| (E) Alternatives. A decision analysis for all electric generating
facilities owned by a utility or affiliated power generation company in the
same region comparing the cost-effectiveness of the retirement option with
retrofit options and all other possible options considered by the electric
utility or affiliated power company. Other options shall include:
(i) offsetting emissions at the electric generating facility
by installing control technology at another facility, consistent with the
rules of the conservation commission; and
(ii) switching fuel used for electricity generation at the
electric generating facility.
(F) Comparative cost analysis. The net present value of the
capital, operating, and maintenance costs of each option considered pursuant
to subparagraph (E) of this paragraph. The period of the analysis shall begin
on May 1, 2003, and extend for a period of 15 years. The discount rate used
in the analysis and the cost of capital associated with each option shall
be calculated differently. Both shall start with the capital structure and
cost of capital as they are reported for the end of 1999 in the utility's
annual report made pursuant to PURA §39.257. The discount rate shall
be the after-tax weighted cost of capital, while the cost of capital associated
with each option shall be taken directly from the annual report, except for
the cost of debt. The cost of debt for this purpose shall be the average cost
of debt for the months of October, November, and December 1999 as reported
by Moody's Investors Service for utilities with the same Moody's bond rating
as the utility making the filing adjusted to reflect any tax-exemption benefits
for which a particular option might qualify. All assumptions used in the analysis
shall be provided. If the lowest-cost alternative is not selected as the most
cost-effective, an explanation of why it was not selected shall be provided.
Where an electric generating facility is required to remain active to ensure
reliability, retrofit shall be deemed to be the most cost-effective alternative
for that facility. The commission shall give great weight to the recommendation
of the Electric Reliability Council of Texas (ERCOT) Independent System Operator
(ISO) in determining whether a facility is needed for reliability purposes.
(G) Retrofit. The retrofit alternative analysis shall include
calculation of retrofit cost and an estimate of the total cost per ton of
pollutant reduced for each option considered. The retrofit alternative analysis
shall also include the time-discounted, probability-adjusted cost of environmental
retrofits that are reasonably foreseeable to require air quality improvement
compliance no later than 2010. If the expected remaining life of the generating
facility is less than 15 years, the retrofit analysis shall include the net
present value of all relevant costs of retirement for those years remaining
after the retirement date.
(H) Retirement. The retirement analysis shall include the net
present value of all relevant costs of retirement for each electric generating
facility, including:
(i) the cost of replacement generating capacity in dollars
as defined in subsection (c)(2) of this section. The amount of replacement
generating capacity shall be the generating capacity of the unit retired adjusted,
when appropriate and depending upon the size of the unit, to reflect energy
savings or additions attributable to energy efficiency, transmission upgrades,
distributed generation, and other similar measures; and
(ii) the net book value of the facility, including retirement
costs and offsetting salvage value, which includes but is not limited to the
market value of the land after the facility is retired, and the value of water
rights, pollution credits or benefits associated with the facility, and other
infrastructure.
(2) Notice. Notice of an application for approval
of a cost-effectiveness determination shall be provided through newspaper
publication once a week for two consecutive weeks in a newspaper of general
circulation throughout the service area of each electric generating facility
addressed in the application. Such newspaper notice shall state in plain language:
(A) the purpose of the application;
(B) the electric generating facilities addressed in the application;
(C) the air quality improvement strategy proposed for each
electric generating facility addressed in the application; and
(D) the date the application will be deemed approved if no
objection is filed with the commission.
(3) Approval of an application for determination
of cost-effectiveness. An application shall be deemed approved without further
commission action if no objection to the application is filed with the commission
within 60 days after the application was filed and adequate notice has been
completed.
(4) Decision. If an application for approval of an emissions
reduction plan is not approved under paragraph (3) of this subsection, the
commission shall render a decision approving or denying the application within
180 days from the date of filing of a complete application unless good cause
is shown for extending the 180-day period.
(f) Reconciliation of environmental cleanup costs during the
true-up proceedings. The commission's final determination of recoverable environmental
cleanup costs under PURA §39.263 shall be made during the true-up proceedings
under PURA §39.262, subject to the provisions of this paragraph:
(1) Burden of proof for recovery of costs.
(A) Burden of proof. In determining the amount of environmental
cleanup costs that the electric utility may recover as invested capital under
PURA §39.263, the electric utility or affiliated power generation company
has the burden of showing that its qualifying costs during the period were
prudent, reasonable, and necessary and were incurred to implement the most
cost-effective alternative.
(B) Benchmarks. For those electric generating facilities where
their owners can show that retrofitting the facilities is more cost effective
than retiring them, the commission presumes that costs for retrofitting a
natural gas-fired electric generating facility that are no more than $7.00
per kilowatt for nitrogen oxide combustion control technology and $25 per
kilowatt for technology that reduces nitrogen oxide emissions by 80% or more
are reasonable and prudent. Likewise, the commission presumes that costs for
retrofitting a coal-fired electric generating facility that are no more than
$10 per kilowatt for nitrogen oxide combustion control technology and $50
per kilowatt for technology that reduces nitrogen oxide emissions by 80% or
more are reasonable and prudent. For actual costs that exceed these per-kilowatt
benchmarks, the utility must establish that those costs were reasonably incurred.
Costs that the utility estimates and the commission affirms as the estimated
costs of each plant's environmental retrofit, as determined in a proceeding
under subsection (e) of this section, shall be aggregated as the maximum reasonable
and prudent investment for the fleet retrofit, and the costs in excess of
the fleet total are not recoverable through stranded costs.
(2) Scope. Any issue related to determining the prudence
and reasonableness of the environmental clean-up costs which the electric
utility or affiliated power generation company is seeking recovery as invested
capital shall be within the scope of the proceeding. The prudence and reasonableness
of the alternative selected for each electric generating facility is not within
the scope of this proceeding.
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