445 US 97 (1980). As to

the regulation of retail services, the statutes do in fact indicate

that the Commission’s regulation embodies the natural monopoly

principle.

Section 366.02(1) defines a “Public Utility” as “every person,

corporation, partnership, association, or other legal entity and

their lessees, trustees or receivers supplying electricity . . . to

or for the public within this state.” Statutes governing the supply

of electricity to the public, i.e., retail service,

characteristically do replace competition with anti-competitive

regulation. For example, Section 366.041(3) provides:

The term “public utility” as used herein means allpersons or corporations which the Commission has theauthority, power, and duty to regulate for the purpose offixing rates and charges for services rendered . . .[e.s.]

Such rate fixing is fundamentally at odds with competition. See

also, Section 366.05(1). The obligation to serve, codified at

Section 366.03, is also specific to public utilities, i.e. retail

service.

Therefore, a characterization of the Commission’s regulation

of Section 366.02(1) Public Utilities’ retail service as “natural

monopoly” regulation would be statute-based, not merely rhetoric or

an assumption. Read together, such statutes clearly articulate and

affirmatively express a state policy which is anti-competitive;

1818

i.e., competition is replaced by natural monopoly regulation. That

has been, and is today, the status of that part of the Commission’s

regulatory activities.

At p. 31 to 34, ¶ 1 of the Initial Brief, FPL sets out an

accurate account of the legal and policy evolution of federal

regulation of wholesale power away from the assumption that power

generation is a natural monopoly and toward a pro-competitive model

for power generation. That evolution does not question the natural

monopoly attributes of transmission and distribution. For example

FPL notes that

In 1978, Congress introduced some competition in thepower generation market through PURPA, codified as 16U.S.C. § 2601-45 (1997), which encouraged powerproduction through small and technologically progressivepower producers.

Initial Brief, p. 32-3.

FPL further notes that

Congress then enacted the Energy Policy Act of 1992(“EPACT”), 106 Stat. 2776 (1992) (codified in relevantpart as 16 U.S.C.A. §§ 796 (22)-(25), 824 (I)-(e) (West1994), which exempted a class of companies from PUHCA’sregulatory requirements (the companies are referred to asexempt wholesale generators or EWGs) and requiredutilities to provide transmission services.

Initial Brief, at p. 33.

Finally, FPL notes that FERC removed the last barrier to

carrying out its policy of increasing competition in the power

generation industry when it adopted Order No. 888:

The order provided a means by which a power generatorcould distribute its power over utility transmissionlines at non-discriminatory prices. After adoption of

1919

Order No. 888, an exempt wholesale generator economicallycould build a power plant and sell the power. [e.s.]

Initial Brief, at p. 34.

Returning briefly to petitioners’ economic consultant, that

witness explained the reason why the federal regulatory policy

toward power generation changed to a pro-competitive model:

When we started this business, every plant was fieldfabricated. Every plant was a special island untoitself. We’ve come a ways since then, Commissioners.Now plants are bought off a train car. Plants havebecome commoditized.

. . .

T[ransmission] and D[istribution] is a natural monopoly,most people think. . . . But when you look upstream atfundamental supply or fundamental generation, it’s verydebatable whether that’s true. . . . The thought is thatthe cut between the natural monopoly and the competitivesector of the market is the generation bus bar. . . .What a lot of people, myself included, think is that thegeneration piece of it is no longer a natural monopoly.

(Tr. P. 883)

This evolution is demonstrated by the Florida Statutes. In

Section 366.051, the Commission has, over two decades, implemented

PURPA, which FPL admits, “introduced some competition into the

power generation market.” Therefore, for two decades, Commission

regulation has embodied a mixed metaphor. A regime of natural

monopoly regulation of retail service has co-existed with the

Commission’s implementation of FERC’s pro-competitive wholesale

policies in power generation.

Moreover, the statutes demonstrate other aspects of that mixed

regulatory metaphor. Section 366.11 exempts certain wholesale

2020

activities of public utilities from the statutes previously

mentioned which are unavoidably anti-competitive. The result is a

much more flexible regulatory oversight consistent with allowing

for competitive wholesale markets, as verified by co-appellants’

testimony at the hearing:

Q. Does Florida Power Corporation plan for competitionin the wholesale market?

A. Yes. Yes. Florida Power does assume that competitionexists in the wholesale market.

(Tr. 1325)

Another point of interest is that the Commission does not

apply natural monopoly rate fixing statutes to even those wholesale

sales of public utilities like FPL not specifically exempt in

366.11 because those rates are set by FERC tariffs, as acknowledged

by FPL on p. 31, n. 35 of the Initial Brief.

