Discussion
of Issues
Issue 1:
What are the actual total costs for TECO’s First and
Second SoBRA projects?
Recommendation:
Based on staff’s
review, the actual total costs for TECO’s First and Second SoBRA projects are as
listed in Table 1-3. None of the projects exceed the
$1,500/kilowatt-alternative current (kWac) cost cap requirement of
the 2017 Settlement. (Phillips)
Staff Analysis:
The
2017 Settlement allows TECO to recover the cost of solar projects that meet
certain criteria through a base rate adjustment, using estimated costs and
in-service dates with a true-up mechanism. Paragraph 6(c) of the 2017
Settlement states that the SoBRA rate adjustment for each tranche will be
implemented on the earliest in-service date specified in paragraph 6(b) and
based on estimated installation cost. Each SoBRA rate adjustment will
subsequently be trued-up based on actual in-service dates and installation costs.
Paragraph 6(d) of the 2017 Settlement specifies a total installed capital cost
cap for each project of $1,500/kWac.
Staff has reviewed the actual in-service dates and installed
cost variances for TECO’s First and Second SoBRA projects, which are discussed below.
Based on staff’s analysis, each project is below the cost cap.
In-Service Dates
Only two of the seven projects, Payne Creek and Lithia,
entered commercial service on their estimated in-service dates. For the
remaining five projects, TECO, under its engineering, procurement, and
construction (EPC) contracts, sought and received liquidated damages from
contractors for performance delays. TECO received a total of $9,170,565 in
liquidated damages, which it used to offset lost revenue from delayed
in-service dates and to reduce the actual installed costs for solar projects.
The estimated and actual in-service dates for each solar project are listed in
Table 1-1.
Table 1-1
In-Service Dates for
First and Second SoBRAs
|
Project Name
|
Estimated In-Service Date
|
Actual In-Service Date
|
|
First SoBRA
|
|
Payne
Creek Solar
|
September
1, 2018
|
September
1, 2018
|
|
Balm
Solar
|
September
1, 2018
|
September
27, 2018
|
|
Second SoBRA
|
|
Lithia
Solar
|
January
1, 2019
|
January
1, 2019
|
|
Grange
Hall Solar
|
January
1, 2019
|
January
2, 2019
|
|
Peace
Creek Solar
|
January
1, 2019
|
March
1, 2019
|
|
Bonnie
Mine Solar
|
January
1, 2019
|
January
23, 2019
|
|
Lake
Hancock Solar
|
January
1, 2019
|
April
25, 2019
|
Source:
Exhibit JSC-1 from Document No. 02326-2020
Installed
Costs
Pursuant to paragraph 6(d) of the 2017 Settlement, the allowable
installed costs include all types of costs that have traditionally been allowed
in rate base for solar projects, including EPC contracts. For TECO’s First and
Second SoBRAs, the EPC contracts include major equipment (i.e., solar modules,
inverters), balance of system (i.e., racking, collection cables), and
development. The EPC contract accounts for the majority of the project costs
followed by land, transmission interconnection, and owner’s costs. Each of the
solar projects, excluding Payne Creek and Bonnie Mine, were below estimated
installed costs. The cost variances for each category and the total cost variances
are listed in Table 1-2.
