Case Background
Pursuant to Rule
25-6.0436(6) and 25-6.135, Florida Administrative Code (F.A.C.), Tampa Electric
Company (TECO or company) submitted its 2016 Annual Depreciation Status Report on
April 28, 2017. During staff’s review of this report, it
became clear that the company used the Florida Public Service Commission
(Commission) approved remaining life depreciation rates (depreciation rates),
under seven subaccounts in Account 345 – Accessory Electric Equipment, as the
depreciation rates for seven subaccounts in Account 346 – Miscellaneous Power
Plant Equipment, and inadvertently failed to seek approval from the Commission.
On August 28,
2017, TECO filed a petition to request the Commission to approve the depreciation
rates for the aforementioned seven subaccounts 346.xx – Miscellaneous Power
Plant Equipment, to rectify its inadvertence.
Pursuant to Rule
25-6.0436(3)(a), F.A.C., electric utilities are required to maintain
depreciation rates and accumulated depreciation reserve in accounts or
subaccounts as prescribed in Rule 25-6.014(1), F.A.C. Rule 25-6.0436(3)(b),
F.A.C., provides that “[u]pon establishing a new account or subaccount
classification, each utility shall request Commission approval of a
depreciation rate for the new plant category.” Staff is not aware of any public
comments or concerns on this matter. The Commission has jurisdiction in this
matter pursuant to Sections 366.04, 366.05, and 366.06, Florida Statutes
(F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve TECO’s petitioned
depreciation rates for seven subaccounts 346.xx – Miscellaneous Power Plant
Equipment?
Recommendation:
Yes. Staff recommends that the annual depreciation
rates applicable to TECO’s seven subaccounts 346.xx – Miscellaneous Power Plant
Equipment, as detailed in Table 1-1 in Staff Analysis, be approved. (Wu)
Staff Analysis:
TECO
is seeking Commission approval of depreciation rates for seven depreciation subaccounts
as detailed in Table 1-1 below:
Table 1-1
TECO’s Petitioned Depreciation Rates
|
|
Depreciation
Account
|
Depreciation
Rate
|
|
1
|
346.44 – Miscellaneous Power Plant Equipment of
Big Bend
Combustion Turbine No. 4
|
4.0 percent
|
|
2
|
346.84 – Miscellaneous Power Plant Equipment of
Polk Unit No. 4
|
3.9 percent
|
|
3
|
346.85 – Miscellaneous Power Plant Equipment of
Polk Unit No. 5
|
3.9 percent
|
|
4
|
346.33 – Miscellaneous Power Plant Equipment of
Bayside
Combustion Turbine No. 3
|
4.0 percent
|
|
5
|
346.34 – Miscellaneous Power Plant Equipment of
Bayside
Combustion Turbine No. 4
|
4.0 percent
|
|
6
|
346.35 – Miscellaneous Power Plant Equipment of
Bayside
Combustion Turbine No. 5
|
4.0 percent
|
|
7
|
346.36 – Miscellaneous Power Plant Equipment of
Bayside
Combustion Turbine No. 6
|
4.0 percent
|
Source:
TECO’s petition filed in this docket, page 2.
TECO normally reviews changes in plants or utility
experience that may require a revision of depreciation rates, amortization, or
capital recovery schedules once every four years in compliance with Rule
25-6.0436, F.A.C. At the conclusion of TECO’s 2011 Depreciation Study,
the Commission issued an order to approve a depreciation rate of zero percent
for each of the subaccounts 346.xx listed in Table 1-1. At
that time, there were no forecasted plant assets in these subaccounts.
Since the time of the 2011 Depreciation Study, assets have been added to the 346.xx
subaccounts. TECO claimed that “at the time these assets were
placed-in-service, it was Tampa Electric’s practice to apply an approved
starter rate for depreciation. During implementation of the approved rates from
the 2011 Depreciation Study, the 346 Accounts were updated to match the
approved depreciation rates for Account 345 – Accessory Electric Equipment.”
Consequently, TECO has been utilizing the depreciation rates listed in Table
1-1 to report and depreciate the assets in each corresponding subaccount. In
reviewing TECO’s 2016 Annual Depreciation Status Report, staff inquired about the
appropriateness of the depreciation rates the company used, and TECO realized
that it had been improperly utilizing the approved depreciation rates, under
subaccount 345.xx – Accessory Electric Equipment, as the depreciation rates for
the assets in subaccount 346.xx – Miscellaneous Power Plant Equipment without
seeking approval from the Commission.