Moreover, the mixed regulatory metaphor which already exists

in Florida has existed for decades; i.e., the mixture of natural

monopoly retail regulation and increasingly pro-competitive

wholesale co-regulation with FERC, is not problematical and does

not become more so because of EWGs. As noted at the hearing by the

former Chairman of FERC,

Indeed, there is already some wholesale competition inFlorida among vertically integrated public utilities andmunicipal utilities, wholesale [public] utilities and QFs[”Qualified Facilities” established pursuant to PURPA]that have extra capacity to sell at various times.

. . . in summary, merchant plants can and do exist incurrent wholesale markets, completely independent of theexistence or non-existence of retail competition. [e.s.]

2121

(Tr. 972-4)

In short, FPL’s rhetoric concerning “monopoly utilities” is a

totally misleading and inaccurate description. Commission

regulation is a mixed regulatory metaphor combining natural

monopoly retail regulation with pro-competitive wholesale co-

regulation with FERC, and has been for decades. Some of the

statutes are inflexibly anti-competitive and are reserved for

application as such. Other statutes, such as those from Chapter

366 listed in Section 366.11, do double duty and are flexibly

administered as appropriate in the circumstances. Not only is

there no reason why that would not also apply to Section 403.519,

there is an explicit warning from the Legislature not to adopt the

“narrow” construction of that particular statute insisted on by

FPL. As stated in Section 366.83,

. . . nor shall ss. 366.80 - 366.86 and 403.519 preemptfederal law . . .

The Commission’s Order finding that the Commission was not required

by anything in the Florida Statutes to dismiss Duke’s application

is in accord with that directive. FPL and co-appellants’ arguments

in support of dismissal, in contrast, would have had precisely the

preemptive effect against the EWG initiative in the Energy Policy

Act of 1992 that Section 366.83 forecloses. The same is true as to

the Commission’s application on the merits of the criteria in

Section 403.519. The record amply supports the Commission’s

findings. In marked contrast, FPL and co-appellants would

2222

interpret the criteria so as to eliminate any successful

application from an EWG, a preemptive interpretation inconsistent

with the Legislative directive in Section 366.83. Indeed, FPL has

not identified, in its account of the evolution of pro-competitive

wholesale policy, any evidence whatsoever of a clearly articulated

affirmatively expressed state policy to halt or even slow the

implementation in Florida of those federal policies concerning

wholesale generation. The Legislature’s rejection of

“deregulation” would not constitute such evidence because

deregulation speaks to the prospect of retail competition at some

point in the future, not the pro-competitive regulatory oversight

of wholesale markets which has been in place in Florida for

decades.

In FPL’s own description of the development of federal pro-

competitive wholesale policy, it is apparent that the creation of

EWGs and Order No. 888 fostering EWGs are changes that have

occurred at the federal regulatory level, not in Florida. In

reviewing Duke’s application for compliance with the statutory

criteria, the Commission has conducted business as usual. The fact

that EWGs have appeared pursuant to federal pro-competitive

initiatives in wholesale markets and that Florida has been

receptive, rather than hostile, is business as usual and has been

for twenty years.

It is FPL that seeks to have the Commission depart from

current and past policies by erecting protectionist wholesale trade

2323

barriers, not in the public interest, but in response to FPL’s

parochial concerns. Where EWGs would lower wholesale rates and

diffuse co-appellants’ wholesale market shares to the benefit of

all ratepayers, a trade barrier would keep wholesale rates high and

help preserve de jure the remnants of co-appellants’ pre-PURPA de

facto shared wholesale monopoly. Not only would such a result be

inimical to the public interest, it would lack the clear

articulation and affirmatively expressed statement of state policy

necessary to support antitrust immunity under Midcal, supra.

Moreover, it would facially violate the legislative command in

Section 366.83. The Commission correctly rejected the demand to

create such trade barriers in its Order and the Court should affirm

that Order.

This also negates any claim of FPL’s that legislation is

necessary to allow the Commission to site an EWG. As indicated, no

change has been necessary in Florida’s law or policy to do so.

However, a clearly articulated and affirmatively expressed

statement of state policy would be needed from the Legislature to

reverse Florida’s receptivity of the past two decades toward

federal pro-competitive initiatives in wholesale power generation.

Whether that reversal could be accomplished without preemption is

another issue, as is the issue of whether such a reversal is

warranted. In any event, and as a first step, the Legislature

would have to repeal Section 366.83 to head in the direction

2424

pointed to by FPL. That would require legislation, not the

Commission’s Order.

