| 1 | A bill to be entitled |
| 2 | An act relating to air quality; amending s. 366.8255, |
| 3 | F.S.; redefining the term "environmental laws or |
| 4 | regulations" to include certain agreements entered into by |
| 5 | electric utilities with the Department of Environmental |
| 6 | Protection; redefining the term "environmental compliance |
| 7 | costs" to include costs related to certain air pollution |
| 8 | control equipment; providing for cost recovery by electric |
| 9 | utilities under certain circumstances; creating s. |
| 10 | 366.8252, F.S.; providing for compliance with the Air |
| 11 | Quality Improvement Act; providing a definition; requiring |
| 12 | specified public utilities to submit a petition to the |
| 13 | Public Service Commission for recovery of costs related to |
| 14 | plans to achieve compliance; requiring the commission to |
| 15 | establish regulatory conditions for approval of cost |
| 16 | recovery; providing legislative findings that certain |
| 17 | conditions imposed by the act are in the public interest; |
| 18 | creating s. 403.0874, F.S.; creating the Air Quality |
| 19 | Improvement Act; providing definitions; providing limits |
| 20 | on emissions of nitrogen oxide and sulfur dioxide from |
| 21 | certain electric generating units; requiring the |
| 22 | department to expedite certain permits under certain |
| 23 | circumstances; providing an effective date. |
| 24 |
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| 25 | WHEREAS, the Legislature intends to encourage and promote |
| 26 | the reduction of air emissions throughout the state, and |
| 27 | WHEREAS, in an attempt to improve the state's air quality, |
| 28 | the Legislature wishes to provide incentives for and encourage |
| 29 | innovative approaches to lowering emissions from existing |
| 30 | generating facilities, NOW, THEREFORE, |
| 31 |
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| 32 | Be It Enacted by the Legislature of the State of Florida: |
| 33 |
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| 34 | Section 1. Paragraphs (c) and (d) of subsection (1) and |
| 35 | subsection (2) of section 366.8255, Florida Statutes, are |
| 36 | amended to read: |
| 37 | 366.8255 Environmental cost recovery.-- |
| 38 | (1) As used in this section, the term: |
| 39 | (c) "Environmental laws or regulations" includes all |
| 40 | federal, state, or local statutes, administrative regulations, |
| 41 | orders, ordinances, resolutions, or other requirements, |
| 42 | including, but not limited to, voluntary agreements for air |
| 43 | quality improvement programs entered into with the Florida |
| 44 | Department of Environmental Protection prior to December 31, |
| 45 | 2011, that apply to electric utilities and are designed to |
| 46 | protect or improve the environment. |
| 47 | (d) "Environmental compliance costs" includes all costs or |
| 48 | expenses incurred by an electric utility in complying with |
| 49 | environmental laws or regulations, including, but not limited |
| 50 | to: |
| 51 | 1. Inservice capital investments, including the electric |
| 52 | utility's last authorized rate of return on equity thereon.; |
| 53 | 2. Operation and maintenance expenses.; |
| 54 | 3. Fuel procurement costs.; |
| 55 | 4. Purchased power costs.; |
| 56 | 5. Emission allowance costs.; |
| 57 | 6. Direct taxes on environmental equipment.; and |
| 58 | 7. Costs or expenses prudently incurred by an electric |
| 59 | utility pursuant to an agreement entered into on or after the |
| 60 | effective date of this act and prior to October 1, 2002, between |
| 61 | the electric utility and the Florida Department of Environmental |
| 62 | Protection or the United States Environmental Protection Agency |
| 63 | for the exclusive purpose of ensuring compliance with ozone |
| 64 | ambient air quality standards by an electrical generating |
| 65 | facility owned by the electric utility. |
| 66 | 8. Costs or expenses the commission determines are |
| 67 | prudently incurred by an electric utility for the addition of |
| 68 | air pollution control equipment for purposes of attaining or |
| 69 | maintaining compliance status with ambient air quality standards |
| 70 | or reducing emissions of hazardous air pollutants or visibility- |
| 71 | impairing pollutants. In order to seek recovery of costs and |
| 72 | expenses described in this subparagraph, an electric utility |
| 73 | must enter into an agreement with the Florida Department of |
| 74 | Environmental Protection prior to December 31, 2011, for the |
| 75 | expeditious installation of this pollution control equipment. |
| 76 | (2) An electric utility may submit to the commission a |
| 77 | petition describing the utility's proposed environmental |
| 78 | compliance activities and projected environmental compliance |
| 79 | costs in addition to any Clean Air Act and Air Quality |
| 80 | Improvement Act compliance activities and costs shown in a |
| 81 | utility's filing under ss. s. 366.825 and 366.8252 and may |
