Discussion
of Issues
Issue 1:
What are the actual total costs for TECO’s Third
SoBRA projects?
Recommendation:
The
actual total costs for TECO’s Third SoBRA projects are as listed in Table 1-3.
However, Wimauma Solar, with an actual installed cost of
$1,537/kilowatt-alternative current (kWac), exceeds the $1,500/kWac
cost cap provision of the 2017 Settlement. Therefore, TECO’s recovery of installed
costs for Wimauma Solar should be limited to $112,200,000 through the SoBRA
Mechanism. (Wooten)
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. LMR
Solar is below the cost cap. However, Wimauma Solar, with an actual installed
cost of $1,537/kWac, exceeds the cost cap provision of the 2017
Settlement. Paragraph 6(e) of the 2017 Settlement states that if a project cost
more than $1,500/kWac, the Company can only recover the installed
costs up to the cost cap. Therefore, TECO’s recovery of installed costs for
Wimauma Solar should be limited to $1,500/kWac or $112,200,000
through the SoBRA Mechanism.
In-Service Dates
Neither project entered commercial service on their
estimated in-service dates. Both Wimauma Solar and LMR Solar received their
environmental and construction permits about three months later than the
Company expected, subsequently delaying construction on the projects until July
2019. The contractors for LMR Solar lessened the delay by increasing the number
of employees on the job and working weekends. The estimated and actual
in-service dates for each solar project are listed in Table 1-1.
Table 1-1
In-Service Dates for Third
SoBRA
|
Project Name
|
Estimated In-Service Date
|
Actual In-Service Date
|
|
Wimauma Solar
|
January 1, 2020
|
April
1, 2020
|
|
LMR Solar
|
January 1, 2020
|
February
7, 2020
|
Source: Exhibit JSC-1 from
Document No. 04308-2021
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 engineering,
procurement, and construction (EPC) contracts. For TECO’s Third SoBRA, 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. Both Wimauma and LMR were above estimated
installed costs by 4% and 0.1%, respectively. Wimauma Solar’s actual installed
costs varied from the estimated installed cost due to an increase in EPC cost
and higher allowance for funds used during construction (AFUDC) cost due to the
longer than expected construction period. LMR Solar’s actual installed costs
varied from the estimated installed cost due to an increase in EPC 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 for Third SoBRA
|
Project
Name
|
EPC
Cost ($)
|
Land
Cost ($)
|
Transmission
Cost ($)
|
Owner’s
Cost ($)
|
Total Variance
($)
|
|
Wimauma Solar
|
2,067,780
|
(197,320)
|
(1,915,202)
|
332,323
|
287,581
|
|
LMR Solar
|
7,269,645
|
0
|
(6,565,372)
|
(556,337)
|
147,935
|
Source: Exhibit SGS-1 from
Document No. 04308-2021
EPC Costs
EPC costs represent approximately 89 percent of the total
costs on average for the Third SoBRA. Wimauma Solar’s actual EPC costs varied
from the estimate due to change orders for additional modules needed for
breakage spares. LMR Solar’s actual EPC costs varied from the estimated cost
due to the EPC contractor constructing the required 230 kilovolt (kV) ring bus
switchyard, as opposed to TECO. The costs associated with this equipment were
originally estimated in the transmission cost category but were moved to the
EPC cost category. The EPC contractor also completed all permitting activities.
Land and Transmission Costs
The land and transmission costs represent approximately 12
and 4 percent of the total costs on average, respectively, and each of the
solar projects were at or below the original estimated costs. LMR Solar is
constructed on land obtained through a long-term lease and has no costs
associated with the installed cost of the project. The largest variance for
transmission cost was for the LMR project, due to previously mentioned 230 kV
ring bus switchyard costs being reassigned to EPC costs.
Total Costs
Pursuant to paragraph 6(d) of the 2017 Settlement, in
addition to the installed costs discussed above, TECO is eligible to include
AFUDC associated with SoBRA projects, which represent approximately 6 percent
of the total costs of Wimauma Solar. LMR Solar has no AFUDC cost and as it is
constructed on leased land there is no land cost included in the total costs.
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, only LMR Solar is below the cost cap specified in
paragraph 6(d) of the 2017 Settlement of $1,500 per kWac. As Wimauma
Solar exceeds the cost cap, total cost recovery for the project is limited by
the $1,500 per kWac cost cap. Staff has reviewed the total actual
costs, and they appear reasonable and consistent with the 2017 Settlement.
