Case
Background
Florida Power
& Light Company (FPL) operates the Turkey Point Power Plant (Turkey Point),
which includes multiple generating units, including Units 3 and 4, which are
nuclear steam units. For cooling of these generating units, FPL utilizes a
5,900 acre cooling canal system (CCS) that was placed in service in 1973. On
November 18, 2009, the Florida Public Service Commission approved the Turkey
Point Cooling Canal Monitoring Plan (TPCCMP or Monitoring Plan) for cost
recovery through the Environmental Cost Recovery Clause (ECRC) by Order No.
PSC-09-0759-FOF-EI (Approval Order).
On September 2,
2016, FPL filed projection testimony in the ECRC for the TPCCMP that included
requests for recovery of costs associated with recent actions of two of its
environmental regulators. FPL entered into a Consent Agreement (CA) with the Miami-Dade Department of Environmental
Resource Management (DERM) on October 7, 2015, which was later amended and
referred to as the Consent Agreement Addendum (CAA) on August 15, 2016. FPL
also entered into a Consent Order (CO) with the Florida Department of
Environmental Protection (FDEP) on June 20, 2016. Collectively, costs
associated with the CA, CAA, and CO are referred to herein as the TPCCMP
Disputed Costs.
On November 22,
2016, the Commission issued Order No. PSC-16-0535-FOF-EI that deferred
consideration of issues associated with the TPCCMP Disputed Costs until 2017. The Order also directed FPL to file
additional information in its 2017 Actual/Estimated Testimony for the ECRC
Docket, and established desired time periods for intervenor, staff, and
rebuttal testimony filing dates.
On January 3,
2017, the Commission established Docket 20170007-EI. The Office of Public Counsel (OPC) and the
Florida Industrial Power Users Group (FIPUG) retained party status in the
docket. On March 27, 2017, Southern Alliance for
Clean Energy (SACE) was granted intervention by Order No. PSC-17-0112-PCO-EI. Collectively, OPC, FIPUG, and SACE are referred
to herein as the Intervenors.
Staff notes that
other parties participated in the 2017 ECRC Docket, including Duke Energy
Florida, LLC, Tampa Electric Company, Gulf Power Company (Gulf), and PCS
Phosphate – White Springs, but none of these parties took positions on the
Issues discussed in this recommendation and are therefore not included in the
Positions of the Parties set forth herein.
The Commission
Hearing was held October 25, 2017 through October 27, 2017. On November 13,
2017, briefs were filed by FPL, OPC, and SACE. FIPUG filed a notice of joinder
with OPC’s brief, and the two are collectively referred to as OPC/FIPUG herein.
As part of its November 13, 2017 filing, SACE filed proposed findings of fact
and conclusions of law. Such filings are anticipated by Chapter 120,
Florida Statutes (F.S.), the Uniform Rules of Procedure, and our procedural
orders. The Commission must consider these filings, as it would any other
post-hearing filing, but no special ruling or finding must be made for each
proposed finding of fact or conclusion of law. Thus, like all post-hearing
filings, staff has reviewed each of SACE’s proposed findings of fact and
conclusions of law to determine which, if any, should be specifically addressed
in staff’s post-hearing recommendation.
The Commission
has jurisdiction over this subject matter pursuant to provisions of Section
366.8255, F.S. A list of acronyms is provided on the next page.
Acronym List
AO Administrative
Order
Approval Order Commission Order No.
PSC-09-0759-FOF-EI
CA Consent Agreement
CAA Consent Agreement
Addendum
CCS Cooling Canal System
CO Consent Order
COC Conditions of
Certification
DERM Miami-Dade
Department of Environmental Resources Management
ECRC Environmental Cost Recovery Clause
EPA Environmental
Protection Agency
FDEP or DEP Florida
Department of Environmental Protection
FEA Federal Executive
Agencies
FERC Federal Energy
Regulatory Commission
FIPUG Florida Industrial Power
Users Group
FO Final Order
FPL Florida Power and Light
F.S. Florida Statutes
GAAP Generally Accepted
Accounting Principles
GULF Gulf Power Company
NOV Notice
of Violation
O&M Operation and
Maintenance
OPC Office
of Public Counsel
PSU Practical Salinity
Units
RFRP Retraction and
Freshening Remediation Project
RWS Recovery Well System
SACE Southern Alliance for
Clean Energy
SFWMD South Florida Water
Management District
TP Turkey Point
TPCCMP Turkey
Point Cooling Canal Monitoring Plan
USOA Uniform System of
Accounts
Discussion
of Issues
Issue 10A:
Should FPL be allowed to recover, through the ECRC,
prudently incurred costs, if any, associated with the June 20, 2016 Consent
Order between FPL and the Florida Department of Environmental Protection and
the October 2015 Consent Agreement between FPL and the Miami-Dade County
Department of Environmental Resources Management (as amended by the August 15,
2016 Consent Agreement Addendum)?
Recommendation:
Yes. FPL should be allowed to recover the TPCCMP
Disputed Costs, if prudently incurred, through the ECRC. The TPCCMP Disputed
Costs are costs incurred after the inception of the ECRC and are not being
recovered through another clause mechanism or base rates. Staff recommends that
FPL is subject to new governmentally imposed environmental requirements enacted
after FPL’s last test year on the date of filing in the 2016 ECRC proceeding. The
prudency of the TPCCMP Disputed Cost activities is addressed in Issue 10B. (Ellis,
Mtenga)
Position of the Parties
FPL:
Yes. FPL is
required to comply with the 2015 CA, 2016 CO, and 2016 CAA and costs that FPL
has prudently incurred as a result of these requirements are recoverable
pursuant to Section 366.8255. The administrative procedural history reflecting
other parties’ dissatisfaction with the FDEP’s AO (Administrative Order) and
subsequent findings of violations fails to demonstrate that, as a policy
matter, FPL’s costs should be disallowed. Moreover, there is no legal basis to
disallow costs determined to be prudently incurred to comply with environmental
requirements.
OPC/FIPUG:
No. The
jurisdictional portion of approximately 95 percent of the total O&M and
capital expenditures of $132,577,031 in remediation costs to clean up the
Biscayne Aquifer should be disallowed.
SACE: No. FPL was issued a Notice of Violation by
the DEP in 2016 and by Miami-Dade County in 2015. The Commission has never
allowed a utility to recover costs through the Environmental Cost Recovery
Clause (ECRC) for compliance costs arising from a violation of law. Doing so in
this case would establish a dangerous precedent in future ECRC
proceedings. Regardless, recovery of
costs should not be allowed because FPL’s failure to mitigate the impact of
CCS-caused hyper-saline plume before 2014 was imprudent.
