The Florida Public Service Commission (PSC) will hold two events on Tuesday, June 5, 2018—a Commission Conference followed by a hearing on Florida Power & Light Company’s Hurricane Matthew recovery costs, including a proposed settlement agreement between the utility and the Office of Public Counsel.
The Commission Conference will begin at 9:30 a.m. Items scheduled for consideration can be found here. Public comment may be taken on any item noticed for public participation.
The Commission Conference is scheduled for the following time and location:
Tuesday, June 5, 2018
Betty Easley Conference Center
Joseph P. Cresse Hearing Room (Room 148)
4075 Esplanade Way
Immediately following the Commission Conference, the Hurricane Matthew hearing will begin. Commissioners will hear testimony and question parties to the case. For further information, a general storm recovery fact/background sheet is below.
The Commission Conference and hearing will be broadcast on the Florida Channel (check your local listing) and is available online at http://www.floridapsc.com/ (look for the “Watch Live Broadcast” icon on the left side of the webpage).
For additional information, visit www.floridapsc.com.
Follow the PSC on Twitter, @floridapsc.
Storm-related cost recovery
Why and how
Florida Public Service Commission
June 1, 2018
The PSC is preparing for hearings on petitions by four of Florida’s five regulated electric utilities to recover their restoration costs for major storms in 2016 and 2017.
A storm restoration cost recovery docket is a legal proceeding, narrowly focused on the utility’s costs resulting from a storm or set of storms. Making storm preparation policy and reviewing storm hardening plans are covered in other proceedings.
What are storm costs?
Only the incremental costs, those above normal costs, are eligible to be recovered in a storm proceeding. Incremental costs are not already covered in the rates utilities are allowed to charge.
The largest storm cost categories typically include replacement materials such as poles, repairs to facilities, added payroll/overtime, contracted crews, travel, housing, and food.
Why utilities are allowed to recover their costs
The US Supreme Court has long held that the Constitution requires governments imposing pricing on monopolies must set rates that will cover costs, plus a fair return on the capital invested.
(That’s comparable to the outcome of free-market pricing – competitive businesses have to set prices they expect to cover all their costs plus a return on investment.)
When major storms occur, prudently incurred restoration expense is a cost of providing service, which the PSC is required to allow the utility to recover.
The beginning of the end of utility storm insurance - 1992
Before Hurricane Andrew, investor owned utilities (IOUs) bought commercial insurance for their transmission and distribution facilities. The insurance was an ordinary cost of doing business, recovered through rates.
After Hurricane Andrew, major event insurance could no longer be bought in sufficient amounts or for a reasonable price.
EXAMPLE: Florida Power & Light had a per occurrence insurance limit of $350 million at $3.5 million in annual premiums. After Hurricane Andrew, the best available insurance was an aggregate limit of $100 million per year with a $23 million annual premium.
In 1993, the Commission ordered a more cost-effective strategy to replace infrastructure insurance:
• Building a storm damage reserve balance adequate to accommodate most storm seasons
• Using an annual accrual to build the storm reserve
• Permitting IOUs to seek recovery of costs that exceed the storm damage reserve balance.
Saving for a rainy day - how a storm reserve works
The reserve balance, accumulated through a small portion of rates, provides a cushion that covers the restoration costs of less severe storms. Reserve funds typically are limited to a maximum amount. When the reserve is exhausted by an extreme storm, or multiple storms, an amount is added to rates to cover the excess costs, and also replenish the reserve.
Quick response, followed by thorough review
To fund storm restoration costs quickly, an IOU may request an interim storm charge added to rates for a specific period based on an estimate, pending a thorough accounting.
The Commission dockets the matter for a formal process to determine actual eligible costs when they are available.
Revenues collected with the interim storm charge are then compared to the total actual amount of storm restoration costs determined to be eligible. Expenses that exceed what the interim charge generated are recovered in rates, or excess interim charge revenues are flowed back to customers.