2. The Nassau Cases State the Law of Cogeneration andare Inapplicable to this case concerning EWGs.

According to FPL, Florida law is a “catch-22”. No power plant

can be sited in Florida, FPL states, unless the power it proposes

to produce is needed by a specific utility authorized to serve

retail customers. Since that is not the basis on which Duke

applied for a need determination, neither Duke nor any other EWG

could ever be sited. FPL cites this Court’s Nassau rulings as

authority. Moreover, FPL asserts that the cases should not be

distinguished on the basis that the Nassau cases concern

cogeneration and this case concerns EWGs.

Just as FPL’s briefing of the history of federal pro-

competitive initiatives in wholesale power generation together with

an absence of any indication of hostility in Florida’s policy

toward those initiatives helped to disprove FPL’s preceding

argument, FPL’s footnotes in this section of briefing help to

disprove its erroneous Nassau-based claims.

For example, at footnote 43, FPL notes that the Commission’s

statewide consideration of need as to qualified facilities, i.e.,

cogenerators, led to “power plants being built in geographic areas

where they were not needed by the utilities obligated to purchase

2525

their power.” [e.s.] That result could only happen as to

cogenerators, not EWGs. Cogenerators can demand that utilities

purchase their power pursuant to Section 366.051, but EWGs cannot

so demand. Obviously, there was a regulatory purpose to viewing

the applications of cogenerators from the need perspective of the

utility that would be forced to purchase the cogenerator’s power.

There is, however, no corresponding regulatory purpose whatsoever

to imposing that holding on viewing applications of EWGs. It would

be a naked restraint of trade to do so because the EWG application

would then have to be viewed, without a regulatory purpose

therefor, from the perspective of a non-existent specific

purchasing utility. The catch-22 would be a “requirement” that

could never be met by any EWG.

Moreover, the claim that the only reason the Commission

reviews the siting of plants is to ensure that “monopolies are not

engaging in construction of plants merely so they can seek a

regulatory return on their investment” is again belied by FPL’s own

history of the Siting Act set out at p. 28 through 31 of the

Initial Brief. Some of the purposes listed include consolidation

of the approval of most state agencies into a single license, the

national priority in the 1970's of conversion to non-petroleum-

based fuels, and environmental considerations. Indeed, FPL has to

keep repeating its “monopoly” mantra since the Legislature so

obviously had the other listed concerns in mind.

2626

The headnotes of this Court’s Nassau opinions make it

abundantly clear, as do FPL’s footnotes 43 and 44, that those cases

set out only the law relevant to cogeneration. There are three

headnotes in Nassau Power Corp. v. Deason, 641 So. 2d 396 (Fla

1994):

1. Cogenerator is entity that produces electricitythrough cogeneration . . . .

2. “Qualifying Facility” is small power producer . . ..

3. Non-utility electric cogenerator, that proposed tobuild natural gas-fired power plant that would bequalifying facility (QF) . . . .

The case concerns the law of cogenerators or small power producers

that, like cogenerators, want the Commission to order a utility to

execute a contract to purchase their power.

Nassau Power Corp. v. Beard, 601 So. 2d 1175 (Fla 1992),

contains two headnotes:

1. Public Service Commission’s prior practice ofpresuming need for cogenerators . . . .

2. Party must appeal order in controversy, notsubsequent order . . . .

This case concerns the law of cogenerators, and which order is

the proper subject of an appeal.

As the Commission noted in Order PSC-92-1210-FOF-EQ, the order

reviewed in Nassau Power Corporation v. Deason, supra,

It is . . . our intent that this Order be narrowlyconstrued and limited to proceedings wherein non-utilitygenerators seek determinations of need based on autility’s need. We explicitly reserve for the future [aquestion that “has not been presented”]. We do not

2727

believe the question [that “has not been presented”]should be decided in the abstract. [e.s.]

92 FPSC 10:647.

When the Court affirmed this Order in Nassau Power Corporation

v. Deason, it affirmed the order as “narrowly construed” and

“explicitly reserve[d]” by the Commission. Obviously, the 1994

Nassau Power Corporation v. Deason opinion and the underlying 1992

Order cannot now properly be made into a Procrustean bed to decide

“in the abstract” the proper regulatory treatment of EWGs when this

petition by the first EWG to apply for a need determination had

“not been presented” until 1998. In the Commission’s view, neither

the Commission nor the Court adjudicates questions that have “not

been presented.”

Finally, as made embarrassingly clear by FPL in ¶ 2 of p. 37

of the Initial Brief, the whole point of FPL’s attempt at applying

Nassau as a trade restraint to EWGs is to prevent “a merchant plant

from selling much, if any, of its power at market prices.” FPL

might have added that, unlike cogenerators who have a statutory

basis in Section 366.051 to force some utility that actually needs

the power to purchase it, EWGs have no basis to force anyone to

purchase their power. Therefore, inappositely extending the Nassau

holdings to EWGs would transfer the Commission’s acknowledged

“gatekeeper” functions in Section 403.519 to private companies who,

by declining to enter into any contracts with EWGs, could deprive

the ratepayers entirely of the benefits of FERC’s latest pro-

2828

competitive initiatives in wholesale power generation. The Court

should reject that untoward result as legally unsupported and

plainly inimical to the public interest.

