Case
Background
Rule 25-6.0436, Florida
Administrative Code, requires investor-owned utilities to file comprehensive depreciation
studies at least once every four years. The Commission authorized the approval
of new depreciation rates for Tampa Electric Company (TECO or company) effective
January 1, 2004, by Order No. PSC-04-0815-PAA-EI, in Docket No. 030409-EI, issued
August 20, 2004. That order approved a new recovery schedule for Big Bend
Combustion Turbine Units 2 and 3 to begin January 1, 2003 and end December 31, 2004, matching recovery of the remaining net investment to the
remaining service period of the investment.
On September 24, 2004, Tampa Electric Company filed a petition for the approval of depreciation rate changes for
Big Bend Combustion Turbine Units 2 and 3, and Polk Units 2 and 3. The request
is based upon the refurbishment of the Big Bend Combustion Turbines units necessitated
by the lack of response to TECO’s Request for Proposals (RFP) for purchased
power, as well as the completion of account subcategorization for Polk Units 2
and 3.
This is staff’s recommendation to
permit implementation of TECO’s proposed depreciation rates on a preliminary
basis, pending a full review of the proposed rates. The Commission has
jurisdiction over these matters pursuant to Sections 366.04, 366.05, and 366.06,
Florida Statues.
Discussion of Issues
Issue
1: Should the Commission
permit Tampa Electric Company to implement its proposed depreciation rates, provision
for dismantlement, and account subcategorization on a preliminary basis for Big
Bend Combustion Turbine Units 2 and 3, and Polk Units 2 and 3?
Recommendation: Yes. The
additional $4.1 million of plant investment to refurbish Big Bend Combustion
Turbines 2 and 3 will extend the useful life of these units approximately 10
years. Therefore, the depreciation rates, recovery schedules, and provision for
dismantlement should be adjusted to reflect the units’ current life expectancy.
In addition, property records are now complete for Polk Units 2 and 3 to allow
plant account specific depreciation rates, per Rule 25-6.04361(5)(c), Florida
Administrative Code. The effect of this proposal would decrease expenses as
shown on Attachments B and C by an estimated $748,000 for 2004. The resulting
expenses should be trued–up when final action, expected to occur in January 2005,
is taken by the Commission in this docket. (Gardner, Colson, Haff, Lester)
Staff Analysis: During the fall of 2003, TECO issued a
Request for Proposals to procure peaking capacity beginning in the fall of
2005. By the summer of 2004, TECO recognized that a reliable and economical
source of power was not available to meet its capacity need. As shown in
TECO’s Ten-Year Site Plan, Big Bend Combustion Turbine (CT) 2 is currently in
long-term shutdown status, and the output of Big Bend CT 3 was reduced to a
summer capacity of 60 MW (70 MW winter). Initially, these two units were to be
returned to service by May 1, 2006. When TECO realized that its RFP process
would not provide sufficient capacity resources to meet its need, TECO
determined that the most cost-effective and timely alternative was to
accelerate planned refurbishment of the Big Bend CT units. Work began on July 19, 2004 and October 5, 2004, on Big Bend CT Units 2 and 3, respectively. TECO is
replacing damaged turbine blades, restoring the units to original design, and
completing other refurbishment activities. Work is scheduled to be completed
on November 11, 2004 and December 23, 2004, for Units 2 and 3, respectively.
The proposed total cost for the work is $4.1 million, of which $2.1 million is
for Big Bent CT Unit 2 and $2.0 million is for Big Bend CT Unit 3. Big Bend CT
Unit 2 will be restored to its original summer capacity of 66 MW (80 MW winter),
while Big Bend Big Bend CT Unit 3 will be restored to its original summer capacity
of 70 MW (76 MW winter). The additional plant investment and replacement
activities require revised life analysis and depreciation rates for Big Bend CT
Units 2 and 3.
Also, Rule 25-6.04361(5)(c),
Florida Administrative Code, requires that Accounts 341 through 346 be
maintained, at a minimum, on a plant site basis, but that stratification within
the accounts for use in determining depreciation rates must be established in
accord with the potential life patterns and usage by the specific company. In its
2003 comprehensive depreciation study, the company provided the life analysis
of Polk Units 2 and 3 at the site level pending completion of its property
records and subcategorizations of the individual units, as authorized by Order No.
