COMMISSION, Order 6-7-2019 R-34246.pdfDocket No. R-34246, In re: Rulemaking to consider the...

BEFORE THE

LOUISIANA PUBLIC SERVICE COMMISSION

LOUISIANA PUBLIC SERVICE COMMISSION, EX PARTE

GENERAL ORDER 6-7-2019

Docket No. R-34246, In re: Rulemaking to consider the appropriateness and potential scope

of the Louisiana Public Service Commission ’s review and pre—approval of utility contracts

regarding the construction and/or acquisition of significant generation and transmission

related assets.

(Decided at the May 15. 2019 Business and Executive Session.)

(Amends and Supersedes General Order dated May 7. 1982. Major Utility Construction Projects: Disclosure to Commission.)

Background and Procedural History

The Louisiana Public Service Commission ("LPSC“ or "Commission") issued General Order

dated May 7. 1982 (“1982 General Order") requiring all electric utility companies subject to the

jurisdiction of the Commission to notify the same in writing of the fact that a major capital outlay was

being contemplated prior to the electric utility executing the contract or expending funds, other than for

feasibility studies. The 1982 General Order defined a major capital outlay as one that is reasonably

anticipated to increase a utility‘s rate base. exclusive of retirements. by a factor in excess of ten percent

(10%). The impetus behind the 1982 General Order was the increased cost ofmajor construction projects.

coupled with the existence of unprecedented inflation. which raised the possibility that major construction

projects could severely impact rate base and correspondingly the rates to ratepayers.

The instant proceeding arose out ofa directive adopted by the Commission at its August 31. 2016

Business and Executive Session requesting Staff to “consider the appropriateness and potential scope of

the C ommission's review and pre—approval of utility contracts regarding the construction and acquisition

of significant generation and transmission related assets.” Staff was further directed to “review current

procedures. determine which contracts should be reviewed. and consider adopting new procedures that

would allow the Commission to hire outside consultants and counsel to review dened contracts prior to

execution.”

Pursuant to the Commission”s directive, a Notice ofRulemaking was led September 22. 2016

opening Docket No. R-34246 with publication in the Commission‘s Official Bulletin dated September 23.

2016 for a twenty—tive (25) day intervention period. Eleven (1 1) parties intervened — the Louisiana Energy

Users Group ("LEUG"). Cleco Power LLC ("Cleco Power"). Southwestern Electric Power Company

' Minutes of August 3 1. 2016 Business and Executive Session. Ex. 25.

3 Id.

General Order 6-7-2019

(Docket No. R-34246)

Page -1-

BEFORE THE

LOUISIANA PUBLIC SERVICE COMMISSION

LOUISIANA PUBLIC SERVICE COMMISSION, EX PARTE

GENERAL ORDER 6-7-2019

Docket No. R-34246, In re: Rulemaking to consider the appropriateness and potential scope

of the Louisiana Public Service Commission ’s review and pre—approval of utility contracts

regarding the construction and/or acquisition of significant generation and transmission

related assets.

(Decided at the May 15. 2019 Business and Executive Session.)

(Amends and Supersedes General Order dated May 7. 1982. Major Utility Construction Projects: Disclosure to Commission.)

Background and Procedural History

The Louisiana Public Service Commission ("LPSC“ or "Commission") issued General Order

dated May 7. 1982 (“1982 General Order") requiring all electric utility companies subject to the

jurisdiction of the Commission to notify the same in writing of the fact that a major capital outlay was

being contemplated prior to the electric utility executing the contract or expending funds, other than for

feasibility studies. The 1982 General Order defined a major capital outlay as one that is reasonably

anticipated to increase a utility‘s rate base. exclusive of retirements. by a factor in excess of ten percent

(10%). The impetus behind the 1982 General Order was the increased cost ofmajor construction projects.

coupled with the existence of unprecedented inflation. which raised the possibility that major construction

projects could severely impact rate base and correspondingly the rates to ratepayers.

The instant proceeding arose out ofa directive adopted by the Commission at its August 31. 2016

Business and Executive Session requesting Staff to “consider the appropriateness and potential scope of

the C ommission's review and pre—approval of utility contracts regarding the construction and acquisition

of significant generation and transmission related assets.” Staff was further directed to “review current

procedures. determine which contracts should be reviewed. and consider adopting new procedures that

would allow the Commission to hire outside consultants and counsel to review dened contracts prior to

execution.”

Pursuant to the Commission”s directive, a Notice ofRulemaking was led September 22. 2016

opening Docket No. R-34246 with publication in the Commission‘s Official Bulletin dated September 23.