3. FPL’s Analysis Facially Conflicts with Section366.83.

FPL argues that the definition of “utility” in Section

366.82(1) as “any person or entity of whatever form which provides

electricity . . . at retail to the public” is dispositive of the

restriction of Section 403.519 to retail-serving utilities, which

would exclude Duke’s wholesale-only plant. However, Section

403.519 no longer even includes the word “utility.” Duke’s

application was processed under the statutes as they currently

exist, not as they were worded before they were amended. Moreover,

as the Legislature instructed in Section 366.83,

nor shall ss. 366.80 - 366.86 and 403.519 preempt federallaw . . .

FPL’s theory that, notwithstanding the Commission’s decision,

FPL can use either Sections 366.82(1) or 403.519 to preempt the

reach into Florida’s wholesale markets of the pro-competitive

initiatives regarding EWGs in the Energy Policy Act of 1992 and

FERC Order No. 888 is in facial and fatal conflict with Section

366.83.

The Commission also notes that, with reference to the dormant

commerce clause issue discussed in the Commission Order at App. 1,

p. 29-30, but left unresolved, the Legislature in Section 366.83

2929

incorporated that principle as part of the regulatory law of

Florida with respect to the very statutes most at issue in this

case.

As to footnote 47 in the Initial Brief, the Commission

believes the argument therein is effectively responded to by the

Commission’s Order, App. 1, p. 22-3. There was no requirement that

the Commission construe the statute in such a manner that the

purpose of Chapter 361 be nullified by holding that the category of

entities created therein could never be sited.

4. Deregulation Is Irrelevant to this Case.

FPL’s last two sections of argument in Part I of the Initial

Brief, p. 42-44, require no extended response. As previously

noted, any new activity regarding EWGs has occurred at the federal

level, not within the State of Florida. The Commission has acted

on the basis that an EWG does not require any special

accommodation, unlike, for example, implementing PURPA. That

extraordinarily intrusive and mandatory federal program required

both the Commission and utilities to accede to a large number of

new requirements. In contrast to PURPA, literally nothing is

required of either the Commission or co-appellants as to EWGs.

When Duke’s application was filed, it was processed in

accordance with the existing requirements. Extensive oral argument

was heard on motions to dismiss and 1700 pages of transcript were

3030

generated as to the merits. The Commission could have dismissed

the petition or it could have denied the need determination on the

merits. No particular outcome was mandated as to either part of

the process. That process is self-evidently a formidable

regulatory gauntlet to run which Duke never claimed it could avoid.

Similarly, and in obvious contrast to PURPA cogeneration, no

utility is required to purchase any of Duke’s power. As the

testimony of the former FERC Chairman indicated,

The FERC-regulated public utilities that operate merchantplants would operate just like any other utility withpower to sell in wholesale markets, and would offer powerfor sale pursuant to contracts similar to those thatalready exist between purchasing utilities and otherutilities selling at wholesale.

(Tr. 972-3)

Co-appellant Florida Power Corporation’s own witness verified

that:

. . . they would be a wholesale market participant, andwe would most likely work with them like we would anybodyelse.

(Tr. 1352)

Like FPL’s bandying-about of the word “monopoly,” appellant’s

use of the word “deregulation” does not include any definition of

what is being referred to. As such, it is apparently employed as

a scare-tactic designed to compensate for a lack of meritorious

argument and should accordingly be disregarded by the Court. The

Commission would merely note that regardless of what FPL is

referring to, the Legislature has not repealed Section 366.83, and

3131

that current provision of Florida law forecloses the results FPL

argues for in this case.

Finally, since deregulation is not at issue, neither is any

requirement of legislation. Instead, the shoe is on the other

foot. To reverse two decades of Florida’s receptivity toward

federal pro-competitive initiatives in wholesale power generation

would require some clearly articulated and affirmatively expressed

statement of state policy. As of this date, in light of statutes

implementing PURPA over the last twenty years and such statutes as

Sections 366.11 and 366.83, no new legislation was needed to allow

the Commission to process Duke’s application. Moreover, stranded

costs would be an issue relevant to some change as to the

Commission’s regulation of retail service, but not the advent of

EWGs. It is the Commission’s rate-regulation of retail service

which provides the public utility’s opportunity to earn a return on

its investment. As pointed out by FPL itself, the Commission does

not even set FPL’s wholesale rates, FERC does. FERC’s policy is to

make EWGs available for this and other state commissions to

evaluate and, if found meritorious, to utilize as participants in

wholesale markets. Though FPL has an apparent fundamental

disagreement with FERC’s policy, there is no stranded investment

issue identified thereby. Indeed, as noted in the Commission’s

Order, some kinds of wholesale generation plants are not even

required to undergo Siting Act review. App. 1, p. 21. (See also,

Tr. 749-751).

