Case Background
On December 26,
2018, Tampa Electric Company (TECO or Company) petitioned the Florida Public
Service Commission (Commission) to approve the Big Bend South Gypsum Storage
Area (SGSA) Closure Project for cost recovery through the Environmental Cost
Recovery Clause (ECRC), as governed by Section 366.8255, Florida Statutes
(F.S.). TECO asserts that the SGSA must be closed in order to comply with the
provisions of the United States Environmental Protection Agency’s (EPA) Coal
Combustion Residual (CCR) Rule.
On April 17,
2015, the EPA published the CCR Rule, which provides the requirements for the
safe disposal of CCR in landfills and surface impoundments. CCR is a byproduct
of coal combustion at electric utilities and independent power producers. The
effective date of the CCR Rule was October 19, 2015, and the Rule is
self-implementing.
On October 15,
2015, TECO requested approval from the Commission of its first phase of the CCR
Compliance Program, which the Company developed to comply with the CCR Rule.
The Commission approved this first phase on February 9, 2016. On December 22, 2017, the Commission
approved a second phase of the Company’s CCR Program, which involved the
closure of its Big Bend Economizer Ash & Pyrites Ponds.
In the instant
docket, TECO is requesting cost recovery for the closure of the SGSA through
the ECRC. The SGSA was utilized to house gypsum generated from the Company’s
flue gas desulfurization (FGD) systems. TECO’s FGD systems were implemented to
meet both the requirements of the Clean Air Act Amendments of 1990 and a
Consent Decree entered into in 2000, and were approved by the Commission through
the ECRC. On September 26, 2012, the Commission
approved the construction of a new Big Bend Station Gypsum Storage Facility,
also referred to as the East Gypsum Storage Area (EGSA). At the time, the EGSA was constructed because
the existing SGSA was no longer able to accommodate all of the gypsum that was
produced due to a decline in the demand for gypsum.
The ECRC is a
statutory mechanism which allows investor-owned electric utilities to
periodically seek recovery outside of base rates for their proposed
environmental compliance costs. The Commission has interpreted the ECRC to
permit recovery for prudently incurred costs legally required for a utility to
comply with a governmentally imposed mandate. The Commission has also denied recovery
for costs a utility has incurred as a voluntary undertaking not needed for
compliance with any governmental mandate.
When
interpreting the meaning of a statute, the Commission must employ a “plain
meaning” analysis, looking at the ordinary meaning of the words as written. Statutes implemented by the Commission
must be narrowly construed; recovery of costs under a clause is only
permissible for costs arising from activities enumerated in the clause. The Commission has jurisdiction over the
instant matter pursuant to Section 366.8255, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve Tampa Electric Company’s
petition for approval of the Big Bend South Gypsum Storage Area Closure Project
for cost recovery through the Environmental Cost Recovery Clause?
Recommendation:
No. Staff does not recommend approval for cost
recovery of the Big Bend South Gypsum Storage Area Closure Project through the Environmental
Cost Recovery Clause. The Commission has not made a prudency determination on
the Big Bend Modernization Project. Furthermore, the necessity of the Closure
Project was triggered by Tampa Electric Company’s business decision to change
its operation, and not by a change in environmental regulation. Tampa Electric
Company may request cost recovery for the Closure Project utilizing traditional
methods of cost recovery in the future. (Knoblauch, Salvador, Wu)
Staff Analysis:
The EPA’s CCR Rule sets forth the minimum criteria
for the safe disposal of CCR in landfills and surface impoundments.
CCR is generated at sites where electric utilities use the combustion of coal
as an energy source for fueling steam generating units. TECO’s Big Bend Units
1-4 are four pulverized coal-fired steam units that can also be fired with
natural gas. The CCR Rule applies to new and existing active landfills and
surface impoundments for the purpose of solid waste management of CCR.
In its petition, TECO stated that it plans to cease the
combustion of coal in Big Bend Units 1 and 2, resulting in a reduction of
gypsum being produced for beneficial reuse. The Company further asserted that
the EGSA has sufficient capacity to store the amount of gypsum now being
generated; therefore, the SGSA will no longer be needed. In response to staff’s
first data request, TECO explained that “the SGSA was formerly a beneficial
reuse storage area that was exempt from the CCR Rule. As a result of the
storage area no longer being used for beneficial reuse, it now is defined as a
CCR Landfill under the rule.” The CCR Rule provides that CCR Landfills are
subject to several requirements, one of which is groundwater monitoring and
corrective action.
Historic groundwater monitoring results showed elevated
levels of contaminants in the vicinity of the SGSA. Section 257.96 of the CCR
Rule states that following a violation of a groundwater protection standard,
there must be “an assessment of corrective measures to prevent further
releases, to remediate any releases and to restore affected area to original
conditions.” Given the historic groundwater monitoring results and the
proximity of the bottom of the SGSA to the water table, TECO asserts that it is
prudent to close the SGSA.
