Implementation of the "clean smokestacks act" : a report to the Environmental Review Commission and the Joint Legislative Utility Review Committee |
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Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee Submitted by the North Carolina Department of Environment and Natural Resources and the North Carolina Utilities Commission June 1, 2004 Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee Submitted by the North Carolina Department of Environment and Natural Resources and the North Carolina Utilities Commission This report is submitted pursuant to the requirement of Section 14 of Session Law 2002- 4, Senate Bill 1078 enacted June 20, 2002. The actions taken to date by Progress Energy Carolinas, Inc. and Duke Power, a Division of Duke Energy Corporation, appear to be in accordance with the provisions and requirements of the Clean Smokestacks Act. Signed: ____________________________________________ William G. Ross, Jr., Secretary Department of Environment and Natural Resources Signed: ____________________________________________ Jo Anne Sanford, Chair North Carolina Utilities Commission June 1, 2004 2 Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee June 1, 2004 The General Assembly of North Carolina, Session 2001, passed Session Law 2002- 4 also known as Senate Bill 1078. This legislation is titled " An Act to Improve Air Quality in the State by Imposing Limits on the Emission of Certain Pollutants from Certain Facilities that Burn Coal to Generate Electricity and to Provide for Recovery by Electric Utilities of the Costs of Achieving Compliance with Those Limits" (“ the Clean Smokestacks Act” or “ the Act”). The Clean Smokestacks Act, in Section 14, requires the Department of Environment and Natural Resources (“ DENR”) and the Utilities Commission (“ Commission”) to report annually, i. e., by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The Act, in Section 9, requires Duke Energy and Progress Energy to submit annual reports to DENR and the Commission containing certain specified information. Duke Energy and Progress Energy filed reports, with DENR and the Commission, dated March 31, 2004, and April 1, 2004, respectively. Specifically, such reports were submitted in compliance with the requirements of G. S. 62- 133.6( i). Duke Energy’s and Progress Energy’s reports are attached, and made part of this report, as Attachments A and B, respectively. Additionally, the Secretary of DENR wrote the Commission on May 3, 2004, as follows: “ North Carolina’s investor owned electric utilities, Duke Energy and Progress Energy, have filed their compliance plan annual updates for 2004 in accordance with N. C. G. S. 62- 133.6( i), Section 9( i) of S. L. 2002- 4, known as the ‘ Clean Smokestacks Act’. Pursuant to N. C. G. S. 62- 133.6( j), the Department of Environment and Natural Resources has reviewed this information, and the submittals comply with the Act. The plans and schedules of the companies appear adequate to achieve the emission limitations set out in N. C. G. S. 143- 215.107D.” This report is presented to meet the reporting requirement of the Act pertaining to DENR and the Commission, as discussed above, and is submitted jointly by DENR and the Commission. The report is structured to address the various actions that have occurred pursuant to the provisions of Sections 9, 10, 12 and 13 of this Act. Reports of actions under these Sections describe the extent of implementation of the Act to this date. 3 I. Section 9( c) of the Act, Codified as Section 62- 133.6( c) of the North Carolina General Statutes G. S. 62- 133.6( c) provides: The investor- owned public utilities shall file their compliance plans, including initial cost estimates, with the Commission and the Department of Environment and Natural Resources not later than 10 days after the date on which this section becomes effective. The Commission shall consult with the Secretary of Environment and Natural Resources and shall consider the advice of the Secretary as to whether an investor- owned public utility's proposed compliance plan is adequate to achieve the emissions limitations set out in G. S. 143- 215.107D. Status: North Carolina’s investor- owned electric utilities, Progress Energy Carolinas, Inc. ( Progress Energy) and Duke Power, a division of Duke Energy Corporation ( Duke Energy), filed their initial compliance plans as required in June and July of 2002, in accordance with G. S. 62- 133.6( c), Section 9( c) of S. L. 2002- 4, the Clean Smokestacks Act. DENR reviewed this information and determined that the submittals comply with the Act and, as proposed, appear adequate to achieve the emission limitations set out in G. S. 143- 215.107D. II. Section 9( i) of the Act, Codified as Section 62- 133.6( i) of the North Carolina General Statutes G. S. 62- 133.6( i) provides: An investor- owned public utility that is subject to the emissions limitations set out in G. S. 143- 215.107D shall submit to the Commission and to the Department of Environment and Natural Resources on or before 1 April of each year a verified statement that contains all of the following [ specified information]: The following are the eleven subsections of G. S. 62- 133.6( i) and the related responses from Progress Energy and Duke Energy for each subsection: 1. G. S. 62- 133.6( i)( 1) requires: A detailed report on the investor- owned public utility's plans for meeting the emissions limitations set out in G. S. 143- 215.107D. Progress Energy Response: " The plan for Progress Energy Carolinas, Inc. was originally submitted on July 29, 2002. Appendix A ( of the attached Progress submittal dated April 1, 2004) contains an updated version of this plan, effective April 1, 2004." Duke Energy Response: " Exhibits A and B ( of the attached Duke submittal dated March 31, 2004) outline the technology selections by facility and unit, projected operational dates, expected emission rates, and the corresponding tons of emissions that demonstrate compliance with G. S. 143- 215.107D." 4 2. G. S. 62- 133.6( i)( 2) requires: The actual environmental compliance costs incurred by the investor- owned public utility in the previous calendar year, including a description of the construction undertaken and completed during that year. Summary of Progress Energy Report: The actual environmental compliance costs incurred by Progress Energy in calendar year 2003 were $ 22.3 million. Construction began at both Roxboro and Asheville plants after receipt of the necessary Title V permits and approval of soil and erosion control plans. Summary of Duke Energy Report: The actual environmental compliance costs incurred by Duke Energy in calendar year 2003 were $ 16.0 million. The Company reported that such costs were incurred for such things as a variety of project studies and investigations, engineering, equipment specifications development, equipment layout, contracting related costs, and logistics. 3. G. S. 62- 133.6( i)( 3) requires: The amount of the investor- owned public utility's environmental compliance cost amortized in the previous calendar year. Summary of Progress Energy and Duke Energy Reports: Progress Energy amortized $ 74.2 million in 2003. Duke Energy amortized $ 114.8 million in 2003. As indicated in the May 30, 2003 report to the Environmental Review Commission and the Joint Legislative Utility Review Committee (“ the May 30, 2003 report”), Progress Energy, in response to a data request submitted by the Commission, projected that it would amortize $ 100 million of environmental compliance costs in 2003. Also, as indicated in the May 30, 2003 report, Duke Energy, in response to a Commission data request, projected that it would amortize $ 70 million of environmental compliance costs in 2003. 4. G. S. 62- 133.6( i)( 4) requires: An estimate of the investor- owned public utility's environmental compliance costs and the basis for any revisions of those estimates when compared to the estimates submitted during the previous year. Summary of Progress Energy Report: Progress Energy reported that, while some unit total and annual costs have changed, the total project cost in future dollars remains at $ 813 million. More specifically, in its 2004 report, the Company estimated such cost to be $ 812.968 million, as compared to the $ 813.119 million reflected in its 2003 report, a reduction of $ 151,000. The Company observed that the projected SO2 removal rates have increased for scrubbed units. As a result, the planned scrubber for Lee 3 has been cancelled Summary of Duke Energy Report: Duke Energy reported that its expected costs are not significantly different than the estimates provided in 2003. More specifically, in its 2004 report, the Company estimated its compliance costs to be $ 1.526 billion, as compared to the $ 1.479 billion reflected in its 2003 report, an increase of $ 47 million. The Company also reported that the technologies expected to be required to support compliance have not changed. The Company further stated that the 5 minor adjustments to the estimates at the project level are the result of additional project scope definition and refinement of project schedules only. 5. G. S. 62- 133.6( i)( 5) requires: A description of all permits required in order to comply with the provisions of G. S. 143- 215.107D for which the investor- owned public utility has applied and the status of those permits or permit applications. Progress Energy Response: Asheville Plant • Revised Title V permits to support construction activities have been issued • NPDES Permit application submitted for required wastewater system modifications • Soil erosion and sedimentation control plans have been approved Roxboro Plant • Revised Title V permits to support construction activities have been issued • Soil erosion and sedimentation control plans have been approved Duke Energy Response: " Allen Steam Station SNCR, Unit 1 • Air Permit Application for temporary trial submitted and final permit received in 2002 • NPDES Permit Modification for temporary trial submitted and permit modification received in 2002 • Air Permit Application for permanent equipment installation submitted and final permit received in 2002 Marshall Steam Station SNCR, Unit 4 • Air Permit Application for temporary trial submitted and final permit received in 2002 • NPDES Permit Modification for temporary trial submitted and permit modification received in 2002 • Marshall Steam Station Scrubbers, Units 1- 4 • Air Permit Application – Submitted 9/ 17/ 03; received 2/ 5/ 04 • Sedimentation and Erosion Control Plan – Submitted 9/ 11/ 03; received 10/ 8/ 03; amended 12/ 19/ 03; amendments approved 12/ 31/ 03 • NPDES Modification – Submitted 4/ 30/ 03; received 1/ 23/ 04 • Landfill Site Suitability Application – Submitted 9/ 3/ 03” 6. G. S. 62- 133.6( i)( 6) requires: A description of the construction related to compliance with the provisions of G. S. 143- 215.107D that is anticipated during the following year. Progress Energy Response: See Appendix C of the attached letter from Progress Energy dated April 1, 2004, for details of construction and installation of equipment. The Asheville and Roxboro plants will have significant construction in 2004. 