Discussion
of Issues
Issue 1:
Should the Commission approve DEF’s First SoBRA
Tranche which includes the Sundance, Rattler, Half Moon, and Bailey Mill solar
projects?
Recommendation:
Yes. The First SoBRA Tranche is reasonable and
cost-effective in accordance with the criteria of subparagraph 16(c) of the
2024 Settlement, and therefore should be approved for inclusion in base rates
through the SoBRA mechanism. (Davis)
Staff Analysis:
In
its petition, DEF proposes the addition of four solar generating facilities,
each rated at 74.9 MW. The following table provides the estimated in-service
dates, estimated rate effective date and estimated installed cost for each
project. The variation in installed costs is primarily due to network upgrades
and solar supporting equipment (balance of system).
Table 1-1
First SoBRA Projects
|
Project Name
|
Sundance
|
Rattler
|
Half-Moon
|
Bailey Mill
|
|
In-Service Date
|
July 2025
|
January 2026
|
January 2026
|
May 2026
|
|
Installed Cost ($M)
|
$110.9
|
$137.6
|
$145.2
|
$127.7
|
|
Rate Effective Date
|
August 2025
|
February 2026
|
February 2026
|
June 2026
|
Source: Document No.
01084-2025.
Subparagraph
16(c) of the 2024 Settlement states that the reasonableness and cost-effectiveness
of the SoBRA project(s) shall be evaluated based only on whether the projects
in the SoBRA will (1) lower the projected system CPVRR as compared to a system
CPVRR without the solar projects (also known as the ‘base case’); (2) whether
CPVRR of the solar projects show positive benefits that exceed costs within ten
years; (3) whether the solar projects meet a 1.15 to 1 benefit to cost ratio;
and (4) whether the solar projects are 100 percent dedicated to serve DEF’s
retail load.
The
CPVRR compares the cost of the added generation, transmission, operations and
maintenance (O&M) and other expenses of the proposed solar project(s) to
the avoided traditional generation, transmission, fuel, and O&M expenses
that would otherwise have been incurred if the facilities had not been
constructed.
As
part of its analysis, DEF produced resource plans for both the SoBRA case and
the Base Case, including additions of solar, batteries, natural gas, and small
nuclear reactors (SMRs) as future units. The primary difference between the
resource plans for the First SoBRA Tranche is the amount and timing of battery
storage capacity starting in 2028, and in the base case only, the addition of a
combustion turbine in 2035.
Exhibit No. BMHB-4 of DEF’s
petition shows a net system benefit of $253 million over the life of the First
SoBRA Tranche. In response to staff’s data request, DEF provided the annual
values for each category and staff determined that on a CPVRR basis the solar
projects become cost-effective in 2035, or one year earlier than the ten-year
requirement of the 2024 Settlement. In addition, Exhibit No. BMHB-4 of DEF’s
petition shows $742.4 million avoided costs (including fuel, emissions,
O&M, gas transportation, and capital) and $182.1 million of production tax
credits due to the added solar projects for a total of $924.4 million in
benefits. The same exhibit shows the costs of the solar projects are $671.4
million, including capital, transmission, and O&M costs, resulting in a
benefit to cost ratio of 1.38, which exceeds the minimum criteria in the 2024
Settlement. Finally, based on DEF’s response to staff’s data requests the solar
projects appear to be dedicated to serve DEF’s retail load since all solar
projects are listed in the resource plan required to meet a minimum reserve
capacity of 20 percent.
Conclusion
The First SoBRA Tranche will lower DEF’s system CPVRR by
approximately $253 million with benefits beginning in 2035, and has a total
benefit to cost ratio of 1.38. The First SoBRA Tranche will also be 100 percent
dedicated to serve retail load. Therefore, the First SoBRA Tranche is
reasonable and cost-effective in accordance with the criteria of subparagraph
16(c) of the 2024 Settlement, and should be approved for inclusion in base
rates through the SoBRA mechanism.
Issue 2:
What is the estimated annual revenue requirement
associated with DEF’s First SoBRA Tranche which includes the Sundance, Rattler,
Half Moon, and Bailey Mill solar projects?
Recommendation:
The estimated annual revenue requirement associated
with DEF’s First SoBRA Tranche is $73.3 million. (Gatlin)
Staff Analysis:
Pursuant to the 2024
Settlement, DEF was authorized to establish a SoBRA mechanism to recover the
costs associated with constructing 300 MW of solar generation annually, from
2025 through 2027. The SoBRA mechanism allows DEF to file a petition for
approval of groups of solar generation projects in separate dockets, filed
closer to their respective in-service dates, in order to ensure more accurate
and current cost projections.
