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May 16, 2011 Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426
RE: Florida Power Corporation Filing Concerning 2010 Impact of Retail Cost of Removal on the OATT Formula Transmission Rate Docket No. ER11- -000
Dear Secretary Bose:
Pursuant to Section 205 of the Federal Power Act, (16 U.S.C. § 824d (2006)), and Part 35 of the Commission's regulations, (18 C.F.R. Part 35 (2010)), Florida Power Corporation, doing business as Progress Energy Florida, Inc. ("PEF"), hereby submits a filing concerning the 2010 impact of the retail cost of removal adjustments on its formula transmission rate (“Formula Rate”) for its Open Access Transmission Tariff (“OATT”). As set forth below, consistent with the Florida Public Service Commission (“FPSC”) orders, PEF is reducing the depreciation reserve for production and distribution accounts for 2010. These adjustments result in a minor increase in the OATT Formula Rate.
PEF respectfully requests that the Commission accept these adjustments effective January 1,
2010, consistent with the effective date in the retail jurisdiction and PEF’s OATT Formula Rate methodology. I. CONTENTS OF THE FILING
This filing consists of the following:
1) This transmittal letter;
2) An excerpt of the FPSC’s March 5, 2010 order and a copy of the FPSC’s June 18, 2010 order on the Stipulation and Settlement Agreement, which concern the depreciation reserves issue (“Attachment 1”);
3) A copy of PEF FERC Form No. 1, page 450.1, which includes the cost of removal adjustments related to the FPSC’s June 18, 2010 order on the Stipulation and Settlement Agreement (Attachment 2);
The Honorable Kimberly D. Bose May 16, 2011 Page 2
4) The cost support and attestation of William Vinhage, which quantifies the minor increase in the
OATT Formula Rate from the adjustments to depreciation reserves (“Attachment 3”); and
5) A copy of the calculation of the PEF OATT Annual Update, which will be submitted today to the Commission in an informational filing in Docket No. ER09-1166-000 (“Attachment 4”).
II. BACKGROUND
By order dated February 11, 2011, in Docket Nos. ER11-2584-000, et al.,1 the Commission accepted PEF’s Section 205 filing with its revised depreciation rates for use in the OATT Formula Rate and granted the requested effective date of January 1, 2010. In that proceeding, PEF committed to make a Section 205 filing to incorporate the impact of the depreciation reserves issue in the OATT Formula Rate for service in 2010 and to request a January 1, 2010 effective date for the filing.2 PEF committed to make this filing after its 2010 FERC Form No. 1 data became available in April 2011 and before it made its Annual Update of the OATT Formula Rate, which is due May 16, 2011.3 PEF is making this filing immediately prior to its filing of the Annual Update today.
Attachment 1 of this filing includes the FPSC orders supporting PEF’s adjustments to the cost of
removal portion of the depreciation reserve.4 Specifically, in the FPSC’s June 18, 2010 order, the FPSC approved a settlement that, inter alia, grants PEF the discretion to record a retail jurisdictional annual credit to depreciation expense and a debit to the “cost of removal portion” of the depreciation reserve of up to $150 million in 2010, up to $250 million in 2011, and up to the remaining balance of the cost of removal reserve in 2012.5 These credits are in addition to the $5,819,849 annual amortization of the depreciation reserve surplus approved in the FPSC’s March 5, 2010 order.6
On April 18, 2011, PEF submitted its FERC Form No. 1 report with 2010 data. Attachment 2 of
this filing includes PEF’s FERC Form No. 1, page 450.1, which describes the credits to the cost of removal component of depreciation expense in 2010 for production plant and distribution plant that were taken to implement the FPSC’s June 18, 2010 order. Specifically, the cost of removal reduction for total production plant is $33,296,538, which included Steam Production Plant of $17,410,938, Nuclear Production Plant of $10, 286,001, and Other Production Plant of $5,599,599. The cost of removal reduction for Distribution Plant is $26,703,462. In total, PEF credited $60,000,000 to depreciation expense in 2010 for reductions to the cost of removal reserve.
1 Florida Power Corporation, et al., 134 FERC ¶ 61,145 (2011).
2 Id. at P 12.
3 Id.
4 The cost of removal reserve is a component of the depreciation reserve. This reserve is maintained for plant accounts to reflect and pay the cost to remove plant from service at the end of its useful life.