6 Duke Energy Response: See attached letter from Duke Energy dated March 31, 2003, for details of construction anticipated for the next year for: • Allen Steam Station SNCR, Unit 3 • Allen Steam Station SNCR, Unit 4 • Allen Steam Station Scrubbers • Belews Creek Steam Station Scrubbers • Buck Steam Station SNCR, Unit 5 • Buck Steam Station SNCR, Unit 6 • Cliffside Steam Station Scrubbers • Marshall Steam Station SNCR, Unit 1 • Marshall Steam Station SNCR, Unit 2 • Marshall Steam Station SNCR, Unit 3 • Marshall Steam Station Scrubbers • Riverbend Steam Station SNCR, Unit 4 • Riverbend Steam Station Burners, Unit 5 • Riverbend Steam Station SNCR, Unit 7 7. G. S. 62- 133.6( i)( 7) requires: A description of the applications for permits required in order to comply with the provisions of G. S. 143- 215.107D that are anticipated during the following year. Progress Energy Response: ” An NPDES permit modification application will be submitted in the 2nd quarter of 2004 to request changes to the existing wastewater discharge permit for the Roxboro Plant. Operation of scrubbers to comply with G. S. 143- 214.107D will create a new wastewater stream, which requires modification of our current permit. The application characterizes expected wastewater contaminant concentrations and flows.” Duke Energy Response: " Allen Steam Station SNCR, Unit 3 • Air Permit Application – Plan to submit 8/ 1/ 04 Belews Creek Steam Station Scrubbers, Units 1- 2 • Landfill Site Suitability Application – Plan to submit 1/ 11/ 05 • Air Permit Application – Plan to submit 5/ 20/ 05 • Sedimentation and Erosion Control Plan – Plan to submit 6/ 6/ 05 • NPDES Permit Application – Plan to submit 5/ 25/ 04 Dan River Steam Station SOFA, Unit 3 • Air Permit Application – Plan to submit January , 2005 Marshall Steam Station SNCR, Unit 2 • Air Permit Application – Plan to submit June, 2005 Marshall Steam Station SNCR, Unit 3 • Air Permit Application – Plan to submit 6/ 1/ 04 • NPDES Permit Modification ( if required) – Plan to submit 10/ 27/ 04 7 • Sedimentation and Erosion Control ( if required) – Plan to submit 11/ 15/ 04 Marshall Steam Station Scrubbers • Landfill Construction Plan Application – Plan to submit 4/ 1/ 04 • Sedimentation and Erosion Control Plan for balance of Marshall site work – Plan to submit 6/ 18/ 04 • Authorization to Construct ( ATC) application for FGD wastewater treatment system – Plan to submit 6/ 1/ 04 Riverbend Steam Station SOFA, Unit 5 • Air Permit Application – Plan to submit 5/ 1/ 04 Riverbend Steam Station SOFA, Unit 6 • Air Permit Application – Plan to submit January, 2005” 8. G. S. 62- 133.6( i)( 8) requires: The results of equipment testing related to compliance with G. S. 143- 215.107D. Progress Energy Response: " No equipment testing related to compliance with G. S. 143- 215.107D occurred in 2003." Duke Energy Response: " Allen Steam Station SNCR, Unit 1 • Technology demonstration in December, 2001 ( one week test) Nominal 30% reduction in NOx with ammonia slip of 5 to 10 ppm at full load Average NOx outlet rate of 0.15 #/ MMBTU for the test period • Equipment acceptance testing in November, 2003 Nominal 25% reduction in NOx with ammonia slip of less than 5 ppm at full load Marshall Steam Station SNCR, Unit 4 • Technology demonstration in October - November, 2002 ( one month test) Average 24% - 25% reduction in NOx with ammonia slip of 5 to 10 ppm at full load Average NOx outlet rate of 0.163 #/ MMBTU for the test period " 9. G. S. 62- 133.6( i)( 9) requires: The number of tons of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) emitted during the previous calendar year from the coal- fired generating units that are subject to the emissions limitations set out in G. S. 143- 215.107D. 8 Progress Energy Response: “ The total calendar year 2003 emissions from the affected coal- fired Progress Energy Carolinas units are: • NOx - 56,059 • SO2 - 196,184" Duke Energy Response: In the 2003 calendar year, the following were emitted from the North Carolina based Duke Energy coal- fired units: • NOx - 75,550 tons • SO2 - 264,031 tons 10. G. S. 62- 133.6( i)( 10) requires: The emissions allowances described in G. S. 143- 215.107D( i) that are acquired by the investor- owned public utility that result from compliance with the emissions limitations set out in G. S. 143- 215.107D. Progress Energy Response: " No emissions allowances resulting from compliance with G. S. 143- 215.107D were acquired in 2003." Duke Energy Response: “ No emissions allowances have been acquired by Duke Power Company resulting from compliance with the limitations set out in G. S. 143- 215.107D." 11. G. S. 62- 133.6( i)( 11) requires: Any other information requested by the Commission or the Department of Environment and Natural Resources Summary of Commission Request: The Commission submitted data requests to Progress Energy and Duke Energy on April 16, 2004. The information requested, among other things, concerned current projected amortization schedules over the six remaining years of the seven- year accelerated cost recovery period. Progress Energy Response: Progress Energy responded that it currently expects to amortize its remaining compliance costs as follows: 2004 - $ 75 million; 2005 – $ 120 to $ 140 million; 2006 - $ 125 to $ 145 million; 2007 – $ 130 to $ 150 million; 2008 - $ 121.5 million; and 2009 - $ 121.5 million. The Company noted that those amounts are subject to change. Duke Energy Response: Duke Energy responded that it currently plans to amortize its remaining compliance costs as follows: 2004 - $ 171 million; 2005 – $ 277 million; 2006 - $ 277 million; 2007 – $ 277 million; 2008 - $ 214 million; and 2009 - $ 169 million. III. Section 10 of the Act provides: It is the intent of the General Assembly that the State use all available resources and means, including negotiation, participation in interstate compacts and multistate and interagency agreements, petitions pursuant to 42 U. S. C. § 7426, and litigation to induce other states and entities, including the Tennessee Valley Authority, to achieve reductions in emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) comparable to those required by G. S. 143- 215.107D, as 9 enacted by Section 1 of this act, on a comparable schedule. The State shall give particular attention to those states and other entities whose emissions negatively impact air quality in North Carolina or whose failure to achieve comparable reductions would place the economy of North Carolina at a competitive disadvantage. DENR and Division of Air Quality ( DAQ) Activities to implement this Section: • A meeting was held between DENR/ DAQ and the Tennessee Valley Authority ( TVA) and the Tennessee air program officials in August 2002, to discuss actions planned by TVA that would be comparable to the Clean Smokestacks Act. TVA presented their plans to add five additional SO2 scrubbers to power plants primarily in the eastern portion of the TVA system. These new scrubbers should benefit North Carolina most. TVA plans to complete installation of the new facilities by 2010 and the first plant, Paradise, will be installed by 2006. Regarding NOx control, TVA is on schedule to have the first 8 of its selective catalytic reduction ( SCR) systems in place. TVA plans to have 25 boiler units controlled by 2005 at a cost of $ 1.3 billion which will reduce ozone season NOx by 75 percent. Through DENR’s efforts, the Clean Smokestacks Act is achieving notoriety nationally and is being touted in other States as a model for State action. The Secretary of DENR and the Chief of Planning of DAQ made presentations about the Clean Smokestacks Act at two national state environmental organization meetings in the fall of 2002. The Chief of Planning of DAQ testified in 2002, at a U. S. Senate Environment and Public Works Committee Hearing on the features and benefits of North Carolina's Clean Smokestacks Act. The Deputy Director of DAQ participates on a national dialogue workgroup addressing ideal features of national multi- pollutant legislation for coal- fired utility boilers. The Clean Smokestacks Act is held up as an ideal example. • The State also has been active in maintaining federal standards. In an April 2003 letter to EPA Administrator Whitman, Governor Easley urged the Administration to ensure that the federal Clear Skies bill not override State initiatives such as the Clean Smokestacks Act. The Governor also indicated the State’s opposition to bill text that would extinguish the statutory rights of States regarding interstate pollution abatement. DAQ and the Attorney General commented last month in opposition to a proposed federal rule that would weaken the federal New Source Review program and potentially result in significant new upwind emissions. North Carolina filed a petition on March 18, 2004, calling for the U. S. Environmental Protection Agency to require major reductions of air pollution in 13 upwind states that are significantly impacting this state. Reducing these emissions will substantially improve air quality in North Carolina. The petition, filed pursuant to Section 126 of the Clean Air Act, calls for the EPA to require cuts in fine particle- forming emissions from power plants in Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, 10 South Carolina, Tennessee, Virginia and West Virginia, and ozone- forming emissions in Georgia, Maryland, South Carolina, Tennessee and Virginia. IV. Section 12 of the Act provides: The General Assembly anticipates that measures implemented to achieve the reductions in emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required by G. S. 143- 215.107D, as enacted by Section 1 of this act, will also result in significant reductions in the emissions of mercury from coal- fired generating units. The Division of Air Quality of the Department of Environment and Natural Resources shall study issues related to monitoring emissions of mercury and the development and implementation of standards and plans to implement programs to control emissions of mercury from coal- fired generating units. The Division shall evaluate available control technologies and shall estimate the benefits and costs of alternative strategies to reduce emissions of mercury. The Division shall annually report its interim findings and recommendations to the Environmental Management Commission and the Environmental Review Commission beginning 1 September 2003. The Division shall report its final findings and recommendations to the Environmental Management Commission and the Environmental Review Commission no later than 1 September 2005. The costs of implementing any air quality standards and plans to reduce the emission of mercury from coal- fired generating units below the standards in effect on the date this act becomes effective, except to the extent that the emission of mercury is reduced as a result of the reductions in the emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required to achieve the emissions limitations set out in G. S. 143- 215.107D, as enacted by Section 1 of this act, shall not be recoverable pursuant to G. S. 62- 133.6, as enacted by Section 9 of this act. DAQ Actions to Implement this Section: The DAQ submitted a report on September 1, 2003, as required by this section. The first report primarily focused on the " state of knowledge" of the co- benefit of mercury control that will result from the control of NOx and SO2 from coal- fired utility boilers. Also, preliminary estimates were made for this co- benefit for the North Carolina utility boilers based on the initial plans submitted by Progress Energy and Duke Energy. Two public workshops were held in June and July 2003, to meet with all interested stakeholders to offer review of the draft DAQ report. DAQ is presently developing the September 1, 2004 report. V. Section 13 of the Act provides: The Division of Air Quality of the Department of Environment and Natural Resources shall study issues related to the development and implementation of standards and plans to implement programs to control emissions of carbon dioxide ( CO2) from coal- fired generating units and other stationary sources of air pollution. The Division shall evaluate available control technologies and shall estimate the benefits and costs of alternative strategies to reduce emissions of carbon dioxide ( CO2). The Division shall annually report its interim findings and recommendations to the Environmental Management Commission and the Environmental Review Commission beginning 1 September 2003. The Division shall report its final findings and recommendations to the Environmental Management Commission and the Environmental Review Commission no later than 11 1 September 2005. The costs of implementing any air quality standards and plans to reduce the emission of carbon dioxide ( CO2) from coal- fired generating units below the standards in effect on the date this act becomes effective, except to the extent that the emission of carbon dioxide ( CO2) is reduced as a result of the reductions in the emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required to achieve the emissions limitations set out in G. S. 143- 215.107D, as enacted by Section 1 of this act, shall not be recoverable pursuant to G. S. 62- 133.6, as enacted by Section 9 of this act. DAQ Actions to Implement this Section: The DAQ submitted a report on September 1, 2003, as required by this section. The first report primarily focused on the " state of knowledge" and actions being taken or planned elsewhere regarding CO2 control from coal- fired utility boilers. Two public workshops were held in June and July 2003, to meet with all interested stakeholders to offer review of the draft DAQ report. VI. Supplementary Information: As stated in the May 30, 2003 report, the Public Staff – North Carolina Utilities Commission ( Public Staff) will audit the books and records of Progress Energy and Duke Energy in regard to the costs incurred and amortized by the Companies concerning their compliance with the provisions of the Clean Smokestacks Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. The Public Staff filed its reports with the Commission on May 3, 2004. Attached, and made part of this report, are the Public Staff’s reports for Duke Energy and Progress Energy ( without Attachment), Attachments C and D, respectively. CONCLUSION Actions taken to date by Progress Energy and Duke Energy appear to be in accordance with the provisions and requirements of the Clean Smokestacks Act. 12 ATTACHMENTS Attachment A: Clean Smokestacks Act Compliance Plan Annual Update dated March 31, 2004, Submitted by Duke Power, a Division of Duke Energy Corporation Attachment B: Annual North Carolina Clean Smokestacks Act Compliance Report dated April 1, 2004, Submitted by Progress Energy Carolinas, Inc. Attachment C: Report of the Public Staff on Costs Incurred and Amortized by Duke Energy Corporation in Compliance with Session Law 2002- 4 Attachment D: Report of the Public Staff on Costs Incurred and Amortized by Progress Energy Carolinas, Inc. in Compliance With Session Law 2002- 4 REPORT OF THE PUBLIC STAFF ON COSTS INCURRED AND AMORTIZED BY DUKE ENERGY CORPORATION IN COMPLIANCE WITH SESSION LAW 2002- 4 Docket No. E- 7, Sub 718 May 3, 2004 Section 14 of Session Law 2002- 4 (“ the Clean Smokestacks Act” or “ the Act”) requires the Department of Environment and Natural Resources and the Utilities Commission to report by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The May 30, 2003, report states that the Public Staff will audit the books and records of the investor owned utilities on an ongoing basis in regard to the costs incurred and amortized in compliance with the Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. This report presents the Public Staff’s findings with regard to Duke Energy Corporation (“ Duke Energy”). I. Work to be Performed To comply with the emissions limitations for nitrogen oxides (“ NOX”) and sulfur dioxide (“ SO2”) established in the Act, Duke Energy plans to install emission reduction technologies at several of its facilities. Duke Energy has proposed to install Selective Non- catalytic Reduction (“ SNCR”) technology to remove NOx and flue- gas desulfurization (“ FGD”) technology to remove SO2. The facilities requiring these technologies are as follows: Facility NO X Reduction SO2 Reduction Allen Units 1- 5 √ √ Belews Creek Units 1& 2 √ Buck Units 3- 6 √ Cliffside Units 1- 5 √ ( units 1- 4 only) √ ( unit 5 only) Dan River Units 1- 3 √ Marshall Units 1- 4 √ √ Riverbend Units 4- 7 √ In addition, Duke Energy is currently installing Selective Catalytic Reduction (“ SCR”) technology to remove NOx from its Belews Creek and Cliffside Unit 5 facilities to comply with the North Carolina State Implementation Plan for NOx (“ NOx SIP Call”), which is discussed below. Duke Energy has conducted preliminary testing on the SNCR equipment at the Allen facility and the SCR equipment at Belews Creek. Such testing is normal for start- 2 up with new systems. Results indicated that the NOX emissions targets at both facilities were not achieved. Duke Energy suspects that fuel quality may be the reason for the higher than expected emissions at its Allen facility, but it is still studying the problem at Belews Creek. Further testing will be conducted during the ozone season of 2004, with the results expected in late 2004. Duke Energy has expressed confidence that there is sufficient time to continue shake- down testing and achieve successful results, since the NOx targets are not triggered until 2007. II. Capital Costs Associated with the Installation of Emission Reduction Technologies Duke Energy is required by the Act to report its actual capital costs (“ environmental compliance costs”) associated with its plan to install emission reduction technologies pursuant to the Act. Operational costs related to these emission reduction technologies are not environmental compliance costs as defined by the Act. Duke Energy reported that its actual environmental compliance costs in calendar year 2003 were $ 16,041,000. The cumulative environmental compliance costs incurred through 2003 are $ 20,464,000, broken down as follows: Year 2001 $ 800,000 Year 2002 3,623,000 Year 2003 16,041,000 $ 20,464,000 Duke Energy’s expenditures to date involve emission reduction technologies at its Allen, Belews Creek, Cliffside, Dan River, Marshall, and Riverbend facilities. Environmental compliance costs were incurred for project studies and investigations, engineering, equipment procurement, and contracting. As part of its review, the Public Staff requested information from Duke Energy on the project costs, invoices documenting costs, and the purpose of the costs. Duke Energy provided project cost sheets delineating actual project costs by year into the following categories: ( 1) direct labor costs including overtime and premiums; ( 2) labor loads; ( 3) contract costs; ( 4) material costs; ( 5) overhead costs; and, ( 6) other costs. These costs are as follows: Direct Labor $ 2,075,949 Labor Loads 1,500,133 Contracts 12,020,087 Materials 3,091,897 Overheads 344,789 Other 1,430,696 $ 20,463,551 3 The project cost sheets were supported by detailed spreadsheets that incorporated all expenditures to date for a particular category. The Public Staff selected invoices in each category from the detailed spreadsheets, and requested Duke Energy to provide specific information on the selected costs. The Public Staff also had extensive discussions with Duke personnel regarding the individual cost items charged to specific projects. Duke Energy provided sufficient documentation to support each selected cost. Duke Energy was also requested to delineate costs related to complying with NOX SIP Call. NOX SIP Call requires electric utility generating facilities to reduce their emissions of NOX during the summer ozone season, while the objective of the Clean Smokestacks Act is to reduce overall NOX emissions for the entire year. As a result of NOX SIP Call, Duke Energy has undertaken a program to reconfigure its coal and air injection systems on its boiler units. In two cases, Belews Creek and Cliffside Unit 5, Duke Energy has chosen to install SCR technology to comply with NOX SIP Call. Costs related to NOX SIP Call are specifically exempted from the amortization allowed in Section 9 of the Act. The Public Staff has determined that Duke has not included any NOX SIP Call related costs to date in its reported actual environmental compliance costs. However, Duke Energy may be required to install additional SCR technology on facilities where it initially plans to install SNCR technology to comply with the Act, if the SNCR technology fails to achieve the emission reduction goals set forth in the Act due to matters, such as coal quality, that are beyond the scope of Duke’s contracts for work related to the Act. III. Amortization of Costs In Section 9 of the Act [ G. S. 62- 133.6( b)], the investor owned utilities are allowed to accelerate the cost recovery of their estimated environmental compliance costs over a seven- year period, beginning January 1, 2003, and ending December 31, 2009. Duke Energy’s estimated environmental compliance costs are $ 1.5 billion. The statute requires that a minimum of 70% of the environmental compliance costs shall be amortized before December 31, 2007, when the rate freeze period expires. In Duke Energy’s case, this amount is $ 1,050,000,000. The annual levelized amount is $ 214,285,714. The maximum amount that can be amortized in any given year is 150% of the annual levelized environmental compliance costs or, in Duke Energy’s case, $ 321,428,000. On December 11, 2003 the Commission issued an order authorizing Duke Energy to use certain regulatory liability and amortization accounts to record the environmental compliance costs associated with the Act. The Commission further ordered that no accrual of AFUDC would be allowed on any construction expenditures up to the $ 1.5 billion required to be amortized pursuant to the Act. Using the protocols established by the Act and subsequent Commission orders, Duke reported that its environmental compliance costs amortization for 2003 is 4 $ 114,813,336. The Public Staff has reviewed Duke Energy’s quarterly amortization filings and concluded that the reported amounts appear to be accurate. IV. Contracts The Public Staff also requested Duke Energy to provide for its review copies of any contracts for engineering, procurement, project management, and construction awarded to engineering firms and construction companies for the purpose of installing the emission reduction technologies. Duke Energy complied with the Public Staff’s request and provided the applicable contracts. Duke Energy has contracted with a vendor to install SNCR equipment at its Allen Steam Station. Duke Energy has elected to award separate fixed- price contracts for each project requiring emission reduction technologies to comply with the Act. Duke Energy has also signed an alliance agreement with two vendors, creating a consortium between the companies for the installation of FGD technology, optimized specifically for Duke Energy. This agreement is a fixed price contract for each of the twelve coal- fired generation units identified by Duke Energy that require emission reduction technology to comply with the Act. The Public Staff reviewed these contracts and determined that they contain language establishing minimum performance standards on the equipment to be installed. The contracts contain a two- year performance standard that requires the equipment to perform as designed or the vendor would be responsible for replacing, repairing, or redesigning the equipment to achieve the emission