Staff Analysis:
Parties’ Arguments
FPL
FPL argues that FPL, as part of the Turkey Point Uprate
Project, was required by its Conditions of Certification (COC), specifically
Section IX and X, to implement monitoring of various state surface and ground
waters subject to the regulation of the DEP, DERM, and South Florida Water
Management District (SFWMD). (FPL BR 5-6; EXH 6) As part of implementing the
COC, FPL sought, and was granted, approval of the Monitoring Plan by the
Commission in the Approval Order in November 2009. (FPL BR 6; EXH 74) FPL
argues that it continued to meet its regulatory requirements of monitoring, and
as part of that monitoring process in April 2013, SFWMD determined that saline
water had moved into water resources outside of the plant’s boundaries. FPL was
instructed to begin consultations with SFWMD to “identify measures to mitigate,
abate, or remediate.” (FPL BR 6-7; EXH 7) FPL states that it then began working
with its environmental regulators to evaluate options which resulted in an AO by
FDEP being issued in December 2014. (FPL BR 7; EXH 8)
FPL claims one of its regulators, DERM, was unsatisfied
with the DEP’s AO. As a result, DERM challenged the AO and issued a Notice of
Violation (NOV) in October 2015. (FPL BR 7; EXH 9) The challenge to the AO
resulted in a Final Administrative Order (FO) that led to the FDEP issuing a
separate NOV in April 2016. (FPL BR 7; EXH 11; EXH 12) FPL argues that both
DERM’s and the DEP’s NOVs were resolved by entering into the CO in June 2016
and the amended CAA in August 2016. (FPL BR 7; EXH 10; EXH 13) Further, FPL contends
that the actions required by the CAA and CO that constitute the TPCCMP Disputed
Costs, are direct consequences of its COC. (FPL BR 7)
FPL alleges it is overly simplistic for the Intervenor
Parties to claim that the NOVs are violations of law. (FPL BR 7). First, FPL contends
that the environmental standard cited by all three of its environmental
regulators are narrative standards that require the agency’s judgement to
determine if a violation had occurred, and there was no bright line defining a
violation of law. (FPL BR 8; TR 359) Second, FPL argues that it operated the
CCS in full compliance with its regulations and that the environmental
degradation is an unintended consequence. (FPL BR 8) Last, FPL asserts that the
NOVs are not the sole reason for the TPCCMP Disputed Costs, and that FPL would
be obligated by its COC to perform the same actions. (FPL BR 9; TR 374-375)
FPL also argues that OPC is mistaken regarding the
Commission’s discretion regarding recovery, and that if the Commission approves
the Company’s activities, the Commission must allow cost recovery through the
ECRC pursuant to Section 366.8255, F.S. (FPL BR 9)
OPC/FIPUG
OPC/FIPUG argues that FPL has not met its burden of proof to
be eligible for recovery of the TPCCMP Disputed Costs, which OPC/FIPUG refers
to as the Retraction and Freshening Remediation Project (RFRP). (OPC/FIPUG BR
2) OPC/FIPUG asserts that in its original 1972 permitting, FPL was responsible
for both monitoring and preventing the spread of saltwater from the CCS. (OPC/FIPUG
BR 3; EXH 4)
OPC/FIPUG contends that while a Consent Order or Agreement
does not preclude recovery through the ECRC, costs implementing remediation
activities to correct violations of law are not eligible. (OPC/FIPUG BR 4-5) OPC/FIPUG
argues that FPL specifically justifies its activities by relying on the DEP CO
which resulted from an NOV. (OPC/FIPUG BR 5) OPC/FIPUG asserts that as a result
of the NOV, FPL would have been liable to the state of Florida for damage to
the Biscayne Aquifer, and therefore should not be eligible for recovery as
though RFRP costs were payment of damages for unlawful conduct. (OPC/FIPUG BR
5) OPC/FIPUG notes that Section 366.8255, F.S., requires that costs must be
“designed to protect the environment.” (OPC/FIPUG BR 6)
OPC/FIPUG argues that the ECRC recovery standard includes
both prudence and public policy elements, and that the Commission must be
vigilant about improper efforts to recover costs through the ECRC. (OPC/FIPUG
BR 9)
OPC/FIPUG states that the ECRC is an inappropriate method
to recover costs associated with past harms. Instead, the clause is meant to
allow recovery of costs required by new regulations to prevent future harm. (OPC/FIPUG
BR 13) OPC/FIPUG refers to prior Commission decisions that use language
relating to maintaining compliance or continuing compliance, and suggests that
because FPL has committed a violation and is out of compliance, FPL’s costs are
now ineligible under the ECRC. (OPC/FIPUG BR 13-14) OPC/FIPUG acknowledges that
the Commission has allowed remediation costs before, but suggests that those
circumstances were with specific regulations that are not similar to the
circumstances with the TPCCMP Disputed Costs. OPC/FIPUG further argues that a
Consent Order or Agreement is the equivalent of an environmental regulation
when it has a prospective application to abate or eliminate future harm, and
that in prior instances when the Commission has approved cost recovery for a
Consent Decree such costs only covered prospective actions. (OPC/FIPUG BR 16)
SACE
SACE alleges
that FPL knew or should have known by 1992 that the operation of the CCS was
causing an adverse impact to waters adjacent to the CCS. (SACE BR 1) SACE
argues that FPL omitted information on the scale of the environmental impacts
of the CCS from both SFWMD and the Commission. (SACE BR 1) SACE contends that
FPL’s imprudence caused the environmental compliance requirements from the CO
and CA, and therefore it should be not allowed for cost recovery. (SACE BR 1-2)
SACE alleges
that FPL downplayed or even ignored the conclusions of annual monitoring reports
that were filed with environmental regulators. (SACE BR 17) SACE asserts that
had environmental regulators been provided with a complete analysis of the
monitoring data, FPL’s Turkey Point Uprate Project might not have been
approved. Therefore the COCs FPL relies upon as an environmental requirement
would not have been required. (SACE BR 7) SACE argues that allowing FPL cost
recovery would establish a dangerous precedent for cost recovery in this docket
moving forward. (SACE BR 34)
Analysis
Eligibility
Criteria
The ECRC, enacted
into law in 1993, provides an investor-owned utility the opportunity to recover
the costs associated with changes in environmental regulations between rate
cases. The statute authorizes the Commission to review and decide whether a
utility’s environmental compliance costs are recoverable through an
environmental cost recovery factor. When the Commission first implemented the
provisions of Section 366.8255, F.S., it identified the criteria required to
demonstrate eligibility for cost recovery under the ECRC and interpreted the
statute to prescribe three requirements for recovery of environmental
compliance costs through the clause, as detailed below:
Upon petition, we shall allow the recovery of costs
associated with an environmental compliance activity if:
1. such costs
were prudently incurred after April 13, 1993;
2. the activity is legally required to comply with a
governmentally imposed environmental regulation enacted, became effective, or
whose effect was triggered after the Company’s last test year upon which rates
are based; and,
3. such costs are not recovered through some other
cost recovery mechanism or through base rates.
Pursuant to Section 366.8255, F.S., only the utility’s
prudently incurred environmental compliance costs are allowed to be recovered
through the ECRC. The
prudency of the TPCCMP Disputed Costs is discussed in Issue 10B.
Eligibility
Criteria Review
Timing
To be eligible for the ECRC, costs must have been incurred
after April 13, 1993. In 1994, the Commission
determined that such recovery would apply to qualifying expenditures
that were prudently incurred after April 13, 1993,
the effective date of Section 7, Chapter 93-35, Laws of Florida, which created
Section 366.8255, F.S.
This threshold date has been applied by the Commission many times since it was
originally established.
No party argues and there is no evidence in the record that
the TPCCMP Disputed Costs were incurred prior to this date. Therefore, staff
recommends that the TPCCMP Disputed Costs meet the first criteria of ECRC
eligibility.
