DATE:	March 6, 2008
TO:	Office of Commission Clerk (Cole)
FROM:	Office of the General Counsel (Bellak, Gervasi) Division of Economic Regulation (Kummer)
RE:	Docket No. 080035-EU – Petition for declaratory statement concerning rights under Rule 25-6.115, F.A.C. by Town of Palm Beach, Town of Jupiter Island, and Town of Jupiter Inlet Colony
AGENDA:	03/18/08 – Regular Agenda – Participation Dependent on Commission’s Vote on Issue 2
COMMISSIONERS ASSIGNED:		All Commissioners
PREHEARING OFFICER:		Administrative
CRITICAL DATES:		April 9, 2008 (Final order must be issued by this date)
SPECIAL INSTRUCTIONS:		None
FILE NAME AND LOCATION:		S:\PSC\GCL\WP\080035.RCM.DOC

 

 Case Background

On January 10, 2008, the towns of Palm Beach, Jupiter Island and Jupiter Inlet Colony (towns) filed a petition for declaratory statement pursuant to Section 120.565, Florida Statutes, and Chapter 28-105, Florida Administrative Code.  Also on January 10, 2008, the towns filed a Request for Oral Argument and Alternative Motion for Leave to Address the Commission.

The towns note that they are actively planning to convert their existing overhead (OH) electrical distribution facilities to underground (UG).  They petition for resolution of doubts concerning their rights under, inter alia, subsections (3) and (11) of Rule 25-6.115, F.A.C.  Rule 25-6.115(3) states, in pertinent part:

Nothing in the tariff shall [prevent] the applicant from constructing and installing all or a portion of the underground distribution facilities provided:

. . .  (c)  Such agreement is not expected to cause the general body of ratepayers to incur additional costs.

Rule 25-6.115(11) states, in pertinent part:

For purposes of computing the charges [to be paid to the utility for the conversion to underground facilities]

. . .   (b)  If the applicant chooses to construct or install all or a part of the requested facilities, all utility costs, including overhead assignments, avoided by the utility due to the applicant assuming responsibility for construction shall be excluded from the costs charged to the customer, or if the full cost has already been paid, credited to the customer.  At no time will the costs to the customer be less than zero.

            Though the background facts of the petition generally concern the conversion of overhead facilities to underground,[1] the controversy centers on the credits due or not due the towns for choosing to perform the construction work themselves.  These credits can be claimed as offsets to the contributions in aid of construction (CIAC) owed by the towns to the utility for the conversion of facilities from overhead to underground.  The towns note that the Governmental Adjustment Factor (GAF), which provides a discount on the CIAC owed to the utility by governmental entities for their undergrounding projects, is currently scheduled to expire October 4, 2008.  This adds to the towns’ need for an expedited resolution of the CIAC calculation matters raised by the Petition.

            On February 15, 2008, the utility involved in the towns’ underground conversion projects, Florida Power & Light Company (FPL), filed a Petition to Intervene and a Response to Petition for Declaratory Statement concerning Rule 25-6.115, F.A.C.

            This recommendation addresses FPL’s Petition to Intervene, the towns’ request to address the Commission, and the towns’ Petition for Declaratory Statement.  The Commission has jurisdiction pursuant to Section 120.565, Florida Statutes.

 

Discussion of Issues

Issue 1: 

  Should FPL’s Petition to Intervene be granted?

Recommendation: 

 Yes, FPL’s Petition to Intervene should be granted.

Staff Analysis: 

 If the Commission issues the declaratory statement requested by the towns, FPL will receive less contributions in aid of construction for the undergrounding projects at issue.  This demonstrates that FPL is a substantially affected person.  Any substantially affected person can intervene in a declaratory statement proceeding before the agency.  Chiles v. Department of State, Div. of Elections, 711 So. 2d 151, 155 (Fla. 1^st DCA 1997).  No objection to FPL’s intervention has been filed.  Thus, FPL’s Petition to Intervene should be granted.

Issue 2: 

 Should the towns’ motion for leave to address the Commission be granted?

Recommendation: 

 Yes, the motion for leave to address the Commission should be granted.

Staff Analysis: 

 The Commission has the discretion to allow parties to address the Commission at the agenda conference.  If FPL is granted intervention in this mater, staff recommends that the parties be allowed to address the Commission.