reduction target specified by Duke Energy. V. Site Inspections On March 9, 2004, the Public Staff conducted a site inspection of Duke Energy’s Allen Steam Station in Belmont, North Carolina. Specifically, the Public Staff inspected the SNCR equipment that had been installed on the boilers and the other ancillary equipment used in the reduction of NOX emissions from those boilers. The Public Staff confirmed the installation of the equipment and discussed the testing procedures with the plant engineer. No other facilities were inspected. It is the intent of the Public Staff to conduct inspections of other coal- fired generating facilities as Duke Energy continues to install emission reduction equipment in its boiler units. REPORT OF THE PUBLIC STAFF ON COSTS INCURRED AND AMORTIZED BY PROGRESS ENERGY CAROLINAS, INC. IN COMPLIANCE WITH SESSION LAW 2002- 4 Docket No. E- 2, Sub 815 May 3, 2004 Section 14 of Session Law 2002- 4 (“ the Clean Smokestacks Act” or “ the Act”) requires the Department of Environment and Natural Resources and the Utilities Commission to report by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The May 30, 2003, report states that the Public Staff will audit the books and records of the investor owned utilities on an ongoing basis in regard to the costs incurred and amortized in compliance with the Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. This report presents the Public Staff’s findings with regard to Progress Energy Carolinas, Inc. (“ PEC”). I. Work to be Performed To comply with the emissions limitations for nitrogen oxides (“ NOX”) and sulfur dioxide (“ SO2”) established in the Act, PEC plans to install emission reduction technologies at several of its facilities. PEC has proposed to install Selective Catalytic Reduction (“ SCR”) technology to remove NOx and flue- gas desulfurization (“ FGD”) technology to remove SO2 to comply with the Act. The facilities requiring these technologies are as follows: Facility NO X Reduction SO2 Reduction Asheville Units 1& 2 √ ( Unit 1 only) √ Cape Fear Units 5& 6 √ Lee Unit 3 √ Mayo Unit 1 √ Roxboro Units 1- 4 √ Sutton Unit 3 √ PEC is also installing SCR technology and reconfiguring its coal and air injection systems to remove NOx from its other coal- fired generating units to comply with the North Carolina State Implementation Plan for NOx (“ NOx SIP Call”), which is discussed below. 2 Although PEC initially planned to install a scrubber on Lee Unit 3, PEC indicated in its annual compliance report filed on April 1, 2004, that this work has been cancelled because projected SO2 removal rates for scrubbed units have increased. PEC is only in the initial design and engineering phase of construction plan, and therefore no testing data is yet available. II. Capital Costs Associated with the Installation of Emission Reduction Technologies PEC is required by the Act to report the actual capital costs (“ environmental compliance costs”) associated with its plan to install emission reduction technologies pursuant to the Act. Operational costs related to these emission reduction technologies are not environmental compliance costs as defined in the Act. PEC reported that its actual environmental compliance costs in calendar year 2003 were $ 22,323,791. The cumulative environmental compliance costs incurred through 2003 are $ 23,209,512, as follows: Year 2002 $ 885,721 Year 2003 22,323,791 $ 23,209,512 1 PEC’s expenditures to date involve emission reduction technologies at its Asheville, Mayo, and Roxboro facilities. Environmental compliance costs were incurred for project studies and investigations, engineering, and contracting. As part of its review, the Public Staff requested information from PEC on the project costs, invoices documenting costs, and the purpose of the costs. PEC provided project cost sheets delineating actual project costs by year into the following categories: ( 1) company labor costs; ( 2) materials costs; ( 3) outside services costs; and ( 4) other costs. These costs are as follows: Company Labor $ 1,276,561 Materials 68,249 Outside Services 21,631,350 Other 233,351 Total $ 23,209,511 The project cost sheet was supported by detailed spreadsheets that incorporated all expenditures to date for a particular category. The Public Staff selected invoices in each category from the detailed spreadsheets and requested PEC to provide specific 1 PEC’s estimated and reported environmental compliance costs exclude costs attributable to the portion of its Mayo and Roxboro facilities that is owned by the North Carolina Eastern Municipal Power Agency. 3 information on the selected costs. The Public Staff also had extensive discussions with PEC personnel regarding the individual cost items charged to specific projects. PEC provided sufficient documentation to support each selected cost. However, the Public Staff determined that there is a discrepancy between the environmental compliance costs that are being recorded on PEC’s books and the environmental compliance costs that are being reported to the Commission. The reported costs do not include labor loads or overhead costs. PEC explained that this practice is consistent with the types of costs considered to be environmental compliance costs in its estimate of $ 813,000,000. Typically, these costs are treated as part of project costs, whether they are considered incremental or not. The Public Staff recommends that PEC be required to file a reconciliation showing the per book and reported environmental compliance costs. As stated above, PEC has cancelled the planned scrubber for Lee Unit 3. However, according to Appendix B to PEC’s April 1, 2004, report, PEC’s estimated environmental compliance costs remain approximately $ 813 million. Attachment I to this report shows the differences in the estimated environmental compliance costs between 2003 and 2004 according to PEC’s annual reports. PEC was also requested to delineate costs related to complying with NOX SIP Call. NOX SIP Call requires electric utility generating facilities to reduce its emissions of NOX during the summer ozone season, while the objective of the Clean Smokestacks Act is to reduce overall NOX emissions for the entire year. As a result of NOx SIP Call, PEC has undertaken a program to reconfigure its coal and air injection systems on its boiler units and/ or install SCR technology at its Asheville 2, Cape Fear 5& 6, Lee 1, Mayo 1, Roxboro 1- 4, Sutton 1& 3, and Weatherspoon 1- 3. PEC also intends to use this equipment to achieve it emissions limitations as set forth in the Act. However, PEC will also be required to install SCR technology at its Asheville 1 and Lee 3 facilities in order to fully comply with the Act and achieve its required emissions limitations by 2007. The Public Staff has determined that PEC has not included any NOx SIP Call related costs to date in its reported actual environmental compliance costs. III. Amortization of Costs In Section 9 of the Act [ G. S. 62- 133.6( b)], the investor owned utilities are allowed to accelerate the cost recovery of their estimated environmental compliance costs over a seven- year period, beginning January 1, 2003, and ending December 31, 2009. PEC’s estimated environmental compliance costs are $ 813,000,000. The statute requires that a minimum of 70% of the environmental compliance costs be amortized before December 31, 2007, when the rate freeze period expires. In PEC’s case, this amount is $ 569,100,000. The annual levelized amount is $ 116,142,857. The maximum amount that can be amortized in any given year is 150% of the annual levelized environmental compliance costs or, in PEC’s case, $ 174,214,285. 4 On December 11, 2003, the Commission issued an order authorizing PEC to use certain regulatory liability and amortization accounts to record the environmental compliance costs associated with the Act. The Commission further ordered that no accrual of AFUDC would be allowed on any construction expenditures up to the $ 813,000,000 required to be amortized pursuant to the Act. Using the protocols established by the Act and subsequent Commission orders, PEC reported that its environmental compliance costs amortization for 2003 is $ 74,218,804. The Public Staff has reviewed PEC’s quarterly amortization filings and concluded that the reported amounts appear to be accurate. IV. Contracts The Public Staff also requested PEC to provide copies of any contracts for engineering, procurement, project management, and construction awarded to engineering firms and construction companies for the purpose of installing the emission reduction technologies. PEC complied with the Public Staff’s request and provided the applicable contracts. PEC has contracted with three vendors for engineering and design work, procurement of equipment, project management, and construction. PEC has elected to use one vendor for overall project management and engineering, another vendor for procurement of equipment, and a general contractor who will actually install the emission reduction technologies to comply with the Act. PEC’s agreements with its vendors are incentive- fee based contracts for all of the thirteen coal- fired generation units identified by PEC that required emission reduction technology to comply with the Act. PEC does not intend to execute separate agreements for each facility. The Public Staff reviewed these contracts and determined that they contain language establishing minimum performance standards on the equipment to be installed. PEC’s contract with its engineering and project management vendor contains a twelve- month performance guarantee from the date of functional operation. PEC’s contract with its equipment vendor contains a two- year performance standard that requires the equipment to perform as designed or the vendor will be responsible for replacing or repairing the equipment to achieve the emission reduction target specified by PEC. PEC’s contract with its general contractor contains a twelve- month workmanship guarantee. V. Site Inspections The Public Staff conducted no site inspections of any PEC facilities in connection with this audit. It is the intent of the Public Staff to conduct inspections of PEC’s coal-fired generating facilities as emission reduction equipment is installed. Progress Energy Carolinas, Inc. Attachment I Docket No. E- 2, Sub 815 Environmental Compliance Cost Estimates planned outage 2003 estimate 1/ 2004 estimate 2/ difference 3/ ( a) ( b) ( c) ( d) General Asheville 1 FGD F2004 $ 62,750,610 $ 77,906,056 $ 15,155,446 Asheville 1 SCR S2012 25,387,755 24,826,000 ( 561,755) Asheville 2 FGD F2005 63,404,068 65,623,450 2,219,382 Asheville FGD Common 175,887 191,778 15,891 Mayo 1 FGD S2007 88,849,025 95,482,822 6,633,797 Roxboro FGD Common 51,214,618 100,250,948 49,036,330 Roxboro 1 FGD S2009 51,244,851 62,094,441 10,849,590 Roxboro 2 FGD S2005 77,004,137 64,169,187 ( 12,834,950) Roxboro 3 FGD F2006 72,289,067 69,556,393 ( 2,732,674) Roxboro 4 FGD S2008 64,224,392 57,532,330 ( 6,692,062) Cape Fear 5 FGD S2012 41,426,445 40,921,839 ( 504,606) Cape Fear 6 FGD S2011 40,114,613 38,753,266 ( 1,361,347) Lee 3 FGD F2009 53,293,359 - ( 53,293,359) Lee 3 SCR F2009 35,269,245 31,596,934 ( 3,672,311) Sutton 3 FGD F2012 77,452,773 75,475,674 ( 1,977,099) Lee 2 ROFA F2007 4,460,486 4,005,031 ( 455,455) Sutton 2 ROFA S2010 4,733,504 4,582,203 ( 151,301) Total $ 813,294,835 $ 812,968,352 $ ( 326,483) 1/ Appendix B attached to PEC's Annual NC Clean Smokestacks Legislation Compliance Report filed April 1, 2003. 2/ Appendix B attached to PEC's Annual NC Clean Smokestacks Legislation Compliance Report filed April 1, 2004. 3/ Column ( c) - Column ( b).