New Regulatory
Requirement
To be eligible for the ECRC, costs must be for activities
that are legally required to comply with a governmentally imposed regulation that
has been enacted, or become effective, or whose effect was triggered after the Company’s
last test year upon which rates are based. Therefore, to determine eligibility
of the TPCCMP Disputed Costs, the Commission must first identify the new regulations
and then determine if the date of such regulations is after the Company’s last
test year.
Section
366.8255 (1)(c), F.S., defines environmental laws or regulations to include
“all federal, state, or local statutes, administrative regulations, orders,
ordinances, resolutions, or other requirements that apply to electric utilities
and are designed to protect the environment.” The FDEP and DERM are state and
local environmental regulators, respectively, with the authority to impose
requirements on FPL’s operations of the CCS and other relevant plant. The CO,
CA, and CAA all include specific new requirements that apply to FPL in relation
to its function as an electric utility. (EXH 13; EXH 10; EXH 14) These are
primarily detailed in Sections 20 through 33 of the DEP’s CO and Sections 17
and 34 in DERM’s CA, as amended by the CAA. (EXH 13; EXH 10; EXH 14) These
requirements include items such as implementing plans to meet salinity
thresholds, installation and operation of freshening projects, improving
thermal efficiency, and engaging in remediation projects including a recovery
well system. (EXH 13; EXH 10; EXH 14)
The
Commission has previously interpreted a Consent Decree to be a qualifying
requirement under the ECRC. In
another instance, the Commission allowed ECRC cost recovery based on an
agreement reached as a result of alleged violations of the Clean Air Act.
FPL’s Witness Sole states that without the DEP’s NOV, FPL would not have signed
a Consent Order. (TR 375) Staff notes that DEP’s NOV directed FPL to enter into
a Consent Order or equivalent. (EXH 12) Witness Sole states FPL is engaging in
the TPCCMP Disputed Cost activities pursuant to the CO and CA. (TR 302-305)
Staff notes
that the activities within the CO, CA, and CAA expressly require FPL to engage
in remediation activities. (EXH 13; EXH 10; EXH 14) The Commission previously
has approved recovery of costs associated with remediation activities under the
ECRC. Based
on the statutory definition, the Commission’s past decisions, and the record in
this docket, staff recommends that the CO, CA, and CAA meet the definition of new
environmental regulations and therefore any associated compliance costs are eligible
for cost recovery under the ECRC.
Timing of New
Regulation
To be eligible for the ECRC, the activity is legally
required to comply with a governmentally imposed environmental regulation that
was enacted, became effective, or whose effect was triggered after the Company’s
last test year upon which rates are based. FPL’s most recent rate case was
resolved by a settlement between many parties, including FPL and OPC, and
approved by the Commission pursuant to Order No. PSC-16-0560-AS-EI. No
party argues and there is no evidence in the record that the TPCCMP Disputed
Costs were triggered prior to FPL’s last test year upon which rates are based. Therefore,
staff recommends that the TPCCMP Disputed Costs meet the second criteria of
ECRC eligibility.
Costs Not Recovered
To be eligible for the ECRC, costs also must not be
recovered through some other cost recovery mechanism or through base rates. No
party argues and there is no evidence in the record that the TPCCMP Disputed
Costs are being recovered through base rates or an alternate clause mechanism.
Therefore, staff recommends that the TPCCMP Disputed Costs meet the third
criteria of ECRC eligibility.
Conclusion
Based on the foregoing analysis, staff recommends that FPL
should be allowed to recover the TPCCMP Disputed Costs, if prudently incurred,
through the ECRC. The TPCCMP Disputed Costs are costs incurred after the
inception of the ECRC and are not being recovered through another clause
mechanism or base rates. Staff recommends that FPL is subject to new
governmentally imposed requirements enacted after FPL’s last test year on the
date of filing in the 2016 ECRC proceeding. Whether the TPCCMP Disputed Cost
activities are prudent is addressed in Issue 10B.
Issue 10B:
Which costs, if any, associated with the June 20,
2016 Consent Order between FPL and the Florida Department of Environmental
Protection and the October 2015 Consent Agreement between FPL and the
Miami-Dade County Department of Environmental Resources Management (as amended
by the August 15, 2016 Consent Agreement Addendum) were prudently incurred?
Recommendation:
Staff recommends that FPL has prudently incurred the
2015 and 2016 TPCCMP Disputed Costs, and that FPL’s request for 2017 and 2018
TPCCMP Disputed Costs are reasonable. However, FPL has not met its burden of
proof that the $1.5 million escrow deposit component is associated with the
operation of the CCS for the direct benefit of FPL’s customers. Staff notes
that the 2017 and 2018 TPCCMP Disputed Costs and removal of the escrow payment are
subject to true-up in future ECRC proceedings. (Ellis, Mtenga)
Position of the Parties
FPL:
All costs associated with the 2015 CA, 2016 CO, and
2016 CAA are being prudently incurred.
FPL has operated the CCS and interceptor ditch as required. No prior imprudence was demonstrated by any
party. In asserting there was a knowable problem earlier, OPC is substituting
its judgment for the judgement of the SFWMD which reviewed the same data as OPC
and determined no action was warranted. In asserting the RWS is not needed or
will be ineffective, OPC is substituting its judgement for the judgement of
agencies that mandated the RWS and approved its design and modeled impacts.
OPC/FIPUG:
The costs of the Retraction Well System are remedial
in nature and should not be imposed on FPL’s customers. FPL’s management knew
or should have known that its actions in operating the CCS were creating
material harm to the Biscayne Aquifer.
FPL’s actions and inaction over time placed the Company in violation of
law, and therefore, constitute imprudence, such that the costs of addressing
the consequences of that imprudence are not appropriate costs that should be
borne by customers.
SACE:
None.
Customers should not have to pay for FPL’s mistakes. FPL knew or should
have known that the CCS was causing an underground hyper-saline contamination
plume spreading from its Turkey Point plant property by 1978, and certainly by
1992 at the latest. It failed to take any action to mitigate the impacts of the
CCS on the Biscayne Aquifer (a G-II water source) until 2014. A prudent utility
manage would have acted promptly and proactively well before 2014 to mitigate
and / or remediate the growing hyper-salinity contamination plume outside the
CCS boundary.
Staff Analysis:
Parties’ Arguments
FPL
FPL states that it has prudently operated the CCS in
compliance with its permits and applicable regulations and has cooperated with
its environmental regulators throughout its service life. (FPL BR 11) FPL disputes
that it has never violated any operational requirements in its environmental
permits. (FPL BR 11) FPL argues that, pursuant to its regulatory requirements,
that it engaged in increased monitoring that resulted in the determination that
corrective action was required, and that it is now engaging in corrective actions.
(FPL BR 11)
FPL contends that the TPCCMP Disputed Costs are prudently
incurred and that it is inappropriate for the Intervenor Parties to second
guess the requirements of its environmental regulators. (FPL BR 12) Further,
FPL states that the environmental actions required by the CO, CA, and CAA have
significant overlap and that they require similar monitoring and corrective
actions. (FPL BR 12-13)
FPL argues that OPC failed to identify any imprudent
management decisions that resulted in the TPCCMP Disputed Costs and that it
operated the system in compliance with regulations, which is acknowledged by
its environmental regulators. (FPL BR 13-14; EXH 47; EXH 13) FPL asserts that
OPC’s arguments are made with the benefit of hindsight using FPL’s groundwater
monitoring reports, that the COC acknowledges the concerns expressed by OPC and
that its enhanced monitoring requirements were the result of its environmental
regulators having insufficient data to determine what actions, if any, would
need to be taken. (FPL BR 14-15)
FPL specifically defends the prudence of the Recovery Well
System (RWS) and related costs as a well understood remediation method that was
the result of consensus between FPL and its environmental regulators. (FPL BR
15-16) FPL argues that OPC’s review of the RWS impacts on the hypersaline plume
uses invalid assumptions and misinterprets the modeling done to analyze it.
