Case Background
Pursuant to Rule 25-6.0436(3)(a), Florida
Administrative Code (F.A.C.), Florida’s investor-owned 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. In addition to this requirement, Rule 25-6.0436(3)(b),
F.A.C., 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.
On June 30, 2021, the Commission approved Tampa
Electric Company’s (TECO or Company) Direct Current Microgrid Pilot (DC
Microgrid or Pilot) by Order No. PSC-2021-0237-PAA-EI. The Order notes that TECO will request
approval from the Commission for establishing new depreciation accounts/subaccounts,
with corresponding depreciation rates, to record certain new categories of
plant assets associated with the pilot program implementation.
On November 15, 2021, TECO filed its
Petition for Approval of Depreciation Rates for Direct Current Microgrid Pilot Equipment
(Petition), consistent with Section 366.04, Florida Statutes, Rules
25-6.0436(3)(a)(b), F.A.C., and Order No. PSC-2021-0237-PAA-EI.
The Pilot involves installation of new
direct current electric microgrid technology and associated generating
equipment, known as the Block Energy System. This system will utilize rooftop
photovoltaic solar arrays, natural gas-fueled reciprocating generating units
and distributed energy storage. The Petition notes that TECO does not currently
have a depreciation subaccount for the reciprocating generators. It also needs
to create new subaccounts for the Company-owned rooftop solar panels and
related battery storage utilized in the Pilot to isolate those plant assets
from the existing accounts for the utility-scale solar panels and utility-scale
battery storage.
Staff is not aware of any public comments
or concerns regarding this matter.
The Florida Public Service Commission has
jurisdiction in this matter pursuant to Sections 366.04, 366.05 and 366.06,
F.S.
Discussion of Issues
Issue 1:
Should
TECO’s request to establish new depreciation subaccounts applicable to its Direct
Current Microgrid Pilot be approved, and, if so, what are the appropriate corresponding
depreciation rates?
Recommendation:
Yes.
Staff recommends that the Commission approve TECO’s request to establish the
Pilot-related new depreciation subaccounts with corresponding depreciation parameters
and annual depreciation rates as listed in Table 1 below. (Wu)
Staff Analysis:
TECO seeks the Commission’s approval to establish four
depreciation subaccounts for certain new categories of plant assets associated
with its Block Energy System of the Pilot program:
341.98 Structure
and Improvements – DC Microgrid,
343.98 Prime Movers – DC Microgrid,
345.98 Accessory Electric Equipment
– DC Microgrid, and
348.98 Energy Storage Battery
Equipment – DC Microgrid.
Subaccount 341.98 is for the Pilot-related Block Energy
System structural steel and foundations. TECO
proposed an initial Average Service Life (ASL) of 30 years and Net Salvage (NS)
of zero percent, which derives a 3.3 percent annual depreciation rate for the
subaccount. Staff
concurs with this proposal as it is in line with the Commission’s previous
decision.
Subaccount 343.98 will be used to book the rooftop solar
panels and the natural gas-fueled reciprocating generating units used in the
Block Energy System. Regarding
the rooftop solar assets, paragraph 15 of the Petition reads “[i]n accordance
with the 2021 Agreement, Tampa Electric requests a service life of 35 years for
the Pilot rooftop solar assets, or an annual depreciation rate of 2.9 percent.”
However, in response to staff’s data request, TECO revised this request by
proposing an initial ASL of 30 years and NS of zero, which derives an annual
depreciation rate of 3.3 percent for the rooftop solar assets in discussion. The
Company explained the basis of the revision as follows:
Utility Scale solar plant subaccounts have moved from
ASL [of] 30-years to ASL [of] 35 years per the 2021 Agreement. Roof Top solar
panels, per the manufacturer, have a 25-year product warranty and 30-year
performance warranty.
Generally, in a rate case settlement, the agreed upon depreciation
parameters sometimes result from the parties’ negotiations in the context of
the entire rate case. For the instant docket, staff notes that TECO’s revised
service life proposal does reflect the plant assets’ life characteristic; it is
also within the industry range and consistent with the Commission’s approval of
ASL and NS for similar assets for TECO in 2015. As
such, staff recommends that an initial ASL of 30 years, deriving a depreciation
rate of 3.3 percent, is appropriate for the Pilot-related rooftop solar panels.
With respect to the natural gas-fueled reciprocating
generating units, TECO indicated that the life is between 10,000 and 15,000
operating hours (3.4 to 5.1 years); and as they are considered to be stand-by
units, the expected life of these units is 20-25 years.