Object Description
Description
Title | Implementation of the "clean smokestacks act" : a report to the Environmental Review Commission and the Joint Legislative Utility Review Committee |
Other Title | Clean smokestacks act |
Date | 2004-06-01 |
Description | 2004 |
Digital Characteristics-A | 5 MB; 50 p. |
Digital Format | application/pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee Submitted by the North Carolina Department of Environment and Natural Resources and the North Carolina Utilities Commission June 1, 2004 Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee Submitted by the North Carolina Department of Environment and Natural Resources and the North Carolina Utilities Commission This report is submitted pursuant to the requirement of Section 14 of Session Law 2002- 4, Senate Bill 1078 enacted June 20, 2002. The actions taken to date by Progress Energy Carolinas, Inc. and Duke Power, a Division of Duke Energy Corporation, appear to be in accordance with the provisions and requirements of the Clean Smokestacks Act. Signed: ____________________________________________ William G. Ross, Jr., Secretary Department of Environment and Natural Resources Signed: ____________________________________________ Jo Anne Sanford, Chair North Carolina Utilities Commission June 1, 2004 2 Implementation of the " Clean Smokestacks Act" A Report to the Environmental Review Commission and the Joint Legislative Utility Review Committee June 1, 2004 The General Assembly of North Carolina, Session 2001, passed Session Law 2002- 4 also known as Senate Bill 1078. This legislation is titled " An Act to Improve Air Quality in the State by Imposing Limits on the Emission of Certain Pollutants from Certain Facilities that Burn Coal to Generate Electricity and to Provide for Recovery by Electric Utilities of the Costs of Achieving Compliance with Those Limits" (“ the Clean Smokestacks Act” or “ the Act”). The Clean Smokestacks Act, in Section 14, requires the Department of Environment and Natural Resources (“ DENR”) and the Utilities Commission (“ Commission”) to report annually, i. e., by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The Act, in Section 9, requires Duke Energy and Progress Energy to submit annual reports to DENR and the Commission containing certain specified information. Duke Energy and Progress Energy filed reports, with DENR and the Commission, dated March 31, 2004, and April 1, 2004, respectively. Specifically, such reports were submitted in compliance with the requirements of G. S. 62- 133.6( i). Duke Energy’s and Progress Energy’s reports are attached, and made part of this report, as Attachments A and B, respectively. Additionally, the Secretary of DENR wrote the Commission on May 3, 2004, as follows: “ North Carolina’s investor owned electric utilities, Duke Energy and Progress Energy, have filed their compliance plan annual updates for 2004 in accordance with N. C. G. S. 62- 133.6( i), Section 9( i) of S. L. 2002- 4, known as the ‘ Clean Smokestacks Act’. Pursuant to N. C. G. S. 62- 133.6( j), the Department of Environment and Natural Resources has reviewed this information, and the submittals comply with the Act. The plans and schedules of the companies appear adequate to achieve the emission limitations set out in N. C. G. S. 143- 215.107D.” This report is presented to meet the reporting requirement of the Act pertaining to DENR and the Commission, as discussed above, and is submitted jointly by DENR and the Commission. The report is structured to address the various actions that have occurred pursuant to the provisions of Sections 9, 10, 12 and 13 of this Act. Reports of actions under these Sections describe the extent of implementation of the Act to this date. 3 I. Section 9( c) of the Act, Codified as Section 62- 133.6( c) of the North Carolina General Statutes G. S. 62- 133.6( c) provides: The investor- owned public utilities shall file their compliance plans, including initial cost estimates, with the Commission and the Department of Environment and Natural Resources not later than 10 days after the date on which this section becomes effective. The Commission shall consult with the Secretary of Environment and Natural Resources and shall consider the advice of the Secretary as to whether an investor- owned public utility's proposed compliance plan is adequate to achieve the emissions limitations set out in G. S. 143- 215.107D. Status: North Carolina’s investor- owned electric utilities, Progress Energy Carolinas, Inc. ( Progress Energy) and Duke Power, a division of Duke Energy Corporation ( Duke Energy), filed their initial compliance plans as required in June and July of 2002, in accordance with G. S. 62- 133.6( c), Section 9( c) of S. L. 2002- 4, the Clean Smokestacks Act. DENR reviewed this information and determined that the submittals comply with the Act and, as proposed, appear adequate to achieve the emission limitations set out in G. S. 143- 215.107D. II. Section 9( i) of the Act, Codified as Section 62- 133.6( i) of the North Carolina General Statutes G. S. 62- 133.6( i) provides: An investor- owned public utility that is subject to the emissions limitations set out in G. S. 143- 215.107D shall submit to the Commission and to the Department of Environment and Natural Resources on or before 1 April of each year a verified statement that contains all of the following [ specified information]: The following are the eleven subsections of G. S. 62- 133.6( i) and the related responses from Progress Energy and Duke Energy for each subsection: 1. G. S. 62- 133.6( i)( 1) requires: A detailed report on the investor- owned public utility's plans for meeting the emissions limitations set out in G. S. 143- 215.107D. Progress Energy Response: " The plan for Progress Energy Carolinas, Inc. was originally submitted on July 29, 2002. Appendix A ( of the attached Progress submittal dated April 1, 2004) contains an updated version of this plan, effective April 1, 2004." Duke Energy Response: " Exhibits A and B ( of the attached Duke submittal dated March 31, 2004) outline the technology selections by facility and unit, projected operational dates, expected emission rates, and the corresponding tons of emissions that demonstrate compliance with G. S. 143- 215.107D." 4 2. G. S. 62- 133.6( i)( 2) requires: The actual environmental compliance costs incurred by the investor- owned public utility in the previous calendar year, including a description of the construction undertaken and completed during that year. Summary of Progress Energy Report: The actual environmental compliance costs incurred by Progress Energy in calendar year 2003 were $ 22.3 million. Construction began at both Roxboro and Asheville plants after receipt of the necessary Title V permits and approval of soil and erosion control plans. Summary of Duke Energy Report: The actual environmental compliance costs incurred by Duke Energy in calendar year 2003 were $ 16.0 million. The Company reported that such costs were incurred for such things as a variety of project studies and investigations, engineering, equipment specifications development, equipment layout, contracting related costs, and logistics. 3. G. S. 62- 133.6( i)( 3) requires: The amount of the investor- owned public utility's environmental compliance cost amortized in the previous calendar year. Summary of Progress Energy and Duke Energy Reports: Progress Energy amortized $ 74.2 million in 2003. Duke Energy amortized $ 114.8 million in 2003. As indicated in the May 30, 2003 report to the Environmental Review Commission and the Joint Legislative Utility Review Committee (“ the May 30, 2003 report”), Progress Energy, in response to a data request submitted by the Commission, projected that it would amortize $ 100 million of environmental compliance costs in 2003. Also, as indicated in the May 30, 2003 report, Duke Energy, in response to a Commission data request, projected that it would amortize $ 70 million of environmental compliance costs in 2003. 4. G. S. 62- 133.6( i)( 4) requires: An estimate of the investor- owned public utility's environmental compliance costs and the basis for any revisions of those estimates when compared to the estimates submitted during the previous year. Summary of Progress Energy Report: Progress Energy reported that, while some unit total and annual costs have changed, the total project cost in future dollars remains at $ 813 million. More specifically, in its 2004 report, the Company estimated such cost to be $ 812.968 million, as compared to the $ 813.119 million reflected in its 2003 report, a reduction of $ 151,000. The Company observed that the projected SO2 removal rates have increased for scrubbed units. As a result, the planned scrubber for Lee 3 has been cancelled Summary of Duke Energy Report: Duke Energy reported that its expected costs are not significantly different than the estimates provided in 2003. More specifically, in its 2004 report, the Company estimated its compliance costs to be $ 1.526 billion, as compared to the $ 1.479 billion reflected in its 2003 report, an increase of $ 47 million. The Company also reported that the technologies expected to be required to support compliance have not changed. The Company further stated that the 5 minor adjustments to the estimates at the project level are the result of additional project scope definition and refinement of project schedules only. 5. G. S. 62- 133.6( i)( 5) requires: A description of all permits required in order to comply with the provisions of G. S. 143- 215.107D for which the investor- owned public utility has applied and the status of those permits or permit applications. Progress Energy Response: Asheville Plant • Revised Title V permits to support construction activities have been issued • NPDES Permit application submitted for required wastewater system modifications • Soil erosion and sedimentation control plans have been approved Roxboro Plant • Revised Title V permits to support construction activities have been issued • Soil erosion and sedimentation control plans have been approved Duke Energy Response: " Allen Steam Station SNCR, Unit 1 • Air Permit Application for temporary trial submitted and final permit received in 2002 • NPDES Permit Modification for temporary trial submitted and permit modification received in 2002 • Air Permit Application for permanent equipment installation submitted and final permit received in 2002 Marshall Steam Station SNCR, Unit 4 • Air Permit Application for temporary trial submitted and final permit received in 2002 • NPDES Permit Modification for temporary trial submitted and permit modification received in 2002 • Marshall Steam Station Scrubbers, Units 1- 4 • Air Permit Application – Submitted 9/ 17/ 03; received 2/ 5/ 04 • Sedimentation and Erosion Control Plan – Submitted 9/ 11/ 03; received 10/ 8/ 03; amended 12/ 19/ 03; amendments approved 12/ 31/ 03 • NPDES Modification – Submitted 4/ 30/ 03; received 1/ 23/ 04 • Landfill Site Suitability Application – Submitted 9/ 3/ 03” 6. G. S. 62- 133.6( i)( 6) requires: A description of the construction related to compliance with the provisions of G. S. 143- 215.107D that is anticipated during the following year. Progress Energy Response: See Appendix C of the attached letter from Progress Energy dated April 1, 2004, for details of construction and installation of equipment. The Asheville and Roxboro plants will have significant construction in 2004. 