Case Background
On September 18,
2019, Duke Energy Florida, LLC (DEF or Company) filed a request for approval of
a new depreciation classification and depreciation rate for the accounting of
its energy storage equipment (Petition). The Company’s request is in accordance
with Rule 25-6.0436(3)(b), Florida Administrative Code (F.A.C.), which requires
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.”
Pursuant to Rule
25-6.0436(3)(a), F.A.C., electric utilities are required to maintain
depreciation rates and accumulated depreciation reserves in accounts or
subaccounts in accordance with the Uniform System of Accounts for Public
Utilities and Licensees, as found in the Code of Federal Regulations, which is
incorporated by reference in Rule 25-6.014(1), F.A.C.[1]
In November
2017, DEF received Commission authorization to implement a 50 megawatt (MW)
battery storage pilot program (Battery Storage Pilot) pursuant to the terms of
the Company’s 2017 Second Revised and Restated Settlement Agreement (2017
Settlement) which resolved all issues in DEF’s 2017 limited proceeding and
associated dockets.[2]
According to DEF,
the Company has not begun to install any batteries and/or storage-associated
equipment with regard to the 50 MW Battery Storage Pilot Program. However, the Company indicated that they
have tentatively scheduled four installations for 30.25 MW of the 50 MW Battery
Storage Pilot Program. These installations are scheduled to begin during the
fourth quarter of 2020, subject to completing a competitive procurement process
for the Engineering, Procurement and Construction (EPC) of each project and
receiving final interconnection study results. The Company also stated that the
remaining 19.75 MW have not been scheduled at this time, but intends to have
the full 50 MW Battery Storage Pilot implemented by December 31, 2021.
Currently, the
Company reports that it does not specifically classify nor have an authorized
depreciation rate for the types of equipment required to implement its planned
Battery Storage Pilot or any other energy storage endeavors. Therefore, no accounting adjustments, such
as transfers of plant investments and associated book reserves, should be
authorized as part of this docket.
In 2017, the
Commission approved a similar petition filed by Florida Power and Light (FPL) for
approval of a new depreciation class and rate for energy storage equipment. In that docket, the Commission allowed a 10
percent depreciation rate and zero net salvage for similar equipment.
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 establish an annual
depreciation rate applicable to energy storage equipment for DEF?
Recommendation:
Yes. Staff recommends that an annual depreciation
rate of 10 percent applicable to DEF’s energy storage equipment be approved. (Kunkler)
Staff Analysis:
As outlined in its petition, DEF does not currently
maintain a stand-alone classification, nor does it have a
specifically-authorized depreciation rate, for investments related to energy
storage. The Company is requesting authorization to record and depreciate
energy storage-related investments by plant function in Federal Energy
Regulatory Commission (FERC) Accounts; 348 - Energy Storage Equipment –
Production, 351 - Energy Storage Equipment – Transmission, and 363 - Energy
Storage Equipment – Distribution. These accounts were originally established by
the FERC in 2013, by Order No. 784, with the primary purpose of accounting for
energy storage investments based on how specific assets are used in providing
electric service.[7]
Requested Depreciation Parameters
The Company has requested Commission approval of a 10-year
average service life (ASL), and a zero percent net salvage level (NS), for
depreciating its energy storage equipment. An annual depreciation rate of 10
percent is computed by using these parameters.[8]
Industry-wide depreciation data
and regulatory guidance regarding energy storage equipment is limited. However,
through data request responses, DEF referenced the 2017 FPL petition for
similar authority to establish an annual depreciation rate for energy storage
equipment. In
that docket, FPL provided documentation detailing regulatory approvals of ASL
and NS values similar to its proposals that are applicable to other electric
utilities operating in the United States; namely, Consolidated Edison of New
York (ConEd) and Pacific Gas & Electric (PG&E).[10]
With respect to the ConEd decision, the New York Public Service Commission
authorized an ASL of either 10 or 15 years (depending on the specific project),
and a zero percent NS level.[11] The
California Public Utility Commission authorized an ASL of 15 years, and a zero
percent NS level applicable to PG&E’s energy storage equipment.
The Commission approved FPL’s
petition for approval of a new depreciation class and rate for energy storage equipment
in 2017, allowing a 10 percent depreciation rate and zero net salvage for
similar equipment. Additionally, to support these proposed parameters, DEF
explained in response to staff’s data request, that the Company held consultations
with its engineering subject matter experts, as well as energy storage
equipment manufacturers, and industry peers, including FPL, to arrive at the
proposed 10-year ASL and zero percent NS level parameter.
Given the fact that utility-scale energy storage
equipment/technology is a relatively new technology, staff believes the Company,
in proposing an ASL at the bottom-end of a 10- to 15-year range represents a
measured and reasonable approach in life estimation. DEF makes clear in its
Petition that its request is for accounting purposes only, and will have no
impact on base rates during the term of the 2017 Settlement.
Staff agrees.
Further, the Commission will have future opportunities
based on existing rules to evaluate DEF’s depreciation data associated with useful
lives and net salvage levels and to order modifications as appropriate.[14] Staff also
believes the Company’s account classifications outlined in its petition, to
which any newly-established depreciation rate would apply, comport with recent accounting
guidance from the FERC.
For the reasons outlined in this analysis, staff
recommends that an annual depreciation rate of 10 percent, applicable to DEF’s
newly-established Account 348 - Energy Storage Equipment – Production, Account 351
- Energy Storage Equipment – Transmission, and Account 363 - Energy Storage
Equipment – Distribution, be approved.
Issue 2:
If a new depreciation rate for energy storage
equipment is authorized in Issue 1, what should be the effective date?
Recommendation:
Staff recommends that any newly-authorized
depreciation rate for energy storage equipment applicable to Account 348 -
Energy Storage Equipment – Production, Account 351 - Energy Storage Equipment –
Transmission, and Account 363 - Energy Storage Equipment – Distribution, become
effective upon the issuance of a final Commission Order in this docket.
(Kunkler)
Staff Analysis:
If the Commission establishes a new depreciation
rate for DEF’s energy storage equipment, applicable to Accounts 348 - Energy
Storage Equipment – Production, Account 351 - Energy Storage Equipment –
Transmission, and Account 363 - Energy Storage Equipment – Distribution, the
effective date should be upon the issuance of a final Commission 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. (Brownless)
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.