2016 for a twenty—tive (25) day intervention period. Eleven (1 1) parties intervened — the Louisiana Energy

Users Group ("LEUG"). Cleco Power LLC ("Cleco Power"). Southwestern Electric Power Company

' Minutes of August 3 1. 2016 Business and Executive Session. Ex. 25.

3 Id.



Page -1-

("SWEPCO"). Entergy Louisiana. LLC ("ELL"). Marathon Petroleum Company LP ("Marathon").

Southwest Louisiana Electric Membership Corporation ("SLEMCO"). the Midcontinent Independent

System Operator. Inc. ("MISO"). Bayou Steel Group ("Bayou Steel"). Louisiana Generating LLC and

NRG Power Marketing LLC (collectively "NRG"). Occidental Chemical Corporation ("OxyChem"). and

the Sierra Club ("Sierra Club") (collectively "lntervenors"). Subsequent to the intervention period

expiring, Staff issued three (3) request for comments. two (2) proposed rules. and held a technical

conference prior to ling Staff s Report and Recommendation 0fFinal Rule on April 5. 2019.

Jurisdiction and Applicable Law

The Commission has been vested with the authority to regulate public utilities and common

carriers and exercisesjurisdiction in this proceeding pursuant to Article IV. Section 2 l (b) ofthe Louisiana

Constitution of 1974. which provides in pertinent part:

(B.) The commission shall regulate all common carriers and public utilities and

have such other regulatory authority as provided by law. It shall adopt and enforce

reasonable rules. regulations, and procedures necessary for the discharge of its

duties. and shall have other powers and perform other duties as provided by law.

This Constitutional authority delegates the exclusive and plenary power to regulate all common carriers

and public utilities to the Commission.3 Further. pursuant to this Constitutional authority, the Commission

has issued general orders throughout the years. three of which were relevant to Staff s review herein. The

Commission issued the 1982 General Order requiring utilities to notify the Commission in writing of

"major capital outlay" being contemplated before contracts are entered or funds are expended. which

requires notication only. there is no pre—approval requirement.

The Commission also issued General Order dated September 20. 1983. as most recently amended

by the Commissions General Order dated May 27. 2009. ("l983 General Order") which states that no

jurisdictional electric utility "shall commence any on site construction activity or enter into any contract

for construction without first having applied to the Commission for a certification that the public

convenience and necessity would be served through completion of such project or confection of such

contract." Additionally. the 1983 General Order requires that applications submitted pursuant to the 1983

General Order "shall include the specific data utilized by the utility in justification of the generation

project."

3 Bowie v. Lozzisianu Public Service C0n1n1i.s'.s'i(m, 627 So. 2d 164. 166 (La. I993) (“Bm1'ie").



Page -2-

("SWEPCO"). Entergy Louisiana. LLC ("ELL"). Marathon Petroleum Company LP ("Marathon").

Southwest Louisiana Electric Membership Corporation ("SLEMCO"). the Midcontinent Independent

System Operator. Inc. ("MISO"). Bayou Steel Group ("Bayou Steel"). Louisiana Generating LLC and

NRG Power Marketing LLC (collectively "NRG"). Occidental Chemical Corporation ("OxyChem"). and

the Sierra Club ("Sierra Club") (collectively "lntervenors"). Subsequent to the intervention period

expiring, Staff issued three (3) request for comments. two (2) proposed rules. and held a technical

conference prior to ling Staff s Report and Recommendation 0fFinal Rule on April 5. 2019.

Jurisdiction and Applicable Law

The Commission has been vested with the authority to regulate public utilities and common

carriers and exercisesjurisdiction in this proceeding pursuant to Article IV. Section 2 l (b) ofthe Louisiana

Constitution of 1974. which provides in pertinent part:

(B.) The commission shall regulate all common carriers and public utilities and

have such other regulatory authority as provided by law. It shall adopt and enforce

reasonable rules. regulations, and procedures necessary for the discharge of its

duties. and shall have other powers and perform other duties as provided by law.

This Constitutional authority delegates the exclusive and plenary power to regulate all common carriers

and public utilities to the Commission.3 Further. pursuant to this Constitutional authority, the Commission

has issued general orders throughout the years. three of which were relevant to Staff s review herein. The

Commission issued the 1982 General Order requiring utilities to notify the Commission in writing of

"major capital outlay" being contemplated before contracts are entered or funds are expended. which

requires notication only. there is no pre—approval requirement.