6 Duke Energy Response: See attached letter from Duke Energy dated March 31, 2003, for details of construction anticipated for the next year for: • Allen Steam Station SNCR, Unit 3 • Allen Steam Station SNCR, Unit 4 • Allen Steam Station Scrubbers • Belews Creek Steam Station Scrubbers • Buck Steam Station SNCR, Unit 5 • Buck Steam Station SNCR, Unit 6 • Cliffside Steam Station Scrubbers • Marshall Steam Station SNCR, Unit 1 • Marshall Steam Station SNCR, Unit 2 • Marshall Steam Station SNCR, Unit 3 • Marshall Steam Station Scrubbers • Riverbend Steam Station SNCR, Unit 4 • Riverbend Steam Station Burners, Unit 5 • Riverbend Steam Station SNCR, Unit 7 7. G. S. 62- 133.6( i)( 7) requires: A description of the applications for permits required in order to comply with the provisions of G. S. 143- 215.107D that are anticipated during the following year. Progress Energy Response: ” An NPDES permit modification application will be submitted in the 2nd quarter of 2004 to request changes to the existing wastewater discharge permit for the Roxboro Plant. Operation of scrubbers to comply with G. S. 143- 214.107D will create a new wastewater stream, which requires modification of our current permit. The application characterizes expected wastewater contaminant concentrations and flows.” Duke Energy Response: " Allen Steam Station SNCR, Unit 3 • Air Permit Application – Plan to submit 8/ 1/ 04 Belews Creek Steam Station Scrubbers, Units 1- 2 • Landfill Site Suitability Application – Plan to submit 1/ 11/ 05 • Air Permit Application – Plan to submit 5/ 20/ 05 • Sedimentation and Erosion Control Plan – Plan to submit 6/ 6/ 05 • NPDES Permit Application – Plan to submit 5/ 25/ 04 Dan River Steam Station SOFA, Unit 3 • Air Permit Application – Plan to submit January , 2005 Marshall Steam Station SNCR, Unit 2 • Air Permit Application – Plan to submit June, 2005 Marshall Steam Station SNCR, Unit 3 • Air Permit Application – Plan to submit 6/ 1/ 04 • NPDES Permit Modification ( if required) – Plan to submit 10/ 27/ 04 7 • Sedimentation and Erosion Control ( if required) – Plan to submit 11/ 15/ 04 Marshall Steam Station Scrubbers • Landfill Construction Plan Application – Plan to submit 4/ 1/ 04 • Sedimentation and Erosion Control Plan for balance of Marshall site work – Plan to submit 6/ 18/ 04 • Authorization to Construct ( ATC) application for FGD wastewater treatment system – Plan to submit 6/ 1/ 04 Riverbend Steam Station SOFA, Unit 5 • Air Permit Application – Plan to submit 5/ 1/ 04 Riverbend Steam Station SOFA, Unit 6 • Air Permit Application – Plan to submit January, 2005” 8. G. S. 62- 133.6( i)( 8) requires: The results of equipment testing related to compliance with G. S. 143- 215.107D. Progress Energy Response: " No equipment testing related to compliance with G. S. 143- 215.107D occurred in 2003." Duke Energy Response: " Allen Steam Station SNCR, Unit 1 • Technology demonstration in December, 2001 ( one week test) Nominal 30% reduction in NOx with ammonia slip of 5 to 10 ppm at full load Average NOx outlet rate of 0.15 #/ MMBTU for the test period • Equipment acceptance testing in November, 2003 Nominal 25% reduction in NOx with ammonia slip of less than 5 ppm at full load Marshall Steam Station SNCR, Unit 4 • Technology demonstration in October - November, 2002 ( one month test) Average 24% - 25% reduction in NOx with ammonia slip of 5 to 10 ppm at full load Average NOx outlet rate of 0.163 #/ MMBTU for the test period " 9. G. S. 62- 133.6( i)( 9) requires: The number of tons of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) emitted during the previous calendar year from the coal- fired generating units that are subject to the emissions limitations set out in G. S. 143- 215.107D. 8 Progress Energy Response: “ The total calendar year 2003 emissions from the affected coal- fired Progress Energy Carolinas units are: • NOx - 56,059 • SO2 - 196,184" Duke Energy Response: In the 2003 calendar year, the following were emitted from the North Carolina based Duke Energy coal- fired units: • NOx - 75,550 tons • SO2 - 264,031 tons 10. G. S. 62- 133.6( i)( 10) requires: The emissions allowances described in G. S. 143- 215.107D( i) that are acquired by the investor- owned public utility that result from compliance with the emissions limitations set out in G. S. 143- 215.107D. Progress Energy Response: " No emissions allowances resulting from compliance with G. S. 143- 215.107D were acquired in 2003." Duke Energy Response: “ No emissions allowances have been acquired by Duke Power Company resulting from compliance with the limitations set out in G. S. 143- 215.107D." 11. G. S. 62- 133.6( i)( 11) requires: Any other information requested by the Commission or the Department of Environment and Natural Resources Summary of Commission Request: The Commission submitted data requests to Progress Energy and Duke Energy on April 16, 2004. The information requested, among other things, concerned current projected amortization schedules over the six remaining years of the seven- year accelerated cost recovery period. Progress Energy Response: Progress Energy responded that it currently expects to amortize its remaining compliance costs as follows: 2004 - $ 75 million; 2005 – $ 120 to $ 140 million; 2006 - $ 125 to $ 145 million; 2007 – $ 130 to $ 150 million; 2008 - $ 121.5 million; and 2009 - $ 121.5 million. The Company noted that those amounts are subject to change. Duke Energy Response: Duke Energy responded that it currently plans to amortize its remaining compliance costs as follows: 2004 - $ 171 million; 2005 – $ 277 million; 2006 - $ 277 million; 2007 – $ 277 million; 2008 - $ 214 million; and 2009 - $ 169 million. III. Section 10 of the Act provides: It is the intent of the General Assembly that the State use all available resources and means, including negotiation, participation in interstate compacts and multistate and interagency agreements, petitions pursuant to 42 U. S. C. § 7426, and litigation to induce other states and entities, including the Tennessee Valley Authority, to achieve reductions in emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) comparable to those required by G. S. 143- 215.107D, as 9 enacted by Section 1 of this act, on a comparable schedule. The State shall give particular attention to those states and other entities whose emissions negatively impact air quality in North Carolina or whose failure to achieve comparable reductions would place the economy of North Carolina at a competitive disadvantage. DENR and Division of Air Quality ( DAQ) Activities to implement this Section: • A meeting was held between DENR/ DAQ and the Tennessee Valley Authority ( TVA) and the Tennessee air program officials in August 2002, to discuss actions planned by TVA that would be comparable to the Clean Smokestacks Act. TVA presented their plans to add five additional SO2 scrubbers to power plants primarily in the eastern portion of the TVA system. These new scrubbers should benefit North Carolina most. TVA plans to complete installation of the new facilities by 2010 and the first plant, Paradise, will be installed by 2006. Regarding NOx control, TVA is on schedule to have the first 8 of its selective catalytic reduction ( SCR) systems in place. TVA plans to have 25 boiler units controlled by 2005 at a cost of $ 1.3 billion which will reduce ozone season NOx by 75 percent. Through DENR’s efforts, the Clean Smokestacks Act is achieving notoriety nationally and is being touted in other States as a model for State action. The Secretary of DENR and the Chief of Planning of DAQ made presentations about the Clean Smokestacks Act at two national state environmental organization meetings in the fall of 2002. The Chief of Planning of DAQ testified in 2002, at a U. S. Senate Environment and Public Works Committee Hearing on the features and benefits of North Carolina's Clean Smokestacks Act. The Deputy Director of DAQ participates on a national dialogue workgroup addressing ideal features of national multi- pollutant legislation for coal- fired utility boilers. The Clean Smokestacks Act is held up as an ideal example. • The State also has been active in maintaining federal standards. In an April 2003 letter to EPA Administrator Whitman, Governor Easley urged the Administration to ensure that the federal Clear Skies bill not override State initiatives such as the Clean Smokestacks Act. The Governor also indicated the State’s opposition to bill text that would extinguish the statutory rights of States regarding interstate pollution abatement. DAQ and the Attorney General commented last month in opposition to a proposed federal rule that would weaken the federal New Source Review program and potentially result in significant new upwind emissions. North Carolina filed a petition on March 18, 2004, calling for the U. S. Environmental Protection Agency to require major reductions of air pollution in 13 upwind states that are significantly impacting this state. Reducing these emissions will substantially improve air quality in North Carolina. The petition, filed pursuant to Section 126 of the Clean Air Act, calls for the EPA to require cuts in fine particle- forming emissions from power plants in Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, 10 South Carolina, Tennessee, Virginia and West Virginia, and ozone- forming emissions in Georgia, Maryland, South Carolina, Tennessee and Virginia. IV. Section 12 of the Act provides: The General Assembly anticipates that measures implemented to achieve the reductions in emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required by G. S. 143- 215.107D, as enacted by Section 1 of this act, will also result in significant reductions in the emissions of mercury from coal- fired generating units. The Division of Air Quality of the Department of Environment and Natural Resources shall study issues related to monitoring emissions of mercury and the development and implementation of standards and plans to implement programs to control emissions of mercury from coal- fired generating units. The Division shall evaluate available control technologies and shall estimate the benefits and costs of alternative strategies to reduce emissions of mercury. The Division shall annually report its interim findings and recommendations to the Environmental Management Commission and the Environmental Review Commission beginning 1 September 2003. The Division shall report its final findings and recommendations to the Environmental Management Commission and the Environmental Review Commission no later than 1 September 2005. The costs of implementing any air quality standards and plans to reduce the emission of mercury from coal- fired generating units below the standards in effect on the date this act becomes effective, except to the extent that the emission of mercury is reduced as a result of the reductions in the emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required to achieve the emissions limitations set out in G. S. 143- 215.107D, as enacted by Section 1 of this act, shall not be recoverable pursuant to G. S. 62- 133.6, as enacted by Section 9 of this act. DAQ Actions to Implement this Section: The DAQ submitted a report on September 1, 2003, as required by this section. The first report primarily focused on the " state of knowledge" of the co- benefit of mercury control that will result from the control of NOx and SO2 from coal- fired utility boilers. Also, preliminary estimates were made for this co- benefit for the North Carolina utility boilers based on the initial plans submitted by Progress Energy and Duke Energy. Two public workshops were held in June and July 2003, to meet with all interested stakeholders to offer review of the draft DAQ report. DAQ is presently developing the September 1, 2004 report. V. Section 13 of the Act provides: The Division of Air Quality of the Department of Environment and Natural Resources shall study issues related to the development and implementation of standards and plans to implement programs to control emissions of carbon dioxide ( CO2) from coal- fired generating units and