Case Background
Florida Power & Light Company
(FPL) filed its petition on September 9, 2004. FPL has requested that it be
authorized to establish a regulatory asset for storm damage costs that exceed
the $345 million balance of the Storm Reserve. The costs to repair and restore
FPL’s system for the damages caused by Hurricane Charley and Hurricane Frances
are expected to exceed the reserve balance. FPL is also seeking current
authorization for the future recovery of reasonable and prudently incurred
storm damage costs in excess of its Storm Reserve.
The Commission
has jurisdiction over this matter pursuant to Chapter 366, Florida Statutes,
including Sections 366.04, 366.05, and 366.06, Florida Statutes.
Discussion of Issues
Issue 1: Should the Commission approve Florida Power
& Light Company’s (FPL) petition to establish a regulatory asset for storm
damage costs in excess of its storm reserve?
Recommendation: No, the
petition should be denied because it is both unnecessary and premature. FPL should
record prudently incurred storm damage costs in Account No. 228.1, Accumulated
Provision for Property Insurance, as required by Rules 25-6.0143(1) and
25-6.0143(4)(b), Florida Administrative Code. After the actual amount of the costs
are known, FPL may then file a petition seeking an alternative accounting
treatment for recovery of prudently incurred storm damage costs that exceed the
Storm Reserve balance. (Slemkewicz)
Staff Analysis: FPL has
filed its petition in anticipation that the uninsured damages from Hurricane
Charley and Hurricane Frances will exceed its current Storm Reserve balance of
approximately $345 million. FPL’s petition seeks Commission approval to
establish a regulatory asset, presumably in Account No. 182.1, Extraordinary
Property Losses, for an unknown amount of excess storm damage costs and without
any specific proposal concerning the amortization of the regulatory asset. Per
the Uniform System of Accounts prescribed by this Commission in Rule 25-6.014,
Florida Administrative Code, a request to establish such a regulatory asset in
Account No. 182.1 must be accompanied by a statement giving a complete
explanation with respect to the items which it is proposed to include in the
regulatory asset, the period over which, and the accounts to which it is proposed
to write off the charges, and other pertinent information. Nor can Account No.
182.3, Other Regulatory Assets, be utilized in this instance. The use of
Account No. 182.3 is restricted for deferring costs that would have been
included in net income determinations in the current period.
Per Rule 25-6.0143(4)(b),
Florida Administrative Code, entitled “Use of Accumulated Provision Accounts
228.1, 228.2 and 228.4”, charges are to be made to the accumulated account
regardless of the balance in the account. It was recognized by the Commission
that there could be times when the reserve could have a negative balance in
Order No. PSC-96-0023-FOF-EI, issued January 8, 1996, in Docket
No. 951433-EI, In Re: Petition for approval of special accounting treatment
of expenditures related to Hurricane Erin and Hurricane Opal by Gulf Power
Company. Because all of the charges are made to the accumulated reserve
regardless of the balance, FPL’s expenses, and hence net income, are unaffected
by the storm damage costs that exceed the storm reserve balance. In other
words, this treatment defers the negative balance for recovery in future
periods through the normal storm reserve accrual and/or an alternative recovery
mechanism. It is unnecessary to create a separate regulatory asset to do this because
allowing a negative balance to be recorded in the Storm Reserve (Account No.
228.1) serves the same purpose and is contemplated by Rule 25-6.0143, Florida
Administrative Code. The recovery of prudently incurred storm restoration
costs was approved in the Gulf Power Company case.
While one disposition of
any excess storm damage costs could be the establishment, and subsequent
amortization, of a regulatory asset, it is staff’s opinion that FPL’s current request
is unnecessary, premature and does not meet the required criteria to establish
such a regulatory asset. In accordance with the Commission’s prior treatment
of expenses related to individual utility self-insurance mechanisms, the
Commission retains the right to review FPL’s charges to the Storm Reserve, at
any time, for reasonableness and prudence and to disallow any that are found to
be inappropriate.
Issue
2: Should this docket be
closed?
Recommendation: Yes. If
no person whose substantial interests are affected by the Commission’s Proposed
Agency Action timely files a protest within 21 days of the issuance of the
Order from this recommendation, this Docket should be closed upon issuance of a
Consummating Order. (Brubaker)
Staff Analysis: If no
person whose substantial interests are affected by the Commission’s Proposed
Agency Action timely files a protest within 21 days of the issuance of the
Order from this recommendation, this Docket should be closed upon issuance of a
Consummating Order.