Case Background
Progress Energy Florida, Inc.
(PEF) filed its petition on September 10, 2004. PEF has requested that it be
authorized to establish a regulatory asset for storm damage costs that exceed
the $44.4 million balance of the Storm Damage Reserve Fund. The costs to
repair and restore PEF’s system for the damages caused by Hurricane Charley and
Hurricane Frances are expected to exceed the reserve balance. PEF is also
seeking current authorization for the future recovery of reasonable and
prudently incurred storm damage costs in excess of its Storm Damage Reserve
Fund.
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 Progress Energy
Florida, Inc.’s (PEF) 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. PEF
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, PEF 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: PEF 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 $44.4 million. PEF’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, PEF’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 PEF’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 PEF’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.