| 82 | include a proposal for nontraditional recovery of any such costs |
| 83 | and the reasons supporting approval of the proposal. If |
| 84 | approved, the commission shall allow recovery of the utility's |
| 85 | prudently incurred environmental compliance costs, including the |
| 86 | costs incurred in compliance with the Clean Air Act and the Air |
| 87 | Quality Improvement Act, and any amendments thereto or any |
| 88 | change in the application or enforcement thereof, through an |
| 89 | environmental compliance cost-recovery factor that is separate |
| 90 | and apart from the utility's base rates. An adjustment for the |
| 91 | level of costs currently being recovered through base rates or |
| 92 | other rate-adjustment clauses must be included in the filing. |
| 93 | Section 2. Section 366.8252, Florida Statutes, is created |
| 94 | to read: |
| 95 | 366.8252 Air Quality Improvement Act compliance; |
| 96 | definitions; plans; conditions.-- |
| 97 | (1) For the purposes of this section, the term "Air |
| 98 | Quality Improvement Act" or "act" refers to s. 403.0874. |
| 99 | (2) Each public utility subject to the air emission |
| 100 | limitations of the Air Quality Improvement Act may petition the |
| 101 | commission for approval to recover the costs of a plan to |
| 102 | achieve compliance with the act. Such petition shall be filed |
| 103 | with the commission on or before September 1 of the year prior |
| 104 | to the calendar year for which requested cost recovery is to |
| 105 | commence and shall include: |
| 106 | (a) The number and identity of affected generating units. |
| 107 | (b) A description of the compliance plan submitted by the |
| 108 | public utility to the Department of Environmental Protection for |
| 109 | certification pursuant to s. 403.0874(7). |
| 110 | (c) The estimated effects of the compliance plan on the |
| 111 | public utility's requirements for construction and operation of |
| 112 | proposed or alternative generating facilities. |
| 113 | (d) The public utility's proposed schedule for |
| 114 | implementation of compliance activities. |
| 115 | (e) The estimated costs, including capital investment and |
| 116 | operating expenses, that the public utility will incur to |
| 117 | implement its compliance plan. |
| 118 | (f) A description of any changes in the public utility's |
| 119 | future sources of fuel as a result of the compliance plan and |
| 120 | the estimated effects of any such changes on the public |
| 121 | utility's fuel costs. |
| 122 | (3) The commission shall review the costs submitted |
| 123 | pursuant to paragraph (2)(e) to determine whether such estimated |
| 124 | costs are reasonable. If, after such review, the commission |
| 125 | determines that the estimated costs of the public utility's plan |
| 126 | are reasonable, it shall approve the costs for recovery from the |
| 127 | utility's retail customers in accordance with the provisions of |
| 128 | s. 366.8255, subject to the additional regulatory conditions |
| 129 | provided in subsection (4). The commission shall render its |
| 130 | decision on a plan filed by a public utility within 8 months |
| 131 | after the date of filing. Notwithstanding the date of the |
| 132 | commission's decision, recovery of the public utility's |
| 133 | estimated costs shall be allowed commencing with the beginning |
| 134 | of the calendar year requested in the utility's petition and |
| 135 | shall be made subject to refund if the commission has not |
| 136 | rendered its decision prior to such time. Approval by the |
| 137 | commission shall establish that the public utility's estimated |
| 138 | costs to implement the plan are recoverable, subject to true-up |
| 139 | based on a subsequent determination of the utility's reasonable |
| 140 | actual costs. |
| 141 | (4) The commission shall establish the following |
| 142 | regulatory conditions in conjunction with the approval of cost |
| 143 | recovery for a public utility's compliance plan pursuant to |
| 144 | subsection (3): |
| 145 | (a) If requested by the public utility in its petition |
| 146 | filed pursuant to subsection (2), the commission shall authorize |
| 147 | recovery of the public utility's total costs to implement the |
| 148 | compliance plan on a levelized basis over a period not to exceed |
| 149 | 7 years beginning with the year in which cost recovery |
| 150 | commences. The public utility shall have the discretion in any |
| 151 | year during such cost recovery period to increase or decrease |
| 152 | such levelized recovery amount to the extent of any net over- |
| 153 | recovery or under-recovery in the aggregate for its combined |
| 154 | adjustment clauses, provided that the utility's estimated costs |
| 155 | to implement the compliance plan are fully recovered by the |
| 156 | conclusion of the cost recovery period. Any over-recovery or |
| 157 | under-recovery of the public utility's actual costs to implement |
| 158 | the compliance plan shall be trued up in the year following the |
| 159 | conclusion of the cost recovery period. Costs to implement the |