Table
1-2
Total
Installed Cost Variances by Project
|
Project
Name
|
EPC
Cost ($)
|
Land
Cost ($)
|
Transmission
Cost ($)
|
Owner’s
Cost ($)
|
Total ($)
|
|
First SoBRA
|
|
Payne Creek Solar
|
938,410
|
(62,561)
|
(388,302)
|
1,142,852
|
1,630,400
|
|
Balm Solar
|
495,469
|
(1,697,613)
|
(837,914)
|
1,316,303
|
(723,755)
|
|
Second SoBRA
|
|
Lithia Solar
|
(906,777)
|
(447,022)
|
(712,877)
|
650,184
|
(1,416,493)
|
|
Grange Hall Solar
|
(656,548)
|
(147,567)
|
(1,197,813)
|
478,840
|
(1,523,088)
|
|
Peace Creek Solar
|
40,841
|
(122,993)
|
(1,728,866)
|
559,812
|
(1,251,206)
|
|
Bonnie Mine Solar
|
(190,578)
|
(142,724)
|
(361,837)
|
1,128,941
|
433,803
|
|
Lake Hancock Solar
|
(1,692,012)
|
(44,975)
|
(355,295)
|
1,020,143
|
(1,072,140)
|
Source: Exhibit MDW-1 from
Document No. 02326-2020
EPC Costs
EPC costs represent approximately 83 percent of the total
costs on average for the First and Second SoBRAs. Three of the seven solar
projects' actual EPC costs were higher than estimated. Several factors
contributed to the increased EPC costs, such as the requirement for the Balm
and Peace Creek projects to install crushed concrete to improve road subgrade
and design allowing for better access to solar substations, and for the Payne
Creek project to purchase additional modules to account for those damaged
during construction.
Land and Transmission
Costs
The land and transmission costs represent approximately 11
and 3 percent of the total costs on average, respectively, and for each of the
solar projects were below the original estimated costs. For example, the Balm
and Lithia projects closing costs, legal fees, and broker fees were lower than
expected causing the land cost to be lower than originally estimated. The
largest variances for transmission costs were for the Grange Hall and Peace
Creek projects. TECO’s original transmission interconnection estimates were
based on construction in or near wetlands, but the Company was able to avoid
the wetlands, thereby lowering the transmission cost for each project.
Owner’s Costs
The owner’s costs represent approximately 2 percent of the
total costs on average, and for all of the solar projects were higher than
estimated. The projects required additional staff for safety oversight to ensure
safety protocols were followed due to a number of safety incidents that
occurred during the construction of the first two SoBRA projects. Other owner’s
costs were associated with environmental or governmental requirements. For
example, the Lithia project site was home to an atypical amount of gopher
tortoises that required relocating, and the Lake Hancock project added a
vegetation buffer to reduce visibility to nearby residential areas based on a requirement
from the City of Bartow.
Total Costs
Pursuant to paragraph 6(d) of the 2017 Settlement, in
addition to the installed costs discussed above, TECO is eligible to include
allowance for funds used during construction (AFUDC) associated with SoBRA
projects, which represent approximately 2 percent of the total costs on
average. The actual cost for each project, inclusive of the variances above and
AFUDC, are listed on a total cost and per kWac cost basis in Table
1-3. Based on staff’s analysis, each project is below the cost cap specified in
paragraph 6(d) of the 2017 Settlement of $1,500 per kWac. Staff has
reviewed the total actual costs, and they appear reasonable and consistent with
the 2017 Settlement.
Table
1-3
Total
Costs for First and Second SoBRAs
|
Project Name
|
Total Cost ($)
|
Total Cost ($/kWac)
|
|
First
SoBRA
|
|
Payne
Creek Solar
|
94,359,584
|
1,342
|
|
Balm
Solar
|
109,963,383
|
1,478
|
|
Second
SoBRA
|
|
Lithia
Solar
|
111,364,821
|
1,481
|
|
Grange
Hall Solar
|
87,347,026
|
1,430
|
|
Peace
Creek Solar
|
81,943,638
|
1,479
|
|
Bonnie
Mine Solar
|
56,102,532
|
1,496
|
|
Lake
Hancock Solar
|
46,403,012
|
1,459
|
Source: Exhibit MDW-1 from Document
No. 02326-2020
Conclusion
Based on staff’s review,
the actual total costs for TECO’s First and Second SoBRA projects are as listed
in Table 1-3. None of the projects exceed the $1,500/kWac cost cap
requirement of the 2017 Settlement.
Issue 2:
What is the adjusted annual revenue requirement for
TECO’s First and Second SoBRA projects?