5 See Attachment 1, FPSC order dated June 18, 2010, pages 3-4.
6 See Attachment 1, FPSC order dated March 5, 2010, page 52.
The Honorable Kimberly D. Bose May 16, 2011 Page 3
Consistent with the FPSC’s March 5, 2010 order directing PEF to implement a four-year amortization of a total reserve surplus of $23 million, PEF made additional credits to depreciation expense of $5,840,613 in 2010.7 Specifically, this adjustment was made to the distribution plant account for FERC Account 365 Overhead Conductors and Devices and this adjustment is reflected in the cost reporting for this account in PEF’s April 18, 2011 FERC Form No. 1 report.
PEF’s reductions to depreciation reserves for production plant and distribution plant for 2010
are, in total, $65,840,613. III. INSTANT FILING
In the instant filing, PEF submits the 2010 impact of the retail cost of removal adjustments on the OATT Formula Rate.8 Attachment 3 (Exhibit PEF/COR-2) of the filing quantifies the impact of the cost of removal adjustments on the OATT Formula Rate for 2010 service. Attachment 3 (Exhibit PEF/COR-2), column E, line 7 identifies the cost of removal reduction of $33,296,538 to production plant accumulated depreciation, and column F, line 9 identifies the cost of removal reduction of $32,544,075 to distribution plant accumulated depreciation for a total cost of removal reduction of $65,840,613. Attachment 3 (Exhibit PEF/COR-2) also shows the gross plant, accumulated depreciation and net plant in service data with and without the cost of removal reductions in order to determine the impact on the OATT Formula Rate with and without the cost of removal reductions. Attachment 3 (Exhibit PEF/COR-2), lines 19-22, identify that the OATT Formula Rate is impacted by the cost of removal reductions to production and distribution plant because production and distribution plant are used in the calculation of the Net Plant Allocator that is applied to certain items in ADIT Accounts 190, 282 and 283 in the OATT Formula Rate.9 The total revenue impact on the OATT Formula Rate from the change in the Net Plant Allocator applied to certain items in ADIT Accounts 190, 282 and 283 is a small increase of $79,986 in 2010.
No changes are required to PEF’s OATT Formula Rate to implement the cost of removal
adjustments. The cost of removal adjustments occur in PEF’s accounting and they were reported in PEF’s April 18, 2011 FERC Form No. 1 report of PEF’s 2010 cost information. The PEF OATT Formula Rate reflects the FERC Form No. 1 reporting of costs and therefore automatically incorporates the revised plant amounts used in the calculation of the Net Plant Allocator. For ease of reference, Attachment 4 of this filing includes a copy of the calculation of the PEF OATT Annual Update, which will be submitted today to the Commission in an informational filing in Docket No. ER09-1166-000. As noted, the PEF OATT Annual Update automatically incorporates the revised plant amounts used in the calculation of the Net Plant Allocator.
7 Id.
8 At this time, it is not known whether and to what extent the adjustments to depreciation reserves will impact the OATT Formula Rate for service in 2011 or 2012. As noted, the FPSC settlement provides PEF with discretion as to adjustments taken in 2010, 2011 and 2012. The amount of the adjustment to depreciation reserves for 2011 and 2012 is yet to be determined.
9 Attachment 3 (Exhibit PEF/COR-1) identifies the items in ADIT Accounts 190, 282 and 283, which are subject to the Net Plant Allocator in the OATT Formula Rate.
