| (a) Purpose. The purpose of this section is to:
(1) establish the procedures and criteria for determining the
amount of stranded cost recovery electric utilities and affiliated power generation
companies shall receive for environmental cleanup costs incurred to improve
air quality in the state pursuant to Public Utility Regulatory Act (PURA) §39.263;
and
(2) minimize stranded costs associated with the implementation
of PURA §39.264.
(b) Applicability. This section applies to:
(1) electric utilities that seek to recover capital costs incurred
during the period January 1, 1999 to April 30, 2003 to improve air quality;
and
(2) affiliated power generation companies that seek to
recover capital costs incurred during the period January 1, 2002, to April
30, 2003 to improve air quality.
(c) Definitions. The following words and terms, when used in
this chapter, shall have the following meanings unless the context clearly
indicates otherwise:
(1) Conservation Commission - The Texas Natural Resource Conservation
Commission.
(2) Cost of replacement generating capacity - The cost
of replacing generating capacity lost through retirement of an electric generating
facility. The annual cost of replacement generating capacity will be calculated
using the following equation:
Attached Graphic
(3) Electric generating facility - A facility that generates
electric energy for compensation and that is owned or operated by a person
in this state, including a municipal corporation, electric cooperative, or
river authority.
(4) Expected remaining life - The estimated life in whole
years of the generating facility from May 1, 2003 as estimated by the utility
at the time of filing its application for approval of its cost-effectiveness
determination plan.
(5) Net book value - The original cost of an asset less
accumulated depreciation.
(6) Offset - The allocation of emission allowances or
credits from one facility to another facility in the same region.
(7) Operations and maintenance (O&M) escalator - The
applicable operations and maintenance (O & M) escalator set forth in the
unbundling cost of service rate filing package. The O& M escalator for
a gas-fired electric generating unit shall be 2.0% and the O & M escalator
for a coal-fired electric generating unit shall be 1.0%. Notwithstanding the
foregoing, the O & M escalator for TNP One shall be 1.5%.
(8) Region - The East Texas Region, West Texas Region,
or El Paso Region, as defined by the conservation commission at 30 TAC §101.330.
(9) Retirement - The permanent removal from service of
an electric generating facility.
(10) Retrofit - The installation of control technology
on an electric generating facility to reduce the emissions of nitrogen oxide,
sulfur dioxide, or both.
(11) Retrofit Cost - The net present value of the total
capital cost and operating and maintenance cost to operate an electric generating
facility after installation of a retrofit. The cost of a retrofitted unit
shall be expressed in net present value dollars as of 2003 using the equation
VALUE = (ECCR + O & M+ FUEL + O & M R + OE), where:
(A) VALUE = net present value in 2003 over the expected remaining
life of a retrofitted unit;
(B) ECCR = net present value of the estimated capital cost
of retrofit as of 2003 and the net present value as of 2003 of the expected
capital cost of environmental controls installed no later than 2010 to meet
future regulations for emissions. The commission will adopt a methodology
for calculating the capital cost of environmental controls to meet future
regulations for emissions.
(C) O & M= net present value as of 2003 of operation and
maintenance cost of unit without retrofit, calculated as O & M= (((average
of plant non-fuel fixed O & M cost reported for the most current five
calendar years on FERC Form 1) x ((maximum generator nameplate rating as reported
for the unit on Form EIA-411 or if not available on Form EIA-411, then the
rating as reported to the commission) / (sum of the maximum generator nameplate
rating as reported for all units comprising the plant at which such unit is
located on Form EIA-411 or if not available on Form EIA-411, then the rating
as reported to the commission))) + ((average of plant non-fuel variable O &
M cost, expressed in $/MWh, reported for the most current five calendar years
on FERC Form 1) x (unit generation for 2003, calculated as the average generation
in MWh for the most current five years as reported on Form EIA-767 or if not
available on Form EIA-767, then the generation as reported to the commission,
declining for the years 2004 and thereafter at the rate of 2.0% per year))
escalated by the O & M Escalator for each year subsequent to the year
in which the cost effectiveness determination was filed;
(D) FUEL = Cost of fuel, calculated as net present value as
of 2003, over the expected remaining life of the retrofitted unit, using the
equation FUEL = HR x G x Gas where:
(i) HR = unit heat rate, calculated as the average of the heat
rate reported for the most current five calendar years on Form EIA-411 or
if not available on Form EIA-411, then the heat rate as reported to the commission,
expressed in mmBtu/MWh;
(ii) G = unit generation, calculated for 2003 as the average
generation in MWh reported for the three most current calendar years on Form
EIA-767 or if not available on Form EIA-767, then the generation as reported
to the commission, declining for the years 2004 and thereafter at the rate
of 2.0% per year; and
(iii) Gas = forward natural gas prices as adopted for the ECOM
model in August, 2000 by the commission;
(E) O & MR = Net present value as of 2003 of estimated
additional operating and maintenance cost resulting from the retrofit, beginning
with costs for calendar year 2003 and escalated each year at 2.0% per year
and the net present value as of 2003 of the expected operating and maintenance
cost of environmental controls to meet future regulations for emissions beginning
with costs for the estimated year of installation and escalated each year
through 2010 at 2.0% per year. The commission will adopt a methodology for
calculating the O & MR cost of environmental controls to meet future regulations
for emissions;
(F) OE = Ownership effect, calculated as the net present value
as of 2003, over the expected remaining life of the retrofitted unit, using
the equation OE = VALUE(PT + PI + CAPIMP - OMTA - CAPIMPDEP - DEPTAXBEN) where:
(i) PT = annual property tax, adjusted for income tax benefit
= (applicable property tax rate) x (ADJECCR) x (1 - income tax rate) where
ADJECCR is equal to ECCR reduced to reflect any property tax exemption for
which the unit might qualify;
(ii) PI = annual property insurance, adjusted for income tax
benefit = (applicable property insurance rate) x (ECCR) x (1 - income tax
rate);
(iii) CAPIMP = annual continuing capital improvements, adjusted
for income tax benefit = (1.25% of the sum of the net book value plus improvements)
x (1- income tax rate);
(iv) OMTA = annual income tax benefit on O & MR = (income
tax rate) x (estimated additional operating and maintenance cost of the retrofit
for the applicable year);
(v) CAPIMPDEP = annual tax depreciation on CAPIMP; and
(vi) DEPTAXBEN = (income tax rate) x (annual tax depreciation
on ECCR).
