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Increased Operating Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster4019-DR-NC
ApplicantCape Hatteras Electric Membership Corporation
Appeal TypeSecond
PA ID#000-U12QY-00
PW ID#1619
Date Signed2014-03-12T00:00:00

Citation:  FEMA-4019-DR-NC, Cape Hatteras Electric Membership Corporation, Increased Operating Costs, Project Worksheet (PW) 1619

Cross-Reference:  Increased Operating Costs

Summary:   On August 2, 2011, high winds and ocean overwash from Pamlico Sound resulting from Hurricane Irene caused the failure of the incoming transmission line at Oregon Inlet Substation, the normal source of Cape Hatteras Electric Membership Corporation’s (Applicant) transmission and distribution system.  During the power outages, the Applicant used five 3.2 megawatt generators and two 2.0 megawatt generators to supply power to Cape Hatteras Island. The North Carolina Electric Membership Corporation loaned the 3.2 megawatt generators to the Applicant and, the Applicant rented the 2.0 megawatt generators from an equipment supplier.  FEMA prepared PW 1619 to fund the differential cost of the normally purchased power and the power obtained from the five loaned generators and the two rented generators.  The total cost claimed by the Applicant was $587,188.  FEMA determined the PW was ineligible, because the costs of using the generators amounted to increased operating costs.  The Applicant submitted a first appeal arguing that the generator usage was essential to response and recovery efforts and explaining the difficulty of the repairs, which were addressed in another PW.  The FEMA Region IV Regional Administrator denied the first appeal, explaining that the cost of obtaining power from an alternate source is generally not eligible, with very few exceptions.  The Applicant submitted a second appeal, reiterating the emergency nature of the Applicant’s situation and stating that the purchase of power was not truly the cost of obtaining power from an alternate source since that Applicant does not own the facilities from which the power was purchased.  The Applicant contends that the use of its generators limited the need for elaborate electrical logistics on the part of the island's first responders, thus mitigating emergency response costs. 

Issues:   Is the cost of obtaining power from an alternate source eligible?

Findings:  No.

Rationale:  Public Assistance Guide (FEMA 322), pages 54-55, 85; Public Assistance Policy Digest (FEMA 321), page 135. 

Appeal Letter

March 12, 2014

Michael Sprayberry
Director
North Carolina Division of Emergency Management
4713 Mail Service Center
Raleigh, North Carolina 27699-4713

Re: Second Appeal – Cape Hatteras Electric Membership Corporation, PA ID 000-U12QY-00, Increased Operating Costs, FEMA-4019-DR-NC, Project Worksheet (PW) 1619

Dear Mr. Sprayberry:

This is in response to a letter from your office dated July 26, 2013, which transmitted the referenced second appeal on behalf of the Cape Hatteras Electric Membership Corporation (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $587,188 for obtaining power from an alternate source.

As explained in the enclosed analysis, I have determined that the costs requested by the Applicant are ineligible increased operating costs associated with obtaining power from an alternate source.  Therefore, I am denying the appeal. 

Please inform the Applicant of my decision.  This determination constitutes the final decision on this matter pursuant to 44 CFR § 206.206, Appeals.

Sincerely,

/s/

Brad Kieserman
Assistant Administrator
Recovery Directorate

Enclosure

cc:  Major P. May
      Regional Administrator
      FEMA Region IV

 

Appeal Analysis

Background

On August 2, 2011, high winds and ocean overwash from Pamlico Sound resulting from Hurricane Irene caused the failure of the incoming transmission line at Oregon Inlet Substation, the normal source of Cape Hatteras Electric Membership Corporation’s (Applicant) transmission and distribution system.  During the power outages, the Applicant used five 3.2 megawatt generators and two 2.0 megawatt generators to supply power to Hatteras Island. The North Carolina Electric Membership Corporation loaned the 3.2 megawatt generators to the Applicant and, the Applicant rented the 2.0 megawatt generators from an equipment supplier.  FEMA prepared Project Worksheet (PW) 1619 to fund the differential cost of the normally purchased power and the power obtained from the five loaned generators from August 28, 2011, to September 5, 2011, and the two rented generators from August 29, 2011, to September 5, 2011.  Also included was the differential cost of power from November 6, 2011, to November 11, 2011, while power was lost during the completion of permanent repairs at the Pea Island Wildlife Area breach.  The total cost claimed by the Applicant was $587,188.  FEMA determined the PW was ineligible on April 4, 2012, because these generator costs amounted to increased operating costs. 