Table
1-3
Total
Costs for Third SoBRA
|
Project Name
|
Total Cost ($)
|
Total Cost ($/kWac)
|
|
Wimauma Solar
|
114,962,604
|
1,537
|
|
LMR Solar
|
105,247,935
|
1,413
|
Source: Exhibit SGS-1 from
Document No. 04308-2021
Conclusion
The actual total costs for TECO’s Third SoBRA projects are
as listed in Table 1-3. However, Wimauma Solar, with an actual installed cost
of $1,537/kWac, exceeds the $1,500/kWac cost cap
provision of the 2017 Settlement. Therefore, TECO’s recovery of installed costs
for Wimauma Solar should be limited to $112,200,000 through the SoBRA
Mechanism.
Issue 2:
What is the adjusted annual revenue requirement for
TECO’s Third SoBRA projects?
Recommendation:
The adjusted cumulative annual revenue requirement associated
with TECO’s Third SoBRA Project is $26,612,000. (Higgins)
Staff Analysis:
In 2017, TECO received
authorization for a framework to recover costs associated with the construction
and operation of a then-conceptual series of solar generating facilities.
The framework includes conditions by which the Company can petition the
Commission to implement project-specific estimated annual revenue requirements,
beginning on specified dates, subject to certain agreed-upon conditions.
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.
The Company is requesting the Commission approve an adjusted
cumulative annual revenue requirement based on the actual installed costs of
the plants associated with its previously-approved Third SoBRA Project.
The adjusted cumulative annual revenue requirement for the Third SoBRA Project
is specifically associated with the Wimauma Solar and LMR Solar plants.
The adjusted cumulative annual revenue requirement is
formulated using the actual capital cost (Issue 1) including incentives of the
Third SoBRA Project in place of the originally-estimated capital cost. 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 amounts produced by this change are the subject of Issue
3. Additionally, a separate provision contained in the 2017 Settlement addressing potential tax rate changes during the
settlement period was activated.
On September 12, 2019, the Florida Department of Revenue
issued a Tax Information Publication (TIP) announcing the reduction in Florida’s
corporate income tax rate from 5.5 percent to 4.458 percent retroactively
effective to January 1, 2019 (State Tax Rate Change). The State Tax Rate Change
remains in effect through December 31, 2021. The Company addressed the impact
of the State Tax Rate Change through a reduction to the estimated revenue
requirement associated with its Third SoBRA approved on October 17, 2019. Since
the Third SoBRA-related revenue requirement had yet to take effect, TECO simply
amended the estimated revenue requirement to incorporate the State Tax Rate
Change. The Third SoBRA-related estimated revenue requirement amount pre-tax
rate change was $26,596,000, while the estimated revenue requirement post-tax
rate change, or the revenue requirement actually charged to customers, was
$26,452,000. The State Tax Rate Change as it relates to the Third SoBRA Project
represents a revenue requirement reduction of $144,000. By
Order No. PSC-2019-0524-PAA-EI, the Commission found that:
Adjusting the Third SoBRA Paragraph 9(b) of the 2017
Agreement requires the Company to “adjust any SoBRAs that have not yet gone
into effect to specifically account for Tax Reform.” As indicated in the
Company’s petition, the annual revenue requirement for the Third SoBRA
re-calculated using the 4.458 percent state corporate income tax rate is
$26,452,000, which is $144,000 lower than the amount approved in the Third
SoBRA docket. The Company’s petition showed the revenue requirement for the
Third SoBRA using the new state rate. We have reviewed the calculations
regarding the revenue requirement for the third SoBRA included with the
Company’s petition and approve $26,452,000 as the revised revenue requirement
for the Third SoBRA.
Table 2-1 displays
the estimated plant-specific Third SoBRA annual revenue requirements, which
include the effect of the State Tax Rate Change discussed above.
|
Table 2-1
|
|
Third SoBRA
Estimated Annual Revenue Requirements
|
|
Plant
|
Revenue
Requirement
|
|
Wimauma Solar
|
$13,225,000
|
|
LMR Solar
|
13,227,000
|
|
Total
|
$26,452,000
|
Sources: Order No.
PSC-2019-0477-FOF-EI, Order No. PSC-2019-0524-PAA-EI, and the Prepared Direct
Testimony and Exhibit of TECO witness Jose A. Aponte, page 6.