3232

II. DUKE MADE THE REQUIRED ALLEGATIONS APPLICABLE TO ITS PETITIONAND OFFERED AMPLY SUFFICIENT EVIDENCE OF NEED.

In the Commission’s view, FPL’s attempt to create a “square

peg/round hole” analogy based on its “presumptive monopoly” and

Nassau-based Procrustean bed theories fails because those theories

are legally and factually unsupported.

A. Duke Made the Required Allegations Applicable toIts Petition.

FPL reruns versions of arguments that were previously

presented below and rejected. As stated in the Commission Order,

App. 1, p. 24,

One of FPL’s arguments for dismissal of the JointPetition construes the provisions of Rule 25-22.081(1),Florida Administrative Code, as they relate to, andallegedly are not satisfied by the Joint Petition.

Since FPL’s assertions at p. 45-46 of the Initial Brief are of

a piece with those prior arguments, the Commission incorporates by

reference the analysis in the Commission’s Order at App. 1, p. 24-5

rejecting them.

In addition, the Commission notes that one of those arguments

is literally repeated in the Initial Brief at p. 45:

The petition alleged only that the City and Duke were the“primarily affected utilities” [listed pursuant to Rule25-22.081(1), Florida Administrative Code]. But, theCity had expressed only an interest in six percent of thepower to be generated, and Duke, the power generator,hardly could be considered an affected utility.

FPL goes on to argue that Duke’s identification of “Peninsular

Florida” was insufficient as, “it is obvious that few of the 59

3333

utilities therein would be affected by a plant in New Smyrna

Beach.” The record demonstrates, however, how completely

misconceived FPL’s argument is.

First, as the Commission’s Order notes, App. 1, p. 24:

[The primarily affected utilities] are the City and DukeNew Smyrna. That the Joint Petition does notspecifically identify secondarily affected utilities inpeninsular Florida is a function of the fact that thepurchase of power from the project is voluntary. Noretail utility can or will be required to contract forthe Project’s output. [e.s.]

Moreover, the Commission would add to the foregoing that the

record supports the opposite of FPL’s conclusions. First, the

City’s interest was not limited to the 30 MW for which it had an

entitlement:

[City Witness]: We have the agreement with Duke Energyfor 30 megawatts, and in the time frame when the plantcomes on line, we’ll have an additional need ofapproximately 40 megawatts. So we could very well havefurther purchases from the plant. . . . [e.s.]

(Tr. 504)

Moreover, far from it being “obvious” that most of the 59

utilities in Peninsular Florida would not be affected by a plant in

New Smyrna Beach, it is only “obvious” that FPL fails once again to

prescind the distinction between the analysis needed for retail

power, which is subject to territorial boundaries, and wholesale

power, which is not. Testimony of the Florida Municipal Power

Agency’s General Manager again demonstrates how incorrect FPL’s

surmises are:

3434

[FMPA witness]: It is FMPA’s mission to find the mosteconomical and the most reliable power supply resourcesfor its members, and wholesale purchases are a veryimportant part of FMPA’s power supply mix. Accordingly,FMPA supports the application for determination of needfiled by the Utilities Commission of New Smyrna Beach andDuke New Smyrna Beach Power Company

. . .

. . . Florida Municipal Power Agency does the completeplanning and supplies the entire power needs to aboutten municipalities; and they are listed in thetestimony; but they range all the way from Key West toJacksonville on the east coast, and over in the centerof the state there is Ocala and Leesburg.

. . .

Q: . . . some of the [incumbent] investor-ownedutilities took a position [in the oral argument beforethe Commission] that only they . . . may be competitorswith generating facilities. My question to you is, doyou believe that a policy or interpretation that limitscompetitors in Florida’s wholesale market to suchentities would be good for your organization?

. . .

[FMPA witness]: Anything that puts a limitation on thepotential suppliers to our wholesale power needs is notin the best interest of FMPA. Like I said in thetestimony, we support a vigorous market.

(Tr. 533-4; 536-7)

The record amply supports the allegation of peninsular

Florida as encompassing the utilities affected by Duke.