The Commission also issued General Order dated September 20. 1983. as most recently amended

by the Commissions General Order dated May 27. 2009. ("l983 General Order") which states that no

jurisdictional electric utility "shall commence any on site construction activity or enter into any contract

for construction without first having applied to the Commission for a certification that the public

convenience and necessity would be served through completion of such project or confection of such

contract." Additionally. the 1983 General Order requires that applications submitted pursuant to the 1983

General Order "shall include the specific data utilized by the utility in justification of the generation

project."

3 Bowie v. Lozzisianu Public Service C0n1n1i.s'.s'i(m, 627 So. 2d 164. 166 (La. I993) (“Bm1'ie").



Page -2-

Additionally. the Commission issued General Order dated April 10. 2002. as most recently

amended by the Commissions General Order dated October 29. 2008 ("MBM Order"). which states that

jurisdictional electric utilities "shall employ a market-based mechanism to support the acquisition of

generating capacity." and that the results and analysis from the market-based mechanism shall serve as

the "justification" required in the 1983 General Order. The MBM Order further dictates that the market-

based mechanism to be used "shall be a Request for Proposal (‘RFP’) competitive solicitation process."

The MBM Order requires that the "electric utility shall conduct its planning and REP process with the

objective being the provision of reliable electric service at lowest reasonable cost."

Intervenor Participation

Responses to Staff s Initial Request for Comments were received from LEUG. Cleco Power.

SWEPCO. and ELL (collectively "Initial Commenters"). The Initial Commenters were uniformly

opposed to rules requiring Commission pre-approval of utility contracts regarding the construction and/or

acquisition of significant generation and transmission related assets. Several potential issues were raised

by the Initial C ommenters such as potential usurpation and interference with the utility‘s core function of

entering into and managing contracts, potentially impeding efficient utility operations, and potential

transfer of risks to the utility‘s ratepayers. The Initial Commenters also raised the potential practical

problem of Staff and outside counsel and consultants conflicted out oflater prudence reviews should those

individuals have participated in the review and pre-approval process of the contract for the same project.

All Initial Commenters also noted the current obligation utilities have to enter into and manage contracts

prudently. which is subject to review by the Commission.

ELL. SWEPCO. and C leco Power also provided responses to Staffs Second and Third Reque.s'I.s‘

for Comments. as the requests specifically sought comments regarding the current ten percent (10%)

threshold requirement contained in the 1982 General Order. and what that amount equated to for each

utility. As indicated in response to Staffs Requestfor' Second Comments. for ELL, the 10% threshold is

approximately $830 million. For Cleco Power. it is approximately $270 million. and for SWEPCO. it is

$141 million. Cleco Power supported a reduction in the threshold amount to two percent (2%). or

alternatively proposed the threshold be based on a set dollar gure. Initially. ELL and SWEPCO

commented that the current threshold was reasonable. and believed the threshold amount should be

maintained as a percentage of rate base and not be based on a specific dollar amount. Subsequent

comments from SWEPCO indicated a two percent (2%) threshold would be a compromise from Staffs



Page -3-

Additionally. the Commission issued General Order dated April 10. 2002. as most recently

amended by the Commissions General Order dated October 29. 2008 ("MBM Order"). which states that

jurisdictional electric utilities "shall employ a market-based mechanism to support the acquisition of

generating capacity." and that the results and analysis from the market-based mechanism shall serve as

the "justification" required in the 1983 General Order. The MBM Order further dictates that the market-

based mechanism to be used "shall be a Request for Proposal (‘RFP’) competitive solicitation process."

The MBM Order requires that the "electric utility shall conduct its planning and REP process with the

objective being the provision of reliable electric service at lowest reasonable cost."

Intervenor Participation

Responses to Staff s Initial Request for Comments were received from LEUG. Cleco Power.

SWEPCO. and ELL (collectively "Initial Commenters"). The Initial Commenters were uniformly

opposed to rules requiring Commission pre-approval of utility contracts regarding the construction and/or

acquisition of significant generation and transmission related assets. Several potential issues were raised

by the Initial C ommenters such as potential usurpation and interference with the utility‘s core function of

entering into and managing contracts, potentially impeding efficient utility operations, and potential

transfer of risks to the utility‘s ratepayers. The Initial Commenters also raised the potential practical

problem of Staff and outside counsel and consultants conflicted out oflater prudence reviews should those

individuals have participated in the review and pre-approval process of the contract for the same project.

All Initial Commenters also noted the current obligation utilities have to enter into and manage contracts

prudently. which is subject to review by the Commission.

