Docket No U Docket No U FINAL ORDER

Transcription

1 Docket No U Docket No U FINAL ORDER In re: Docket No U: Application of Savannah Electric and Power Company to Increase the Fuel Cost Recovery Allowance Pursuant to O.C.G.A In re: Docket No U: Savannah Electric and Power Company Request for Approval of Amortization of the Cost of Natural Gas By-Pass for the McIntosh Combustion Turbine Generating Station. Record submitted: March 20, 2000 Decided: March 30, 2000 APPEARANCES: On behalf of the Advocacy Staff of the Georgia Public Service Commission: DANIEL S. WALSH, Assistant Attorney General On behalf of the Consumers' Utility Counsel: JIM HURT, Director, Consumers Utility Counsel RON JACKSON, Attorney On behalf of Savannah Electric & Power Company: LEAMON HOLLIDAY, Attorney On behalf of Engelhard Corporation, Georgia-Pacific Corporation and International Paper Company: RANDALL D. QUINTRELL Page 1 of 8

2 ORDER I. STATEMENT OF PROCEEDINGS A. Summary and Jurisdiction On January 18, 2000, the Savannah Electric and Power Company ( Savannah Electric or Company ) filed with the Georgia Public Service Commission ( Commission ) a request for approval of amortization of the cost of natural gas by-pass for the McIntosh Combustion Turbine generating station. On February 15, 2000, Savannah Electric filed its application to increase its fuel cost recovery rate (FCR), with the new rate to become effective April 1, The application included the pre-filed testimony of Mr. Richard White. In its February 15, 2000, Procedural and Scheduling Order, the Commission combined the two dockets due to the impact that Savannah Electric s amortization proposal would have on the FCR rider. Georgia law requires a public hearing on each electric utility's FCR proposal, not less than 10 days after the utility's filing. Not later than 45 days after the utility's filing, this Commission must issue an order that states the base rates to be used by the utility during the next three consecutive calendar months, or until changed as provided in the Code. Otherwise, the base rates proposed by the utility become effective. O.C.G.A B. Issues and Proceedings The Code defines "fuel costs" as the cost of fuel as defined in the utility company s tariffs. O.C.G.A (a)(1). "Utility" is defined as any retail supplier of electricity subject to the rate-making jurisdiction of the Commission. O.C.G.A (a)(2). On March 10, 2000, the Advocacy Staff of the Georgia Public Service Commission ( Staff ) prefiled two sets of testimony. The testimony of Mr. Daniel Cearfoss addressed the Company s proposal regarding the increase to its FCR rate. The testimony of Ms. Julia Truss spoke to Savannah Electric s amortization proposal. Mr. White filed brief rebuttal testimony on behalf of the Company on March 16, The Commission held a hearing on March 20, 2000, on both the amortization filing and the filing to increase the FCR rate. In addition to Savannah Electric and the Staff, the Consumers Utility Counsel Division of the Governor s Office of Consumer Affairs, the Engelhard Corporation, Georgia-Pacific Corporation and International Paper Company participated at the hearing. The parties filed briefs and proposed orders on March 24, II. SAVANNAH ELECTRIC S FUEL COST RECOVERY FILING Savannah Electric proposed to increase its FCR rates to reflect its estimate of future fuel costs and recover the current deferred fuel balance. The increase is intended to recover the deferred fuel balance over a two-year period ending March Savannah Electric proposed to increase the FCR-14 rate from per kwh to per kwh. This represents an increase of over thirteen percent. Savannah Electric also proposed changes to the Schedule FCR-TOU-4, which take into consideration that Non-TOU customers contribute much more heavily to the load during peak periods June through September. The FCR rates have been set to reflect this additional cost responsibility. Page 2 of 8

