The Gulf Power unit of Southern Co. (NYSE: SO) lost one argument at the Florida Public Service Commission over rate accounting for a possible nuclear plant site, but won another argument over a site for a possible plant using any number of non-nuclear fuels.
On April 3, the commission approved a rate case, begun in July 2011, for Gulf Power. In this proceeding, Gulf argued that under Florida code, it is authorized to accrue a carrying charge on the cost of acquiring the Escambia nuclear plant site and the cost of the associated evaluations prior to any need determination, a total of $27.7m. Gulf asserted that under a state rule, a site is deemed to be selected upon the filing of a need determination petition. But, it said the cost of acquiring the Escambia site and the cost of the associated evaluations prior to any need determination should be deemed site selection costs because these costs have been incurred and Gulf has not filed a petition for a determination of need.
Gulf contended that because these costs are site selection costs, it is entitled to deferred accounting treatment. Various parties to the case objected to that line of reasoning, and the commission agreed. The commission said it found Gulf’s interpretation of the idea of cost pass-throughs prior to a needs determination to be “unpersuasive.” In the instant case, Gulf has not obtained an order granting a need determination for a nuclear power plant, so the rules do not support Gulf’s proposal to calculate a deferred carrying charge for the Escambia site and the costs of associated evaluations as nuclear site selection costs, the commission said.
A Gulf witness said that Gulf identified the 4,000-acre Escambia site in north Escambia County as the only suitable site within its territory for a nuclear plant. Escambia is also suitable for other generation technologies. Gulf said that in 2007 it began investigating the Escambia site as a potential future power plant site. In August 2008, Gulf decided to purchase the site.
Gulf did not assert it was engaged in nuclear power plant permitting or licensing actions, nor did Gulf assert it was seeking a determination of need for a nuclear power plant, the commission noted. A Gulf witness stated that Gulf did not have any planned power plant developments in mind for the next ten years, so the idea to secure the site at this time was all about preserving an option for the future.
Gulf testified that, as part of its 2011 Ten Year Site Plan, the company’s next need for capacity would be only 30 MW. In 2023, though, there would be a need for an additional 885 MW due to the expiration of the Central Alabama Power Purchase Agreement.
Caryville another power plant site already in hand
Another possible plant site that came up in the case is the Caryville site, which consists of about 2,200 acres of in Holmes County with a book value of nearly $1.4m. Gulf said this site was certified under the Power Plant Siting Act and is suitable for a steam electric generating plant. It was determined to not be a viable option for nuclear generation. Again, Gulf said it has no new plants in the works for the next 10 years, so Caryville is an option for the long-term future.
The Caryville property was purchased in 1963, and the company placed the land in the “plant held for future use” (PHFU) category during a 1972 rate case. Of the 2,200 acres, Gulf Power has leased approximately 1,485 acres to the Brunson Hunting Club. There are also other forms of income, including timber sales off the property.
Gulf testified that the Caryville site is certified for two 500-MW coal units, but could also support combined cycle units, combustion turbines, and other options except for nuclear.
The commission found that the Caryville site should remain in PHFU because it already has been certified under the Power Plant Siting Act and can support many different types of generation facilities. In addition, it noted that the revenue received from timber sales and leasing of the land helps to offset a portion of the revenue requirement for the site.
Commission receptive to Crist upgrade ratemaking
Another part of the April 3 rate decision had to do with ratemaking treatment related to a common SO2 scrubber installed a couple of years ago on the coal-fired Units 4-7 at the Crist plant. Gulf subsequently decided to install the Crist Units 6 and 7 turbine upgrades to offset increased station power generation losses due to the parasitic load of the scrubber.
Gulf claimed that the turbine upgrades are part of the commission-approved scrubber project. If these turbine upgrades were performed independently of the scrubber project, they would have been required by environmental regulations to undergo a new source review analysis under the Clean Air Act, the utility said. This would likely have imposed additional costs on the turbine upgrades and could have precluded Gulf from undertaking them as stand-alone projects.
Because of their direct tie to the scrubber project, these turbine upgrades are different than normal maintenance and upgrade projects. The primary benefits associated with the turbine upgrades are the fuel savings derived from the improved heat rate on the units and the value of the additional 30 MW of capacity.
The turbine upgrades appear cost-effective, the commission said. For the period 2010-2021, the estimated total savings would be approximately $94m, and the estimated savings in every year exceed the annual revenue requirement.
“The record in this case indicates that the in-service portion of the upgrades has resulted in fuel savings, and 2012 will bring more savings to Gulf’s customers,” the commission ruled. “No party challenged the cost-effectiveness of the turbine upgrades. We find that Gulf shall be allowed to recover its full investments in the turbine upgrades once all three of its projects are placed in-service. This will ensure a matching of the investment, revenue, and costs starting in 2013 and forward.”