ELL. SWEPCO. and C leco Power also provided responses to Staffs Second and Third Reque.s'I.s‘

for Comments. as the requests specifically sought comments regarding the current ten percent (10%)

threshold requirement contained in the 1982 General Order. and what that amount equated to for each

utility. As indicated in response to Staffs Requestfor' Second Comments. for ELL, the 10% threshold is

approximately $830 million. For Cleco Power. it is approximately $270 million. and for SWEPCO. it is

$141 million. Cleco Power supported a reduction in the threshold amount to two percent (2%). or

alternatively proposed the threshold be based on a set dollar gure. Initially. ELL and SWEPCO

commented that the current threshold was reasonable. and believed the threshold amount should be

maintained as a percentage of rate base and not be based on a specific dollar amount. Subsequent

comments from SWEPCO indicated a two percent (2%) threshold would be a compromise from Staffs



Page -3-

proposed one percent (1%). while ELL commented a reasonable threshold amount would be three percent

(3%). Another mutual comment among ELL, SWEPCO. and Cleco Power was the request for an

exemption from the 1982 General Order for emergency improvements such as improvements necessitated

by a stonn. such as storm recovery.

Sta’s Analysis and Final Recommendation

Staff reviewed and analyzed all comments submitted. performed research into contract pre-

approval in otherjurisdictions. and examined the existing regulatory paradigm in Louisiana. The existing

regulatory paradigm (the 1983 and MBM General Orders) already address utility projects that add or

acquire new capacity. and does not require pre-approval of construction. engineering and

procurement—type contracts associated with those projects. As discussed in detail in Staffs Report and

Recommendation of Final Rule. these contracts are subject to after-the—fact prudence reviews in the

Commission review process. In Staffs research of other jurisdictions. Staff did not find any other

jurisdiction that currently requires pre-approval of such contracts.

In examining the existing regulatory paradigm. Staff recognized that projects falling under the

1983 General Order and the MBM Order are already subject to ling requirements and an after-the-fact

prudence review process. And. practically speaking. utilities often file the relevant implementation

contracts associated with such projects with the certification application. The Commissions practice has

been not to pre—approve those implementation contracts. but rather to review the implementation contracts

in the after—the-fact prudence review. This practice allows the Commission to review the contract as a

whole related to the completion of the project and not in a vacuum at the beginning of a project.

"Prudence" is not a once and done obligation that terminates when a contract is executed. It is an ongoing

obligation and the utility is obligated to prudently manage the contract throughout the term. It is this type

of after—the-fact extensive review that allows the Commission to impose imprudence disallowances. as

necessary. to ensure contracts are entered into and administered by utilities prudently. The utilities are

currently required to seek the best contract terms available in the market place. to manage those contracts

using best practices. and are ultimately liable for the consequences for not doing so. While there is a

desire to ensure that contract terms are fair to ratepayers. it is not clear at this point that the Commission's

involvement in the implementation contracting process would improve contract terms or results for

ratepayers.



Page -4-

proposed one percent (1%). while ELL commented a reasonable threshold amount would be three percent

(3%). Another mutual comment among ELL, SWEPCO. and Cleco Power was the request for an

exemption from the 1982 General Order for emergency improvements such as improvements necessitated

by a stonn. such as storm recovery.

Sta’s Analysis and Final Recommendation

Staff reviewed and analyzed all comments submitted. performed research into contract pre-

approval in otherjurisdictions. and examined the existing regulatory paradigm in Louisiana. The existing

regulatory paradigm (the 1983 and MBM General Orders) already address utility projects that add or

acquire new capacity. and does not require pre-approval of construction. engineering and

procurement—type contracts associated with those projects. As discussed in detail in Staffs Report and

Recommendation of Final Rule. these contracts are subject to after-the—fact prudence reviews in the

Commission review process. In Staffs research of other jurisdictions. Staff did not find any other

jurisdiction that currently requires pre-approval of such contracts.

In examining the existing regulatory paradigm. Staff recognized that projects falling under the

1983 General Order and the MBM Order are already subject to ling requirements and an after-the-fact

prudence review process. And. practically speaking. utilities often file the relevant implementation

contracts associated with such projects with the certification application. The Commissions practice has

been not to pre—approve those implementation contracts. but rather to review the implementation contracts

in the after—the-fact prudence review. This practice allows the Commission to review the contract as a

whole related to the completion of the project and not in a vacuum at the beginning of a project.