TECO proposed to use the same subaccount, 343.98 Prime Movers – DC Microgrid, for both solar panels
and the reciprocating generating units. It claimed that heterogeneous equipment
(retirement units) can exist in the same plant subaccount to avoid use of
redundant plant accounts/subaccounts. The
Company further explained that
Since future depreciation studies can analyze the
stratification of retirement units for long, medium and short categories, roof
top solar panels would be classified as long using an ASL 30-35 years and
generators would be classified as medium using an ASL 20-25 years. This creates
a blending of average service lives and an initial 30-year ASL would be
appropriate.
Stratification, which groups together, for depreciation
study purposes, items of plants having similar life and salvage characteristics,
has been used in TECO’s previous depreciation studies.
It is consistent with Rule 25-6.04361(5)(c), F.A.C., and allows cost recovery
provisions to be more closely matched to the life characteristics of specific
categories of investment made to provide for the generation of electric power. Staff
believes that TECO’s proposal for the subaccount and the associated service
life is reasonable.
Subaccount 345.98 will be used to book the accessory electric
equipment associated with the Block Energy System. TECO proposed an initial ASL
of 30 years and NS of zero percent, deriving a 3.3 percent annual depreciation
rate.
These are in line with what TECO proposed for the electric equipment discussed
above. Staff believes the proposed depreciation parameters and rate are
reasonable.
Subaccount
348.98 will be used to book the energy storage battery equipment associated
with the Pilot. The design
life estimate for the asset is about 10 years, and there are no differences
between the asset and the battery storage equipment currently in-service in
TECO’s system. According
to TECO, the battery storage associated with the Block Energy System is
relatively new equipment technology deployed by the Company, and there is not
enough operational experience at this time.
Consequently, TECO proposed an initial ASL of 10 years and NS of zero percent,
resulting in a 10.0 percent annual depreciation rate, in accordance with what was
approved for TECO’s utility-scale battery storage.,
Staff concurs with TECO’s proposals.
Table
1: Staff Recommended Depreciation Parameters and Rates
|
Acct. No.
|
Account
Description
|
ASL (year)
|
NS (%)
|
Depreciation Rate
(%)
|
|
341.98
|
Structure and Improvements – DC Microgrid
|
30
|
0
|
3.3
|
|
343.98
|
Prime Movers – DC Microgrid
|
30
|
0
|
3.3
|
|
345.98
|
Accessory Electric Equipment – DC Microgrid
|
30
|
0
|
3.3
|
|
348.98
|
Energy Storage Battery Equipment – DC Microgrid
|
10
|
0
|
10.0
|
TECO will include the new subaccounts, if approved, in its
next depreciation study filed with the Commission. Consistent
with Order No. PSC 2021-0237-PAA-EI, the Company will pursue cost recovery for
the Pilot in its next general base rate case.
When the Pilot is suspended by TECO, either at the end of
year one or four,
the undepreciated amount of the plant assets will stay in service at their
current location to serve the customers and provide generation as needed to the
grid. When
a Pilot customer chooses to terminate their DC service, the affected equipment,
excepting the solar panels, will be relocated and placed into service, provided
that the equipment can be repurposed within the Company’s operating system. Otherwise,
the remaining net book value of the equipment will be imputed and written-off
to Account 421.2, Loss on Disposition of Property. With
respect to the solar panels, the Pilot customer can opt to keep them by paying
TECO a nominal value of $1.00. Hence, the panels could be repurposed to provide
that Pilot customer with solar power that would be subject to an
interconnection agreement with TECO.
Issue 2:
What should be the effective date if TECO’s
petitioned new depreciation subaccounts, parameters and rates discussed in
Issue 1 are approved?
Recommendation:
Staff recommends that the newly-approved depreciation
subaccounts and the corresponding parameters and rates become effective on the date
that Pilot-related Block Energy System is placed in-service. (Wu)
Staff Analysis:
Depreciation is the recovery of invested capital
representing equipment that is providing service to the public. This recovery
is designed to take place over the related period of service to the public,
which begins with the equipment’s in-service date. The Pilot-related Block
Energy System is currently in the final stages of commissioning and testing.
The target in-service date is February 8, 2022, according to the Company’s
latest data request response. Staff
recommends that if the Commission authorizes the petitioned depreciation subaccounts
and the corresponding depreciation parameters and annual depreciation rates,
the effective date of the implementation should be the in-service date of the
Block Energy System.
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.
