Duke Energy Florida, LLC v. Gary F. Clark, etc. ( 2022 )


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  •           Supreme Court of Florida
    ____________
    No. SC20-1601
    ____________
    DUKE ENERGY FLORIDA, LLC,
    Appellant,
    vs.
    GARY F. CLARK, etc., et al.,
    Appellees.
    July 7, 2022
    LAWSON, J.
    Duke Energy Florida, LLC (DEF), appeals a final order of the
    Florida Public Service Commission (Commission) denying DEF’s
    request to recover approximately $16 million from its customers for
    costs DEF incurred to meet its customers’ demand for electricity
    when a 420-megawatt (MW) steam-powered generating unit went
    offline at its Bartow plant in 2017 and was placed back in service at
    a derated capacity of 380 MW. We have jurisdiction, see art. V,
    § 3(b)(2), Fla. Const.; § 350.128(1), Fla. Stat. (2020), and for the
    reasons explained below reverse the Commission’s order and
    remand for entry of an order awarding the costs.
    I. Background
    A. Summary of Dispute Below
    To prevail below and recover the $16 million in costs, DEF had
    to prove by a preponderance of the evidence that its actions and
    decisions leading up to and in restoring the steam unit to service
    were “prudent.” See § 366.06(1), Fla. Stat. (2021) (requiring that
    costs be “prudently invested by the public utility company”); see
    also Sierra Club v. Brown, 
    243 So. 3d 903
    , 908 (Fla. 2018) (“It is
    from [section 366.06(1)] that the Commission derives its prudence
    standard, which it applies to ensure that the recovered costs result
    from prudent investments.”). The “standard for determining
    prudence is . . . ‘what a reasonable utility manager would have
    done, in light of the conditions and circumstances that were known,
    or should [have] been known, at the time the decision was made.’ ”
    S. All. for Clean Energy v. Graham, 
    113 So. 3d 742
    , 750 (Fla. 2013)
    (quoting In re Nuclear Cost Recovery Clause, Docket No. 110009-EI,
    Order No. PSC-11-0547-FOF-EI, 
    2011 WL 5904236
    , at 26 (Fla. Pub.
    Serv. Comm’n, 2011)).
    -2-
    The Commission referred critical factual issues to the Division
    of Administrative Hearings for a closed hearing before an
    administrative law judge (ALJ) after concluding that trying these
    issues would reveal confidential information that could not be
    disclosed and discussed in the Commission’s open hearing. After
    the closed hearing, the ALJ entered a recommended order denying
    cost recovery, which the Commission adopted in the final order on
    appeal.
    i. The plant and its operational history
    The Bartow plant consists of four natural-gas-fueled
    combustion turbines (CT) and a much larger steam turbine. Each
    of the four CTs compress ambient air, mix it with natural gas, and
    ignite the mixture to produce a hot gas. The heated air-fuel mixture
    expands through the CT blades, causing each CT to rotate its shaft.
    The spinning shaft of each CT independently drives its own
    generator that produces electricity. Then, hot waste gas that
    exhausts from each CT is used to create steam that similarly
    rotates the larger steam turbine, thereby powering the larger fifth
    electrical generator.
    -3-
    When constructing the plant, DEF purchased an “after-
    market” steam turbine that Mitsubishi had originally designed for
    another plant, where it was intended to run on steam created from
    the exhaust of three CTs with a steam supply capable of generating
    420 MW, which Mitsubishi had also listed as the nameplate
    capacity of the steam turbine at the time of manufacture.
    When the plant was placed online in 2009, however, DEF
    operated the steam unit using steam produced from the waste heat
    from all four CTs, producing electricity from the attached generator
    well above the steam turbine’s nameplate capacity. Because the
    steam-powered generator produced electricity using waste heat,
    operating this portion of the plant in this manner would have been
    cost-effective.
    However, during a routine inspection in March 2012, DEF
    discovered unusual wear or damage to the steam turbine’s blades,
    which required DEF to replace them. The parties refer to this initial
    period of operation, from June 2009 to March 2012, as Period 1.