(12) Transportation equipment - A rail spur
at a lignite-fired electric generating facility installed to receive deliveries
of western coal. Transportation equipment does not include rail cars and unloading
facilities.
(d) Requirements.
(1) Qualifying retrofit costs. To be eligible for recovery
as invested capital pursuant to PURA §39.263, a retrofit cost must be:
(A) reasonable and prudent;
(B) incurred in carrying out the most cost-effective alternative
for improving air quality as approved pursuant to this section;
(C) incurred to reduce or offset emissions by an amount and
at a location that is consistent with the air quality goals and policies of
the conservation commission;
(D) incurred to offset or reduce the emission of airborne contaminants
from an electric generating facility, where:
(i) the emission reduction or offset is determined by the conservation
commission to be an essential component in achieving compliance with a national
ambient air quality standard. For purposes of this section, any emission reduction
or offset achieved by an electric utility or affiliated power generation company
to comply with conservation commission regulations at 30 TAC Chapter 117 is
deemed to have been determined by the conservation commission to be an essential
component in achieving compliance with a national ambient air quality standard;
or
(ii) the reduction or offset is necessary for an unpermitted
electric generating facility to obtain a permit in the manner provided by
PURA §39.264; and
(E) associated with the engineering, procurement, or installation
of pollution control equipment or transportation equipment, or the purchase
of emissions allowances.
(2) Qualifying retirement costs. Retirement costs
may be included in the electric generating facility's stranded cost determination
if retirement of the facility is the most cost-effective alternative, taking
into account the cost of replacement generating capacity. Recoverable retirement
costs are the net book value of the facility, including retirement costs,
less salvage value.
(3) When costs incurred. For purposes of this section,
the electric utility or affiliated power generation company has incurred costs
if it has expended funds or has committed to expend funds under the terms
of a written agreement.
(4) Operating and maintenance costs. This section does
not authorize the recovery of operating and maintenance costs or the capital
cost of a new electric generating facility.
(5) Apportionment of reductions. As provided in this paragraph,
the commission may apportion the capital invested to reduce emissions of nitrogen
oxides, sulfur dioxide, or both, among one or more entities owning facilities
located in the same region. The capital investments for which recovery is
sought must have been incurred pursuant to a written agreement between the
entities executed prior to the date any such costs were incurred. The commission
may not apportion capital costs under this provision unless the criteria of
paragraph (1) of this subsection are met for each electric generating facility
seeking capital cost recovery. Capital costs shall be apportioned by prorating
the total capital invested between entities on the basis of reductions of
nitrogen oxides, sulfur dioxide, or both, realized at each participating entity's
facilities in the region.
(e) Request for approval of cost-effectiveness determination.
(1) Application. On or before January 10, 2003, an electric
utility or affiliated power generation company that seeks recovery of capital
costs pursuant to this section shall file an application for a determination
that its plan for meeting the requirements of PURA §39.264 and the regulatory
programs designed to achieve compliance with national ambient air quality
standards are cost-effective under this section. No more than one application
may be filed for generating facilities owned by the same electric utility
or affiliated power generation company in the same region. The application
shall include the information specified in subparagraphs (A) - (H) of this
paragraph.
(A) Description. A general description of the generating facility,
including but not limited to:
(i) net generating capacity in megawatts;
(ii) type of fuel used for electric generation;
(iii) the county and region in which each facility addressed
in the application is located;
(iv) average capacity factor for the three most current calendar
years as reported to the commission;
(v) generation in megawatt-hours for the three most current
calendar years, as reported on Form EIA-767 or if not available on Form EIA-767,
then as reported to the Public Utility Commission of Texas;
(vi) the expected remaining life of the facility; and
(vii) any other information required to perform the analysis
prescribed by this section.
(B) Total emissions. The total annual emissions (in tons) of
nitrogen oxides and sulfur dioxide:
(i) for the year 1997;
(ii) for the most recent calendar year for which data is available;
(iii) that is expected for the first calendar year after the
implementation of the air quality improvement strategies for which cost recovery
will be requested; and
(iv) for the calendar years 2003 through 2005.
(C) Allocated emissions allowances. The number of emission
allowances allocated to the electric generating facility by the conservation
commission.
(D) Capital cost estimate. The total amount of qualifying capital
costs for each option evaluated by the electric utility or affiliated power
generation company.
Cont'd... |