| 160 | compliance plan that are incurred beyond the recovery period |
| 161 | shall be recovered through applicable adjustment clauses in |
| 162 | accordance with the commission's normal practice and procedure. |
| 163 | (b) If cost recovery is implemented pursuant to paragraph |
| 164 | (a), the base rates and related rate schedules of the public |
| 165 | utility in effect on the effective date of this section shall |
| 166 | remain unchanged and frozen during the initial 5 years of the |
| 167 | recovery period, the adjustment clause recovery factors of the |
| 168 | public utility in effect on the effective date of this section |
| 169 | shall remain unchanged and frozen during the recovery period, |
| 170 | and the depreciation rates and any annual adjustments to |
| 171 | depreciation expenses and reserves allowed in a rate settlement |
| 172 | agreement approved by the commission for the public utility that |
| 173 | are in effect on the effective date of this section shall remain |
| 174 | in effect and capped during the recovery period, provided, |
| 175 | however, that: |
| 176 | 1. The base rate freeze shall not apply during the initial |
| 177 | fixed term of any such base rate settlement agreement. Beyond |
| 178 | the initial fixed term, any such rate settlement agreement shall |
| 179 | be deemed to be superseded and replaced by the provisions of |
| 180 | this subsection. The public utility may elect to extend the base |
| 181 | rate freeze for the full cost recovery period by written notice |
| 182 | to the commission at least 3 months prior to the expiration of |
| 183 | the initial 5-year rate freeze period. |
| 184 | 2. Any revenue-sharing mechanism contained in a base rate |
| 185 | settlement agreement approved by the commission in lieu of rate |
| 186 | of return regulation that is in effect on the effective date of |
| 187 | this section shall be extended for the period of the base rate |
| 188 | freeze and shall be the appropriate and exclusive mechanism to |
| 189 | address earnings levels; provided, however, that: |
| 190 | a. The revenue-sharing threshold for the year following |
| 191 | the initial fixed term of the base rate settlement agreement |
| 192 | shall be established by using actual calendar year 2003 gross |
| 193 | retail base rate revenues increased annually for the |
| 194 | intermediate years by the average annual growth rate in retail |
| 195 | kilowatt hour sales for the 10-calendar-year period ending |
| 196 | December 31, 2003. The revenue cap for the year following the |
| 197 | initial fixed term of the base rate settlement agreement shall |
| 198 | be established by adding to the aforementioned threshold the |
| 199 | difference between the threshold and the cap amounts for 2003, |
| 200 | increased annually for the intermediate years by the average |
| 201 | growth rate in retail kilowatt hour sales for the 10-calendar- |
| 202 | year period ending December 31, 2003. Thereafter, both the |
| 203 | revenue-sharing threshold and the cap shall increase annually by |
| 204 | the average annual growth rate in retail kilowatt hour sales for |
| 205 | the 10-calendar-year period ending December 31, 2003. |
| 206 | b. Incremental revenues attributable to a business |
| 207 | combination or acquisition involving the public utility or to a |
| 208 | change in rates pursuant to paragraph (d) shall be excluded in |
| 209 | determining retail base rate revenues for purposes of revenue |
| 210 | sharing. |
| 211 | c. For purposes other than reporting or assessing |
| 212 | earnings, such as cost recovery clauses and allowance for funds |
| 213 | used during construction, the public utility shall have an |
| 214 | authorized return-on-equity rate of 12 percent. |
| 215 | 3. The commission shall continue to review and approve the |
| 216 | public utility's costs and programs subject to the adjustment |
| 217 | clauses as it would in the absence of the adjustment clause |
| 218 | freeze. During the adjustment clause freeze, the utility may |
| 219 | allocate the total annual revenues from all adjustment clause |
| 220 | cost recovery factors combined among the adjustment clauses in a |
| 221 | manner that minimizes the year-end over-recovery or under- |
| 222 | recovery balance in each individual clause. For any calendar |
| 223 | year in which the net year-end over-recovery or under-recovery |
| 224 | balance, after any discretionary adjustment to levelized |
| 225 | compliance cost recovery pursuant to paragraph (a), for the |
| 226 | utility's combined adjustment clauses in the aggregate is |
| 227 | projected to exceed 10 percent of the total costs subject to the |
| 228 | clauses, the commission shall make an adjustment to be |
| 229 | implemented through a separate credit or charge on customer |
| 230 | bills no later than the beginning of the following calendar |
| 231 | year. Any year-end over-recovery or under-recovery balance in |
| 232 | the utility's adjustment clauses for the final year of the cost |
