Case Background
By Order No.
PSC-13-0598-FOF-EI, the Commission approved the Revised and Restated
Stipulation and Settlement Agreement (RRSSA). Paragraph 16(a) of the RRSSA includes
provisions for Duke Energy Florida, LLC (DEF) to seek recovery of the prudently
incurred revenue requirement of power uprates to existing DEF units, which may
be placed in-service prior to year-end 2017, through a separate base rate
increase at the time each unit is placed in service.
On May 20, 2016,
DEF filed a petition for approval to include in base rates the revenue
requirement for the Hines Chillers Uprate Project (Hines Project) in Docket No.
160128-EI, pursuant to Paragraph 16(a) of the RRSSA. The Hines Project consists
of installation of chiller modules for the existing Hines Energy Center power
block units, a large chilled water storage tank, an auxiliary power system,
pumps and chilled water supply, return piping, and gas turbine air inlet
chiller coils. The installation of the chiller system on the existing Hines
Energy Center power block units (Hines Units 1-4) is designed to cool the gas
turbine inlet air, thus increasing the capacity of each power block while
maintaining fuel efficiency. Hines Units 1-4 have a total installed capacity of
approximately 1,900 megawatts (MW). The project is expected to increase the
summer capacity of those units by approximately 220 MW to meet the summer peak
demand, which DEF projected to grow to 9,439 MW by the summer of 2018.
The Hines
Project was granted a determination of need in 2014. The estimated cost of the project was determined
to be reasonable by Order No. PSC-16-0362-TRF-EI, and was to be implemented in two phases. Tariff
sheets reflecting rate increases associated with Phase 1 were approved to be
effective with the first billing cycle of November 2016. Phase 2 was expected
to be completed in January 2017. However, DEF delayed the in-service date of
the project after it discovered a leak in a water tank that is part of the
common equipment. On October 18, 2016, DEF filed a motion requesting withdrawal
of the approved tariffs, which was approved by Order No. PSC-16-0521-TRF-EI.
Due to the delay
of the in-service date of the project, DEF has continued billing customers
consistent with the tariffs that were in effect. This is consistent with
provision under Paragraph 16(a) of the RRSSA, which contemplates that customers
would not be charged for the project cost until such project is placed into
service.
On February 2,
2017, DEF filed the instant petition for approval to include in base rates the
revenue requirement associated with the Hines Project, after the work to
resolve the tank leak issue had been substantially completed. DEF states that
the Hines Project will no longer be completed in two phases; rather, the entire
project will now be completed at the same time. DEF currently estimates that
the Hines Project will be completed and placed into commercial service by March
2017.
The Commission
has jurisdiction pursuant to Section 366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve DEF’s petition to
include in base rates the revenue requirement associated with the Hines Project?
Recommendation:
Yes. Staff recommends that the $19,335,560 revenue
requirement, based on the most recently available Earnings Surveillance Report
(ESR), is the appropriate amount. (Lee, D. Smith, Passett)
Staff Analysis:
DEF is seeking to recover its estimated revenue
requirement of $19,363,385 for the Hines Project pursuant to Paragraph 16(a) of
the RRSSA. As discussed earlier, the Hines Project will no longer be completed
in phases. Therefore, DEF is requesting that the Commission approve the revenue
requirement and rate increase for the whole project.
Cost Estimates for Hines
Project
In Docket No. 160128-EI, DEF’s construction cost estimate
for the Hines Project was $150.6 million, which was approximately $9 million
less than the $160 million estimate provided in the need determination proceeding
in Docket No. 140111-EI. In that proceeding, the Commission found the
construction cost estimate comparable to a similar project. In addition, DEF
entered into an Engineering Procurement Construction (EPC) contract with an
experienced third party contractor. Each piece of equipment must meet all
applicable tests before DEF will accept the equipment as complete from the EPC
contractor. The Commission determined the estimated cost of the project to be
reasonable by Order No. PSC-16-0362-TRF-EI, issued August 29, 2016.
Based on information DEF filed in this docket, the updated
construction cost estimate is approximately $150.6 million, which is the same
as the estimate DEF provided in Docket No. 160128-EI. DEF achieved several
major project milestones. Specifically, the station service transformer,
cooling tower, chiller modules, thermal energy storage tank, secondary pump,
battery building, all interconnect piping and electrical equipment, chiller
coils and ductwork to support chiller operation have been installed and tested.
As discussed earlier, DEF delayed the in-service date of
the project due to the tank leak issue. To ensure that the issue with the tank leak
was fully resolved, DEF and its contractor decided to drain the tank, apply a
monolithic seal inside the tank, and then completely re-fill the tank to test
for additional leaks. The work to resolve the tank leak issue has been
substantially completed. Before the project can be completed, DEF must operate
the entire system at full capacity to confirm that the equipment meets the
performance standard requirements set forth in the contract. Based on DEF’s
actions and the Commission’s prior decision on the reasonableness of the
estimated cost, staff recommends that the construction cost estimate be
considered reasonable.