The same misconceptions attend FPL’s assertions that

utility-specific allegations should have been made relevant to

Rule 25-22.081(3). Such claims are, as the Commission noted in

the Order, App. 1, p. 24, “disingenuous.” Information specific

to a purchasing utility cannot be alleged if, as here, “the

3535

purchase of power from the Project is voluntary” and “no retail

utility can or will be required to contract for the Project’s

output.” FPL’s further claim that the petition failed to provide

a detailed analysis of the costs and benefits of the merchant

capacity of the plant is simply wrong. As noted in the Petition,

The Exhibits [accompanying the Petition] . . .demonstrate . . . the reliability benefits that theProject will provide to Peninsular Florida, theconsistency of the Project with Peninsular Florida’sprojected power supply needs, and the fuel savings,economic, and environmental benefits that the projectwill provide. The Exhibits also discuss . . . thealternative generation technologies considered by DukeNew Smyrna, and the cost-effectiveness of the Project .. . as an additional power supply resource forPeninsular Florida.

(R. 2)

At p. 15-16 (¶ 21-22) of the Petition, a detailed cost analysis

is provided which contrasts the handling of costs when put into

rate base as compared with merchant plants where the latter “has

no rate base and no captive customers.” (R. 15-16) The

allegations that were relevant to the Project were made as

required.

Finally, FPL’s claim that Rule 25-22.082 required an RFP to

be issued to evaluate “alternatives to the proposed plant” and

that Rule 25-22.081(5) “nongenerating alternatives” had to be

provided appear to be more relevant to applications filed by an

entity with already existing plant seeking to add more plant. In

effect, Duke would not have alternatives to the proposed plant

because, if the need determination were denied, Duke would not be

3636

present to utilize any alternatives. The same is true as to

nongenerating alternatives. FPL and co-appellants had the

opportunity to demonstrate that either alternatives to the

proposed plant or nongenerating alternatives thereto would be a

superior outcome to granting the petition, but their attempt to

do so was unpersuasive. The evidence cannot be reweighed now.

For example, testimony was presented as to the generation

alternatives of empowering existing plant, as well as non-

generating alternatives such as load management in the form of

interruptible service. (Tr. 937-40; 1302-6). In addition, the

City explained that it did not issue an RFP because,

. . . again . . . if you’ve got an offer for $18.50 permegawatt-hour, you would just be going through auseless process [to try to find a price lower than theentitlement to the City from Duke].

(Tr. 451)

B. The PSC’s Determination of Need Is Supported byCompetent Substantial Evidence and Is Not ClearlyErroneous.

While Part I of FPL’s briefing is, in the Commission’s view,

“clearly erroneous” for the reasons previously stated, Part II B

of FPL’s briefing is procedurally improper under the standard of

appellate review:

This Court, in reviewing a Commission order will notreweigh or re-evaluate the evidence presented to theCommission but should only examine the record todetermine whether the order complained of complies withessential requirements of law and whether the agencyhad available competent, substantial evidence tosupport its findings.

3737

Bricker v. Deason, 655 So. 2d 1110, 1111 (Fla. 1995)

FPL, by claiming that the Commission’s determination is

“clearly erroneous,” cannot disguise the fact that it seeks to

have the evidence reweighed. This is improper and the argument

should, therefore, be ignored. In responding to it, the

Commission does not accede to the impropriety.

Moreover, FPL’s argument in Part II B, Initial Brief, p. 47-

50, is an implicit concession that FPL can make no claim that the

Commission’s findings are unsupported by competent and

substantial evidence of record. Therefore, FPL complains instead

that the Commission “ignored” various points argued by co-

appellants against granting the need determination. Also,

implicit is the hope that the Court will now “ignore” the points

made by petitioners below which were persuasive to the Commission

and reweigh the contested issues in favor of appellants.

However, as stated in Gulf Power Company v. Florida Public

Service Commission, 453 So. 2d 799, 803 (Fla. 1984), the Court

will not overturn an order of the PSC because we wouldhave arrived at a different result had we made theinitial decision and we will not reweigh the evidence.

Further, the argument at p. 47-50 debates the finding that

this example of the federal EWG initiative would, on balance, be

a positive contribution to Florida’s ratepayers. That it is

offered by the co-appellant which is the most active operator of

merchant plants in other jurisdictions is an added point of

interest. In any event, the assertions made amount to an

3838

improper demand to reweigh the evidence and should be

disregarded. They are also inaccurate because, not only did the

Commission not “ignore” FPL’s points, but a review of the record

demonstrates that the Commission panel members very actively

participated in the proceedings and raised issues deemed

significant with the witnesses themselves or extended the

discussion of them when they were brought up in cross-

examination.

Aside from the procedural impropriety and inaccuracy, FPL’s

claims are singularly unpersuasive in themselves.