| 233 | recovery period shall be trued up in the following year in |
| 234 | accordance with the commission's normal practice and procedure. |
| 235 | (c) During the cost recovery period set forth in paragraph |
| 236 | (a), the public utility shall be allowed to: |
| 237 | 1. Recover through the capacity cost recovery mechanism of |
| 238 | the fuel and purchased power adjustment clause its annual |
| 239 | revenue requirements associated with any generating unit subject |
| 240 | to the Florida Electrical Power Plant Siting Act, ss. 403.501- |
| 241 | 403.518, that is placed in service by the public utility during |
| 242 | such period. |
| 243 | 2. Suspend up to 100 percent of the annual accruals to its |
| 244 | reserves for the dismantlement and decommissioning of generating |
| 245 | facilities without limiting the utility's right to recover |
| 246 | through future accruals or otherwise the reasonable and prudent |
| 247 | costs of such dismantlement and decommissioning. |
| 248 | 3. Accelerate the amortization of regulatory assets |
| 249 | previously approved by the commission. |
| 250 | (d) Notwithstanding the foregoing base rate and adjustment |
| 251 | clause freeze, the commission may take the following actions |
| 252 | consistent with the public interest, which shall not be |
| 253 | construed to impair the continued effectiveness of the |
| 254 | regulatory conditions provided in this subsection: |
| 255 | 1. Allow adjustments to the rates, defer costs or |
| 256 | revenues, or implement other remedial regulatory treatment of |
| 257 | the public utility to take into account one or more of the |
| 258 | following conditions occurring during the rate freeze period: |
| 259 | a. Governmental action pursuant to any law, regulation, |
| 260 | rule, or order that results in significant cost reductions or |
| 261 | requires major expenditures. Such actions include, but are not |
| 262 | limited to, a requirement for the utility to alter its |
| 263 | structure, to divest itself of assets, to establish a regional |
| 264 | transmission organization, or to install pollution control |
| 265 | equipment solely for compliance purposes pursuant to a |
| 266 | settlement agreement entered into with or approved by a |
| 267 | government agency. |
| 268 | b. Major expenditures to restore or replace property |
| 269 | damaged or destroyed by force majeure, including, but not |
| 270 | limited to, hurricanes, tropical storms, or tornadoes. |
| 271 | c. The public utility's retail base rate earnings falling |
| 272 | below a 10-percent return on equity as reported on a commission- |
| 273 | adjusted or pro forma basis on a monthly earnings surveillance |
| 274 | report. The public utility's achieved return on equity shall be |
| 275 | calculated based upon an adjusted equity ratio to the extent |
| 276 | provided for in the public utility's last base rate settlement |
| 277 | agreement approved by the commission. |
| 278 | d. Changes in accounting requirements that substantially |
| 279 | affect the utility's recognition of revenues and expenses. |
| 280 | 2. Approve any reduction in base rates or base rate |
| 281 | charges requested by the public utility or approve any new or |
| 282 | revised tariff provisions or rate schedules requested by the |
| 283 | utility, provided that such tariff request does not increase any |
| 284 | existing base rate component of a tariff or rate schedule during |
| 285 | the period the base rate freeze is in effect unless the |
| 286 | application of such new or revised tariff or rate schedule is |
| 287 | optional to the utility's customers. |
| 288 | (e) The Legislature finds that the regulatory conditions |
| 289 | established by this subsection provide the necessary and |
| 290 | appropriate recognition of the obligations imposed on a public |
| 291 | utility by the Air Quality Improvement Act and that such |
| 292 | conditions are therefore in the public interest. Notwithstanding |
| 293 | the other provisions of this subsection, in the event |
| 294 | circumstances arise which demonstrate that there will be a |
| 295 | substantial harm to the public interest, the commission may take |
| 296 | such action otherwise within its jurisdiction as it finds |
| 297 | necessary to prevent or mitigate such harm. |
| 298 | Section 3. Section 403.0874, Florida Statutes, is created |
| 299 | to read: |
| 300 | 403.0874 Emissions of nitrogen oxide, sulfur dioxide, and |
| 301 | particulate matter from certain electric generating units.-- |
| 302 | (1) This section shall be known by the popular name the |
| 303 | "Air Quality Improvement Act." |
| 304 | (2) As used in this section: |
| 305 | (a) "Electric utility steam generating unit" means an |
| 306 | electric utility steam generating unit that has more than 100 |
| 307 | megawatts of potential electric output capacity and supplies |
| 308 | more than one-third of such capacity to any utility power |
| 309 | distribution system for sale. |
| 310 | (b) "Investor-owned public utility" means a public |