other stationary sources of air pollution. The Division shall evaluate available control technologies and shall estimate the benefits and costs of alternative strategies to reduce emissions of carbon dioxide ( CO2). The Division shall annually report its interim findings and recommendations to the Environmental Management Commission and the Environmental Review Commission beginning 1 September 2003. The Division shall report its final findings and recommendations to the Environmental Management Commission and the Environmental Review Commission no later than 11 1 September 2005. The costs of implementing any air quality standards and plans to reduce the emission of carbon dioxide ( CO2) from coal- fired generating units below the standards in effect on the date this act becomes effective, except to the extent that the emission of carbon dioxide ( CO2) is reduced as a result of the reductions in the emissions of oxides of nitrogen ( NOx) and sulfur dioxide ( SO2) required to achieve the emissions limitations set out in G. S. 143- 215.107D, as enacted by Section 1 of this act, shall not be recoverable pursuant to G. S. 62- 133.6, as enacted by Section 9 of this act. DAQ Actions to Implement this Section: The DAQ submitted a report on September 1, 2003, as required by this section. The first report primarily focused on the " state of knowledge" and actions being taken or planned elsewhere regarding CO2 control from coal- fired utility boilers. Two public workshops were held in June and July 2003, to meet with all interested stakeholders to offer review of the draft DAQ report. VI. Supplementary Information: As stated in the May 30, 2003 report, the Public Staff – North Carolina Utilities Commission ( Public Staff) will audit the books and records of Progress Energy and Duke Energy in regard to the costs incurred and amortized by the Companies concerning their compliance with the provisions of the Clean Smokestacks Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. The Public Staff filed its reports with the Commission on May 3, 2004. Attached, and made part of this report, are the Public Staff’s reports for Duke Energy and Progress Energy ( without Attachment), Attachments C and D, respectively. CONCLUSION Actions taken to date by Progress Energy and Duke Energy appear to be in accordance with the provisions and requirements of the Clean Smokestacks Act. 12 ATTACHMENTS Attachment A: Clean Smokestacks Act Compliance Plan Annual Update dated March 31, 2004, Submitted by Duke Power, a Division of Duke Energy Corporation Attachment B: Annual North Carolina Clean Smokestacks Act Compliance Report dated April 1, 2004, Submitted by Progress Energy Carolinas, Inc. Attachment C: Report of the Public Staff on Costs Incurred and Amortized by Duke Energy Corporation in Compliance with Session Law 2002- 4 Attachment D: Report of the Public Staff on Costs Incurred and Amortized by Progress Energy Carolinas, Inc. in Compliance With Session Law 2002- 4 REPORT OF THE PUBLIC STAFF ON COSTS INCURRED AND AMORTIZED BY DUKE ENERGY CORPORATION IN COMPLIANCE WITH SESSION LAW 2002- 4 Docket No. E- 7, Sub 718 May 3, 2004 Section 14 of Session Law 2002- 4 (“ the Clean Smokestacks Act” or “ the Act”) requires the Department of Environment and Natural Resources and the Utilities Commission to report by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The May 30, 2003, report states that the Public Staff will audit the books and records of the investor owned utilities on an ongoing basis in regard to the costs incurred and amortized in compliance with the Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. This report presents the Public Staff’s findings with regard to Duke Energy Corporation (“ Duke Energy”). I. Work to be Performed To comply with the emissions limitations for nitrogen oxides (“ NOX”) and sulfur dioxide (“ SO2”) established in the Act, Duke Energy plans to install emission reduction technologies at several of its facilities. Duke Energy has proposed to install Selective Non- catalytic Reduction (“ SNCR”) technology to remove NOx and flue- gas desulfurization (“ FGD”) technology to remove SO2. The facilities requiring these technologies are as follows: Facility NO X Reduction SO2 Reduction Allen Units 1- 5 √ √ Belews Creek Units 1& 2 √ Buck Units 3- 6 √ Cliffside Units 1- 5 √ ( units 1- 4 only) √ ( unit 5 only) Dan River Units 1- 3 √ Marshall Units 1- 4 √ √ Riverbend Units 4- 7 √ In addition, Duke Energy is currently installing Selective Catalytic Reduction (“ SCR”) technology to remove NOx from its Belews Creek and Cliffside Unit 5 facilities to comply with the North Carolina State Implementation Plan for NOx (“ NOx SIP Call”), which is discussed below. Duke Energy has conducted preliminary testing on the SNCR equipment at the Allen facility and the SCR equipment at Belews Creek. Such testing is normal for start- 2 up with new systems. Results indicated that the NOX emissions targets at both facilities were not achieved. Duke Energy suspects that fuel quality may be the reason for the higher than expected emissions at its Allen facility, but it is still studying the problem at Belews Creek. Further testing will be conducted during the ozone season of 2004, with the results expected in late 2004. Duke Energy has expressed confidence that there is sufficient time to continue shake- down testing and achieve successful results, since the NOx targets are not triggered until 2007. II. Capital Costs Associated with the Installation of Emission Reduction Technologies Duke Energy is required by the Act to report its actual capital costs (“ environmental compliance costs”) associated with its plan to install emission reduction technologies pursuant to the Act. Operational costs related to these emission reduction technologies are not environmental compliance costs as defined by the Act. Duke Energy reported that its actual environmental compliance costs in calendar year 2003 were $ 16,041,000. The cumulative environmental compliance costs incurred through 2003 are $ 20,464,000, broken down as follows: Year 2001 $ 800,000 Year 2002 3,623,000 Year 2003 16,041,000 $ 20,464,000 Duke Energy’s expenditures to date involve emission reduction technologies at its Allen, Belews Creek, Cliffside, Dan River, Marshall, and Riverbend facilities. Environmental compliance costs were incurred for project studies and investigations, engineering, equipment procurement, and contracting. As part of its review, the Public Staff requested information from Duke Energy on the project costs, invoices documenting costs, and the purpose of the costs. Duke Energy provided project cost sheets delineating actual project costs by year into the following categories: ( 1) direct labor costs including overtime and premiums; ( 2) labor loads; ( 3) contract costs; ( 4) material costs; ( 5) overhead costs; and, ( 6) other costs. These costs are as follows: Direct Labor $ 2,075,949 Labor Loads 1,500,133 Contracts 12,020,087 Materials 3,091,897 Overheads 344,789 Other 1,430,696 $ 20,463,551 3 The project cost sheets were supported by detailed spreadsheets that incorporated all expenditures to date for a particular category. The Public Staff selected invoices in each category from the detailed spreadsheets, and requested Duke Energy to provide specific information on the selected costs. The Public Staff also had extensive discussions with Duke personnel regarding the individual cost items charged to specific projects. Duke Energy provided sufficient documentation to support each selected cost. Duke Energy was also requested to delineate costs related to complying with NOX SIP Call. NOX SIP Call requires electric utility generating facilities to reduce their emissions of NOX during the summer ozone season, while the objective of the Clean Smokestacks Act is to reduce overall NOX emissions for the entire year. As a result of NOX SIP Call, Duke Energy has undertaken a program to reconfigure its coal and air injection systems on its boiler units. In two cases, Belews Creek and Cliffside Unit 5, Duke Energy has chosen to install SCR technology to comply with NOX SIP Call. Costs related to NOX SIP Call are specifically exempted from the amortization allowed in Section 9 of the Act. The Public Staff has determined that Duke has not included any NOX SIP Call related costs to date in its reported actual environmental compliance costs. However, Duke Energy may be required to install additional SCR technology on facilities where it initially plans to install SNCR technology to comply with the Act, if the SNCR technology fails to achieve the emission reduction goals set forth in the Act due to matters, such as coal quality, that are beyond the scope of Duke’s contracts for work related to the Act. III. Amortization of Costs In Section 9 of the Act [ G. S. 62- 133.6( b)], the investor owned utilities are allowed to accelerate the cost recovery of their estimated environmental compliance costs over a seven- year period, beginning January 1, 2003, and ending December 31, 2009. Duke Energy’s estimated environmental compliance costs are $ 1.5 billion. The statute requires that a minimum of 70% of the environmental compliance costs shall be amortized before December 31, 2007, when the rate freeze period expires. In Duke Energy’s case, this amount is $ 1,050,000,000. The annual levelized amount is $ 214,285,714. The maximum amount that can be amortized in any given year is 150% of the annual levelized environmental compliance costs or, in Duke Energy’s case, $ 321,428,000. On December 11, 2003 the Commission issued an order authorizing Duke Energy to use certain regulatory liability and amortization accounts to record the environmental compliance costs associated with the Act. The Commission further ordered that no accrual of AFUDC would be allowed on any construction expenditures up to the $ 1.5 billion required to be amortized pursuant to the Act. Using the protocols established by the Act and subsequent Commission orders, Duke reported that its environmental compliance costs amortization for 2003 is 4 $ 114,813,336. The Public Staff has reviewed Duke Energy’s quarterly amortization filings and concluded that the reported amounts appear to be accurate. IV. Contracts The Public Staff also requested Duke Energy to provide for its review copies of any contracts for engineering, procurement, project management, and construction awarded to engineering firms and construction companies for the purpose of installing the emission reduction technologies. Duke Energy complied with the Public Staff’s request and provided the applicable contracts. Duke Energy has contracted with a vendor to install SNCR equipment at its Allen Steam Station. Duke Energy has elected to award separate fixed- price contracts for each project requiring emission reduction technologies to comply with the Act. Duke Energy has also signed an alliance agreement with two vendors, creating a consortium between the companies for the installation of FGD technology, optimized specifically for Duke Energy. This agreement is a fixed price contract for each of the twelve coal- fired generation units identified by Duke Energy that require emission reduction technology to comply with the Act. The Public Staff reviewed these contracts and determined that they contain language establishing minimum performance standards on the equipment to be installed. The contracts contain a two- year performance standard that requires the equipment to perform as designed or the vendor would be responsible for replacing, repairing, or redesigning the equipment to achieve the emission reduction target specified by Duke Energy. V. Site Inspections On March 9, 2004, the Public Staff conducted a site inspection of Duke Energy’s Allen Steam Station in Belmont, North