Recommendation:
The total adjusted cumulative annual revenue
requirement associated with TECO’s First and Second SoBRA projects is
$70,213,000. (Higgins)
Staff Analysis:
The 2017 Settlement established a framework for TECO
to recover costs associated with the construction and operation of solar
generating facilities meeting certain criteria. Under the framework, TECO can
petition the Commission to implement project-specific estimated annual revenue
requirements, beginning on specified dates, subject to certain agreed-upon
conditions.[4] The
revenue collected is subject to true-up. The actual annual revenue requirement
and its difference from the currently-approved annual revenue requirement is
the focus of staff’s recommendation in this issue.[5]
The Company is requesting the Commission approve a revised
cumulative annual revenue requirement based on the actual installed costs of
the plants associated with its previously-approved First and Second SoBRA projects.[6] The
revised cumulative annual revenue requirement for the First and Second SoBRA projects
is specifically associated with the following generating plants: Balm, Payne
Creek, Lithia, Grange Hall, Peace Creek, Bonnie Mine, and Lake Hancock.
The revised cumulative annual revenue requirement is
formulated using the actual capital cost, shown in Table 1-3, in addition to
incentives permitted under paragraph 6(m) of the 2017 Settlement, for each of
the First and Second SoBRA projects in place of the originally-estimated
capital cost. With regard to the incentive, according to subparagraph 6(m), if
TECO’s actual installed cost for a project is less than the cost cap of $1,500
per kWac, the Company and its customers share in the difference, 75 percent and
25 percent respectively.
TECO witness Jose A. Aponte describes the incentive’s design and effect as
serving to “encourage [TECO] to build solar projects for recovery under a SoBRA
at the lowest possible cost.” As necessitated by the updated base capital costs
(Issue 1) of the individual First and Second SoBRA facilities, the relative
incentives for all plants have been trued up from their estimated values as
part of this issue. All other components of the estimated annual revenue
requirement calculation remain the same, e.g., operation and maintenance
expense, rate of depreciation, capital structure, and tax rates. The specific
true-up produced by this change is the subject of Issue 3. The proposed revised
cumulative annual revenue requirement of $70,213,000, as compared to the
previously-estimated $70,290,000, represents a reduction of $77,000.
Table 2-1 displays the estimated annual First and Second
SoBRA revenue requirements by project and plant.
|
Table 2-1
|
|
First and Second SoBRA Estimated Annual
Revenue Requirement[8]
|
|
Plant
|
Revenue Requirement ($000)
|
|
First SoBRA
|
|
Balm Solar
|
$12,937
|
|
Payne Creek Solar
|
11,308
|
|
Subtotal
|
$24,245
|
|
Second SoBRA
|
|
Lithia Solar
|
$13,291
|
|
Grange Hall Solar
|
10,611
|
|
Peace Creek Solar
|
9,868
|
|
Bonnie Mine Solar
|
6,601
|
|
Lake Hancock Solar
|
5,674
|
|
Subtotal
|
$46,045
|
|
Grand Total
|
$70,290
|
Source: Order No.
PSC-2018-0288-FOF-EI, Order No. PSC-2018-0571-FOF-EI, and the Direct Testimony
of TECO witness Jose A. Aponte, page 5.
Table 2-2 displays the proposed adjusted annual First and
Second SoBRA revenue requirements associated with each project and plant.
|
Table 2-2
|
|
First and Second SoBRA Adjusted Annual Revenue
Requirement
|
|
Plant
|
Revenue Requirement ($000)
|
|
First SoBRA
|
|
Balm Solar
|
$12,934
|
|
Payne Creek Solar
|
11,408
|
|
Subtotal
|
$24,342
|
|
Second SoBRA
|
|
Lithia Solar
|
$13,211
|
|
Grange Hall Solar
|
10,570
|
|
Peace Creek Solar
|
9,808
|
|
Bonnie Mine Solar
|
6,704
|
|
Lake Hancock Solar
|
5,578
|
|
Subtotal
|
$45,871
|
|
Grand Total
|
$70,213
|
Source: TECO’s response to
Staff’s First Data Request, No. 1 (Document No. 02688-2020).