 

Issue 3: 

 Should the towns’ Petition for Declaratory Statement be granted?

Recommendation: 

 No, the Petition for Declaratory Statement should be denied.

Staff Analysis: 

 The towns’ petition asks for a declaratory statement[2] as to four separate points, as further described below.  Though the reasons for staff’s recommendation vary from issue to issue, they have in common staff’s conclusion that controverted factual matters not amenable to resolution by declaratory statement are concerned.  Such matters are more properly subjects for negotiation between the parties and, if needed, resolution in a complaint proceeding.

Requested Statement 1:

Where a town, as a proper and eligible “Local Government Applicant” under FPL’s tariffs, commits to perform all construction and installation of the underground facilities with its own staff and contractors, and where the Town pays FPL for preparing the Binding Cost Estimate for the UG project, FPL may not impose on or collect from the Town any corporate overhead costs or so-called “direct engineering, supervision, and support” costs, either directly or indirectly, except (a) such direct costs as the Town pays FPL for the Binding Cost Estimate, which includes engineering design work and preparing engineering drawings for a proposed UG conversion project, and (b) the Town’s payments to FPL, pursuant to FPL’s Tariff Section No. 12.2.11 d), at “FPL’s current applicable hourly rate for specific engineering personnel time spent for (i) reviewing and inspecting the applicant’s work done, and (ii) developing any separate cost estimate(s) that are either requested by the Applicant . . . or are required by FPL to reflect both the Applicant’s and FPL’s portions of the work for the purpose of a GAF waiver calculation . . . .”

            In arguing for the Commission’s issuance of this statement, the towns describe the Royal Poinciana Way (RPW) and Jupiter Island examples in which FPL’s cost estimates demanded the same payment for corporate overheads associated with the UG projects whether or not the towns performed substantial amounts (or even all) of the construction work on those projects.  The towns further note that they believed the rulemaking in Docket No. 060172-EU, which resulted in Rule 25-6.115(11), had been designed to eliminate outcomes similar to those examples.

            As analyzed by the towns,

FPL does not incur any corporate overhead costs in connection with the construction and installation work performed by the Towns and the Towns’ contractors, and accordingly, FPL cannot fairly or reasonably propose to collect any such corporate overhead charges from the Towns.  [emphasis supplied]

Petition, p. 18.

            This conclusion is restated in various ways throughout the towns’ analysis.  Clearly, the requested declaratory statement as to this point is intended to establish that, as a matter of law, the utility’s corporate overhead costs on work performed by the towns is zero:

It is self-evident that FPL should not be permitted to apply corporate overhead costs on work that it does not perform.

Petition, p. 19.  As to the assertion by FPL of “direct engineering, supervision, and support” costs, the towns state that if they engage contractors to do all of the work,

no additional engineering costs, direct or otherwise, will be incurred by FPL . . . .  FPL will not provide any supervision of the Towns’ contractors . . . .  FPL will provide no support for the Towns’ work or the Towns’ contractors’ work.  [emphasis supplied]

Petition, p. 21.

            For its part, however, FPL contravenes the towns’ assertions on this point.  FPL notes initially that it follows Rule 25-6.115(11):

[T]he rule takes as a starting point the cost for the utility to perform the underground work itself, and then reduces that amount by the identifiable cost savings resulting from the applicant doing the work.  Under [the Towns’] approach, an applicant that performs some of the conversion work would only be charged for specific enumerated utility costs even if there are other utility costs that are not avoided and that, therefore, the general body of ratepayers would have to bear.  [emphasis supplied]

FPL Response, p. 2.

            FPL further describes some of the costs not avoided even if the towns did all of the direct work:

FPL needs to be actively involved in the engineering, inspection and approval of any work that is to become part of its electric distribution system, for obvious safety and reliability reasons . . . it may be especially true if others perform the work because FPL needs to take particular care to ensure that such work meets FPL’s standards. . ..  Thus, it is simply unrealistic to expect that FPL would not incur DSS [Direct engineering supervision and support] expenses, and hence would not need to charge for DSS, in circumstances where an applicant performs all direct work.

FPL Response, pp. 3-4.