"Prudence" is not a once and done obligation that terminates when a contract is executed. It is an ongoing

obligation and the utility is obligated to prudently manage the contract throughout the term. It is this type

of after—the-fact extensive review that allows the Commission to impose imprudence disallowances. as

necessary. to ensure contracts are entered into and administered by utilities prudently. The utilities are

currently required to seek the best contract terms available in the market place. to manage those contracts

using best practices. and are ultimately liable for the consequences for not doing so. While there is a

desire to ensure that contract terms are fair to ratepayers. it is not clear at this point that the Commission's

involvement in the implementation contracting process would improve contract terms or results for

ratepayers.



Page -4-

Thus. Staffdid not recommend a blanket rule requiring preapprovals for implementation contracts

be adopted. as it determined such preapproval is not in the public interest. The Commission can consider

such preapprovals in a particular case as facts and circumstances dictate. but the regulatory regime should

not require or provide for implementation contract preapprovals as a matter of course. and in most cases.

pre-approvals of such implementation contracts should not be given in advance of project completion.

Staff noted that. in reviewing utility projects after completion. Staff should continue to pay close

attention to the implementation contracts associated with the project and evaluate their terms and

management for prudence. In reviewing the contracts. the following factors should be considered. as

appropriate under the particular facts and circumstances at issue. as well as any other factors deemed

appropriate:

(1) Whether the contract was obtained through a competitive solicitation process;

(2) Whether the contract contains liquidated damages. delay damages. liability. and indemnity

provisions consistent with industry standards;

(3) Whether the contract was negotiated in good faith. placing the lowest reasonable amount

of risk on ratepayers;

(4) Whether the utility could have obtained additional protections for ratepayers. and would

these additional protections resulted in the incurrence of additional costs;

(5) Whether insurance was available. and if it was. what was the associated cost; and

(6) Whether the contract was with an affiliate.

Staffdetermined that a regulatory gap exists for projects that do not necessarily fall under the 1983

General Order. the MBM Order. or the 1982 General Order — projects such as major repairs, renovations.

replacements and life extension activities that do not add capacity and do not exceed 10% of a utility's

rate base (“major maintenance projects"). Such an example is the large Waterford 3 Steam Generators

replacement project. for which ELL sought certication; however. in that proceeding. Staff determined

that the project was essentially plant maintenance and did not fall under the 1983 General Order.‘‘ Staffs

witness in Docket No. U-30670 also testified that there was no basis for Commission pre-approval ofthe

project or the related construction contracts under the Commissions 1982 General Order as that order is

merely a reporting requirements For projects falling in this regulatory gap. both the project and the

associated utility contracts may not be disclosed to the Commission. the Staff. or the public. unless or until

the utility makes a rate filing associated with the project. Consistent with Staffs witness testimony in

Docket No. 11-30670. Staff did not assert that such major maintenance projects require certification. but

4 Direct Testimony of Matthew Kahal in Docket No. U—30670_ page 14. led September 25. 2008.

5 Id.



Page -5-

Thus. Staffdid not recommend a blanket rule requiring preapprovals for implementation contracts

be adopted. as it determined such preapproval is not in the public interest. The Commission can consider

such preapprovals in a particular case as facts and circumstances dictate. but the regulatory regime should

not require or provide for implementation contract preapprovals as a matter of course. and in most cases.

pre-approvals of such implementation contracts should not be given in advance of project completion.

Staff noted that. in reviewing utility projects after completion. Staff should continue to pay close

attention to the implementation contracts associated with the project and evaluate their terms and

management for prudence. In reviewing the contracts. the following factors should be considered. as

appropriate under the particular facts and circumstances at issue. as well as any other factors deemed

appropriate:

(1) Whether the contract was obtained through a competitive solicitation process;

(2) Whether the contract contains liquidated damages. delay damages. liability. and indemnity


(3) Whether the contract was negotiated in good faith. placing the lowest reasonable amount


(4) Whether the utility could have obtained additional protections for ratepayers. and would


(5) Whether insurance was available. and if it was. what was the associated cost; and

(6) Whether the contract was with an affiliate.