First, nobody testified that non-firm commitments would be

used to calculate margin reserves, or to violate Rule 25-

6.035(2), Florida Administrative Code. However, there was

testimony that Florida Power Corporation experienced a loss of

some 50,000 interruptible customers from its demand-side

management conservation program during a recent hot spell. FPC’s

witness was asked by Commissioner Garcia:

. . . but if there was a plant, 500 megawatts, thatwould have been available in Florida, on the market,would it have been bad for you -- and when I say “you”,your company, or your ratepayers, or the statereliability in some way?

[FPC witness]: . . . I think I was willing to concedethat a generation resource in that kind of situationcould be beneficial . . . they would be a wholesalemarket participant, and we would most likely work withthem like we would anyone else.

(Tr. 1352)

3939

In addition, the Commission would not have to “ignore” the

points made by FPL in order to weigh them as far less significant

than FPL believes them to be. For example, the point that the

City would not be entitled to power from the plant if the plant

was not built is an obvious tautology that proves no more at the

conclusion of FPL’s Initial Brief than it did in cross-

examination at the hearing. Indeed, the relevance of FPL’s

arguments is obviously even weaker on appeal because part of an

improper reweighing request.

FPL then argues that the PSC “cavalierly” concluded that

Duke’s merchant capacity was needed for reliability and

integrity. FPL then quite cavalierly misrepresents and distorts

the findings in the Order by claiming that “the PSC majority

acknowledged that the plant is not needed to meet the acceptable

margin reserves for Peninsular Florida.” Initial Brief, p. 48.

What the order actually says, App. 1, p. 40-41 [R. 2697-8],

is that

The utility intervenors argued that because PeninsularFlorida reserve margins are forecasted to be at orabove the [Florida Reliability Coordinating Council’s15 percent] threshold, the Project is not needed forpeninsular reliability. [e.s.]

The Commission noted that it is

currently reviewing this level of reserve margin inDocket No. 981890-EU. [e.s.]

The Commission also specifically referenced testimony that

past peninsular reserve margins of between 20 and 25percent did not prevent the loss of firm load.

4040

. . .

Witness L’Engle characterized the currently plannedreserves of Peninsular Florida as being “on the edge”and suggested that additional capacity would bebeneficial to Florida, but that existing utilities areunwilling to make the investment due to cost andcompetitive pressures. [e.s.]

The Commission weighed such testimony in favor of Duke and

that testimony cannot be reweighed by the Court, let alone as the

result of being misrepresented and distorted by the appellant.

The Commission was obviously concerned by this and other

testimony as to the prospects of future outages. In contrast, it

is FPL whose characterization of these problems is “cavalier.”

As to the Commission’s review of future petitions, that

issue goes beyond what the Commission had to decide. FPL would

indulge that issue, apparently, as a scare tactic with the

inference that every application would be granted. That, again,

distorts the Order, which states at App. 1, p. 44 [R. 2701]:

Each applicant must demonstrate that its projectconveys a benefit to Florida ratepayers, given theexistence of the prior power plant additions [whichhave resulted from any previously successfulapplication]. [e.s.]

What the Order actually provides for is, to that extent, a

regulatory barrier that is raised with each successful

application.

FPL further distorts the Order by claiming that the

Commission “simply assumed” Duke’s plant would be the most cost

4141

effective alternative for the City. However, the testimony

indicated the following:

Chairman Garcia: Tell me then how you decided that[$18.50 per megawatt hour] was a good price, then, theprice that you got.

[City witness]: . . . Right now a good base loadresource, which we have with Tampa Electric, which hasbeen an excellent resource with us, is $25 permegawatt-hour. There’s no purchases out there [FPL,FPC, Tampa Electric] no one is going to give me anyresource $25 or less.

. . .

It’s a no-brainer . . . [e.s.]

(Tr. 452-3)

Finally, FPL’s improper reweighing does not give any

validity to such claims as “it should be anticipated that the

rates charged for this power will fully exploit the exigencies of

every spike in demand.”

Price spikes were addressed in the testimony:

Q. What, if any, effect would the presence of merchantcapacity have on potential price spikes due to short-term capacity shortfalls?

A. . . . It would seem to me that Florida would be welladvised to encourage a “merchant fringe” to limitprospects for market power and price flyup. [e.s.]

(Tr. 723-4)

The issue was extensively debated at the hearing and weighed in

favor of Duke. FPL cannot seek reweighing of it now.