3 Savannah Electric s proposed adjustment results in an increase to the standard FCR rate, an increase to the FCR-TOU On Peak rate and a reduction to the FCR-TOU Valley and Off Peak rates. The proposed adjusted FCR-TOU rate also contributes to recovery of the deferred fuel balance. III. SAVANNAH ELECTRIC S AMORTIZATION REQUEST In Docket No U, Savannah Electric requested Commission approval to amortize the cost of acquiring from Atlanta Gas Light Company (AGLC) certain facilities that will allow for the by-pass of transportation service at the McIntosh Combustion Turbine Generating Station. After deregula tion of the natural gas industry in Georgia, AGLC offered to terminate its gas delivery contract with Savannah Electric for the McIntosh facility. AGLC also agreed to sell to Savannah Electric facilities that include the tie-in piping, metering station and odorization facilities between Savannah Electric s pipeline lateral and the Southern Natural Gas pipeline. This acquisition has given Savannah Electric the opportunity to eliminate the local transportation component of gas costs and to purchase gas and other services from gas marketers. Savannah Electric owns two of the eight combustion turbine units at Plant McIntosh. Savannah Electric s portion of the cost of the facilities is approximately $360,000, which works out to approximately 25 percent of the total cost of the facilities. The Company proposes including its portion of the cost of the facilities in its fuel expense, which amounts to $90,000 per year through the fuel cost recovery allowance for four years. IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW A. Savannah Electric s Forecast Methodology In its filing, Savannah Electric used a similar methodology to the methodology proposed by the Company in Docket No U, Savannah Electric s last fuel cost recovery docket. The Company used its average historical unit cost of purchases and system fuel for the period ending December Projected sales from the current load forecast are then allocated between purchases and system generation (i.e., coal, gas, oil, etc.) based on the historical mix of supply from these sources for this same time period. The historical average prices are then applied to this mix of projected purchases and generation in order to determine a twelve-month fuel cost projection. The fuel cost projection is then used with projected sales to calculate the FCR rates. The time period used is not indicative of normalized conditions and Savannah Electric did not normalize this data. The fuel cost projection is therefore higher than would occur under normalized conditions. In Docket No U, the Commission rejected the Company s methodology. Instead, in that docket, the Commission determined that it was reasonable to base fuel cost forecasts on normal weather conditions. In the current proceeding, however, the Staff supported the Company s proposed methodology due to the extraordinary under-recovery that the Company is currently experiencing. Mr. White testified that at the end of February 2000, the FCR balance was about $19 million under-collected. (Tr. 23). As Mr. Cearfoss noted in his testimony, this balance is larger than when the Commission last adjusted the Company s FCR. (Tr. 77). The Staff asserted that ratepayers would benefit from elimination of the under-recovered balance in the fuel clause by June (Tr ). In Docket No U, the Commission certified Savannah Electric s contract to purchase 200MW of capacity and associated energy from Georgia Power Company. This contract will take effect in June Because the proposed contract with Georgia Page 3 of 8

4 Power Company would increase Savannah Electric s generation resources by approximately 23 percent, it is anticipated that the Company will seek corresponding base rate increases when it files its next rate case, which it is expected to do in early Eliminating the under-recovered balance in the fuel clause prior to the effective date of the contract will enable the Commission to offset potentially higher base rates with a lower FCR rate. Therefore, using a higher projection for fuel costs that will help eliminate the under-recovery by June 2002 protects ratepayers from realizing an increase to base rates, while the FCR rate remains high. The Commission finds that due to the circumstances specific to this proceeding, it is prudent to base the FCR rate on warmer than normal weather conditions. However, consistent with its past decisions, the Commission finds that barring extenuating circumstances the use of normalized conditions to determine FCR rates is proper. This determination is consistent with the Commission s order in Docket No U. B. The Deferred Balance As stated above, Mr. White testified that as of February 2000, the deferred fuel balance was about $19 million under-recovered. Staff Exhibit 3 showed the historical monthly and cumulative deferred fuel costs from May 1996 through January The last FCR adjustment occurred in April At that time the deferred fuel balance was under-recovered by $17,476,555. Prior to that adjustment, the FCR was adjusted in May Savannah Electric was in an over-recovered position at that time. (Tr. 77). In its proposal, Savannah Electric included $10 million of the deferral to be recovered during the first twelve months. (Tr. 11). This is slightly more than half of the deferred balance forecasted for the beginning of April Staff supported Savannah Electric s proposed level of collection of the deferred fuel balance because it helps ensure that the balance will be recovered prior to June 2002 when the new purchase power contract takes effect. (Tr. 75). The Staff proposed that if the under-recovered balance is reduced faster than expected, the Company should move immediately to file new FCR rates with the Commission, and that these new FCR rates should be based on normalized weather conditions. Recognition of when the deferral will reach zero can be accomplished by tracking the actual deferred balance against the projected fuel balance path identified on page 2 of Savannah Electric s pre-filed testimony. Staff recommended that if the balance begins to track significantly below this projected path, a re-projection of when the balance will reach zero should be calculated. (Tr. 78). The Commission finds Staff s recommendation that Savannah Electric adjust the FCR rate if the deferral is reduced faster than expected, as well as Staff s proposed method of tracking the deferral to be reasonable and they are adopted. C. Tariff Adjustments Savannah Electric has proposed changes to the FCR-TOU in order to address the relative differential in cost contribution between the Non-TOU and TOU customer groups. Staff supported the Company s proposal because it recognizes the higher cost of fuel on peak and reflects each group s contribution to peak load. (Tr. 79). Page 4 of 8