(FPL BR 16) FPL acknowledges that while uncertainty exists regarding the impact
upon some layers of the Aquifer the operation of the RWS is subject to further
review of its environmental regulators and should move forward. (FPL BR 16-17)
FPL argues that the need for future modification of its corrective actions is
appropriate and does not undermine a determination of prudence for those
activities. (FPL BR 17) FPL asserts that regardless of the impact of the RWS, it
is a specific requirement by the CO and CA and the associated modeling has been
approved by DERM. (FPL BR 17; EXH 10; EXH 13)
OPC/FIPUG
OPC/FIPUG contends that the build-up of salt from the CCS
was foreseeable and would occur absent the attention and intervention by FPL. (OPC/FIPUG
BR 3) OPC/FIPUG argues that FPL failed to take actions on its own to prevent
harm despite being required to monitor its wastewater and propose modifications
to prevent such harm. (OPC/FIPUG BR 3-4) OPC/FIPUG faults FPL for following
faulty advice from consultants and failing to follow recommendations to monitor
trends and verify assumptions. (OPC/FIPUG BR 4) OPC/FIPUG contends that its
observations are not hindsight, but are consistent with FPL’s historic
obligations under its environmental agreements. (OPC/FIPUG BR 4) OPC/FIPUG also
argues that FPL failed to prudently plan and execute tasks to avoid foreseeable
damage, and that the Commission in the past has held such failure as imprudent.
(OPC/FIPUG BR 6-7)
OPC/FIPUG asserts that FPL broke the law by violating
groundwater protection rules and its permit conditions causing damage to the
aquifer, and is attempting to recover repair costs through customers for its
violations. (OPC/FIPUG BR 10) OPC/FIPUG argues it is FPL’s responsibility to
pay for damages caused by its poor management of the situation that allowed the
damage to occur. (OPC/FIPUG BR 12) OPC/FIPUG contends that costs to remediate
harm are ineligible for cost recovery through the ECRC or any other mechanism
based on FPL’s ability to foresee harm, if not violations of law, caused by its
operation of the CCS. (OPC/FIPUG BR 16)
OPC/FIPUG states that it is inappropriate for FPL to
suggest that it relied upon environmental regulators to provide the requirement
to act to address the damage caused by operation of the CCS. (OPC/FIPUG BR
19-20) OPC/FIPUG argues that because FPL was in possession of the data and did
not put forward any testimony from a manager of the water monitoring regulatory
program, it has failed to meet its burden of proof. (OPC/FIPUG BR 20) OPC/FIPUG
asserts that given the three-year lapse of reporting by FPL, not resulting in
any action by SFWMD, that the regulator was not actively monitoring the
environmental situation, and therefore could not be relied upon to provide a
requirement to act. (OPC/FIPUG BR 20) OPC/FIPUG argues that reliance on the
regulator’s guidance was at the Company’s risk and inappropriate, given that
the regulator relied upon the Company’s data and analysis. (OPC/FIPUG BR 21)
OPC/FIPUG contends that the $1.5 million escrow payment
required by the CO is akin to a donation, and the funds may not be used towards
mitigation of saltwater intrusion caused by FPL, and should therefore be
ineligible for recovery. (OPC/FIPUG BR 22) Furthermore, OPC/FIPUG argues that land
donations required by the CO, while not sought for recovery at this time, might
result in a below market value transaction and that such losses should be
reviewed in a future proceeding and not determined at this time. (OPC/FIPUG BR
22-23)
SACE
SACE asserts
that FPL knew or should have known by 1992 that the operation of the CCS was
causing an adverse impact to adjacent waters to the CCS. (SACE BR 1) SACE
argues that FPL omitted information on the scale of the environmental impacts
of the CCS from both SFWMD and the Commission. (SACE BR 1) SACE contends that
FPL’s imprudence caused the environmental compliance requirements from the CO
and CA, and therefore it should be not allowed for cost recovery. (SACE BR 1-2)
SACE argues
that FPL is imprudent by its inaction in that a reasonable utility manager
would have attempted corrective actions prior to 2014, instead of sitting on
information about the environmental damage which allowed it to increase in size
and concentration. (SACE BR 4) SACE asserts that as late as 2010, FPL
consultants provided a feasibility analysis that identified a solution that
would have addressed the hypersaline conditions within three years, but failed
to act. (SACE BR 6)
SACE argues
that FPL intentionally misled regulators by failing to provide SFWMD with
reports for several years, and when those reports were provided, failed to
provide analysis regarding the effectiveness of its current actions in
preventing environmental damage, instead attributed greater salinity to seasonal
conditions. (SACE BR 7) SACE asserts that had environmental regulators been
provided with a complete analysis of the monitoring data, FPL’s Turkey Point
Uprate Project might not have been approved, therefore not requiring the COCs
FPL relies upon as an environmental requirement. (SACE BR 7) SACE argues that
FPL intentionally misled the Commission regarding the potential for mitigation
measures in the Commission’s review of the TPCCMP. (SACE BR 8)
SACE alleges
that the overall regulatory process associated with the CCS is poor, with FPL
failing to provide monitoring data, using poor monitoring standards, and
co-writing its AO which was deficient of charges. (SACE BR 8) SACE argues that
there was no provision in any of its agreements with regulators that prevented
FPL from altering the operation of the CCS, improving its monitoring and
analysis, or proactively engaging its regulators regarding the need for
corrective action. (SACE BR 9)
Analysis
Pursuant to
Section 366.8255, F.S., the Commission “shall allow recovery of the utility's
prudently incurred environmental compliance costs.”
Environmental compliance costs include “all costs
or expenses incurred by an electric utility in complying with environmental
laws or regulations.”
As discussed in Issue 10A, FPL incurred the TPCCMP Disputed Costs in response
to new environmental requirements.
Review Standard
Due to the varying time periods of when costs were or are
to be incurred, the Commission must apply separate standards of review to the
TPCCMP Disputed Costs. This is consistent with the Commission’s decision when
it established the ECRC, noting:
We shall not
make a specific finding of prudence for any activity included in Gulf's
petition at this time. There are several
reasons for this. First, many of the
costs included in Gulf's petition are based on projections, and some of the
projects have not yet been implemented.
Thus, it is premature to establish prudence for a project that has not
been completed. Second, the
environmental cost recovery clause, like the fuel cost recovery clause, will be
an on-going docket involving trueing-up projected costs. We retain jurisdiction in the fuel cost
recovery clause because of the true-up provisions associated with fuel filings.
FPL’s Witness Deaton testified in support of FPL’s actual
costs for 2016, actual/estimated costs for 2017, and projected costs for 2018. (TR
261) As 2015 and 2016 represent actual expenditures by FPL, these are subject
to a full prudence determination by the Commission at this time. However, 2017
and 2018 TPCCMP Disputed Costs cannot be determined as prudent or imprudent. The
Commission instead subjects these costs to a reasonableness test for inclusion
in clause recovery, with prudency to be determined in a future ECRC proceeding
as part of the traditional true-up mechanism.