While doing the final check of the remaining common
equipment, DEF and its contractor discovered an issue with the condensate
system. DEF currently anticipates that the project may come on-line by the end
of March 2017. However, this in-service date may be pushed back if the issue
with the condensate system cannot be resolved by the end of March. The impact
of the potential delay of this in-service date to the effective date of the
tariff is discussed in Issue 2.
Revenue
Requirement
Based on the estimated cost of
the Hines Project, DEF calculated a revenue requirement of $19,363,385. In
accordance with Paragraph 16(a) of the RRSSA, DEF utilized the capital
structure from its November 2016 ESR, its most recent actual available at the
time of its filing, and a 10.50 percent return of equity to calculate the
revenue requirement.
The revenue requirement calculation also includes the recovery of O&M
expenses, depreciation expense, property insurance, property tax, and income
tax. Subsequent to the filing of its petition using the November 2016 ESR, DEF
submitted its most recent ESR for December 2016. Staff has calculated a revised
revenue requirement of $19,335,560 based
on the capital structure provided in the December 2016 ESR. This represents a
$27,825 revenue requirement reduction. Staff recommends that the $19,335,560
revenue requirement based on the most recently available ESR is the appropriate
amount as shown on Attachment A.
Conclusion
Staff recommends that the $19,335,560 revenue requirement
based on the most recently available ESR is the appropriate amount as shown on
Attachment A.
Issue 2:
Should the Commission approve DEF’s proposed tariffs
and associated charges?
Recommendation:
Yes. The Commission should give staff administrative
authority to approve tariffs and associated charges that implement the
Commission vote in Issue 1 regarding the Hines Project. The charges should go
in to effect with the first billing cycle in April 2017. If the commercial
in-service date of the project is delayed, then the tariffs should become
effective after the Hines Project is completed and is in commercial service. DEF
should notify staff before the delayed implementation. (Guffey)
Staff Analysis:
As discussed in Issue 1, staff is recommending a reduction
in the revenue requirement for the Hines Project. DEF provided Exhibit D in its
petition showing the allocation of DEF’s proposed revenue requirement to all
its rate classes as a uniform percentage (1.10 percent) consistent with the
terms of the RRSSA. Under DEF’s proposal, a residential customer who uses 1,000
kilowatt-hours will see a $0.56 increase on the monthly bill (excluding Gross
Receipt Tax). DEF’s current and proposed base rate comparisons are shown in
Exhibit E to the petition and proposed tariffs are shown in Exhibit F to the
petition. DEF requested that the tariffs become effective with the first
billing cycle of April 2017. If the commercial in-service date of the Hines
Project is delayed, then the tariffs should become effective with the first
billing cycle after the project is completed and placed in commercial service.
DEF should notify staff before the delayed implementation.
Customer
Notification
In its
March bill inserts, DEF will notify customers of the request to increase rates
associated with the Hines Project to be effective in April. DEF will include a
second bill insert in April bills showing all Commission-approved base rates,
for all rate classes that are effective April 2017. If the commercial
in-service date of the Hines Project is delayed, then DEF should notify staff
before the delayed implementation to see if another notice is needed.
Conclusion
Based on the Commission vote in Issue 1, DEF should
recalculate the rates and associated charges and file revised tariff sheets (if
DEF’s proposed rates are affected by the change in the revenue requirements
approved in Issue 1) for administrative approval by staff. The proposed tariffs
and associated charges should go into effect with the first billing cycle of
April 2017. If the commercial in-service date of the project is delayed, then
the tariffs and associated charges should become effective at the time the
Hines Project is completed and is in commercial service, consistent with Paragraph
16(a) of the RRSSA, which contemplates that customers would not be charged for
the project cost until such project is placed into service.
Issue 3:
Should this docket be closed?
Recommendation:
If Issues 1 and 2 are
approved, the tariff should go into effect with the first billing cycle in
April 2017, or later if the commercial in-service date is delayed. If a protest
is filed within 21 days of the issuance of the order, the tariff should remain
in effect, with any revenues held subject to refund, pending resolution of the
protest. If no timely protest is filed, this docket should be closed upon the
issuance of a consummating order. (Janjic)
Staff Analysis:
If Issues 1 and 2 are approved, the tariff should go
into effect with the first billing cycle in April 2017, or later if the
commercial in-service date is delayed. If a protest is filed within 21 days of
the issuance of the order, the tariff should remain in effect, with any
revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order.