    Although the steam turbine was not routinely operated above 420
    MW after Period 1, the replacement blades suffered similar damage
    and had to be replaced again in 2014, twice in 2016, and again in
    -4-
    2017 during the forced outage at issue in this case. The parties
    mark the operational time between each blade replacement as a
    separate period: Period 2 starts in April 2012 and ends in August
    2014; Period 3 starts in December 2014 and ends in April 2016;
    Period 4 starts in May 2016 and ends in October 2016; and, finally,
    Period 5 starts in December 2016 and ends in February 2017.
    In 2017, at the end of Period 5, DEF decided against
    reinstalling any of the previous blade types—as they all experienced
    damage—and installed a pressure plate which derated the steam
    unit from 420 MW to 380 MW. This caused DEF to incur the
    replacement power costs that it now seeks to recover. The pressure
    plate remained in the steam turbine until Mitsubishi installed
    redesigned turbine blades in December 2019. The blades installed
    in 2019 have apparently been performing normally, without
    unusual wear or damage.
    ii. Factual issues tried before the ALJ
    The evidence presented to the ALJ primarily focused on
    whether the steam turbine’s 420 MW nameplate capacity
    constituted an operational limit of the unit, such that DEF acted
    imprudently in Period 1 (from June 2009 to March 2012) by
    -5-
    regularly operating the steam turbine above its nameplate capacity
    without first consulting with Mitsubishi.
    DEF offered testimony from its Vice President of Generation,
    Jeffrey Swartz, who testified that the nameplate capacity is an
    estimate of ultimate generator output and not an operational
    limitation on the steam turbine. He explained that the operational
    parameters for the steam turbine were supplied by Mitsubishi and
    were expressed in permissible pressure and temperature
    combinations, or limitations, which DEF did not exceed. 1 Mr.
    Swartz further testified that Mitsubishi should have designed all
    components of the steam turbine to operate without undue wear or
    damage so long as the unit was being operated within the heat and
    pressure parameters Mitsubishi provided to DEF when the steam
    unit was being placed into service. If this were true, it would have
    been prudent for DEF to operate its Bartow plant to regularly
    1. DEF’s expert explained that the utility measures the heat
    and pressure of the steam entering the turbine, with these factors
    determining the mass flow of steam entering the turbine. Increased
    heat and pressure mean an increased steam flow into the turbine
    and a higher energy output to the generator, resulting in a higher
    electrical output from the generator.
    -6-
    produce extra low-cost electricity from the generator despite the
    steam turbine’s 420-MW nameplate capacity.2
    By contrast, the Office of Public Counsel (OPC) offered
    testimony from a retained expert, Richard Polich, who testified that
    420 MW represented the design limit of the steam turbine such that
    DEF acted imprudently by operating the steam turbine using
    enough heat and pressure to produce electricity above that limit
    without first consulting with Mitsubishi, which would likely have
    conducted tests to determine whether the steam turbine could
    safely operate regularly above its 420-MW operational limit. Indeed,
    the DEF-Mitsubishi contract identified 420 MW as the steam
    turbine’s maximum electrical output. 3
    OPC’s expert also testified that DEF damaged the blades by
    consistently operating the steam turbine beyond its nameplate
    2. Consistent with DEF’s theory, its expert explained that
    Mitsubishi accomplished the “derating” by reducing the heat and
    pressure operating parameters from those originally provided in the
    contract documents. Mitsubishi’s lowering of the heat and pressure
    parameters resulted in a lower electrical output from the attached
    generator.
    3. The 420.07 MW “MPS Net Steam Turbine Maximum
    Electrical Output” is listed under the heading “Liquidated Damage
    Performance Guarantees.”
    -7-
    capacity in Period 1. 4 Mr. Polich did acknowledge, however, that it
    was possible that the Period 1 blade damage could have occurred
    when the turbine was operating below its nameplate capacity; that
    DEF acted prudently during Periods 2 through 5 by operating the
    steam turbine in consultation with Mitsubishi and within its
    nameplate capacity; and that blade damage occurred even when
    DEF was prudently operating the turbine during Periods 2 through
    5.
    As to the issue of whether 420 MW was an operational limit of
    the steam turbine, the ALJ found:
    The greater weight of the evidence establishes that
    the Mitsubishi steam turbine was designed to operate at
    420 MW of output and that 420 MW was an operational
    limitation of the turbine.
