Case Background
On February 24,
2016, Gulf Power Company (Gulf) filed a petition seeking approval to create a
regulatory asset and defer recovery of the amounts related to the retirement of
Plant Smith Units 1 and 2 (Units). The recovery of the regulatory asset would
be deferred to a future proceeding with an effective date after the expiration
date of the Stipulation approved in Order No. PSC-13-0670-S-EI, which is the last billing cycle in June
2017. The decision to retire the Units was made after Gulf finalized its
Mercury and Air Toxics Standards (MATS) rule compliance strategy for each of
its coal-fired units. At December 31, 2015, the Net Book Value of the Units was
approximately $61.9 million and the estimated remaining inventory balance was
$2.9 million. In response to a staff data request, Gulf provided the actual
net book value and actual remaining inventory balances of $60,244,659 and $2,809,649,
respectively, as of the actual retirement date of March 31, 2016. The Office of Public Counsel is
listed as an interested person in this docket.
This recommendation
addresses the creation of the regulatory asset and the deferral of its recovery
to a future proceeding. The Commission has jurisdiction over this matter
pursuant to Sections 366.04 and 366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Gulf’s request to
create a regulatory asset related to the retirement of Plant Smith Units 1 and
2 and defer the recovery of the regulatory asset to a future proceeding?
Recommendation:
Yes. The Commission should approve Gulf’s request to
create a regulatory asset related to the retirement of Plant Smith Units 1 and
2 and defer the recovery of the regulatory asset to a future proceeding. Further,
the Commission should find that the approval to record the regulatory asset for
accounting purposes does not limit the Commission’s ability to review the
amounts and recovery period for reasonableness in future proceedings in
which the regulatory asset is included. (Slemkewicz, Wooten, Wu)
Staff Analysis:
On February 24, 2016, Gulf filed a petition seeking
approval to create a regulatory asset and defer recovery of the amounts related
to the retirement of Plant Smith Units 1 and 2 (Units). Gulf’s decision to
retire the units was based on its MATS rule compliance strategy for its coal-fired
generating units. Unit 1 began service in 1965 and was previously scheduled to
be retired in 2030. Unit 2 began service in 1967 and was previously scheduled
to be retired in 2032. Based on the MATS evaluation, the Units were retired on
March 31, 2016. At December 31, 2015, the Net Book Value of the Units was
$61,880,482 and the estimated remaining inventory balance was $2,852,159.
In its petition, Gulf asserts
that its best option for compliance with MATS is the retirement of Plant Smith
Units 1 and 2. Staff requested the MATS compliance alternatives that Gulf
explored in an effort to determine the accuracy of this determination. In
response to this request, Gulf submitted the Plant Smith Asset Evaluation,
dated December 11, 2014. After
a review of the provided analysis, staff is satisfied that the early retirement
of Plant Smith Units 1 and 2 is the most cost-effective alternative.
Because the Units are being retired early, certain entries
must be made to Gulf’s books and records. Rule 25-6.0436(6), Florida
Administrative Code (F.A.C.), requires a utility to compile an annual
depreciation status report showing changes to categories of depreciation that
will require a revision. In addition, Rule 25-6.0436(7)(a), F.A.C., provides
that:
Prior to the date of retirement of major
installations, the Commission shall approve capital recovery schedules to
correct associated calculated deficiencies where a utility demonstrates that
(1) replacement of an installation or group of installations is prudent and (2)
the associated investment will not be recovered by the time of retirement
through the normal depreciation process.
Gulf’s current depreciation rates are based on retirement
dates of 2030 and 2032 for the Units. Therefore, the investment in the Units
will not be recovered through the normal depreciation process due to the early
retirement of the Units.
As a result of the Stipulation, Gulf’s
depreciation and amortization accrual rates in effect as of the effective date
of the Stipulation remain in effect. Also, Gulf is not required to file any
depreciation or dismantlement studies during the term of the Stipulation that
ends with the last billing cycle of June, 2017. However, Gulf is required to
file depreciation and dismantlement studies by either December 31, 2018, or a
period defined as not more than 1 year nor less than 60 days before the filing
of its next general rate proceeding, whichever is sooner. On July 14, 2016,
Gulf filed a depreciation and dismantlement study that was assigned Docket No.
160170-EI.
In response to a staff data request, Gulf provided the
actual net book value and actual remaining inventory balance of $60,244,659 and
$2,809,649, respectively, as of the actual retirement date of March 31, 2016.
Based on a review of Gulf’s filing and its responses to Staff’s First Data
Request and
Staff’s Third Data Request, it is
staff’s opinion that the Units’ Net Book Value of $60,244,659 $61,880,482
and the estimated remaining inventory balance of $2,809,649 $2,852,159
represent the appropriate amounts of the proposed regulatory asset as of March
31, 2016. December 31, 2015. The actual amounts to be recorded as
a regulatory asset will be slightly less due to the additional accumulated
depreciation incurred between January 1, 2016, and March 31, 2016.
The early
retirement of the Units will require that future revisions be made to the
depreciation rates, amortization, and capital recovery schedules. As
previously stated, Gulf is generally not required to file any depreciation or
dismantlement studies before December 31, 2018. The concept of deferral
accounting allows companies to defer costs and seek recovery through rates at a
later time. The alternative would be for a company to seek a rate case each
time it experiences an exogenous event. In staff’s opinion, it is appropriate
to create a regulatory asset for the amounts associated with the early
retirement of the Units and defer recovery until the amounts can be addressed
included in the next depreciation study or base rate
proceeding. dismantlement studies. Further, the Commission should
find that the approval to record the regulatory asset for accounting purposes
does not limit the Commission’s ability to review the amounts and recovery
period for reasonableness in future proceedings in which the regulatory
asset is included.
Issue 2:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Brownless)
Staff Analysis:
At the conclusion of the protest period, if no
protest is filed this docket should be closed upon the issuance of a
consummating order.
