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Florida is Heading Toward a Natural Gas and Electric Rate Crisis

Frank Clemente Ph.D.Senior Professor of Social Science & Energy PolicyPenn State Universityfac226@psu.edu

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Florida is Digging the Hole Deeper

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“we have committed, subconsciously perhaps, to using natural gas to supply most of our additional electricity supply for the next ten years or longer… we’re going to assure high gas prices continue for a long time… We are in competition for LNG supplies. And we are not predestined to prevail in that competition” Joseph Kelliher, Chair, FERC

Despite depending on natural gas (NG) for almost 50% of its electricity, in less than two years Florida has cancelled at least six coal plants and replaced virtually all of that cancelled generation with proposed NG facilities

“If something happens, God forbid, to a (NG) pipeline, our economy could be brought to it’s knees in Florida” -Nathan Skop, Florida PSC Commissioner (2008)

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Florida’s Growing Dependence on NG for Electricity

% of Florida’s Electricity Which Comes From NG

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What the Continuing “Dash to Gas” Means for Electric Rates in Florida

During this period, the price of NG in Florida rose 56% for families and 120% for industry

Source: EIA

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The Long Run Price of NG/LNG in a Peak Oil World

Source: Adapted from "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007

Price of W TI Oil in Dollars per Barrel

“Oil prices are not going to come down to gas prices but gas prices will get closer to oil” –Dr. R. Bertani, Former President of Petrobas America

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By 2015 Florida Will Pay a Staggering Price for NG to Produce Electricity

Price of Oil/Barrel; (Price of NG)

*Amount paid by Florida to generated electricity as NG approaches oil parity

(Actual costs) *($13) *($16) *($20) *($23) *($27)

“At what point is not cost-effective any more to have natural gas (generation?) -Nancy Argenziano,Florida PSC Commissioner, (2008)

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In Florida, Coal Prices to Produce Electricity are Lower and More Stable than NG Prices

Source: EIA, 2008

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How the Crisis is Unfolding

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Ten Reasons to Worry About Electricity in Florida:

1. U.S. electricity supply and cost have been historically controlled by Americans.

2. Florida will be one of the first states where fuel supply and cost will be controlled by other nations.

3. Florida is overly dependent on NG as the source of electricity and that dependence is steadily increasing toward over 50%

4. North American NG production has peaked so Florida will be faced to enter the global market for liquefied natural gas (LNG).

5. LNG will be expensive, Asia and Europe routinely bid cargos away from the U.S., paying up to $20 compared to our $10 or less.

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Ten Reasons to Worry (cont.)

6. LNG is a security risk as Russia, Iran and Venezuela control over 45% of the world’s NG

7. More NG to produce electricity increases the price of both NG and the price of electricity

8. Since 2002 NG prices to produce electricity have increased more than 100%

9. Consequently, since 2002, electric rates in Florida have increased 56% for families and 120% for industry

10. Due to rising NG prices, requests to increase electricity rates are being filed in Florida. FPL leads the first wave to recover fuel costs.

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The Steady Drumbeat of Electricity Demand in Florida has been Driven by Population Growth

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More Floridians will Mean More Electricity Consumption

*Electricity demand estimated based on 2001-2007 correlation of population growth and demand

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NG Consumption for Electricity Generation in Florida

Florida’s power plants are on track to annually consume over one trillion cubic feet of NG within 3 years

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Florida’s 2006 Energy Plan had at least some balance but has now been disrupted by cancellation of planned coal generation

From the 2006 Plan

Renewables 2%

Coal 4%

The estimated current situation

Over 4,400 MW of planned coal based generation have been cancelled since

2006

*Adopted January 2006 by Florida’s Environmental Protection Agency

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The Fate of the New Coal Plants Florida’s was Planning in 2006

Planned Coal Plant Capacity Original Estimated Online Date

Status

Jacksonville Energy Auth. 250 2013 Not proceeding. Building 350 MW of NG instead

Seminole Electric 750 2012 Cancelled Permit Denied

Florida Power and Light 1,700 2012, 2013 Cancelled. Building over 3000 MW of NG

Gainesville Regional Utilities 220 2010 Limited to Retrofitting Existing Unit. Building Biomass

JEA/FMPA 800 2012 Permit Applications Withdrawn. Building NG Generation

Southern Company 285 2010 Cancelled. Building NG Instead

Tampa Electric 632 2014 Cancelled. Building NG Instead

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The 2008 FPL 10 Year Generation Plan Tells the Story

Year New Power Plant

2009 New NG Power Plant– 1, 219 Megawatts

2010 New NG Power Plant– 1,219 Megawatts

2011 New NG Power Plant– 1,219 Megawatts

2013 Potential New NG Power Plant

2016 Two Potential New NG Power Plants

FPL currently obtains 52% of electricity from NG

In 2007, the Florida Public Service Commission rejected FPL’s request to build a 1,960 Megawatt coal plant in Glades County.

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North American NG Production has Peaked: More Wells and Higher Prices Have Not Increased NG Production

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Marketed Production Number of Wells

“ North America is setting itself up to import large quantities of natural gas” International Energy Agency, 2007

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Florida Bets On A Brave New World

Where new NG supply came from 1993 - 2006

Where new supply is projected to come from

2006-2019

•Source: EIA, 2008

“Importing LNG from abroad opens the U.S. fuel supply to the global market and

all the economic and political risks associated with it” –NERC, 2007

Canada, 60%Domestic

Production, 17%

LNG From Foreign Nations, 23%

Domestic Production, 26%

LNG From Foreign Nations, 74%

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The Far Reaching Impact of Using More NG To Produce Electricity

As Florida Increases Dependence on NG for electricity:

1. Power plants have a legal obligation to supply power so they buy more NG

2. But, since NG production has peaked in North America, supply is limited

3. Thus, power plants compete for fuel with other consumers--families and industry

4. This new competition raises the price of NG for all consumers

5. These higher NG prices lead to higher electric rates since more electricity is produced by NG

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NG Consumption for Power Generation in Florida is Raising the Price of NG to Produce Electricity

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NG Consumption for Power Generation is Raising Florida’s Residential Electric Rates

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NG Consumption for Power Generation is Raising Electric Rates for Florida’s Industrial Firms

Since 2002 NG consumption for electric power has increased over 100%, creating competition for fuel between families, businesses, and power plants.

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NG Consumption for Power Generation is Raising the Price of NG for Manufacturing

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NG Consumption for Power Generation is Costing Florida Manufacturing Jobs

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If NG Supplies Falter, Florida Will be Forced to Turn to Fuel Oil – Another Expensive Fuel

While NG generating capacity accounts for 49% of Florida’s total, oil accounts for 22% Florida already generates more electricity with fuel oil than any other state.