Conclusion
Staff recommends the total adjusted annual revenue
requirement associated with the First and Second SoBRA projects is $70,213,000,
or $77,000 less than originally estimated.
Issue 3:
What is the appropriate true-up amount that should
be reflected in the Capacity Cost Recovery Clause (CCRC), pursuant to paragraph
6(n) of the 2017 Settlement?
Recommendation:
Staff recommends the appropriate true-up amount
associated with the First and Second SoBRA projects that should be reflected in
the CCRC, pursuant to paragraph 6(n) of the 2017 Settlement, is a credit of
$5,096,041. Due to the inclusion of an estimated credit of $4,856,329 in TECO’s
mid-course correction filing, an outstanding credit balance of $239,712 remains
and is to be incorporated in TECO’s 2021 Capacity Cost Recovery factors. (Higgins)
Staff Analysis:
The 2017 Settlement established a framework for TECO
to recover costs associated with the construction and operation of solar
generating facilities meeting certain criteria. Under the framework, the
Company can petition the Commission to implement project-specific estimated
annual revenue requirements beginning on specified dates subject to certain
agreed-upon conditions.[9] The
revenue collected is subject to true-up. The true-up amount (Total True-up) is
the focus of staff’s recommendation in this issue. The relevant time period
used in formulating the Total True-up is September 1, 2018, through December
31, 2020.
As discussed in Issue 1, all actual capital costs and some
in-service dates of the plants comprising the First and Second SoBRA projects
differ from the values originally assumed. Relative to the revenue collected,
these two differences inherently produce two distinct true-ups; a cost true-up,
and an in-service date or “timing” true-up. The cost true-up is the difference
between the revised annual revenue requirement that incorporates actual capital
costs and the current annual revenue requirement based on estimated capital
costs from the point of (actual) plant in-service through December 31, 2020.
The timing true-up simply captures the effect of matching a specific plant’s
assumed in-service date to its actual in-service date. Staff notes that not all
individual plants require a timing true-up. The net dollar impact/Total
True-up, as required by paragraph 6(n) of TECO’s 2017 Settlement is then flowed
through the CCRC.[10]
Table 3-1 displays the components and associated amounts
of the proposed First and Second SoBRA Projects Total True-up.
|
Table 3-1
|
|
First and Second SoBRA Projects Total True-up
|
|
Component
|
Amount
(09/01/2018 through 12/31/2020)
|
|
Total Cost True-up
|
$93,176
|
|
Total Timing True-up
|
4,490,688
|
|
Total Interest[11]
|
512,177
|
|
Total
|
$5,096,041
|
Source: Direct Testimony of
TECO witness Jeffery S. Chronister, page 19.
On March 25, 2020, the Company petitioned the Commission
to reduce its then-approved CCRC rates.[12],[13]
Incorporated in its request was a First and Second SoBRA-related preliminary
credit/refund of $4,856,329. The Commission approved TECO’s request on May 14,
2020, thereby reducing the outstanding balance of the proposed Total True Up to
$239,712 at year-end 2020.[14] According
to TECO witness Chronister, the Company will include the remaining Total
True-Up balance as part of its requested 2021 CCRC factors. TECO’s CCRC
petition for factors effective in 2021 is due to be filed by September 3, 2020.
Conclusion
Staff recommends the appropriate true-up amount associated
with the First and Second SoBRA projects that should be reflected in the CCRC,
pursuant to paragraph 6(n) of the 2017 Settlement, is a credit of $5,096,041. Due to the inclusion of an estimated credit of $4,856,329
in TECO’s mid-course correction filing, an outstanding credit balance of
$239,712 remains and is to be incorporated in TECO’s 2021 Capacity Cost
Recovery factors.
Issue 4:
What is the appropriate base rate adjustment for
TECO’s First and Second SoBRA projects and how should the Company implement
this adjustment?
