Texas Administrative Code
Title 16 - ECONOMIC REGULATION
Part 2 - PUBLIC UTILITY COMMISSION OF TEXAS
Chapter 25 - SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
Subchapter J - COSTS, RATES AND TARIFFS
Division 2 - RECOVERY OF STRANDED COSTS
Section 25.261 - Stranded Cost Recovery of Environmental Cleanup Costs

(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:

(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:

(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:

(E) associated with the engineering, procurement, or installation of pollution control equipment or transportation equipment, or the purchase of emissions allowances.

(A) Description. A general description of the generating facility, including but not limited to:

(B) Total emissions. The total annual emissions (in tons) of nitrogen oxides and sulfur dioxide:

(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.

(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:

(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:

(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.

(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.