FPL is
currently recovering costs through the ECRC factor that include the TPCCMP
Disputed Costs pursuant to a stipulation approved by the Commission at the
October 25, 2017 evidentiary hearing. Any adjustments or modifications the
Commission makes pursuant to this recommendation should be addressed in a
future ECRC proceeding. Staff notes the appropriate allocation between O&M
and capital is addressed separately in Issue 10D, and may also impact the
annual amount for cost recovery.
Review of Activities
As discussed in Issue 10A, staff recommends that the CO,
CA, and CAA introduce new regulatory requirements and are therefore eligible
for potential recovery through the ECRC subject to a prudency review. As part
of that review, the Commission must analyze the Company’s activities leading up
to CO, CA, and CAA. If prudently managed prior to the issuance of the CO, CA,
and CAA, the Commission must then analyze whether FPL’s expenditures for
compliance are prudent and reasonable for recovery through the ECRC.
Actions Prior to
New Requirements
The Intervenors suggest FPL was imprudent because it either
knew or should have known about deteriorating environmental conditions, and
that FPL should have taken action prior to the requirements of the CO, CA, and CAA.
(TR 619; TR 621-622; TR 624; EXH 45) Staff reviews each of these claims below.
FPL’s Witness Sole outlines FPL’s compliance with its
monitoring requirements since the start of the Company’s operation of the CCS,
including well and surface water monitoring and quarterly reports. (TR 291)
Witness Sole outlines that monitoring data was provided to SFWMD on at least an
annual basis. (TR 292) FPL’s Witness Sole and OPC’s Witness Panday agree that a
three year gap in providing monitoring
reports existed between 2005 and 2007, and was resolved in 2008. (TR 628; 714) Witness
Sole observed that even with the information provided, SFWMD did not take
additional action once the monitoring oversight had been corrected. (TR 714)
Both the DEP and DERM’s NOVs do not identify attempts to
mislead or failure to provide data as the source of the violation. The DEP’s
NOV ultimately identifies Rule 62-520.400, Florida Administrative Code, and
DERM’s NOV identifies Section 24-42(3) of the Code of Miami-Dade County, both
of which address the water quality criteria. (EXH 12; EXH 9)
FPL’s Witness Sole notes that with the exception of the NOVs
received from the DEP and DERM, FPL has operated the CCS in compliance with its
regulatory permits. (TR 414) OPC’s Witness Panday agreed that at no time did
SFWMD direct the utility to engage in consultation prior to its April 16, 2013
letter requesting consultation. (EXH 7) Staff observes that the data collected
during those three years discussed above, was available to FPL’s environmental
regulators prior to SFWMD’s letter requesting consultation. (EXH 7) The record
indicates that the regulatory bodies responsible for water quality were
sufficiently informed of the condition of the Biscayne Aquifer, and no evidence
was provided that FPL withheld evidence or submitted false data.
OPC’s Witness Panday argues that FPL should have known,
based on its monitoring reports that showed hypersalinity outside the
boundaries of the CCS as early as 1990, that the salinity within the CCS
exceeded the maximum level proposed in the 1978 Dames and Moore Report. (TR
623; EXH 45) OPC’s Witness Panday asserts that the long-term trends were
unmistakable signs that damage was occurring. (TR 624; TR 625) OPC’s Witness
Panday alleges that by at least 1992, FPL should have known that the CCS was
causing harm, but that FPL willfully or carelessly ignored these results. (TR
624-628) OPC’s Witness Panday alleges that by failing to follow its experts’
advise to track salinity changes, FPL failed in its obligations. (TR 628)
FPL’s Witness Sole argues that if FPL had acted without
prior direction from an environmental regulator, that OPC or another party
could have argued against cost recovery. (TR 743) Staff agrees with this
argument because a clear governmental requirement is necessary for recovery of
costs through the ECRC.
While the Intervenors argue that FPL should have engaged
in action prior to the CO, CA, and CAA, no evidence was provided in the record
for what these actions were and the potential alternatives or cost savings
measures that FPL could or should have implemented prior to engaging in the
activities that resulted in the TPCCMP Disputed Costs. As discussed above, the
record indicates that FPL adhered to the monitoring requirements and was under the
continuous oversight of FDEP, DERM, and SWFMD. No evidence was provided that
FPL intentionally withheld or submitted false data to environmental regulators
or the Commission. Based on our review of the record, staff recommends that
given what FPL knew or should have known at the time, FPL was prudent in its
actions regarding the historic operation of the CCS.
Actions to
Comply with New Requirements
OPC’s Witness Panday argues that FPL’s RWS would have only
a marginal effect on the hypersaline plume, and even when combined with
freshening will not accomplish the retraction of the hypersaline plume to the
boundaries of the CCS. (TR 639) FPL’s Witness Sole defends the use of the RWS,
stating it is a common remediation method and was only selected after
evaluating other alternatives. (TR 717) As discussed in Issue 10A, the CO, CA,
and CAA contained specific environmental requirements.
Staff notes that the CO at Section 20(c) states that FPL
shall “[i]mplement a remediation project that shall include a recovery well
system…” (EXH 13) Section 20(c) also contains several milestones leading to the
construction of the RWS. (EXH 13) OPC’s Witness Panday agreed that DERM had
approved the use of the RWS as of May 2017. (TR 677) Regardless of the efficacy
of the RWS, it is a requirement imposed by a governmental authority as part of FPL’s
remediation efforts.
As discussed in Issue 10A, the CO, CA, and CAA introduce a
variety of new requirements for inspections, monitoring, data analysis,
reporting, planning, construction, operation, and other activities associated
with the operation of the CCS and remediation of environmental damage. The
requirements also include a deposit of funds with the Florida Department of
Financial Services and the conveyance of land to SFWMD. (TR 299; TR 302-303)
Excluding the escrow deposit and the land conveyance discussed in more detail
below, staff recommends that TPCCMP Disputed Costs comply with the requirements
of FPL’s continued monitoring under the Monitoring Plan or the new requirements
of the CO, CA, or CAA. It is not the Commission’s role to determine if the
requirements of the CO, CA, or CAA are appropriate or will be effective at
mitigating saltwater intrusion from the CCS. As discussed above, the record
indicates that FPL adhered to the monitoring requirements and the associated continuous
oversight of FDEP, DERM, and SWFMD. In addition, no evidence was presented that
FPL intentionally withheld or provided false or misleading data to
environmental regulators. Therefore, staff recommends that the actual TPCCMP
Disputed Costs for 2015 and 2016 expenditures are prudent, and that FPL’s
actual/estimated 2017 expenditures and projected 2018 expenditures are
reasonable such that they are eligible for recovery through the ECRC.
Adjustments for
Escrow and Land Conveyance
Section 23(c) of the CO requires FPL to deposit $1.5
million in a Florida Department of Financial Services escrow account. (EXH 13)
FPL projected payment of the $1.5 million is to be completed in December 2017.