    Because it was undisputed that Mitsubishi prudently operated
    the steam turbine at or below its 420-MW nameplate capacity after
    the 2012 outage at the end of Period 1, DEF alternatively argued
    that it could only be denied cost recovery if its imprudent operation
    4. Reports from Mitsubishi, offered into evidence by OPC, can
    also be read to support similar conclusions: that 420 MW
    represented an operational limit on the steam turbine and that
    DEF’s operation above this limit in Period 1 caused excessive
    vibration that damaged the steam turbine’s blades.
    -8-
    in Period 1 caused the 2017 forced outage and derating at the end
    of Period 5.5 As to this second critical factual issue, there was no
    evidence that DEF’s pre-2012 operation of the unit contributed to
    early blade wear or damage in any period after Period 1. To the
    contrary, extensive testing revealed no evidence of damage to any
    turbine component except the blades, which were replaced.
    Moreover, even OPC’s witness, Mr. Polich, repeatedly confirmed
    during cross-examination that he did not contend “that the damage
    that occurred in the spring of 2017 . . . was caused by DEF’s
    operation of the unit above 420 megawatts [prior to 2012].” 6
    Rather, Mr. Polich contended that DEF should be responsible for
    the 2017 forced outage and derating based upon his expert opinion
    that the original blades would have never been damaged and,
    therefore, would have still been in operation in 2017 but for DEF’s
    5. DEF also argued that its subsequent operation of the steam
    turbine to produce less than 420 MW of power, with similar blade
    damage, demonstrated that it was not its operation of the unit in
    Period 1 that caused the damage but that the problem was with the
    blades themselves.
    6. Mr. Polich also confirmed that his review did not reveal any
    indication of damage to the turbine during Period 1 that could
    cause damage to the blades during Periods 2 through 5.
    -9-
    decision to regularly operate the turbine to produce more than 420
    MW of power prior to 2012. Accordingly, he reasoned that the 2017
    forced outage would not have occurred but for the blade failure in
    2012 such that DEF should be denied cost recovery for its pre-2012
    imprudent operation of the steam turbine irrespective of the fact
    that DEF operated the plant prudently after 2012. The ALJ rejected
    this argument as “speculative,” and instead declared as a matter of
    law that
    [i]f the imprudent operation in Period 1 did not cause the
    Period 5 outage, then the imprudent operation cannot be
    a basis for disallowance of the replacement power costs
    at issue.
    However, the ALJ made no designated factual finding
    regarding causation and instead discussed the evidence in a series
    of numbered “legal conclusions” that predominantly discussed the
    facts of the case and evidence presented. In this discussion, the
    ALJ concluded that DEF had “failed to satisfy its burden of showing
    its actions in operating the steam turbine in Period 1 did not cause
    or contribute significantly to the vibrations that repeatedly damaged
    the . . . blades”; that the operation of the steam turbine in excess of
    420 MW likely “cause[d] or contribute[d] significantly” to “vibrations
    - 10 -
    that repeatedly damaged the . . . blades” after 2012; and that the
    derating “was a consequence of DEF’s failure to prudently operate
    the steam turbine [between 2009 and 2012].” Although these
    statements read like factual findings, they were not so designated
    and were apparently intended as analytical support for the ALJ’s
    conclusion that DEF did not meet its burden of proof.
    iii. Additional Proceedings Before the Commission
    As required by Florida’s Administrative Procedure Act, chapter
    120, Florida Statutes (2021), the Commission allowed DEF “15 days
    in which to submit written exceptions to the recommended order.”
    § 120.57(1)(k), Fla. Stat. (2021). Section 120.57(1)(k) also required
    the Commission’s final order to “include an explicit ruling on each
    exception,” with a caveat that an agency “need not rule on an
    exception that does not clearly identify the disputed portion of the
    recommended order by page number or paragraph, that does not
    identify the legal basis for the exception, or that does not include
    appropriate and specific citations to the record.” Id.