| 311 | utility, as defined in s. 366.02, that supplies electricity to |
| 312 | or for the public in this state. |
| 313 | (3) An investor-owned public utility that on the effective |
| 314 | date of this act owns or operates coal-fired electric utility |
| 315 | steam generating units for which the collective emissions of |
| 316 | nitrogen oxide from all such coal-fired generating units were |
| 317 | between 32,000 tons and 36,000 tons in calendar year 2002, as |
| 318 | reported in the United States Environmental Protection Agency |
| 319 | clean air markets program database, shall not collectively emit |
| 320 | from all such coal-fired generating units more than 17,000 tons |
| 321 | of nitrogen oxide in calendar year 2010 or any calendar year |
| 322 | thereafter. |
| 323 | (4) An investor-owned public utility that on the effective |
| 324 | date of this act owns or operates coal-fired electric utility |
| 325 | steam generating units for which the collective emissions of |
| 326 | sulfur dioxide from all such coal-fired generating units were |
| 327 | between 96,000 tons and 100,000 tons in calendar year 2002, as |
| 328 | reported in the United States Environmental Protection Agency |
| 329 | clean air markets program database, shall not collectively emit |
| 330 | from all such coal-fired generating units more than 50,000 tons |
| 331 | of sulfur dioxide in calendar year 2010 or any calendar year |
| 332 | thereafter. |
| 333 | (5) An investor-owned public utility that on the effective |
| 334 | date of this act owns or operates residual oil and natural gas- |
| 335 | fired or residual oil-fired electric utility steam generating |
| 336 | units for which the collective emissions of nitrogen oxide from |
| 337 | all such oil and gas-fired or oil-fired generating units |
| 338 | exceeded 11,000 tons in calendar year 2002, as reported in the |
| 339 | United States Environmental Protection Agency clean air markets |
| 340 | program database, shall not collectively emit from all such oil |
| 341 | and gas-fired or oil-fired generating units more than an annual |
| 342 | weighted average of 0.26 pounds of nitrogen oxide per million |
| 343 | BTUs of fuel consumed in calendar year 2010 or any calendar year |
| 344 | thereafter. |
| 345 | (6) An investor-owned public utility that on the effective |
| 346 | date of this act owns or operates residual oil and natural gas- |
| 347 | fired or residual oil-fired electric utility steam generating |
| 348 | units for which the collective emissions of particulates from |
| 349 | all such oil and gas-fired or oil-fired generating units |
| 350 | exceeded 7,000 tons in calendar year 2002, as reported in the |
| 351 | Annual Operating Reports of the investor-owned public utility |
| 352 | filed under Title V of the Clean Air Act, shall not collectively |
| 353 | emit from all such oil and gas-fired or oil-fired generating |
| 354 | units more than an annual weighted average of 0.030 pounds per |
| 355 | million BTUs of fuel consumed in calendar year 2012 or any |
| 356 | calendar year thereafter. |
| 357 | (7) An investor-owned public utility to which this section |
| 358 | applies may determine how it will achieve compliance with the |
| 359 | collective air emissions limitations imposed by this section and |
| 360 | shall submit its compliance plan to the Department of |
| 361 | Environmental Protection no later than August 1 of the year this |
| 362 | section becomes effective. Within 30 days after such compliance |
| 363 | plan or any subsequent revised compliance plan is submitted, the |
| 364 | department shall certify whether the compliance plan or revised |
| 365 | compliance plan is capable of achieving the emissions |
| 366 | limitations required under this section. Compliance with the air |
| 367 | emissions limitations set out in this section does not alter any |
| 368 | obligation to comply with any other federal or state law, |
| 369 | regulation, or rule related to air quality or visibility. |
| 370 | (8) The electric utility steam generating units that are |
| 371 | subject to the collective air emissions limitations set out in |
| 372 | this section on the effective date of this act shall remain |
| 373 | subject to the collective air emissions limitations regardless |
| 374 | of whether each individual generating unit thereafter continues |
| 375 | to be owned or operated by an investor-owned public utility. |
| 376 | (9) The Department of Environmental Protection shall |
| 377 | expedite the issuance of any permit or modified permit to an |
| 378 | investor-owned public utility for electric utility steam |
| 379 | generating units subject to this section and shall include |
| 380 | conditions that provide for compliance with the requirements of |
| 381 | this section by incorporating the emissions limitations |
| 382 | contained herein and requiring testing, monitoring, |
| 383 | recordkeeping, and reporting adequate to ensure compliance |
| 384 | therewith. |
| 385 | Section 4. This act shall take effect upon becoming a law. |