After considering the alternatives, TECO opted to remove
all gypsum from the SGSA and to close the storage area, rather than employing a
“cap and close method” which would not address groundwater concerns. The
selected alternative includes excavation and preparation of CCR material for
reprocessing, sale, or disposal, additional reprocessing equipment and
materials, truck fees, transportation and disposal in permitted landfill, site
restoration, and post-closure groundwater monitoring.
As shown in Attachment A, the estimated cost for the SGSA Closure
Project is approximately $15.7 million. As of the date of its petition, the
Company has incurred approximately $5 million in closure expenses associated
with the project. TECO explained that the estimated costs are based on an
engineering analysis performed by consultants.
ECRC Eligibility
Pursuant to Section 366.8255(2), F.S., electric utilities
may petition the Commission to recover “projected environmental compliance
costs” that are required by environmental laws or regulations. Environmental
laws or regulations 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.” If the
Commission approves a utility’s petition for cost recovery through the ECRC,
only prudently incurred costs may be recovered.
The Commission has interpreted Section 366.8255, F.S., to
prescribe three criteria for recovery of environmental compliance costs through
the clause. Pursuant to Order No. PSC-94-0044-FOF-EI, these criteria are:
1.
All expenditures will be prudently incurred after April
13, 1993.
2.
The activities are legally required to comply with a
governmentally imposed environmental regulation that was created, became
effective, or whose effect was triggered after the company’s last test year
upon which rates are based.
3.
None of the expenditures are being recovered through
some other cost recovery mechanism or through base rates.
While staff agrees that the closure of the SGSA necessitates
compliance with the CCR Rule, there are two concerns regarding the eligibility
of the SGSA Closure Project for recovery through the ECRC. Staff’s first
concern is that determining the prudence of the project is premature at this
time. As stated in TECO’s petition, the Company plans to cease combustion of
coal in Units 1 and 2 as part of its Big Bend Modernization Project. TECO’s Ten
Year Site Plan states that the Big Bend Modernization Project will be completed
in 2023. The Company states in its petition that “given the reduction in the
amount of coal to be burned at the station in the future, the SGSA is no longer
needed and will not be used to store gypsum for beneficial reuse.” It is this
decision to close the SGSA, tied to the Modernization Project, which resulted
in a change of status under the CCR Rule. In view of the SGSA’s connection to
the Big Bend Modernization Project, staff recommends that it would be more
appropriate to determine prudence of the SGSA closure expenditures at the same
time that the Commission reviews the costs and benefits associated with the Big
Bend Modernization Project.
Similarly, staff’s second concern stems from the fact that
TECO’s operational changes are voluntary business decisions. TECO asserts in
its petition that in 2014, the Company installed a natural gas pipeline to Big
Bend Station, which resulted in a decrease in the amount of coal burned. In
2018, TECO stated that it planned to cease coal combustion in Big Bend Units 1
and 2. In response to staff’s second data request, TECO stated that these
recent “operational changes did result in a reduction in flue gas
desulfurization (“FGD”) gypsum production at the facility, thus eliminating any
need to continue operating the SGSA as a beneficial use storage area.” Given
the Company’s operational changes at the Big Bend Power Station, less gypsum is
being produced and the SGSA is no longer needed. Since the SGSA will no longer
be needed as a beneficial reuse storage area, the area is subject to the CCR
Rule. Therefore, regardless of the merits of the decision to close the SGSA,
the necessity of the SGSA Closure Project was triggered by TECO’s own voluntary
business decision to change its operation, and not due to a change in
environmental regulation.
Staff recommends that the purpose of the ECRC is to
provide a mechanism for cost recovery for environmental compliance costs
incurred outside of a utility’s planning or control. Order No.
PSC-94-1207-FOF-EI provides an overview of the purpose of the ECRC and states
in part:
Section 366.8255, Florida Statutes, provides a
mechanism for reasonably expeditious recovery of the costs utilities prudently
expend to comply with environmental laws and regulations. Those laws and
regulations may change with some frequency, and a utility may not be able to
anticipate the changes, or the costs it would incur to comply with them, in
every instance. We can also envision a situation where an environmental
emergency would require a utility to incur costs that it did not anticipate
before it could ask for our approval.
We will have to review such extraordinary
circumstances as they arise. Some changes to environmental laws and regulations
can be anticipated well in advance of the change. Some emergencies can be
avoided by prudent management and maintenance of facilities. The same is true
of the operation of environmental projects. The key will be whether the utility
could reasonably have anticipated the changes and the costs, or not. The
utility will have the burden to show that it could not.
The closure of the SGSA is not being done in response to
an emergency condition, or in response to an environmental requirement that
TECO did not anticipate. In fact, the closure of the SGSA is completely up to
TECO to decide. Based on the above, staff recommends that the SGSA Closure
Project does not meet the second criterion of eligibility as outlined in Order
No. PSC-94-0044-FOF-EI.