The Company requested the
Commission approve an annual revenue requirement based on the projected
installed cost of four projects, Bailey Mill Solar Center, Rattler Solar
Center, Half Moon Solar Center, and Sundance Solar Center, in its first solar
base rate adjustment. The estimated in-service date for the facilities is July
2025 (Sundance), January 2026 (Rattler and Half Moon), and May 2026 (Bailey
Mill). The projected annual revenue requirement includes the Clean Energy
Connection expansion revenues of $7.5 million, pursuant to Paragraph 16a of the
2024 Settlement.
The revenue requirement for DEF’s
SoBRA is based on a projected plant cost to determine rate base and the
required net operating income. The net operating income includes operation and
maintenance expenses, depreciation expenses, financing costs, insurance costs,
and taxes, as well as a debit of $7.5 million per project, for the Clean Energy
Connection, which results in a net increase in the revenue requirement of each
project. The proposed annual revenue requirement associated with DEF’s First
SoBRA is $73.3 million, based on a total rate base of $498.4 million
and a net operating income of $54.6 million. Table 2-1 reflects
the calculated revenue requirement for each individual project.
Table 2-1
DEF First SoBRA Annual Revenue Requirement ($000)
|
|
Sundance
|
Rattler
|
Half Moon
|
Bailey Mill
|
|
Rate Base
|
$108,541
|
$130,000
|
$135,401
|
$124,535
|
|
Rate of Return
|
6.700%
|
6.740%
|
6.740%
|
6.740%
|
|
NOI Required
|
7,272
|
8,762
|
9,126
|
8,394
|
|
NOI Achieved
|
(4,910)
|
(5,419)
|
(5,579)
|
(5,068)
|
|
NOI Deficiency/Excess
|
12,182
|
14,181
|
14,705
|
13,462
|
|
NOI Multiplier
|
1.343
|
1.344
|
1.344
|
1.344
|
|
Revenue Requirement
|
$16,364
|
$19,054
|
$19,758
|
$18,093
|
Source: Prepared Direct
Testimony and Exhibit of DEF witness Olivier, Exhibit MJO-1.
Conclusion
The estimated annual revenue
requirement associated with DEF’s First SoBRA Tranche is $73.3 million.
Issue 3:
Should the Commission give staff administrative
authority to approve tariffs and associated charges for DEF’s First SoBRA
Tranche which includes the Sundance, Rattler, Half Moon, and Bailey Mill solar
projects?
Recommendation:
Yes. DEF should file tariffs and supporting
calculations two months prior to the effective date of each solar base rate
adjustment. DEF should also submit a letter to the Commission declaring the
commercial operation date of each solar facility prior to any base rate changes
going into effect. (Ward)
Staff Analysis:
Witness Olivier stated in her testimony that DEF
will file the rate adjustments and tariff sheets for Commission confirmation
approximately two months prior to the effective date of each of the rate
adjustments. The expected rate adjustment effective dates for the solar
projects are August 2025 (Sundance), February 2026 (Rattler and Half Moon), and
June 2026 (Bailey Mill).
In response to staff’s second data request, DEF provided
preliminary approximate base rate impacts on the 1,000 kWh residential bill for
the four solar projects as follows: Sundance ($0.47), Rattler ($0.56), Half
Moon ($0.56), and Bailey Mill ($0.51).
DEF stated that all of these solar projects will provide fuel savings. Based on
the cost per kWh of natural gas in DEF’s 2025 fuel projection filing, DEF
estimates a fuel savings of approximately $0.17 per solar plant.
Conclusion
The Commission should grant staff administrative authority
to approve the tariffs and associated charges as they are submitted by DEF. DEF
should file tariffs and supporting calculations two months prior to the
effective date of each solar rate base adjustment. DEF should also submit a
letter to the Commission declaring the commercial operation date of each solar
facility prior to any base rate changes going into effect.
Issue 4:
Should this docket be closed?
Recommendation:
No. This docket shall remain open pending DEF’s
letters confirming commercial operation. Once these letters have been received,
this docket shall be closed administratively. (Bloom, Crawford)
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, a
consummating order should be issued. This docket shall remain open pending
DEF’s letters confirming commercial operation. Once these letters have been
received, this docket shall be closed administratively.