5 In pre-filed testimony, Mr. Cearfoss recommended changes in the base tariffs LP-4 (Unmetered Outdoor Lighting Service) and LG-4 (Street Lighting Service). Both of these tariffs are for unmetered service. The cost of fuel is included in the base rate. (Tr. 95). The FCR account is credited with revenues from the LP-4 and LG-4 tariffs based on an Outdoor Lighting Credit (Credit). This Credit is set during FCR dockets. If the Credit changes and the base rate in the tariff remains constant then the level of base revenues changes as well. Therefore, adjusting the Credit without a corresponding adjustment to the base tariffs disturbs revenue neutrality. In its rebuttal testimony, Savannah Electric stated it was inappropriate to address base tariffs in a fuel clause proceeding. However, the Company agreed with the revenue neutrality concern. At the hearing, Savannah Electric offered to file a Credit as part of this proceeding that would maintain revenue neutrality. The level of the Credit then must be returned to its level in July 1998 of per kwh. In addition, Savannah Electric stated that in future FCR proceedings that it would subject the outdoor lighting credit to the fuel clause. The Staff agreed that this approach would address its revenue neutrality concerns. (Tr ). Engelhard, Georgia Pacific and International Paper support the proposed adjustments to the TOU- FCR. However, If the data show a differential of 32 47% as Mr. White testified, the adjustments should be of that amount rather than just 25% as proposed by Savannah Electric. In their brief the parties urged the Commission should adopt this adjustment to reflect the Non-TOU group s contribution to peak fuel costs. The Commission finds that it is reasonable to set the Credit at the July 1998 rate. The Commission directs the Company in future FCR filings to subject the outdoor lighting credit to the fuel clause. D. Fuel Procurement Audit The Staff is not recommending disallowance of any fuel costs in this proceeding. The Commission Staff is now in the early stages of conducting a Fuel Procurement Audit, which includes both Savannah Electric and Georgia Power Company. Any findings of potential fuel cost disallowance will be filed in future FCR dockets with recommendations made at that time. Engelhard, Georgia Pacific and International Paper suggest that as soon as the results of the audit are in and made available to interested parties, the Commission should take another look at Savannah Electric s FCR and make appropriate adjustments taking into account the findings of the audit. E. Hedging Savannah Electric testified that the Company plans to review natural gas procurement activities that could lead to a proposal to employ financial instruments to hedge the price paid for gas. (Tr. 10). The Company goes on to say that its fuel department s analysis indicates that hedging may bring direct benefits of lower gas costs to customers. (Tr. 10). In pre-filed testimony, Staff recommended that Savannah Electric should move within sixty (60) days to formalize this analysis and file it with the Commission along with any proposal to begin using these various financial instruments in the procurement of natural gas. (Tr. 83). In its rebuttal testimony, Savannah Electric stated that it would need additional time. (Tr. 16). At hearing, Mr. White agreed that Savannah Electric could update the Commission in sixty days as to the progress of the Company in investigating the matter. (Tr. 32). Page 5 of 8