While staff recommends that the costs associated with the
SGSA Closure Project are not eligible for recovery through the ECRC because the
necessity of the SGSA Closure Project was triggered by TECO’s own voluntary
business decision to change its operation, TECO is not foreclosed from seeking
recovery of these costs in the future. Typically, a utility accrues carrying
costs on long-term construction projects by applying a Commission-approved
allowance for funds used during construction (AFUDC) rate. The AFUDC allows the
utility to accrue and later capitalize as plant, the carrying costs of
construction projects in progress. When the plant is placed into service, the
utility seeks recovery of said investment through a return on the capitalized
plant investment and through depreciation expense in its next base rate
proceeding. This traditional method of recovery for the costs associated with
the SGSA Closure Project is available to TECO.
Conclusion
The
prudence of the Big Bend Modernization Project has not yet been reviewed by the
Commission. Additionally, the closure of the SGSA was not triggered by a new
environmental regulation, but was due to operational changes made by TECO. For
these reasons, staff recommends that the Commission should not approve TECO’s
petition for cost recovery through the ECRC at this time.
Issue 2:
If the Commission does not approve staff’s
recommendation in Issue 1, should the Commission limit its approval of eligible
cost recovery to those projected costs at the time TECO filed its petition for
cost recovery on December 26, 2018?
Recommendation:
If the Commission approves the staff recommendation
in Issue 1, then this issue is moot. If the Commission does not approve staff’s
recommendation in Issue 1, then yes, staff recommends that only the costs
incurred after the Commission’s vote in this docket should be eligible for cost
recovery through the Environmental Cost Recovery Clause. At a minimum, the
costs that had already been incurred by the Company at the time of its filing
should be excluded for cost recovery through the ECRC. (Knoblauch, Salvador,
Wu)
Staff Analysis:
Section 366.8255(2), F.S.,
states that an electric utility may petition the Commission for cost recovery
through the ECRC for proposed environmental compliance activities and projected
environmental costs. In Order No. PSC-94-1207-FOF-EI the Commission determined
that:
Environmental
compliance cost recovery, like cost recovery through other cost recovery
clauses, should be prospective. Section 366.8255(2), Florida Statutes, is
clear: a utility's petition for cost recovery must describe proposed
activities and projected costs, not costs that have already been
incurred. Utilities may recover the costs of environmental compliance projects
after the Commission has had the opportunity to review and approve cost
recovery for the projects. Utilities may not recover costs incurred in past
periods for activities not yet approved. This is the general rule for
environmental compliance cost recovery that we wish to make clear here.
The Commission did opine that
there may be exceptions to these requirements in the event of “certain
extraordinary circumstances” as determined by the facts of the specific case.
In response to staff’s data
request, TECO stated that a closure plan for the SGSA was submitted to the
Florida Department of Environmental Protection on February 14, 2018, which was
approved on March 1, 2018. TECO asserted that it “concluded a thorough
evaluation of the SGSA’s regulatory status in late November 2018,” at which
time it determined that the SGSA was subject to the CCR Rule. The
Company filed its petition for the SGSA Closure Project on December 26, 2018,
which included approximately $5 million in costs that had already been
incurred. It does not appear there are any extraordinary circumstances for
including these previously incurred costs.
Attachment A provides the costs
identified by TECO for the SGSA Closure Project. If the Commission does not
approve staff’s recommendation in Issue 1, staff recommends that at a minimum,
the costs that had already been incurred by the Company at the time of its
filing should be excluded for cost recovery through the ECRC. As previously
noted, TECO is not foreclosed from seeking recovery of these previously
incurred costs through the more traditional method of recovery. Table 2-1 shows
the estimated residential customer bill impact associated with the projected
SGSA closure activities, excluding the amount already expended of $5,024,683.
Table 2-1
Monthly Bill Impact
|
|
$ / 1,000 kWh
|
$ / 1,200 kWh
|
|
2020
|
0.54
|
0.65
|
|
2021
|
< 0.01
|
< 0.01
|
|
2022
|
< 0.01
|
< 0.01
|
|
2023
|
< 0.01
|
< 0.01
|
Source: Document No. 03064-2019
Conclusion
If the Commission does
not approve staff’s recommendation in Issue 1, staff recommends that only the
costs incurred after the Commission’s vote in this docket should be eligible
for cost recovery through the ECRC.
Issue 3:
Should this docket be closed?
Recommendation:
Yes. This docket should be closed upon the issuance
of a Consummating Order, unless a person whose substantial interests are
affected by the Commission’s decision files a protest within 21 days of the
issuance of the Proposed Agency Action Order. (Weisenfeld, Murphy)
Staff Analysis:
If no timely protest to the proposed agency action
is filed within 21 days, this docket should be closed upon issuance of a
Consummating Order, unless a person whose substantial interests are affected by
the Commission’s decision files a protest within 21 days of the issuance of the
Proposed Agency Action Order.