Recommendation:
The appropriate base rate adjustment for TECO’s
First and Second SoBRA projects is an annual revenue requirement reduction of
$77,000, which should be reflected in the Company’s Fourth SoBRA revenue
requirement calculation. (Forrest)
Staff Analysis:
Issue
3 addresses the true-up for the period September 1, 2018 through December 31,
2020. This issue addresses the adjustment of base rates effective January 1,
2021. As discussed in Issue 2, staff recommends that the revised annual revenue
requirement is $77,000 less than originally estimated.
TECO witness Ashburn stated in
his testimony that, per the 2017 Settlement, the base rate adjustments are to
be spread over all the rate classes. Witness Ashburn stated that TECO applied
the $77,000 reduction to its calculation of base rates for all customer classes
and found that the true-up adjustment was de
minimis and did not shift any of the last digits in current rates. As a
result, TECO proposed to incorporate the $77,000 revenue requirement reduction
in the revenue requirement calculation of the Fourth SoBRA filing.
TECO filed its Fourth SoBRA petition on July 31, 2020, to
be effective with the first billing cycle in January 2021. Additionally, the Company states that the First and Second
SoBRA true-up amount is scheduled to take effect in January 2021. As such, TECO
proposed in the Fourth SoBRA petition to deduct $77,000 from its Fourth SoBRA
revenue requirement calculation to adjust for the First and Second SOBRA
revenue requirement true-up amount. Staff believes this is an appropriate
approach given that the true-up amount would not impact current rates.
Conclusion
The appropriate base rate adjustment for TECO’s First and
Second SoBRA projects is a reduction of $77,000, which should be reflected in
the Company’s Fourth SoBRA revenue requirement calculation. This proposal
ensures that the general body of ratepayers benefits from the revised revenue
requirement.
Issue 5:
Should this docket be closed?
Recommendation:
Yes. If no protest
is filed by a person whose substantial interests are affected within 21 days of
the issuance of the Order, this docket should be closed upon the issuance of a
Consummating Order. (Stiller)
Staff Analysis:
If no protest is filed by
a person whose substantial interests are affected within 21 days of the issuance
of the Order, this docket should be closed upon the issuance of a Consummating
Order.
[1]Order No. PSC-2017-0456-S-EI, issued November 27,
2017, in Docket No. 20170210-EI, In re:
Petition for limited proceeding to approve 2017 amended and restated
stipulation and settlement agreement, by Tampa Electric Company, and Docket
No. 20160160-EI, In re: Petition for
approval of energy transaction optimization mechanism, by Tampa Electric
Company.
[2]Order No. PSC-2018-0288-FOF-EI, issued on June 5,
2018, in Docket No. 20170260-EI, In re:
Petition for limited proceeding to
approve first solar base rate adjustment (SoBRA), effective September 1, 2018,
by Tampa Electric Company.
[3]Order No. PSC-2018-0571-FOF-EI, issued on December 7,
2018, in Docket No. 20180133-EI, In re: Petition
for limited proceeding to approve second solar base rate adjustment (SoBRA),
effective January 1, 2019, by Tampa Electric Company.
[4]2017 Settlement, ¶6(b).
[5]Order Nos. PSC-2018-0288-FOF-EI and
PSC-2018-0571-FOF-EI.
[8]Order Nos. PSC-2018-0288-FOF-EI and
PSC-2018-0571-FOF-EI.
[9]2017 Settlement, ¶6(b).
[11]“Total Interest” is calculated at an annual AFUDC rate
of 6.46 percent.
[12]Order No. PSC-2019-0484-FOF-EI, issued November 18,
2019, in Docket No. 20190001-EI, In re:
Fuel and purchased power cost recovery clause with generating performance
incentive factor.
[13]Commission Document No. 01597-2020.
[14]Order No. PSC-2020-0154-PCO-EI, issued May 14, 2020,
in Docket No. 20200001-EI, In re: Fuel
and purchased power cost recovery clause with generating performance incentive
factor.