PSC-00-0603-PAA-EI, issued March 29, 2000, in Docket No. 990529-EI, In Re:
Petition for 1999 depreciation study by Tampa Electric Company. Polk Unit
2 was placed in service in July 2000 and expenditures were complete in July
2001. Polk Unit 3 was placed in service in April 2002 and expenditures were
completed in February 2003. The property records and subcategorizations for
the units were completed in July 2004. The 2003 comprehensive depreciation
study final order was issued in August 2004. This recommendation provides the
necessary stratification of the assets into various categories expected to live
in different patterns to include recalculation of salvage values, remaining
life, and retirement.
Preliminary implementation does
not infer that, upon completion of the review of the company’s filed petition,
staff will be in full agreement with the company’s life, reserve, and salvage
proposals. It only means that preliminary implementation of the rates and
dismantlement provision shown on Attachments A and C is likely to result in
more appropriate expenses than retention of the currently effective
depreciation rates and dismantlement accruals. Also, it resolves the problem
Tampa Electric would face if the 2-year recovery schedule proceeded to its December 31, 2004 end date and it became necessary for the company to absorb the
additional $4.1 million refurbishment expense for the Big Bend CT units. In any
case, expenses should be trued-up upon final Commission action in this docket.
The proposed changes in
depreciation rates, dismantling accruals and recovery schedules indicate the
following functional changes in annual depreciation.
|
Functional Change
in Annual Depreciation
|
|
Production Plant
|
($746,186) (See Attachment
B)
|
|
Dismantling
|
(1,637) (See Attachment
C)
|
|
Total Depreciation
and Dismantling Cost
|
($747,823)
|
Issue
2: What should
be the implementation date for the new depreciation rates, recovery schedule,
provision for dismantlement accruals, and account sub categorization?
Recommendation: Staff
recommends preliminary approval of Tampa Electric’s proposed implementation
date of January 1, 2004. (Gardner)
Staff Analysis: In Tampa
Electric’s Petition, the company requests a January 1, 2004,
implementation date for its proposed depreciation rates, recovery schedule,
dismantlement accruals for Big Bend Combustion Turbines 2 and 3, and account subcategorization
for Polk Units 1 and 2. The Big Bend Combustion Turbines No. 2 and 3 were
planned to be retired by year-end 2004, but the company proposes that it be
allowed to terminate the two year recovery schedule and replace it with the
appropriate life analysis, salvage values, and dismantlement provision
effective January 1, 2004.
Rule 25-6.0436, Florida Administrative
Code, requires that submitted plant and reserve balances or company planning
involving estimates, match the effective date of the proposed rates. The
Commission approved recovery schedule for the combustion turbines reflects the
recovery of the company’s investment prior to the change in planning because of
the lack of response to its purchased power RFP. To comply with Rule
25-6.0436, Florida Administrative Code, Tampa Electric’s petition addresses the
unusual plant activity occurring at Big Bend CTs 2 and 3, which results in a recalculation
of the depreciation rate components, and remaining life of the surviving
investments. This will ensure that Tampa Electric’s Ten Year Site Plan and the
company’s books and records accurately reflect operating conditions and
generation planning.
Issue
3: Should this
docket be closed?
Recommendation: No. This
docket should remain open, pending staff review, analysis, and final Commission
action on the revised depreciation rates, recovery schedule, dismantlement
provision, and account subcategorization. (Brown)
Staff Analysis: The
recommendation addresses the preliminary booking of Tampa Electric’s revised
depreciation rates, recovery schedules, dismantlement provision, and account
subcategorization beginning January 1, 2004, with a provision for a true-up of
resulting expenses when final Commission action is taken. The issue regarding
the appropriate depreciation, recovery schedule, dismantlement factors, and
account subcategorizations can not be resolved until staff has thoroughly
reviewed and analyzed the company’s filed petition. Staff expects to bring a
recommendation to the Commission for final action on this request in January
2005. The Order resulting from staff’s recommendation on the final
depreciation rates, recovery schedule, and dismantlement provision will be
issued as Proposed Agency Action affording a point of entry for substantially
affected persons.