Staffdetermined that a regulatory gap exists for projects that do not necessarily fall under the 1983

General Order. the MBM Order. or the 1982 General Order — projects such as major repairs, renovations.

replacements and life extension activities that do not add capacity and do not exceed 10% of a utility's

rate base (“major maintenance projects"). Such an example is the large Waterford 3 Steam Generators

replacement project. for which ELL sought certication; however. in that proceeding. Staff determined

that the project was essentially plant maintenance and did not fall under the 1983 General Order.‘‘ Staffs

witness in Docket No. U-30670 also testified that there was no basis for Commission pre-approval ofthe

project or the related construction contracts under the Commissions 1982 General Order as that order is

merely a reporting requirements For projects falling in this regulatory gap. both the project and the

associated utility contracts may not be disclosed to the Commission. the Staff. or the public. unless or until

the utility makes a rate filing associated with the project. Consistent with Staffs witness testimony in

Docket No. 11-30670. Staff did not assert that such major maintenance projects require certification. but

4 Direct Testimony of Matthew Kahal in Docket No. U—30670_ page 14. led September 25. 2008.

5 Id.



Page -5-

Staff determined that such projects, and the associated major maintenance contracts. should require notice

to the Commission under the Commission's 1982 General Order.

Staff also found that the threshold for triggering the application of the notice requirements under

the 1982 General Order should be lowered to a more meaningful standard. Lowering the threshold. would

help to close the gap of current projects not falling under the 1982 General Order, the 1983 General Order.

and the MBM Order. The 1982 General Order‘s requirement for a utility to provide notice is currently a

significant sum for all of Louisiana's investor—owned electric utilities. As a practical matter. this threshold

is so high that it rarely, if ever. triggers the 1982 General Order notice requirements. Furthermore. if a

utility is conducting a major capital outlay project that is below the current threshold and is not adding

additional capacity. arguably. the Commission would not be aware until such time as the utility came in

for rate relief. To ensure that utilities provide advance notice of major capital outlay projects to the

Commission. the threshold should be lowered to a more relevant threshold applicable to today's

environment.

ELL. SWEPCO. and Cleco Power raised valid concerns with Staffs proposed one percent (1%)

threshold. To ensure that its recommendation would not encroach upon day-to—day management of the

utilities. Staff recommended that the threshold be lowered to require written notification of "major capital

outlays" that are expected to increase a utility's rate base by more than three percent (3%). This

recommendation is consistent with ELL’s proposed compromise. is a higher threshold than SWEPCO and

Cleco Power indicated they were willing to accept. and would ensure that the Commission receive notice

of any major maintenance project by a utility. Staff therefore recommended the 1982 General Order be

revised to require notice to the Commission for major capital outlay projects that would result in a change

in the utility's rate base by more than three percent (3%). Major capital outlay projects. include but are

not necessarily limited to major repairs. renovations. and replacement projects by a utility. Furthermore.

Staff also recommended that there be an exemption from the 1982 General Order for storm recovery

situations.

This notice under the 1982 General Order is not intended to replace a prudence determination for

inclusion of such costs in rate base. Should a utility seek to recover costs of such major maintenance

projects from ratepayers. the utility would seek Commission approval at the appropriate time in a docketed

proceeding. Commission analysis of that application would include a prudence determination on the

project. including any implementation contracts associated therewith. This would be a docketed



Page -6-

Staff determined that such projects, and the associated major maintenance contracts. should require notice

to the Commission under the Commission's 1982 General Order.

Staff also found that the threshold for triggering the application of the notice requirements under

the 1982 General Order should be lowered to a more meaningful standard. Lowering the threshold. would

help to close the gap of current projects not falling under the 1982 General Order, the 1983 General Order.

and the MBM Order. The 1982 General Order‘s requirement for a utility to provide notice is currently a

significant sum for all of Louisiana's investor—owned electric utilities. As a practical matter. this threshold

is so high that it rarely, if ever. triggers the 1982 General Order notice requirements. Furthermore. if a

utility is conducting a major capital outlay project that is below the current threshold and is not adding

additional capacity. arguably. the Commission would not be aware until such time as the utility came in

for rate relief. To ensure that utilities provide advance notice of major capital outlay projects to the

Commission. the threshold should be lowered to a more relevant threshold applicable to today's

environment.

ELL. SWEPCO. and Cleco Power raised valid concerns with Staffs proposed one percent (1%)

threshold. To ensure that its recommendation would not encroach upon day-to—day management of the

utilities. Staff recommended that the threshold be lowered to require written notification of "major capital

outlays" that are expected to increase a utility's rate base by more than three percent (3%). This

recommendation is consistent with ELL’s proposed compromise. is a higher threshold than SWEPCO and

Cleco Power indicated they were willing to accept. and would ensure that the Commission receive notice

of any major maintenance project by a utility. Staff therefore recommended the 1982 General Order be

revised to require notice to the Commission for major capital outlay projects that would result in a change

in the utility's rate base by more than three percent (3%). Major capital outlay projects. include but are

not necessarily limited to major repairs. renovations. and replacement projects by a utility. Furthermore.