(EXH 61) FPL’s Witness Sole states in cross-examination that these funds may be
used by the DEP to address projects that do not have any relation to FPL’s CCS
or the related hypersaline plume. (TR 459-460) Witness Sole also states that the
$1.5 million is not a fine or administrative penalty. (TR 460) OPC/FIPUG’s
argument is that FPL failed to meet its burden of proof that the $1.5 million
deposit is a reasonable cost that will directly benefit FPL’s customers. While
staff acknowledges that the $1.5 million escrow deposit is a requirement of the
CO, it was established that the $1.5 million component is not associated with
the operation of the CCS for the benefit of FPL’s customers. Staff agrees with
OPC/FIPUG’s argument that FPL failed to meet its burden of proof for the
recovery of the $1.5 million.
As to the land conveyance, Section 23(b) of the CO
requires FPL to provide land to SFWMD if requested. (EXH 13) OPC/FIPUG’s
argument is that approval of any such transaction should be withheld until a
later review. Staff observes that the Commission is not approving or
disapproving cost recovery for this component of the CO as part of this docket.
Staff agrees with OPC/FIPUG’s argument, and recommends that the appropriate
accounting review of this land transaction should be conducted during the
Company’s next base rate proceeding.
Conclusion
Staff recommends that FPL has prudently incurred the 2015
and 2016 TPCCMP Disputed Costs, and that its request for 2017 and 2018 TPCCMP
Disputed Costs are reasonable. The only exception to recovery should be the
$1.5 million escrow payment, which should be disallowed as the Company has not
met its burden of proof that the funds would be used to directly benefit FPL’s
customers. Staff notes that the 2017 and 2018 TPCCMP Disputed Costs and removal
of the escrow payment are subject to true-up in future ECRC proceedings.
Issue 10C:
Should the costs FPL seeks to recover in this docket
be considered part of its Turkey Point Cooling Canal Monitoring Plan project?
Recommendation:
Yes. Based on the TPCCMP Approval Order, the TPCCMP
Disputed Costs should be considered part of the existing TPCCMP project. The
costs FPL is requesting to recover are the result of the anticipated evolution
of the original TPCCMP program. (Ellis, Mtenga)
Position of the Parties
FPL:
Yes. Requirements for the TPCCMP project have
progressed from monitoring to implementing corrective actions. At the time the
TPCCMP project was approved for recovery through the ECRC in 2009, FPL made
clear that such a progression was a potential outcome. As demonstrated in the
2009 Order, it was also clear that the scope of the projected extended to
historic impacts of the CCS generally – not just those related to the EPU (Extended
Power Uprate) project. FPL provided testimony at key project expansion points
and reflected incremental costs for the expansion of FPL’s compliance
activities each year in its ECRC filings.
OPC/FIPUG:
No.
SACE:
No.
FPL omitted material information on its exposure to significant environmental
corrective action and costs related to its operation of the CCS. FPL knew that
the CCS-caused hyper-saline plume had pushed the saltwater interface well west
of the boundary of the CCS in 2009. In fact, the Company’s consultants started
developing remediation plans months after the Commission approved the project.
Regardless, recovery of costs should not be allowed because FPL’s failure to
mitigate the impact of CCS-caused hyper-saline plume before 2014 was imprudent.
Staff
Analysis:
Parties’ Arguments
FPL
FPL asserts that the Commission, in its Approval Order,
acknowledged the potential for it to include corrective actions. (FPL BR 19-20,
22) FPL argues that in its request for the Monitoring Program, it included the
Conditions of Certification IX and X which included specific language that
would require FPL to engage in corrective action. (FPL BR 20) FPL states that
its monitoring activities in the Monitoring Program directly lead to
information that determined the need for additional actions were necessary by
its environmental regulators. (FPL BR 20-21) FPL notes that similar activities
to the TPCCMP Disputed Costs were approved as part of the 2015 ECRC Docket,
specifically water delivery projects and sediment management. (FPL BR 21) FPL
argues that while the Approval Order states that “the eligibility of ECRC
recovery for any similar project will depend on individual circumstances and
shall, therefore, be considered on a case-by-case basis,” that this is a
reference to a potential disagreement of the location of recovery, through the
ECRC or through the Nuclear Cost Recovery Clause, not that costs would be unrecoverable
in general. (FPL BR 22-23)
OPC/FIPUG
OPC/FIPUG contends that the Commission’s Order approving
the Monitoring Program was strictly limited to monitoring impacts associated
with the Turkey Point Uprate Project. (OPC/FIPUG BR 24) OPC/FIPUG argues that
the scale of the TPCCMP Disputed Costs compared to Monitoring Program costs
requires review independent of that conducted of the TPCCMP in 2009. (OPC/FIPUG
BR 24-25) Further, OPC/FIPUG asserts that the Company did not disclose the full
scope of the remediation projects, and that when the Company agreed to the CA,
CAA, and CO the environmental regulators did not approve specific actions such
as the RWS system. (OPC/FIPUG BR 25) OPC/FIPUG argues that the TPCCMP Disputed
Costs are not related to the Monitoring Program and inclusion in the Monitoring
Program is an attempt to evade scrutiny and the Company’s burden of proof that
costs are reasonable and prudent. (OPC/FIPUG BR 25) OPC/FIPUG notes that a
change of scope has been considered a new activity in prior cases, and that
therefore the TPCCMP Disputed Costs constitute a new program, with a separate
evaluation necessary for it to be recovered. (OPC/FIPUG BR 26) OPC/FIPUG contends
that the Approval Order addressed monitoring for the Turkey Point Uprate
Project only, and does not mention remediation, correction, or corrective
action. (OPC/FIPUG BR 26-27) OPC/FIPUG argues that the Monitoring Program should
not include costs to halt and retract the hypersaline plume as they are
unassociated with the Turkey Point Uprate Project. (OPC/FIPUG BR 27) OPC/FIPUG
notes that the Approval Order states that new projects would be considered on a
case-by-case basis. (OPC/FIPUG BR 24, 29)
SACE
SACE alleges
that FPL was aware or should have been aware that measures would be required to
address the hypersaline plume prior to the Commission’s approval of the TPCCMP.
(SACE BR 24) SACE argues that the Company failed to mention the potential
magnitude of costs that would be associated with the CCS. (SACE BR 25) SACE contends
that the Commission approved the TPCCMP with incomplete information due to
intentional omissions by the Company. (SACE BR 35)
Analysis
Staff
agrees with Witness Sole’s statement that the TPCCMP Approval Order
specifically included discussion of the potential for mitigation costs. (TR
308-309) The TPCCMP Approval Order included a stipulation between FPL, OPC,
FIPUG, and the Federal Executive Agencies (FEA), in which OPC, FIPUG, and FEA
took no position on the approval of the program. Specifically, the TPCCMP
Approval Order states, in relevant part:
These activities
will be incremental to FPL’s current monitoring efforts. . . . The CCM Plan has
been designed to focus on the objectives as they relate to the cooling canal
system and the Uprate Project and those resources that may be affected adjacent
to the cooling system. . . . [R]eports will be submitted every six months
during the pre Uprate period and initially during the post Uprate period. . . .
The potential additional measures that might be required include . . . the
development and application of a 3-dimensional coupled surface and groundwater
model to further assess impacts of the Uprate Project on ground and surface
waters . . . [and] mitigation measures to offset such impacts of the Uprate Project
necessary to comply with State and local water quality standards . . .