    DEF did timely file exceptions to the recommended order and
    in its filing accurately summarized section 120.57(1)(l), Florida
    Statutes, which authorizes an agency to reject or modify challenged
    - 11 -
    findings of fact if after review of the entire record it determines that
    “the findings of fact were not based upon competent substantial
    evidence or that the proceedings on which the findings were based
    did not comply with essential requirements of law.” Id. However,
    DEF did not take exception to the ALJ’s numbered paragraphs
    containing factual findings, instead explaining:
    While DEF takes exception to multiple findings of fact,
    due to the standard of review discussed above, DEF will
    not relitigate those points here nor ask this Commission
    to reweigh evidence.
    DEF did challenge the twelve numbered paragraphs
    denominated as “conclusions of law,” explaining that they should be
    rejected “both because they are inconsistent with the
    [Commission’s] overriding policy considerations regarding public
    utilities in Florida and because the ALJ has improperly interpreted
    the facts when making those conclusions of law.”
    iv. The Commission’s Final Order
    The Commission rejected DEF’s exceptions in a final order
    that summarized its standard of review under section 120.57,
    Florida Statutes. The statute provides that an agency may only
    reject or modify an ALJ’s findings of fact if, after review of the entire
    - 12 -
    record, the agency determines and states with particularity that the
    findings of fact were not based on competent substantial evidence
    or that the proceedings on which the findings were based did not
    comply with the essential requirement of the law. See
    § 120.57(1)(l), Fla. Stat. With respect to conclusions of law, the
    Commission’s order correctly states that an agency may only reject
    or modify a conclusion of law if it makes a finding that its
    conclusion is more reasonable than the one rejected or modified
    and then states with particularity its reasons for so concluding. Id.
    Applying this standard to DEF’s exceptions, the Commission
    correctly summarized that DEF had not “raised exceptions to any of
    the 102 factual findings made by the ALJ in his Recommended
    Order,” and that “failure to file exceptions to findings of fact
    constitutes a waiver of the right to object to those facts on appeal.”
    The Commission ruled that by waiving any challenge to the ALJ’s
    factual finding that the Bartow plant steam turbine 420-MW
    nameplate rating constituted an operating limit for the steam
    turbine, DEF “waived” the ability to contest the conclusion of law
    that depended upon this finding. The Commission also noted that
    even if DEF had taken exception to the ALJ’s central factual finding,
    - 13 -
    it was clear that “the ALJ considered and rejected witness Swartz’s
    arguments that DEF did not act imprudently by operating the
    steam turbine for extended periods of time at more than 420 MW.”
    Ultimately, the Commission adopted the ALJ’s recommended
    order, concluding that DEF had “failed to show that the ALJ’s
    conclusions are not reasonable or that the facts from which his
    conclusions are drawn are not based on competent substantial
    evidence of record.” The Commission was also careful to point out
    that the case was “highly fact specific and for that reason will have
    limited precedential value,” explaining that “[t]here is literally no
    other plant in DEF’s system that has four combustion turbines
    connected to one steam turbine nor any other plant in [its] system
    that uses an after-market steam turbine designed for a 3x1
    configuration in a 4x1 configuration.” The Commission further
    explained that nothing in the ALJ’s recommended order or in its
    decision “in any way establishes, indicates, implies or imputes any
    going-forward protocol for the operation of steam turbines in DEF’s
    fleet . . . [or] . . . translate[s] into a general policy decision by the
    Commission that under any set of circumstances it is imprudent to
    run a unit above its nameplate capacity.”
    - 14 -
    B. This Appeal
    DEF timely appealed the Commission’s final order, arguing
    that we should reverse and remand for entry of a final order
    determining that DEF is entitled to cost recovery because the
    Commission and ALJ erred in finding imprudence by DEF that
    caused the Bartow plant’s February 2017 outage. We agree and
    reverse.
    II. Analysis
    The ALJ’s order, adopted by the Commission, concluded that
    DEF had proven “by a preponderance of the evidence that its
    actions during Periods 2 through 5 were prudent.” The ALJ did find
    that DEF acted imprudently during Period 1, but also concluded as
    a matter of law that DEF could not be denied cost recovery based
    on its Period 1 imprudent actions unless its Period 1 actions caused
    the Period 5 damage. The Commission adopted this legal
    conclusion.