Staff also recommended that there be an exemption from the 1982 General Order for storm recovery

situations.

This notice under the 1982 General Order is not intended to replace a prudence determination for

inclusion of such costs in rate base. Should a utility seek to recover costs of such major maintenance

projects from ratepayers. the utility would seek Commission approval at the appropriate time in a docketed

proceeding. Commission analysis of that application would include a prudence determination on the

project. including any implementation contracts associated therewith. This would be a docketed



Page -6-

proceeding in which the general public could intervene. participate. and advocate positions regarding the

project costs.

Consistent with the review and analysis described above. Staff recommended that the existing

regulatory paradigm provides optimum review of implementation contracts. and those rules should not be

modified to provide for preapproval of implementation contracts. However. Staff recommended that

utilities continue to file contracts with lings made under the 1983 General Order, the MBM Order. and

the 1982 General Order. as amended and superseded by this proceeding. to the extent applicable. and that

the Commission continue the practice of reviewing implementation contacts for prudence on an after-the-

fact basis. considering the factors outlined above. Further. Staff recommended that the 1982 General

Order be modified to lower the current 10% of rate base threshold for requiring notification of major

capital outlay projects. to 3% of rate base as follows:

All electric utility companies subject to the jurisdiction of this Commission shall

notify this Commission in writing of the fact that a major capital outlay is being

contemplated prior to the letting of contract and expenditure of funds other than

for feasibility studies. For purposes of this Order. a "major capital outlay" shall

be one in which it is reasonably anticipated that the utility's rate base. exclusive

of retirements. will be increased by a factor in excess of10% 3%. In any event,

all new generating plants. and any new transmission facilities which meet the

above rate base criterion, shall be so disclosed prior to the letting of construction

contracts and the expenditures of funds for construction. Prior notice is not

required when an electric utility must enter into a contract for storm recovery or

emergency repairs‘ however, notice should be provided to the Commission as

soon as possible after the electric utility has entered into such a contract.

Commission Consideration

This matter was taken up at the Commissions May 15. 2019 Business and Executive Session. On

motion of Commissioner Skrmetta. seconded by Commissioner Greene. and unanimously adopted. the

Commission voted to accept Staff s Report and Recommendation ofthe Final Rule as filed into the record

on April 5. 2019.

IT IS THEREFORE ORDERED THAT:

(1) Electric Utilities shall continue to file construction. engineering. and procurement contracts with

lings made under the 1983 General Order. the MBM Order. and this Order. to the extent

applicable;

(2) Commission and Staff shall continue the ractice of reviewin im lementation contracts for P g P

prudence on an after-the-fact basis. considering the following factors. when applicable and other

such factors as may be appropriate:



Page -7-

proceeding in which the general public could intervene. participate. and advocate positions regarding the

project costs.

Consistent with the review and analysis described above. Staff recommended that the existing

regulatory paradigm provides optimum review of implementation contracts. and those rules should not be

modified to provide for preapproval of implementation contracts. However. Staff recommended that

utilities continue to file contracts with lings made under the 1983 General Order, the MBM Order. and

the 1982 General Order. as amended and superseded by this proceeding. to the extent applicable. and that

the Commission continue the practice of reviewing implementation contacts for prudence on an after-the-

fact basis. considering the factors outlined above. Further. Staff recommended that the 1982 General

Order be modified to lower the current 10% of rate base threshold for requiring notification of major

capital outlay projects. to 3% of rate base as follows:

All electric utility companies subject to the jurisdiction of this Commission shall

notify this Commission in writing of the fact that a major capital outlay is being

contemplated prior to the letting of contract and expenditure of funds other than

for feasibility studies. For purposes of this Order. a "major capital outlay" shall

be one in which it is reasonably anticipated that the utility's rate base. exclusive

of retirements. will be increased by a factor in excess of10% 3%. In any event,

all new generating plants. and any new transmission facilities which meet the

above rate base criterion, shall be so disclosed prior to the letting of construction

contracts and the expenditures of funds for construction. Prior notice is not

required when an electric utility must enter into a contract for storm recovery or

emergency repairs‘ however, notice should be provided to the Commission as

soon as possible after the electric utility has entered into such a contract.

Commission Consideration

This matter was taken up at the Commissions May 15. 2019 Business and Executive Session. On

motion of Commissioner Skrmetta. seconded by Commissioner Greene. and unanimously adopted. the

Commission voted to accept Staff s Report and Recommendation ofthe Final Rule as filed into the record

on April 5. 2019.