            FPL also notes that, contrary to petitioners, its general overhead, unrelated to whether UG projects are performed at all, is not at issue:

FPL presently employs four distribution engineers who are working full time on underground conversions.  Unless FPL collects the costs for these engineers and their associated support and overhead through CIAC, those costs will fall unfairly upon FPL’s general body of customers.[3]

FPL Response, p. 5.

            In view of the foregoing, staff recommends denial of the declaratory statement requested on this point because it cannot be known in advance that DSS expenses to the utility will always (or ever) be zero, as a matter of law, whenever applicants commit to doing all of the direct work.  Instead, the existence of and charges for such expenses are necessarily factual issues, and to be viewed as such, rather than as appropriate subjects for a legal declaration.

Requested Statement 2:

Where a Town proposes to perform all construction and installation of the underground facilities itself, FPL must allow the local Government Applicant to perform work involved in removing the existing OH facilities.

            On this point, the towns argue that removal of the existing OH facilities is naturally and functionally a part of the UG conversion work and that the Commission’s rule should be so interpreted.  Petition, pp. 19; 24.

            FPL responds that Rule 25-6.115(3) contemplates an applicant “constructing and installing all or a portion of the underground facilities . . ,” but does not address removal of overhead facilities.

            Staff agrees with FPL that Rule 25-6.115(3) does not address the removal of overhead facilities, and, thus, staff believes the rule does not require FPL to allow the towns to perform work involved in removing the existing OH facilities.

            Staff believes that issuing the requested statement would, in effect, amend the rule without affording all potential participants access to the process.  Accordingly, staff recommends denial of the declaratory statement on this point, while noting that FPL is discussing the issue with the towns, though disagreeing that the towns can perform this task as of right pursuant to the current rule.

Requested statement 3:

Where a town proposes to perform all construction and installation of the underground facilities itself, FPL must offer to provide the necessary materials to the Town at a reasonable cost, which the towns believe would be the cost of such materials stated by FPL in its Binding Cost Estimate.

            The towns argue that it is “obvious common sense” that FPL furnish the materials for the towns’ UG projects.  Issuance of the statement is sought to confirm that the charge to the towns will be fair, just and reasonable.  Petition, p. 25.

            FPL responds that Rule 25-6.115 is silent on the subject and that the requested statement would improperly amend the rule.  Beyond that, FPL believes that it is in agreement with the towns as to the basis on which materials for the projects will be charged.  FPL Response, pp. 5-6.

            Staff agrees with FPL that Rule 25-6.115 does not address whether FPL must offer to provide the necessary materials to the towns to perform all construction and installation of the underground facilities, and, thus, staff believes there is no such requirement under the rule.

            Staff recommends denial of the requested statement because, as is the case with Requested statement 2, granting Requested statement 3 would, in effect, amend the rule without affording potential participants access to the process.

Requested statement 4:

Where a Town performs all construction and installation of the underground facilities itself, FPL will, upon transfer of the facilities to FPL, pay the town an amount equal to the Overhead Credit, plus the GAF Waiver Credit, plus the Other O & M Differential Cost Credit, less materials costs and any engineering service costs directly incurred with work on the project over and above the work performed in preparation of the Binding Cost Estimate.

            The towns believe that issuance of the requested statement is necessary “to ensure that the towns get the proper credit for the values provided to FPL, consistent with the Commission’s Rules and FPL’s tariffs, in return for contributing the completed UG facilities to FPL.”

            However, FPL responds that,

If the Towns are contending that Rule 25-6.115 should be interpreted to require net payments be made to an applicant in the event that the itemized credits exceed the itemized costs, then that contention is directly contrary to Rule 25-6.115(11)(b), which provides that “[a]t no time will the costs to the customer be less than zero.”

Response, p. 7.

            FPL also objects to the requested statement as reflecting the assumptions made about the utility’s CIAC charges in Requested statement 1.

            Staff recommends denial of the requested statement as inconsistent with the last sentence of Rule 25-6.115(11)(b), and for the reasons stated in the analysis of Requested statement 1, supra.

 

Conclusion

            Based on the above, the Commission should deny the Petition for Declaratory Statement as to each of the four requested statements.

 

 

RCB