Carolina. Specifically, the Public Staff inspected the SNCR equipment that had been installed on the boilers and the other ancillary equipment used in the reduction of NOX emissions from those boilers. The Public Staff confirmed the installation of the equipment and discussed the testing procedures with the plant engineer. No other facilities were inspected. It is the intent of the Public Staff to conduct inspections of other coal- fired generating facilities as Duke Energy continues to install emission reduction equipment in its boiler units. REPORT OF THE PUBLIC STAFF ON COSTS INCURRED AND AMORTIZED BY PROGRESS ENERGY CAROLINAS, INC. IN COMPLIANCE WITH SESSION LAW 2002- 4 Docket No. E- 2, Sub 815 May 3, 2004 Section 14 of Session Law 2002- 4 (“ the Clean Smokestacks Act” or “ the Act”) requires the Department of Environment and Natural Resources and the Utilities Commission to report by June 1 of each year, on the implementation of the Act to the Environmental Review Commission and the Joint Legislative Utility Review Committee. The May 30, 2003, report states that the Public Staff will audit the books and records of the investor owned utilities on an ongoing basis in regard to the costs incurred and amortized in compliance with the Act. The Public Staff has undertaken such a review, focusing on the verification of costs related to complying with the Act, the amortization of those costs, and contracts with vendors who will engineer and construct emission reduction equipment. This report presents the Public Staff’s findings with regard to Progress Energy Carolinas, Inc. (“ PEC”). I. Work to be Performed To comply with the emissions limitations for nitrogen oxides (“ NOX”) and sulfur dioxide (“ SO2”) established in the Act, PEC plans to install emission reduction technologies at several of its facilities. PEC has proposed to install Selective Catalytic Reduction (“ SCR”) technology to remove NOx and flue- gas desulfurization (“ FGD”) technology to remove SO2 to comply with the Act. The facilities requiring these technologies are as follows: Facility NO X Reduction SO2 Reduction Asheville Units 1& 2 √ ( Unit 1 only) √ Cape Fear Units 5& 6 √ Lee Unit 3 √ Mayo Unit 1 √ Roxboro Units 1- 4 √ Sutton Unit 3 √ PEC is also installing SCR technology and reconfiguring its coal and air injection systems to remove NOx from its other coal- fired generating units to comply with the North Carolina State Implementation Plan for NOx (“ NOx SIP Call”), which is discussed below. 2 Although PEC initially planned to install a scrubber on Lee Unit 3, PEC indicated in its annual compliance report filed on April 1, 2004, that this work has been cancelled because projected SO2 removal rates for scrubbed units have increased. PEC is only in the initial design and engineering phase of construction plan, and therefore no testing data is yet available. II. Capital Costs Associated with the Installation of Emission Reduction Technologies PEC is required by the Act to report the actual capital costs (“ environmental compliance costs”) associated with its plan to install emission reduction technologies pursuant to the Act. Operational costs related to these emission reduction technologies are not environmental compliance costs as defined in the Act. PEC reported that its actual environmental compliance costs in calendar year 2003 were $ 22,323,791. The cumulative environmental compliance costs incurred through 2003 are $ 23,209,512, as follows: Year 2002 $ 885,721 Year 2003 22,323,791 $ 23,209,512 1 PEC’s expenditures to date involve emission reduction technologies at its Asheville, Mayo, and Roxboro facilities. Environmental compliance costs were incurred for project studies and investigations, engineering, and contracting. As part of its review, the Public Staff requested information from PEC on the project costs, invoices documenting costs, and the purpose of the costs. PEC provided project cost sheets delineating actual project costs by year into the following categories: ( 1) company labor costs; ( 2) materials costs; ( 3) outside services costs; and ( 4) other costs. These costs are as follows: Company Labor $ 1,276,561 Materials 68,249 Outside Services 21,631,350 Other 233,351 Total $ 23,209,511 The project cost sheet was supported by detailed spreadsheets that incorporated all expenditures to date for a particular category. The Public Staff selected invoices in each category from the detailed spreadsheets and requested PEC to provide specific 1 PEC’s estimated and reported environmental compliance costs exclude costs attributable to the portion of its Mayo and Roxboro facilities that is owned by the North Carolina Eastern Municipal Power Agency. 3 information on the selected costs. The Public Staff also had extensive discussions with PEC personnel regarding the individual cost items charged to specific projects. PEC provided sufficient documentation to support each selected cost. However, the Public Staff determined that there is a discrepancy between the environmental compliance costs that are being recorded on PEC’s books and the environmental compliance costs that are being reported to the Commission. The reported costs do not include labor loads or overhead costs. PEC explained that this practice is consistent with the types of costs considered to be environmental compliance costs in its estimate of $ 813,000,000. Typically, these costs are treated as part of project costs, whether they are considered incremental or not. The Public Staff recommends that PEC be required to file a reconciliation showing the per book and reported environmental compliance costs. As stated above, PEC has cancelled the planned scrubber for Lee Unit 3. However, according to Appendix B to PEC’s April 1, 2004, report, PEC’s estimated environmental compliance costs remain approximately $ 813 million. Attachment I to this report shows the differences in the estimated environmental compliance costs between 2003 and 2004 according to PEC’s annual reports. PEC was also requested to delineate costs related to complying with NOX SIP Call. NOX SIP Call requires electric utility generating facilities to reduce its emissions of NOX during the summer ozone season, while the objective of the Clean Smokestacks Act is to reduce overall NOX emissions for the entire year. As a result of NOx SIP Call, PEC has undertaken a program to reconfigure its coal and air injection systems on its boiler units and/ or install SCR technology at its Asheville 2, Cape Fear 5& 6, Lee 1, Mayo 1, Roxboro 1- 4, Sutton 1& 3, and Weatherspoon 1- 3. PEC also intends to use this equipment to achieve it emissions limitations as set forth in the Act. However, PEC will also be required to install SCR technology at its Asheville 1 and Lee 3 facilities in order to fully comply with the Act and achieve its required emissions limitations by 2007. The Public Staff has determined that PEC has not included any NOx SIP Call related costs to date in its reported actual environmental compliance costs. III. Amortization of Costs In Section 9 of the Act [ G. S. 62- 133.6( b)], the investor owned utilities are allowed to accelerate the cost recovery of their estimated environmental compliance costs over a seven- year period, beginning January 1, 2003, and ending December 31, 2009. PEC’s estimated environmental compliance costs are $ 813,000,000. The statute requires that a minimum of 70% of the environmental compliance costs be amortized before December 31, 2007, when the rate freeze period expires. In PEC’s case, this amount is $ 569,100,000. The annual levelized amount is $ 116,142,857. The maximum amount that can be amortized in any given year is 150% of the annual levelized environmental compliance costs or, in PEC’s case, $ 174,214,285. 4 On December 11, 2003, the Commission issued an order authorizing PEC to use certain regulatory liability and amortization accounts to record the environmental compliance costs associated with the Act. The Commission further ordered that no accrual of AFUDC would be allowed on any construction expenditures up to the $ 813,000,000 required to be amortized pursuant to the Act. Using the protocols established by the Act and subsequent Commission orders, PEC reported that its environmental compliance costs amortization for 2003 is $ 74,218,804. The Public Staff has reviewed PEC’s quarterly amortization filings and concluded that the reported amounts appear to be accurate. IV. Contracts The Public Staff also requested PEC to provide copies of any contracts for engineering, procurement, project management, and construction awarded to engineering firms and construction companies for the purpose of installing the emission reduction technologies. PEC complied with the Public Staff’s request and provided the applicable contracts. PEC has contracted with three vendors for engineering and design work, procurement of equipment, project management, and construction. PEC has elected to use one vendor for overall project management and engineering, another vendor for procurement of equipment, and a general contractor who will actually install the emission reduction technologies to comply with the Act. PEC’s agreements with its vendors are incentive- fee based contracts for all of the thirteen coal- fired generation units identified by PEC that required emission reduction technology to comply with the Act. PEC does not intend to execute separate agreements for each facility. The Public Staff reviewed these contracts and determined that they contain language establishing minimum performance standards on the equipment to be installed. PEC’s contract with its engineering and project management vendor contains a twelve- month performance guarantee from the date of functional operation. PEC’s contract with its equipment vendor contains a two- year performance standard that requires the equipment to perform as designed or the vendor will be responsible for replacing or repairing the equipment to achieve the emission reduction target specified by PEC. PEC’s contract with its general contractor contains a twelve- month workmanship guarantee. V. Site Inspections The Public Staff conducted no site inspections of any PEC facilities in connection with this audit. It is the intent of the Public Staff to conduct inspections of PEC’s coal-fired generating facilities as emission reduction equipment is installed. Progress Energy Carolinas, Inc. Attachment I Docket No. E- 2, Sub 815 Environmental Compliance Cost Estimates planned outage 2003 estimate 1/ 2004 estimate 2/ difference 3/ ( a) ( b) ( c) ( d) General Asheville 1 FGD F2004 $ 62,750,610 $ 77,906,056 $ 15,155,446 Asheville 1 SCR S2012 25,387,755 24,826,000 ( 561,755) Asheville 2 FGD F2005 63,404,068 65,623,450 2,219,382 Asheville FGD Common 175,887 191,778 15,891 Mayo 1 FGD S2007 88,849,025 95,482,822 6,633,797 Roxboro FGD Common 51,214,618 100,250,948 49,036,330 Roxboro 1 FGD S2009 51,244,851 62,094,441 10,849,590 Roxboro 2 FGD S2005 77,004,137 64,169,187 ( 12,834,950) Roxboro 3 FGD F2006 72,289,067 69,556,393 ( 2,732,674) Roxboro 4 FGD S2008 64,224,392 57,532,330 ( 6,692,062) Cape Fear 5 FGD S2012 41,426,445 40,921,839 ( 504,606) Cape Fear 6 FGD S2011 40,114,613 38,753,266 ( 1,361,347) Lee 3 FGD F2009 53,293,359 - ( 53,293,359) Lee 3 SCR F2009 35,269,245 31,596,934 ( 3,672,311) Sutton 3 FGD F2012 77,452,773 75,475,674 ( 1,977,099) Lee 2 ROFA F2007 4,460,486 4,005,031 ( 455,455) Sutton 2 ROFA S2010 4,733,504 4,582,203 ( 151,301) Total $ 813,294,835 $ 812,968,352 $ ( 326,483) 1/ Appendix B attached to PEC's Annual NC Clean Smokestacks Legislation Compliance Report filed April 1, 2003. 2/ Appendix B attached to PEC's Annual NC Clean Smokestacks Legislation Compliance Report filed April 1, 2004. 3/ Column ( c) - Column ( b). |
OCLC number | 56827378 |