6 The Commission finds that the Company shall file with the Commission a progress report on its investigation into a hedging strategy within sixty (60) days from the date of this Order. The Commission further finds that the Company must receive Commission approval prior to implementing any hedging program. F. Amortization of Plant McIntosh Facilities Allowing the cost of the AGLC facilities to flow through the FCR as proposed by Savannah Electric would increase the FCR under-recovery. However, the savings in fuel cost as a result of the purchase of the AGLC facilities would decrease that under-recovery. The Staff testified that if not for bypass the Company s fuel cost would increase approximately $95,000. With the recognition of these savings and the amortization of the $90,000 cost, an estimated net reduction of at least $5,000 can be expected for the year 2000, with benefits varying over the next three years. In addition, the record reflects that depending on gas usage at Plant McIntosh, enough savings could be generated in one year to offset the whole cost of the by-pass. (Tr. 89). Moreover, while the cost included in the FCR would only be short term, four years, the savings would be for the service life of the asset, which is estimated at thirty years. Additionally, the Staff cautioned that if recovery is not allowed through the FCR, the cost would be placed in rate base and collected over a longer period of time, costing ratepayers more. The net present value of recovering $360,000 for four years is $291,882, while the net present value of recovering the cost through the rate base over 30 years is $494,510. (Tr ). The Staff testified that inclusion in the fuel clause of the Company s share of the cost of the facilities would not jeopardize the integrity of the FCR. (Tr ). The Commission finds that inclusion of this item is consistent with its prior decisions. Costs which are recovered through the FCR should be directly related to fuel used by the Company. In its Order in Docket No U, Application of Georgia Power Company for a Fuel Cost Recovery Allowance Pursuant to O.C.G.A. Section , the Commission issued the following statement to address Georgia Power Company s requested inclusion in the FCR of a Nuclear Performance Standard reward: The Commission hereby cautions the electric companies and all other parties that the introduction of items and issues which are not clearly and directly related to actual fuel costs into the FCR process may not be viewed favorably by this Commission, as a matter of policy. (Order at page 5 of 6). Local transportation costs were included as a component of fuel expense prior to the purchase of AGLC s facilities. (Tr. 91). In essence, transportation cost would continue to be recovered in the same manner. Also, the costs in question clearly are directly related to fuel used by the Company, and there will be little impact on the FCR. Engelhard, Georgia Pacific, and International Paper recommend that the Commission should at least require Savannah Electric to expense the cost of the bypass over the same four year period but instead of including it in the fuel account (thereby exacerbating an already emergency situation) it should be expensed against base revenues under the accounting order. This would allow the Company quick recovery of the cost of the bypass while avoiding making the fuel account situation even worse by adding $90,000 per year to the under recovered amount. Page 6 of 8

7 The Commission finds that it is appropriate to collect the cost of the natural gas by-pass facilities for Plant McIntosh through the FCR. Since the Code provides for recovery of fuel costs through the FCR, the definition of fuel costs in the Company s tariff should be amended to accommodate the cost of the Plant McIntosh facilities. IV. ORDERING PARAGRAPHS The Commission decides, based upon its evaluations and determinations as set forth in the preceding Findings of Fact and Conclusions of Law, and upon the evidence of record, that it is appropriate to order the following with respect to Savannah Electric s fuel cost recovery allowance filing and its request to amortize its portion of the by-pass cost at Plant McIntosh. WHEREFORE IT IS ORDERED, that revised FCR rates shall be based on a total projected fuel cost estimate of $92,069,310 for the twelve-month period ending March ORDERED FURTHER, that rates shall be set to recover $10 million of the under-recovered deferred fuel cost balance over the twelve-month period, April 2000 to March ORDERED FURTHER, that as soon as it is clear that the deferred fuel balance will be recovered earlier than projected, Savannah Electric shall move immediately to file new FCR rates with the Commission that are based on normalized weather conditions. ORDERED FURTHER, that the outdoor lighting credit shall be set at the July 1998 level of per kwh, and that future changes to the outdoor lighting credit will be subject to the fuel clause to maintain revenue neutrality. ORDERED FURTHER, that the new rate Schedules FCR-15 and FCR-TOU-5 are adjusted as proposed by Savannah Electric. ORDERED FURTHER, that Savannah Electric is directed to move immediately to formalize its Fuel Department analysis addressing hedging. Within sixty (60) days of the date of this order, Savannah shall file with the Commission an update on the progress of this analysis. Savannah Electric must receive Commission approval prior to implementing any hedging plan. ORDERED FURTHER, that Savannah Electric s request to amortize the cost of the facilities it purchased from Atlanta Gas Light Company as part of the by-pass of Plant McIntosh is granted. ORDERED FURTHER, that in filing its new FCR tariff, the Company shall amend the definition of the term fuel costs to include the cost of the facilities that Savannah Electric purchased from Atlanta Gas Light Company as part of the by-pass of Plant McIntosh. ORDERED FURTHER, that all findings, conclusions and decisions contained within the preceding sections of this Order are hereby adopted as findings of fact, conclusions of law, and decisions of regulatory policy of this Commission. ORDERED FURTHER, that any motion for reconsideration, rehearing or oral argument or any other motion shall not stay the effective date of this Order, unless otherwise ordered by this Commission. Page 7 of 8

8 ORDERED FURTHER, that jurisdiction over this matter is expressly retained for the purpose of entering such further Order or Orders as this Commission may deem just and proper The above by action of the Commission in Special Administrative Session on the 30th day of March, Helen O Leary Executive Secretary Bob Durden Chairman Date Date Page 8 of 8