The Honorable Kimberly D. Bose May 16, 2011 Page 4 IV. EFFECTIVE DATE AND WAIVER
Consistent with the FPSC orders, PEF implemented the retail cost of removal adjustments for 2010 effective January 1, 2010. PEF seeks to adopt the cost of removal adjustments for 2010 in the OATT Formula Rate as of the same date. To the extent necessary, PEF requests waiver of the prior notice requirement to permit this effective date. Good cause exists for this waiver. The Commission ordinarily finds good cause to grant waiver of the prior notice requirement if the effective date of the rate change is prescribed by contract.10 In this case, the OATT Formula Rate requires PEF to use plant information reflected in its FERC Form 1 annual report. On June 1, 2011, when PEF completes its Annual Update and true-up of the OATT Formula Rate for 2010 service, the Formula Rate true-up will be completed using 2010 data from PEF’s FERC Form 1 (filed on April 18, 2011), which incorporates the accounting for cost of removal adjustments described in this filing. Therefore, PEF is implementing the cost of removal adjustments consistent with the terms of the OATT Formula Rate. Also, PEF notes that the Commission has granted waiver of its prior notice requirement in several similar cases, which implemented revised elements in OATT formula rates with an effective date required by the OATT formula rates. See South Carolina Electric & Gas Company, 132 FERC ¶ 61,043 (2010) and Duke Energy Carolinas, LLC, 130 FERC ¶ 61,079 (2010). V. SERVICE
Pursuant to 18 C.F.R. § 385.2010(f)(2) of the Commission’s Regulations, a copy of this filing is being served by electronic means to the FPSC and PEF’s and Progress Energy Carolina, Inc.’s (“PEC”) OATT transmission customers.11 Specifically, on the date of this filing, PEF will submit an e-mail that notifies the FPSC and PEF’s and PEC’s OATT transmission customers that this filing is available from: (1) PEF’s OASIS site at http://www.oatioasis.com/FPC/, on the Open Access Transmission Tariff (OATT) Information page; and (2) Progress Energy’s corporate website at http://www.progress-energy.com/aboutenergy/ferc/index.asp. VI. MISCELLANEOUS
PEF states that no costs or expenses supporting the rates have been alleged or judged in any administrative or judicial proceeding to be illegal, duplicative, or that are demonstrably the product of discriminatory practices.
PEF respectfully requests waiver of the revenue data required by Section 35.13(c). This filing will result in a minor increase in the PEF OATT Formula Rate and this transmittal letter and the supporting information herein provide sufficient evidence to the Commission and the public concerning the proposed change.
10 Central Hudson Gas and Elec. Corp. , 60 FERC ¶ 61,106 at 61,338, reh’g denied, 61 FERC ¶ 61, 089 (1992).
11 PEF and PEC have a joint OATT.
The Honorable Kimberly D. Bose May 16, 2011 Page 5 VII. COMMUNICATIONS
PEF requests that the Commission place the following individuals on the official service list in this proceeding:
Danielle T. Bennett Associate General Counsel Progress Energy Service Company, LLC 410 S. Wilmington Street, PEB 17B2 Raleigh, NC 27601-1849 Telephone: 919/546-5941 Facsimile: 919/546-3805 E-Mail: [email protected] and Antonia A. Frost Bruder, Gentile & Marcoux, L.L.P. 1701 Pennsylvania Avenue, N.W. Suite 900 Washington, D.C. 20006-5807 Telephone: (202) 296-1500 Facsimile: (202) 296-0627 E-Mail: [email protected]
The Honorable Kimberly D. Bose May 16, 2011 Page 6
PEF thanks the Commission for its consideration of this filing. Please direct any questions to the undersigned.
Very truly yours, /s/ Antonia A. Frost Counsel for Florida Power Corporation
M:\WDOX\CLIENTS\005fpc\00099312.DOCX
ATTACHMENT 1
AN EXCERPT OF THE FPSC’S MARCH 5, 2010 ORDER AND A COPY OF THE FPSC’S JUNE 18, 2010 ORDER
ON THE STIPULATION AND SETTLEMENT AGREEMENT, WHICH CONCERN THE DEPRECIATION RESERVES ISSUE
ATTACHMENT 2
A COPY OF PEF FERC FORM NO. 1, PAGE 450.1, WHICH INCLUDES THE COST OF REMOVAL ADJUSTMENTS
RELATED TO THE FPSC’S JUNE 18, 2010 ORDER ON THE STIPULATION AND SETTLEMENT AGREEMENT
ATTACHMENT 3
THE COST SUPPORT AND ATTESTATION OF WILLIAM VINHAGE, WHICH QUANTIFIES THE MINOR INCREASE IN THE OATT FORMULA RATE
FROM THE ADJUSTMENTS TO DEPRECIATION RESERVES
ATTACHMENT 4
A COPY OF THE CALCULATION OF THE PEF OATT ANNUAL UPDATE, WHICH WAS SUBMITTED TODAY TO THE COMMISSION
IN AN INFORMATIONAL FILING IN DOCKET NO. ER09-1166-000