(emphasis added)
Staff notes that the bold portion of the text above is
also a quotation from the Conditions of Certification, Section X, subsection
D.2. (EXH 6, p. 26)
OPC, FIPUG and SACE are correct to note that the costs for
O&M and capital have increased for the Monitoring Plan. (EXH 79). Staff recommends
that an increase in costs itself is not a change of scope of a project.
Regarding OPC and FIPUG’s assertion that the TPCCMP is specifically referencing
the Turkey Point Uprate Project and does not mention remediation, correction,
or corrective action, staff notes that the Approval Order stated the following:
Because the costs for the TP-CCMP Project are
predominantly O&M expenses that will continue for an uncertain duration,
and because the water-quality issues the Project is being undertaken to address
relate to operation of the Turkey Point plant
as a whole and not just the TP Nuclear Uprate, FPL should be allowed to
recover the costs associated with the TP-CCMP Project through the ECRC.
(emphasis added)
As a result, the Approval Order considered the concern
brought forth by OPC and FIPUG, and addressed the concern directly by providing
that the Monitoring Program is inclusive of the plant as a whole. (EXH 74) As
stated by FPL’s Witness Sole, environmental compliance programs evolve based
upon information that determines the next appropriate action. (TR 310) The
costs FPL is requesting to recover are the result of the anticipated evolution
of the original Monitoring Program. The Intervenors concerns regarding prudency
of the TPCCMP Disputed Costs are addressed in Issue 10B.
Conclusion
Based on the Approval Order, the TPCCMP Disputed Costs
should be considered part of the existing Monitoring Program. The costs FPL is
requesting to recover are the result of the anticipated evolution of the original
Monitoring Program.
Issue 10D:
Is FPL’s proposed allocation of costs associated
with the June 20, 2016 Consent Order between FPL and the Florida Department of
Environmental Protection and the October 2015 Consent Agreement between FPL and
the Miami-Dade County Department of Environmental Resources Management (as
amended by the August 15, 2016 Consent Agreement Addendum) between O&M and
capital appropriate? If not, what is the
correct allocation of costs between O&M and capital?
Recommendation:
Yes. Staff recommends that the RWS and related
activities perform both remediation and containment functions. Consistent with
accounting principles, remediation expenses should be recovered as O&M, and
containment should be recovered as capital. Based on the record, staff
recommends that the Company’s proposed allocation of costs is appropriate, and
should be 74 percent containment (capital) and 26 percent remediation (O&M)
for the RWS and related activities. (Ellis, Mtenga, Smith)
Position of the Parties
FPL:
Yes. FPL’s proposed allocation between O&M and
capital appropriately identifies the extent to which the RWS will achieve
retraction of the hypersaline plume back to the FPL CCS boundaries (O&M)
versus containment of the hypersaline plume within the FPL CCS boundaries
(capital). Capitalization will appropriately spread the cost recovery of the
asset over the expected life of the asset.
OPC/FIPUG:
No. The costs of the Retraction Well System are
remedial in nature and should not be imposed on FPL’s customers. FPL’s
management knew or should have known that its actions in operating the CCS were
creating material harm to the Biscayne Aquifer. FPL’s actions and inaction over
time placed the Company in violation of law, and therefore, constitute imprudence.
Thus, the costs of addressing the consequences of that imprudence are not
properly costs that should be borne by customers.
SACE:
No.
FPL shareholders should not be permitted to benefit from FPL’s mistakes. FPL
argues that its Recovery Well System is preventative. Yet, the requirements
stemming from the Consent Order and Consent Agreement are not preventative. The
term “abatement” as used in the Consent Order means to “minimize.” The Recovery
Well System, that is intended to “remediate” will not prevent hyper-salinity in
deeper layers from migrating westward. GAAP accounting principles are
permissive on allocating costs to capital investment. Regardless, recovery of
costs should not be allowed because FPL’s failure to mitigate the impact of
CCS-caused hyper-saline plume before 2014 was imprudent.
Staff Analysis:
Parties’ Arguments
FPL
FPL argues that the RWS must be allocated to both capital
and O&M because it serves both containment and remediation functions. (FPL
BR 24) FPL contends that it used a conservative approach based on Tetra Tech’s
analysis of the salt mass removal to produce a 74 percent prevention (capital)
and 26 percent remediation (O&M) allocation of costs for the RWS project.
(FPL BR 25) FPL proposes that its recovery of capital for prevention or
mitigation expenses is appropriate and similar to the treatment of emissions
control equipment. (FPL BR 25) FPL states that a volumetric approach would
result in a higher capital percentage. (FPL BR 25-26) FPL argues that OPC’s
Witness Panday’s suggested approach of revisiting the allocation periodically
is inappropriate and not consistent with Generally Accepted Accounting
Principles (GAAP). (FPL BR 26)
OPC/FIPUG
OPC/FIPUG argues that the consideration of allocation
between expense and capital is not appropriate, as it relates to the Monitoring
Program. (OPC/FIPUG BR 28) OPC/FIPUG assert that FPL’s analysis shows that under
the Company’s proposed remediation methods, FPL will be unable to complete its
remediation efforts within the 10 year period required by the CO. (OPC/FIPUG BR
29-30, 35) OPC/FIPUG argues that FPL is ignoring the Company’s own models to
ignore the impacts of the CCS on the deepest portions of the Aquifer. (OPC/FIPUG
BR 32-34)
OPC/FIPUG contends that the proposed freshening activities
were more effective than the RWS towards remediation for the initial ten years
of operation. (OPC/FIPUG BR 31) OPC/FIPUG argues that freshening activities
eliminate the need for containment except in the deepest layers of the Aquifer.
(OPC/FIPUG BR 37) OPC/FIPUG then contends that the RWS will be ineffective
because it will not adequately impact the Aquifer’s upper or lower layers, and
that it is an imprudent activity that should be disallowed. (OPC/FIPUG BR 31) In
contrast, OPC/FIPUG asserts that FPL’s proposed RWS would serve a remediation
function for the first ten years of its operation, followed by a potential ten
years as a containment function. (OPC/FIPUG BR 36)
OPC/FIPUG argues that compliance with the CO merely
resolves FPL’s prior Notice of Violation with DEP. (OPC/FIPUG BR 36) OPC/FIPUG
suggests that therefore the containment phase of FPL’s remediation project
should be considered a separate project from the remediation project, and not
recoverable from customers during the first ten years of operation. (OPC/FIPUG
BR 37)
SACE
SACE argues that the Commission cannot approve cost
recovery if a utility is imprudent. (SACE BR 26) SACE alleges FPL was imprudent
in its actions and inactions with regards to the Turkey Point CCS that resulted
in the TPCCMP Disputed Costs. (SACE BR 31) SACE also asserts it is
inappropriate for FPL to capitalize any of the TPCCMP Disputed Costs as they
will fail to prevent or retract the hypersaline plume in deeper layers of the
aquifer. (SACE BR 36)
Analysis
As noted in Issue 10B, the RWS is required by the CO with
DEP. (EXH 13, p. 8) As detailed by Witness Sole, FPL is also required by the CO
to implement the Nutrient Management Plan and a Thermal Efficiency Plan, and
construct an Upper Floridian Aquifer well system to provide freshening water.