    Given this posture, we find that the resolution of this appeal
    only requires analysis of DEF’s challenge to the Commission’s
    adoption of the ALJ’s factual discussion regarding causation. The
    Commission rejected DEF’s challenge to the ALJ’s causation
    - 15 -
    discussion, reasoning that the factual findings imbedded in and
    forming the basis for the ALJ’s ultimate causation determination
    were supported by competent, substantial evidence. We disagree.
    The ALJ concluded that DEF’s operation of the steam turbine
    in excess of 420 MW during Period 1 likely “cause[d] or
    contribute[d] significantly” to “vibrations that repeatedly damaged
    the . . . blades” after 2012; that “the preponderance of the evidence
    pointed to DEF’s operation of the steam turbine in Period 1 as the
    most plausible culprit” by “repeatedly damag[ing] the . . . blades”
    such that the derating “was a consequence of DEF’s failure to
    prudently operate the steam turbine” between 2009 and 2012.
    Although neither this Court nor the Commission is legally permitted
    to reweigh evidence, see, e.g., Graham, 
    113 So. 3d at 752
    ; Heifetz v.
    Dep’t of Bus. Regul., 
    475 So. 2d 1277
    , 1281 (Fla. 1st DCA 1985),
    these conclusions, to which DEF filed exceptions, are factually
    contrary to the evidence. See Comm’n on Ethics v. Barker, 
    677 So. 2d 254
    , 257 (Fla. 1996) (“[c]onsider[ing] the exceptions as a whole”
    to determine whether an issue was “sufficiently preserved . . . for
    appellate review”). Not only was there no evidence that operation of
    the steam turbine in Period 1 created, caused, or contributed to
    - 16 -
    “vibrations” in the turbine after Period 1, DEF’s evidence shows that
    extensive testing revealed no damage to any turbine component
    during Period 1 except the blades, which were replaced. Even
    OPC’s expert witness confirmed that his review did not reveal any
    indication of damage to the turbine during Period 1 that could
    cause damage to the blades during Periods 2 through 5.
    Given that the evidence can only support a finding that DEF’s
    Period 1 operation did not cause the Period 5 outage and derating,
    the Period 1 imprudence finding cannot serve as the basis for
    denying cost recovery, as held by the ALJ and the Commission.
    Because DEF did prove that the costs were incurred
    notwithstanding its prudent operation of the plant after Period 1,
    the cost recovery should have been allowed. See Graham, 
    113 So. 3d at 750
    ; § 366.06(1).
    III. Conclusion
    Based on the forgoing, we reverse the Commission’s order and
    remand for entry of an order granting the cost recovery.
    It is so ordered.
    MUÑIZ, C.J., and CANADY, POLSTON, LABARGA, COURIEL, and
    GROSSHANS, JJ., concur.
    - 17 -
    NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION
    AND, IF FILED, DETERMINED.
    An Appeal from the Florida Public Service Commission
    Dianne M. Triplett and Matthew R. Bernier of Duke Energy Florida,
    LLC, Tallahassee, Florida; and Daniel E. Nordby of Shutts & Bowen
    LLP, Tallahassee, Florida, and Alyssa L. Cory of Shutts & Bowen
    LLP, Tampa, Florida,
    for Appellant
    Keith C. Hetrick, General Counsel, Samantha M. Cibula, Attorney
    Supervisor, and Kathryn G.W. Cowdery, Senior Attorney, Florida
    Public Service Commission, Tallahassee, Florida,
    for Appellee Florida Public Service Commission
    Richard Gentry, Public Counsel, Anastacia Pirrello, Associate Public
    Counsel, Charles J. Rehwinkel, Deputy Public Counsel, and Mary
    A. Wessling, Associate Public Counsel, Office of Public Counsel for
    Citizens of the State of Florida, Tallahassee, Florida; and Jon C.
    Moyle Jr. and Karen Putnal of Moyle Law Firm, P.A., for the Florida
    Industrial Power Users Group, Tallahassee, Florida,
    for Appellee Office of Public Counsel and Florida Industrial
    Power Users Group
    - 18 -
    

Document Info

Docket Number: SC20-1601

Filed Date: 7/7/2022

Precedential Status: Precedential

Modified Date: 7/7/2022