p. 1 

# OAR Box 1828 Prepped by Ollie Stewart



### Document

Number: 

# 161 ) ll-K - (B ) -16 0 Docket Number: 

# A-83-2 7

Printed 11/12/2008 11:12:53 AM Sheet 161 of 325P. 2 

### ENERG Y AN D ENVIRONMENTA L ANALYSIS , INC . II-K-CB)-16 0 165 5 NORT H POR T MYE RDRIV EARLINGTON

, VIRGINI A22209 703/528-190

0 Januar y 14 , 198 5 Mr . Rober tShor t Economi c Analysi s Branc h U.S . Environmenta l Protectio nAgenc y Mai l Drop-1 2 Researc hTriangl e Park , N C 2771 1 Subject : EP

AContrac t

NO . 68-02-4202 , Wor k Assignmen t

# 3 Dear Robert : Provision s o f

Ta x Equit y an dFisca l Responsibilit y Ac t o f 198 2 (TEFRA ) hav e no t

ye t bee nincorporate dint o th e after-ta x NP V factor s use di nIFCAM. Th e TEFR Arevision s t o th e Federa l ta x cod e d o no t affec t th e after-ta x NP V factor s use di nIFCA M fo r ne w industria l oil/ga s boilers , bu t the y d o slightl y alte r

th e after-ta x NP

V facto r fo r ne w industria l coa l boile r capita l costs . The curren t

industria l coa l boile r after-ta x NP

V facto r fo r capita l cost s i nIFCA

M i s 0.526 1 (referenc e Tabl e 4-2 , p . 4-1 0 i nDescriptio no f th e Industria l Fue l Choic e Analysi s Model , Septembe r 198 4 draft) . The revise dfactor , whic hincorporate s th e TEFR Aprovisions , i s 0.5583 . Therefore , IFCA

M i s slightl y understatin g th e tota l industria l coa l boile r after-ta x NP

V i nth e fue l choic e analysis . Incorporatio no f thi s revise dfacto r

i nIFCA

M ma y lowe r projecte dcoa l demand(becaus e i t increase s th e tota l coa l after-ta x NPV ) o r i t ma y hav e n o impac t

o nth e projecte dfue l mix , emission s an dannualize dcost s becaus e ther e ma y no t b e an y marginal , knife-edg e fue l choic e decisions . TEFR Arevise dth e Accelerate dCos t Recover y Syste mannua l percentage s fo r

five-yea r

recover y perio dpropert y acquire dafte r 1985 . The ol dvalue s ar e 20 , 32 , 24 , 1 6 an d8 percent . The revise dvalue s ar e 15 , 22 , 21 , 2 1 an d2 1 percent . TEFR Aals o reduce dth e basi s fo r depreciatio nb y 5 0 percen t o f th e amoun t

o f IT C take nwhe

nth e regula r ITC (1 0 percen t

fo r five-yea r

recover y perio dpropert y place di nservic e afte r 1980 ) i s selected . The attache dtabl e present s th e derivatio no f th e revise dafter-ta x NP V facto r fo r ne w industria l coa l boile r capita l expenses . The draf t

Septembe r

198 4 Descriptio no f th e Industria l Fue l Choic e Analysi s Model shoul db e revise dt o acknowledg e thi s omission .

TH/c e cc : Dr . A . W

e h e Sincerely , Ti mHoga n(j

MANAGEMEN

T / ECONOMIC

- / ENGINEERIN

G**- 

### DERIVATIO NO F TH E AFTE R TA X NPV FACTO R FOR COA L BOILE R CAPITA L EXPENSES 3

Yea r 

### l h 2 

### h 3 4 5 6 7 Deprecia tio n

(0.0611 ) (0.0853 ) (0.0776 ) (0.0739 ) (0.0703 ) 

### Expensibl e

constructio n 0.050 0 Depreciabl e

capita l . investmen t ITC 0.450 0 (0.0450 ) 0.450 0 (0.0450 ) Cas hflow f 0.455 0 0.405 0 (0.0611 ) (0.0853 ) (0.0776 ) (0.0739 ) (0.0703 ) Discounte d

cas hflow 9 0.455 0 0.375 0 (0.0524 ) (0.0677 ) (0.0570 ) (0.0503 ) (0.0443 ) 0.558 3

a 

### Tota l capita l cos t i s 1.0 . Onl y85. 5 percen t (10 0 percen t les s expensibl e costs , 1 0 percent , and les s one-hal f o f th e investmen t credit , 4. 5 percent ) o f th e capita l cos t i s assume d t o b e depreciable . Nomina l depreciatio n charge s ar e adjuste d fo r inflatio n t o deriv e annua l rea l depreciatio n credits . Th e annua l recover yfactor s (ARF ) ar e 0.15 , 0.22 , 0.21 , 0.21 , and 0.21 , respectivel y ) - 0. , o r - D./ 2 fo r i = 1-5 . Depreciatio n credit s = (Cl-ta xrate ] xD . fo r i = 1-5 . D i 

### = 0.85 5 xARF^d.OS) 7 

### fo r i = 1-5 . 7

c 

### (l-ta xrate ) x1 0 percen t o f th e tota l capita l cos t = 0. 5 x0. 1 x1. 0 - 0.05 . Tota l capita l cos t les s expensibl e constructio n cost s allocate d evenl y ove r the two-yea r constructio n period , o r (1.0-[0. 1 x1.0])/ 2 = 0.45 . investmen t Ta xCredi t (ITC ) i s 1 0 percen t o f th e depreciabl e capita l cost . Sumo f depreciation , expensibl e construction , depreciabl e capita l invest

men t and ITC . 9 

### Cas hflow^d.OS) 1 

### ' 1


### . Constructio n period . Boile r i s place d i n servic e a t th e beginnin g o f yea r 3 .