Rule 25-6.0436(2)(a), F.A.C.,
states that “no utility shall change any existing depreciation rate or initiate
any new depreciation rate without prior Commission approval.” TECO understands
that the depreciation rates it reported and applied to the subaccounts 346.xx
are not Commission approved rates;
hence, it filed the instant petition to seek approval to use the depreciation
rates listed in Table 1-1 as interim rates for the affected subaccounts until
its next depreciation study is approved by the Commission. TECO
indicated that the depreciation rates are reasonable compared to depreciation
rates applied to other similar asset accounts. The company further confirmed
that during its next depreciation study, the 346 Accounts will be properly
examined and rated accordingly and the company plans to revise the interim
depreciation rates approved in this docket at that time. Currently, TECO is between
depreciation study filings. The company is excused from compliance with the
every four-year filing requirement of Rule 25-6.0436, F.A.C., until no more
than one year nor less than sixty days before the filing of its next general rate
proceeding in accordance with Order No. PSC-13-0443-FOF-EI.
To assess the potential impairment resulting from TECO’s
improper utilization of depreciation rates, staff requested the company to
identify the cumulative impacts to the company’s customer bills, if any, for
the period 2011 through 2016. The company responded:
Customers’ bills have not been impacted by Tampa Electric’s
application of depreciation rates to the assets in accounts 346.44, 346.84, 346.85,
346.33, 346.34, 346.35, and 346.36 (“346 Accounts”). During the period of time
that Tampa Electric has been applying depreciation rates in the 346 Accounts, there
was only one Petition for Rate Increase (“Petition”) filed by Tampa Electric on
February 4, 2013, in Docket No. 130040-EI. That Petition was resolved by a Stipulation
and Settlement Agreement (“Agreement”), approved by the Public Service
Commission in Order No. PSC-13-0443-FOF-EI, issued September 30, 2013. The
provisions of the Agreement included a negotiated rate increase and return on
equity that were less than Tampa Electric requested in its Petition. Since the
Petition resulted in a negotiated base rate settlement, there was no correlation
between the impact of the depreciation rates applied to the 346 Accounts and
the Tampa Electric customer bills from 2011 through 2016.
The impacts to TECO’s depreciation reserve accounts were
also gauged by the company in responding to staff’s inquires. Up to December
31, 2016, the total amount of depreciation reserve for these seven subaccounts
is $111,830. Staff
notes that any potential reserve imbalance resulting from this will be
automatically resolved through the implementation of new remaining life
depreciation rates, and/or reserve transfer if necessary, as prescribed by the
Commission at the conclusion of its review of TECO’s next depreciation study.
Staff
believes that it is reasonable for the company to continue applying the depreciation
rates listed in Table 1-1 to each corresponding 346.xx subaccount, on an
interim basis, until such time as depreciation rates are examined in detail in the
company’s next depreciation study and approved by the Commission. No costs or
harm has occurred to the general body of ratepayers as a result of TECO’s
accounting error addressed in this specific case. However, staff believes that
TECO should be advised to take care in the future to not apply an approved
depreciation rate to inapplicable accounts, and to seek approval for all
proposed depreciation rates for new plant assets prior to their application, in
compliance with Rule 25-6.0436(2)(a), F.A.C.
Conclusion
Staff recommends that TECO’s proposed depreciation rates
for subaccounts 346.xx, as detailed in Table 1-1, be approved so that the
company’s inadvertent mistake may be rectified.
Issue 2:
What should be the effective date if TECO’s
petitioned depreciation rates discussed in Issue 1 are approved?
Recommendation:
Staff recommends that any Commission newly-approved depreciation
rates applicable to the seven subaccounts 346.xx – Miscellaneous Power Plant
Equipment, become effective upon the Commission’s issuance of a Consummating
Order in this docket. (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. In its petition, TECO requests
the Commission to approve an effective date of its petitioned depreciation rates
as of the date of the Commission order disposing of the instant petition. The affected
plant assets associated with the petitioned depreciation rates have already been
placed into service. Since the objective of this petition is to rectify the
company’s inadvertence of using Commission-approved depreciation rates, under similar
plant asset subaccounts 345.xx, as subaccounts 346.xx for booking the affected
plant assets, staff believes that TECO’s requested effective date is appropriate.
Therefore, staff recommends that if the Commission authorizes the company’s petitioned
depreciation rates, the effective date of the rates should be upon the Commission’s
issuance of a Consummating Order in this docket.
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. (Taylor)
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.