Table 2-2 displays the proposed adjusted annual Third SoBRA revenue
requirements associated with each project and plant.
|
Table 2-2
|
|
Third SoBRA Adjusted
Annual Revenue Requirements
|
|
Plant
|
Revenue Requirement
|
|
Wimauma
Solar
|
$13,367,000
|
|
LMR
Solar
|
13,245,000
|
|
Total
|
$26,612,000
|
Source:
Prepared Direct Testimony and Exhibit of TECO witness Jose A. Aponte, pages
6-12.
The proposed adjusted cumulative annual revenue
requirement is $26,612,000. The revision represents an increase of $160,000 as
compared to the previously-estimated cumulative annual revenue requirement of $26,452,000.
Conclusion
Staff recommends the adjusted cumulative annual revenue
requirement associated with TECO’s Third SoBRA Project is $26,612,000.
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 net true-up amount
(Total True-up) associated with the Third SoBRA Project that should be
reflected in the CCRC, pursuant to subparagraph 6(n) of the 2017 Settlement, is
a credit of $4,155,553. After accounting for the preliminary Third
SoBRA-related credit of $4,069,905 in 2020, the net amount owed to customers is
$85,648. The Remaining Net True-up amount of $85,648 has been reflected in
TECO’s proposed 2022 Capacity Cost Recovery rates. (Higgins)
Staff Analysis:
In 2017, TECO received authorization for a framework
to recover costs associated with the construction and operation of a
then-conceptual series of solar generating facilities.
The framework includes conditions by which the Company can petition the
Commission to implement project-specific estimated annual revenue requirements
beginning on specified dates subject to certain agreed-upon conditions.
The revenue collected is subject to true-up. The 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 January 1, 2020, through December 31, 2021.
As discussed in Issue 1, both the capital costs and the
in-service dates of the two plants comprising the Third SoBRA Project differ
from those originally projected. 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 adjusted 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, 2021. The
timing true-up simply captures the effect of matching a specific plant’s
assumed in-service date to its actual in-service date. The net dollar impact
including interest, or Total True-up, as required by subparagraph 6(n) of TECO’s
2017 Settlement is flowed through the CCRC.
Table 3-1 displays the components and associated amounts of the proposed Third
SoBRA Project Total True-up.
|
Table 3-1
|
|
Third SoBRA
Project Total True-up
|
|
Component
|
Amount
(01/01/2020 through 12/31/2021)
|
|
Total Cost True-up
|
($282,112)
|
|
Total Timing True-up
|
4,064,011
|
|
Total Net Interest
|
373,654
|
|
Total True-up
|
$4,155,553
|
Source:
Prepared Direct Testimony of TECO witness Jeffery S. Chronister, Exhibit No.
JSC-1, Page 1 of 4.
The Total True-up associated with TECO’s Third SoBRA is
$4,155,553. With respect to accounting for the Total True-Up on September 11,
2020, the Company filed its final Estimated/Actual testimony for calendar year
2020 which contained a preliminary credit/refund (timing true-up) associated
with the Third SoBRA in the amount of $4,069,905. This
amount is currently embedded in TECO’s 2021 CCRC factors.
After accounting for the preliminary credit, the outstanding amount owed to
customers is $85,648 (Remaining Net True-up).
Table 3-2 displays the components and associated amounts
of the proposed Third SoBRA Project Remaining Net True-up.
|
Table
3-2
|
|
Third SoBRA
Project Remaining Net True-up
|
|
Component
|
Amount
|
|
Total True-up
|
$4,155,553
|
|
Preliminary Credit/Refund
|
(4,069,905)
|
|
Remaining Net True-up
|
$85,648
|
Source:
Prepared Direct Testimony of TECO witness Jeffery S. Chronister, Exhibit No.
JSC-1, Page 1 of 4.
According to TECO witness Chronister at the time of filing
the instant petition, the Company’s intent was to include the Remaining Net
True-up balance of the Total True-Up in its 2022 CCRC rate request, which was
filed on September 3, 2021.
Staff has confirmed the remaining balance of the Total True-Up has been
included in TECO’s requested 2022 CCRC rates.
Conclusion
Staff recommends the appropriate Total True-up associated
with the Third SoBRA Project that should be reflected in the CCRC, pursuant to
subparagraph 6(n) of the 2017 Settlement, is a credit of $4,155,553. After
accounting for the preliminary Third SoBRA-related credit of $4,069,905 in
2020, the Remaining Net True-up amount owed to customers is $85,648. The Remaining
Net True-up amount of $85,648 has been reflected in TECO’s proposed 2022
Capacity Cost Recovery rates.
Issue 4:
Should this docket be closed?
Recommendation:
Yes. 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. (Trierweiler)
Staff Analysis:
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.
