Discussion
of Issues
Issue 1:
Should the Commission approve TECO’s proposed
depreciation rate for the new assets of the company’s Polk 2 CC and associated
equipment?
Recommendation:
Yes. Staff recommends that the Commission approve a
35-year average service life and a whole life depreciation rate of 2.9 percent,
for the new assets of TECO’s Polk 2 CC and associated equipment, applied to five
subaccounts detailed in the body of Staff Analysis. (Wu, McNulty)
Staff Analysis:
TECO seeks approval of a proposed 2.9 percent
interim depreciation rate for the new assets of its Polk 2 CC and associated
equipment. Polk 2 CC went into service in January 2017 with a generating maximum
nameplate capacity of 513 megawatts (MW) and a net capacity for summer and
winter of 461 MW and 480 MW, respectively.
Typically, a combined cycle (CC) generating station
consists of one or more combustion turbines (CT), each with a heat recovery steam
generator (HRSG). Steam produced by each HRSG is used to drive a steam turbine
(ST). The ST and each CT have an electrical generator that produces
electricity. Polk 2 CC is composed of four CTs, which are existing assets of
the company, and four HRSGs and one ST, which are all new assets. TECO’s
requested depreciation rate is limited to the new technology related to the
HRSG and ST assets only. This is because Polk 2 CTs are existing assets with
approved depreciation rates, and TECO’s approved 2013 rate case settlement
stipulates that the company is not required to file a depreciation study until shortly
before the filing of its next base rate case. In
response to a staff data request, TECO indicated that during its next
depreciation study the company will analyze all assets of Polk 2 CC (CTs, HRSGs,
and ST), and re-evaluate the useful remaining life for all assets combined.
In its petition in this docket, TECO categorized the Polk
2 CC into four subaccounts. In its response to a staff data request, the
company further requested to include one more subaccount (Miscellaneous Power
Plant Equipment) in its petition for approval of the depreciation rates.
Thus, TECO seeks approval of the depreciation rates for the following five
subaccounts:
341.xx Structures
and Improvements
342.xx Fuel Holders,
Producers and Accessories
343.xx Prime Movers
345.xx Accessory
Electric Equipment
346.xx Miscellaneous Power Plant Equipment
TECO is requesting an interim 35-year average service
life, or a whole life depreciation rate of 2.9 percent, for all of the above
five subaccounts.
In determining its proposed interim service life for Polk
2 CC, TECO evaluated similar assets – the company’s Bayside 1 and 2 CC
generating units. Bayside CCs were placed into service in 2003-2004, based on a
composition of existing and new assets like Polk CC as shown in Table 1-1. For
both Bayside CC generating units, an interim starter rate of 4.3 percent was
used across all accounts during their early service period of 2003-2006. In
its 2007 Depreciation Study, TECO evaluated and established final unitization
and retirement unit classification for Bayside 1 and 2 CC generating units. The
company performed a detailed analysis and proposed subaccount-specific
depreciation rates based on adequate data available at that time.
Regarding the Polk 2 CC, TECO believes that a 35-year
service life is appropriate for establishing the starter depreciation rate. The
company explained that the requested interim rate for Polk 2 CC differs from
Bayside 1 and 2 CC generating units’ starter rate due to the differences in the
asset mix as well as the new technology deployed in Polk 2 CC. TECO confirmed
that during its next depreciation study, when the assets are evaluated
completely, the new technology-based assets and the existing technology-based
assets are expected to produce a composite rate more similar to the rate
applied to the Bayside CT assets.
Table 1-1
Illustration of the configurations of TECO’s
CC generating units
|
Bayside 1 CC Conversion
(3 CTs into 1 ST)
|
Bayside 2 CC Conversion
(4 CTs into 1 ST)
|
Polk 2 CC Conversion
(4 CTs into 1 ST)
|
|
CT A CT
B CT C
New New
New
|
CT A CT B CT C CT D
New New
New New
|
CT #2 CT #3
CT
#4 CT #5
Existing Existing
Existing Existing
|
|
HRSG HRSG HRSG
New New New
|
HRSG HRSG HRSG HRSG
New New New New
|
HRSG HRSG HRSG HRSG
New New
New New
|
|
ST
Existing
|
ST
Existing
|
ST
New
|
Source: TECO’s response to Staff’s First Data
Request, No. 2.
Conclusion
Staff believes that TECO’s depreciation rate request is
based on information available at this stage of generating unit operation and
is consistent with the previous Commission practice. Therefore, staff recommends
that a 35-year average service life and a whole life depreciation rate of 2.9
percent is appropriate at this time for the new assets of TECO’s Polk 2 CC and
associated equipment, applied to each of the related subaccounts discussed in
the staff analysis.
Issue 2:
What should be the effective date for the
implementation of the new depreciation rate for TECO’s Polk 2 CC and associated
equipment?
Recommendation:
Staff recommends the Commission approve an effective
date of February 1, 2017, for the implementation of the new depreciation rate
for TECO’s Polk 2 CC and associated equipment. (Wu)
Staff Analysis:
Depreciation is the recovery of invested capital
representing equipment that is providing service to the public. This recovery
is designed to take place over the related period of service to the public,
which begins with the equipment’s in-service date. Polk 2 CC went into service
in mid-January 2017. In its petition, TECO requests the Commission to approve
the new depreciation rate effective February 1, 2017, which is the first full
month that depreciation expense of the assets will be calculated. Staff
believes an effective date of February 1, 2017, for the implementation of the
depreciation rate for the Polk 2 CC and associated equipment is appropriate.
Issue 3:
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. (DuVal)
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.