First Appeal

The Applicant submitted a first appeal in a letter dated June 10, 2012, arguing that the generator usage was essential to both response and recovery efforts and critical to the complex repair efforts, which were addressed in another PW.  The FEMA Region IV Regional Administrator denied the first appeal on May 9, 2013, explaining that the cost of obtaining power from an alternate source is generally not eligible, with very few exceptions.  FEMA’s response further detailed that the Applicant did not make clear which first responders' critical facilities had commercial power restored during the time period. In addition, the Applicant did not provide information such as daily logs, completed work orders, or any other information that would readily identify productive efforts in restoring commercial power throughout its jurisdiction.

Second Appeal

The Applicant submitted a second appeal in a letter dated July 25, 2013, reiterating the emergency nature of the Applicant’s situation.  The Applicant is aware of the City of Larned second appeal[1] decision which upheld that the cost of obtaining power from an alternate source is not eligible for reimbursement but states that the Applicant’s purchase of power was not truly the cost of obtaining power from an alternate source since that Applicant does not own the facilities from which the power was purchased.  The Applicant contends that the use of its generators limited the need for elaborate electrical logistics on the part of the island's first responders, thus mitigating emergency response costs.  The Applicant focuses on the mandatory evacuation order in place prior to and during the storm, stating that the order reduced the amount of power needed for the island to only that which was necessary to support emergency response activities and the health and safety of emergency responders and non-evacuated residents. 

In an attempt to further distinguish itself from Larned, the Applicant has provided a detailed summary of the Applicant’s emergency situation resulting from the disaster and a listing of some general health and welfare activities, but has not provided detailed documentation demonstrating actual emergency protective measures taken and the costs that were associated with such measures. 

Discussion

The costs of operating a facility or providing a service may increase due to or after a disaster. With few exceptions, these costs are not eligible.[2] As specifically delineated in FEMA policy,[3] the cost of obtaining power from alternate sources is considered an increased operating expense and is generally not eligible.[4]  Noting such, policy provides an exception for “reasonable short-term additional costs to an applicant that are directly related to accomplishing specific emergency health and safety tasks as part of eligible emergency protective measures may be eligible.”[5]  To be eligible, these short-term costs must be clearly delineated, documented, and more detailed than just for general health and welfare. The City of Larned second appeal[6] referenced by the Applicant involved the same distinction.  Like this case, that appeal found that the cost of obtaining power from an alternate source is not eligible for reimbursement and is governed by the same public assistance policy cite above.[7]

In an attempt to distinguish itself from Larned, the Applicant provided a detailed summary of its emergency situation and lists some of the general health and welfare activities supported by its actions.  However, the Applicant does not provide detailed documentation demonstrating actual emergency protective measures taken or the costs associated with such measures.  The Applicant states that power was provided by the fixed and temporary generators at the substation to the medical center, sheriff’s office, EMS stations, water plants, a Ham radio station, a community center serving as a shelter, ferry terminals, cooperative facilities, and fire departments, but also to non-evacuated residents and various entities such as hotels, which are not eligible.  If the Applicant delineated how much power was used by each critical facility and what specific emergency protective measures were taken at each, the cost of providing power to those facilities might be eligible. For example, if one of the temporary, non-fixed generators was taken to the fire station and used solely by the fire station while that fire station was engaged in eligible emergency protective measures, and the Applicant was able to document such activity, then the costs associated with that activity might be eligible.

The Applicant also argues that because it does not own the generators from which the alternate power was obtained, the Applicant is not obtaining power from an alternate source.  However, the Applicant used the generators to provide power to Cape Hatteras Island and received revenue for the power provided.  The revenue collected for the service did not cover the Applicant’s cost of providing the service; therefore, the additional cost represents an increased operating cost.

Conclusion

The cost associated with obtaining power from an alternate source is generally not eligible for reimbursement under the Public Assistance program, because it is considered an increased operating cost.  The Applicant has not provided sufficient documentation to demonstrate that the power usage supported by the generators was directly related to accomplishing eligible emergency protective measures; therefore, those increased operating costs are not eligible.


[1] See FEMA-DR-1699-KS, City of Larned, (March 11, 2010).  See also FEMA-DR-1822-MO, City of Malden, (March 22, 2012).

[2]  See FEMA 322, Public Assistance Guide (June 2007), at 54-55; FEMA 321 Public Assistance Policy Digest (January 2008) at 135.

[3]  Id.

[4]  Id.

[5]  Id.

[6] See FEMA-DR-1699-KS, City of Larned, (March 11, 2010).  See also FEMA-DR-1822-MO, City of Malden, (March 22, 2012).

[7] See FEMA 322, Public Assistance Guide (June 2007), at 55; FEMA 321 Public Assistance Policy Digest (January 2008) at 135.