(TR 302) FPL asserts that all of these functions serve to decrease salinity
entering the Biscayne Aquifer from the CCS and result in both remediation and
containment. (EXH 61; ROG 62 Attachment 1) Witness Ferguson testified that the RWS
serves both a remediation and preventive function. (TR 561-562) Based on the
record, staff recommends that the RWS and related systems simultaneously serve
both the function of containment of the hypersaline plume within the boundaries
of the CCS and retraction or remediation of the hypersaline plume outside the
boundaries of the CCS. Therefore, costs associated with these functions should
be allocated to both containment and remediation activities. The CO also requires the completion of
projects associated with Barge Canal and Turkey Point Canal. (EXH 13, p.10) FPL
asserts that these projects are totally allocated to containment. (EXH 61; ROG
62 Attachment 1) FPL Witness
Ferguson further stated that all of the costs associated with the Barge Canal
Turning Basin Back Fill should be capitalized because that project is
preventive in nature. (TR 563)
Allocation Percentage
Both FPL’s Witness Ferguson and OPC’s Witness Panday rely
upon a model of salt mass removal developed by Tetra Tech to determine the
appropriate cost allocation between capital and O&M. (TR 562, TR 649) The
Tetra Tech model attempts to determine the total mass of salt removed from
various layers of the Aquifer, and allocates them to remediation or containment
based on whether the salt mass originated inside or outside the boundaries of
the CCS. (EXH 21) The primary difference in analysis is the timeframe used. FPL
Witness Ferguson asserts that the appropriate period to consider is year 20,
the expected life of the RWS, which would result in a 74 percent containment,
26 percent remediation allocation. (TR 562) OPC Witness Panday argues instead
for year 11, when the hypersaline mass is anticipated to be fully removed,
which would result in a 65 percent containment, 35 percent remediation
allocation. (TR 651) As noted by FPL’s Witness Anderson, the use of 11 years
does not acknowledge that the RWS will be operating in a containment function
for the remaining nine years of its operational life. (TR 859)
OPC’s Witness Panday testified that the allocation between
remediation and prevention should be reevaluated on a more regular basis. (TR
652) OPC Witness Panday testified that this is particularly true after the
first two years of operating the RWS. (TR 652) For the initial two-year period,
OPC Witness Panday proposes an alternative of using the first two years of the
Tetra Tech model to allocate 41 percent to containment and 59 percent to
remediation. (TR 652) Staff observes that OPC/FIPUG does not support the use of
this methodology in its brief, but rather an approach by which all activities
are categorized as either remediation or containment until the end of all
remediation activities.
Accounting Treatment
Accounting Standards
Codification 410-30-25-16 to 18 (ASC 410-30) describes the conditions that must be met in order to capitalize all or a
portion of the costs related to environmental contamination treatment. (TR 560)
It states that the costs can be capitalized if “the costs mitigate or prevent
environmental contamination that has yet to occur and that otherwise may result
from the future operation or activities.” (TR 560) FPL Witness Ferguson
explained that costs related to mitigation or prevention can be capitalized and
costs related to remediation should be expensed. (TR 560)
OPC’s Witness Panday did not testify as to
whether the costs should be capitalized or expensed. However, OPC Witness
Panday did suggest reevaluating the allocation between expense and
capitalization after two years of operation. (TR 652) FPL Witness Ferguson
testified that OPC Witness Panday’s proposed treatment is not consistent with GAAP or Federal Energy Regulatory Commission
(FERC) Uniform System of Accounts (USOA) because it could change the historical
cost of an asset already placed into service. (TR 823) FERC USOA account 101 A
specifically states:
This
account shall include the original cost of electric plant, included in accounts
301 to 399, prescribed here-in, owned and used by the utility in its electric
utility operations, and having an expectation of life in service of more than
one year from date of installation, including such property owned by the utility
but held by nominees.
Moreover, neither OPC Witness Panday nor any
other Intervenor offered any alternative accounting treatment for this project
that is consistent with GAAP.
Based on the evidentiary record, staff
recommends the accounting treatment for the costs associated with the RWS and Barge Canal Turning Basin Back Fill Project
proposed by FPL is appropriate. Whether prudently incurred remediation
costs are appropriate to recover from customers is addressed in Issue 10B.
Conclusion
Staff recommends that the RWS and related activities
perform both remediation and containment functions. Consistent with accounting
principles, remediation expenses should be recovered as O&M, and
containment should be recovered as capital. Based on the record, staff
recommends that the Company’s proposed allocation of costs are appropriate, and
should be 74 percent containment (capital) and 26 percent remediation (O&M)
for the RWS and related activities.
Issue 10E:
How should the costs associated with the June 20,
2016 Consent Order between FPL and the Florida Department of Environmental
Protection and the October 2015 Consent Agreement between FPL and the
Miami-Dade County Department of Environmental Resources Management (as amended
by the August 15, 2016 Consent Agreement Addendum) be allocated to the rate
classes?
Recommendation:
TPCCMP Disputed Costs should be allocated pursuant
to the Commission’s Order No. PSC-09-0759-FOF-EI. (Ellis, Mtenga)
Position of the Parties
FPL:
Costs associated with the 2015 CA, 2016 CO, and 2016
CAA should be allocated in the same manner as all other environmental cost
recovery amounts approved for recovery under the TPCCMP project.
OPC/FIPUG:
No Position.
SACE:
No customer, regardless of class,
should have to pay for FPL’s mistakes. FPL knew or should have known
that the CCS was causing an underground hyper-saline contamination plume
spreading from its Turkey Point plant property by 1978, and certainly by 1992
at the latest. It failed to take any action to mitigate the impacts of the CCS
on the Biscayne Aquifer (a G-II water source) until 2014. A prudent utility
manager would have acted promptly and proactively well before 2014 to mitigate
and or remediate the growing hyper-salinity contamination plume outside the CCS
boundary.
Staff
Analysis:
Parties’ Arguments
FPL
FPL argues that the Commission established in the
appropriate allocation methodology for the TPCCMP Disputed Costs in its Order
No. PSC-09-0759-FOF-EI. (FPL BR 27)
OPC and FIPUG
OPC and FIPUG did not present arguments regarding this
issue.
SACE
SACE argues that the Commission cannot approve cost
recovery if a utility is imprudent. (SACE BR 26) SACE alleges the Company was
imprudent in its actions and inactions with regards to the Turkey Point CCS
that resulted in the TPCCMP Disputed Costs. (SACE BR 31)
Analysis
If the Commission approves recovery of costs in the prior
issues, the Commission must determine how these costs will be allocated to the
rate classes. No party presented arguments regarding how this allocation should
occur for the TPCCMP Disputed Costs, except that the Intervenors argued that no
costs are prudent, and therefore none would be available for allocation.
Therefore, staff notes that the only allocation methodology available is that
given in the Commission’s prior Order No. PSC-09-0759-FOF-EI approving the
TPCCMP. It states:
F. We approve the following stipulation
regarding how the costs associated with the TP-CCMP Project shall be
allocated to the rate classes:
Capital costs for
the TP-CCMP Project shall be allocated to the rate classes on an average 12 CP
demand and 1/13th energy basis.
O&M costs shall be allocated on an energy basis.
Conclusion
TPCCMP Disputed Costs should be allocated pursuant to the
Commission’s Order No. PSC-09-0759-FOF-EI.
Order No.
PSC-05-0164-PAA-EI, issued on February 10, 2005, in Docket No. 041300-EI, In re: Petition for Approval of New
Environmental Program for Cost Recovery Through Environmental Cost Recovery
Clause, by Tampa Electric Company.