FPL cites the Commission’s observation that “Merchant plants

increase wholesale competition thereby in theory lowering

4242

wholesale electric prices from what they otherwise may be” as “no

analysis at all whether the proposed plant would be the most

cost-effective alternative.” However, once again, there was

testimony as to the cost-effectiveness of the project and FPL

cannot seek reweighing of that testimony now:

Q. Is the proposed power plant the most cost-effective alternative available . . .?

A. Yes . . . gas-fired capacity is thetechnology of choice for new capacity inFlorida and across the U.S.

(Tr. 715)

By attacking the Commission’s observation concerning the theory

that merchant plant competition lowers wholesale electric prices,

FPL seeks to attack FERC’s pro-competitive initiatives and,

indeed, competition itself. This is appropriate, since it brings

up the Northern Pacific Railway case which began this

consideration of the arguments in the Initial Brief. Indeed, FPL

ends where it began, totally at odds with the economic

assumptions of this country since 1890. Thus, concludes FPL,

The PSC had not previously, however, ever found need,as it did here, on the basis that the market haddetermined need for it.

However, FPL has missed the whole point. In this case, the

Commission found that the plant was needed based on the competent

substantial evidence of record and the requirements of the

statutes. While FPL is entitled to rail against competition and

markets, even as it conducts its own merchant plant activities in

4343

so many other jurisdictions, in this country and abroad, such

arguments are simply irrelevant to the standard of review. Such

rhetoric provides no basis whatsoever on which the Commission’s

Order can be reversed.

4444

CONCLUSION

The Commission’s Order is supported by competent substantial

evidence and has not been demonstrated to be clearly erroneous.

WHEREFORE, Appellee Florida Public Service Commission

respectfully requests that the Court affirm the Commission’s

Order.

Respectfully submitted,

ROBERT D. VANDIVERGeneral CounselFlorida Bar No. 344052

____________________________RICHARD C. BELLAKAssociate General CounselFlorida Bar No. 341851

FLORIDA PUBLIC SERVICE COMMISSION2540 Shumard Oak Blvd.Tallahassee, FL 32399-0850850-413-6092

4545

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the foregoing has been

furnished by U.S. Mail this 9th day of August, 1999 to the

following:

Alvin B. Davis Charles A. GuytonThomas R. Julin Matthew M. ChildsEdward M. Mullins Steel Hector & Davis, LLPSandra K. Wolkov 215 South Monroe StreetSteel Hector & Davis LLP Suite 601200 South Biscayne Blvd. Tallahassee, FL 3230140th FloorMiami, FL 33131-2398Attys for Florida Power & Light Company

D. Bruce May Daniel S. PearsonSusan L. Kelsey P. O. Box 015441Holland & Knight LLP 701 Brickell AvenueP. O. Drawer 810 Suite 3000Tallahassee, FL 32302 Miami, FL 33131

Brent C. Bailey, General Counsel Robert S. LilienDuke Energy Power Services, LLC Duke Energy Power Services,P. O. Box 1642 LLCHouston, TX 77251-1642 422 Church St., PB05B

Charlotte, N.C. 23242

James A. McGee Lee L. WillisAtty for Florida Power Corp. James D. BeasleyP. O. Box 14042 Ausley & McMullenSt. Petersburg, FL 33733 P. O. Box 391Charlotte, N.C. 23242 Tallahassee, FL 32302

Attys for Tampa Electric Co.

Gary L. Sasso Harry W. Long, Jr.Carlton Fields Ward Emmanuel TECO Energy, Inc.Smith and Cutler, P.A. P. O. Box 111P. O. Box 2861 Tampa, FL 33601St. Petersburg, FL 33731Atty for Florida Power Corporation

4646

William B. Willingham Gail KamarasMichelle Hershel 1114 Thomasville Rd.P. O. Box 590 Suite ETallahassee, FL 32302 Tallahassee, FL 32303Attys for Florida Electric Atty for Legal Environmental Cooperatives Association, Inc. Assistance Foundation, Inc.

Terry L. Kammer Jon C. Moyle, Jr.PAC Director Robert J. Sniffen3944 Florida Boulevard Moyle, Flanigan, Katz, Palm Beach Gardens, FL 33410 Kolins, Raymond & SheehanAtty for System Council U-4 210 South Monroe Street

Tallahassee, FL 32301Attys for U.S. Generating Company

Robert S. WrightJohn T. LaViaAlan C. SundbergLanders & Parsons, P.A.310 West College AvenueTallahassee, FL 32301Attys for Utilities Commission,City of New Smyrna Beach, Florida

___________________________RICHARD C. BELLAK

I HEREBY CERTIFY that the font type used in this brief isCourier New 12 point.

_____________________________RICHARD C. BELLAK

4747

SUPPLEMENTAL APPENDIX

APPENDIX 1: Order No. PSC-99-0535-FOF-EM

APPENDIX 2: Order No. 22341

APPENDIX 3: Order No. 23792

APPENDIX 4: Order No. PSC-92-1210-FOF-EQ