IT IS THEREFORE ORDERED THAT:

(1) Electric Utilities shall continue to file construction. engineering. and procurement contracts with

lings made under the 1983 General Order. the MBM Order. and this Order. to the extent

applicable;

(2) Commission and Staff shall continue the ractice of reviewin im lementation contracts for P g P

prudence on an after-the-fact basis. considering the following factors. when applicable and other

such factors as may be appropriate:



Page -7-

a. Whether the contract was obtained through a competitive solicitation process;

b. Whether the contract contains liquidated damages. delay damages. liability. and indemnity


c. Whether the contract was negotiated in good faith. placing the lowest reasonable amount


d. Whether the utility could have obtained additional protections for ratepayers, and would


e. Whether insurance was available. and if it was. what was the associated cost; and

f. Whether the contract was with an affiliate; and

(3) All electric utility companies subject to the jurisdiction of this Commission shall notify this

Commission in writing of the fact that a major capital outlay is being contemplated prior to the

letting of contract and expenditure of funds other than for feasibility studies. For purposes of this

Order. a "major capital outlay" shall be one in which it is reasonably anticipated that the utility's rate base. exclusive of retirements. will be increased by a factor in excess of 3%. In any event. all

new generating plants. and any new transmission facilities which meet the above rate base

criterion. shall be so disclosed prior to the letting of construction contracts and the expenditures of

funds for construction. Prior notice is not required when an electric utility must enter into a

contract for storm recovery or emergency repairs; however. notice should be provided to the

Commission as soon as possible after the electric utility has entered into such a contract.

This Order is effective immediately.

BY ORDER OF THE COMMISSION

BATON ROUGE, LOUISIANA

June 7, 2019

/S/ MIKE FRANCIS

DISTRICT IV

CHAIRMAN MIKE FRANCIS

/S/ FOSTER L. CAMPBELL

DISTRICT V

VICE CHAIRMAN FOSTER L. CAMPBELL

/S/ LAMBER T C. BOISSIERE

DISTRICT III

COMMISSIONER LAMBERT C. BOISSIERE, III

/S; ERIC F. SKRMETTA

//DISTRICT 1

COMMISSIONER ERIC F. SKRMETTA

RANDON M. FR

SECRETARY

/S/CRAIG GREENE

DISTRICT II

COMMISSIONER CRAIG GREENE



Page -8-

a. Whether the contract was obtained through a competitive solicitation process;

b. Whether the contract contains liquidated damages. delay damages. liability. and indemnity


c. Whether the contract was negotiated in good faith. placing the lowest reasonable amount


d. Whether the utility could have obtained additional protections for ratepayers, and would


e. Whether insurance was available. and if it was. what was the associated cost; and

f. Whether the contract was with an affiliate; and

(3) All electric utility companies subject to the jurisdiction of this Commission shall notify this

Commission in writing of the fact that a major capital outlay is being contemplated prior to the

letting of contract and expenditure of funds other than for feasibility studies. For purposes of this

Order. a "major capital outlay" shall be one in which it is reasonably anticipated that the utility's rate base. exclusive of retirements. will be increased by a factor in excess of 3%. In any event. all

new generating plants. and any new transmission facilities which meet the above rate base

criterion. shall be so disclosed prior to the letting of construction contracts and the expenditures of

funds for construction. Prior notice is not required when an electric utility must enter into a

contract for storm recovery or emergency repairs; however. notice should be provided to the

Commission as soon as possible after the electric utility has entered into such a contract.

This Order is effective immediately.

BY ORDER OF THE COMMISSION

BATON ROUGE, LOUISIANA

June 7, 2019

/S/ MIKE FRANCIS

DISTRICT IV

CHAIRMAN MIKE FRANCIS

/S/ FOSTER L. CAMPBELL

DISTRICT V

VICE CHAIRMAN FOSTER L. CAMPBELL

/S/ LAMBER T C. BOISSIERE

DISTRICT III

COMMISSIONER LAMBERT C. BOISSIERE, III

/S; ERIC F. SKRMETTA

//DISTRICT 1

COMMISSIONER ERIC F. SKRMETTA

RANDON M. FR

SECRETARY

/S/CRAIG GREENE

DISTRICT II

COMMISSIONER CRAIG GREENE



Page -8-

COMMISSION, Order 6-7-2019 R-34246.pdfDocket No. R-34246, In re: Rulemaking to consider the...

Documents

Transcript of COMMISSION, Order 6-7-2019 R-34246.pdfDocket No. R-34246, In re: Rulemaking to consider the...