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DATE: |
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TO: |
Office of Commission Clerk (Cole) |
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FROM: |
Division of Economic Regulation (Draper, Kummer, A. Roberts) Office of the General Counsel (Bennett, Brown) |
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RE: |
Docket No. 080677-EI – Petition for increase in rates by Florida Power & Light Company.
Docket No. 090130-EI – 2009 depreciation and dismantlement study by Florida Power & Light Company. |
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AGENDA: |
01/29/10 – Regular Agenda – Post-Hearing Decision – Participation is Limited to Commissioners and Staff |
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COMMISSIONERS ASSIGNED: |
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PREHEARING OFFICER: |
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SPECIAL INSTRUCTIONS: |
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FILE NAME AND LOCATION: |
S:\PSC\ECR\WP\080677A.RCM.DOC |
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This proceeding commenced on March 18, 2009, with the filing of a petition for a permanent rate increase by Florida Power & Light Company (FPL or Company). FPL requested an increase of $1.044 billion in annual revenues, effective January 4, 2010. FPL also requested a $247.4 million subsequent year base rate increase effective January 2011. A hearing was conducted on August 24-28, 31, September 2-5, 16-17, and October 21-23, 2009. At the January 13, 2010, Agenda Conference (revenue requirement agenda), the Commission approved an increase to operating revenues of $75,470,948 for the 2010 projected test year as shown in Schedule 1. The Commission approved no operating revenue increase for the 2011 projected test year.
This recommendation addresses the rates issues that were not addressed at the revenue requirement agenda. They are Issues 159 (customer charges), 160 (demand charges), 161 (energy charges), 162 (lighting charges), 163 (standby charges), and 164 (interruptible standby charges). Based on the Commission vote in all other issues at the revenue requirements agenda, FPL filed a compliance cost of service study on January 18, 2010. The compliance cost of service study establishes the revenue requirement for each rate class and final rates and charges. On January 20, 2010, staff, FPL, and the parties to the docket conducted a meeting to discuss the compliance cost of service study. On January 20, 2010, FPL filed a minor correction to its cost of service study, and additional information staff had requested. The correction and the additional information were provided to all parties.
At the revenue requirements agenda the Commission approved, in Issue 142, the method by which any revenue increase in revenue requirement is allocated to the various rate classes. Issue 142 stated that the appropriate allocation of any change, after recognizing any additional revenues realized in other operating revenues, should track, to the extent practical, each class’s revenue deficiency as determined from the approved cost of service study, and move the classes to parity as practicable. No rate class should receive an increase greater than 1.5 times the system average percentage increase in total, and no class should receive a decrease. The allocation of the rate increase is shown in Schedule 2. The current and proposed rates and charges for all rate classes are shown in Schedule 3, pages 1 through 19.
Several interim steps are necessary to establish the allocation of the rate increase by rate class. First, FPL calculated present class operating revenues and the increase at parity. The increase at parity represents that target revenue requirements deficiency, i.e., the increase necessary to bring revenues from that rate class to the system rate of return. This is a calculation to establish a baseline for allocation of the increase to individual classes. The cost of service indicates that certain rate classes are currently earning above the system rate of return and should therefore be entitled to a revenue reduction. However, consistent with the Commission’s decision that no class shall receive a decrease, FPL adjusted the increase needed to achieve parity for the other rate classes by this calculated revenue reduction of $58 million. This process establishes the initial revenue increase for each class. This initial increase must then be adjusted to account for the percentage increase limitation approved in Issue 142. The average system percentage increase is 0.8 percent. Consistent with the decision that no rate class should receive an increase greater than 1.5 times the system average percentage increase in total, each class’s percentage increase was limited to 1.2 percent (0.8% x 1.5 = 1.2%). The final revenue requirements by rate class are derived through an iterative process which repeatedly reallocates dollars such that all three constraints (movement towards parity, no decreases, and no increase greater than 1.5 percent of system average) are maximized. The percentage increase for all rate classes is shown in column 11 of Schedule 2.
The final step is to translate the class revenue requirement into actual rates. The revenue requirement for each rate class is first reduced by the customer charge revenues. Customer charges are set at the customer unit cost as derived from the cost of service study. The initial demand and energy charges are based on unit costs, and then adjusted to meet target group revenues and revenue neutrality with the time-of-use option.
In Issue 114 the Commission denied FPL’s proposed increase in its service charges (initial connect, etc.), therefore no additional revenues are achieved from service charges. In stipulated Issue 146, the Commission approved an increase in the temporary service charges. That increase is reflected in the $222,000 total increase shown in column 5 of Schedule 2, and represents the only increase in service charge revenues.
Residential bill impacts. Schedule 4 contains a calculation of FPL’s 1,000 kilowatt-hours (kWh) monthly residential bill at both present and recommended rates. As a result of this rate case, a residential customer who uses 1,000 kWh per month will see a $1.03 increase in the monthly bill. Staff notes that in January 2010, the residential 1,000 kWh bill decreased by $15.29 primarily as a result of lower fuel costs. In addition, customers received a one-time refund on the electric bill in January 2010 as a result of the Commission’s decision in the fuel docket.[1] The one-time refund for a residential customer using 1,000 kWhs was $44.46.
Schedule 4 also shows bill impacts at various other residential consumption levels. Staff notes that the amount of the increase decreases with increasing consumption levels. FPL’s residential rates typically have been inverted rates with a one cent differential. That rate design has been in place since the 1970s. Inverted rates are set at a level to produce the same revenues as under a flat rate design while maintaining the one cent differential. In May 2007, FPL’s base rates increased as a result of the Generation Base Rate Adjustment (GBRA) associated with the commercial operation of Turkey Point Unit 5. Pursuant to the 2005 Settlement Agreement, the GBRA was to be implemented by adjusting base rates by an equal percentage.[2] Turkey Point Unit 5 resulted in a 3.271 percent GBRA factor. Applying the GBRA factor to FPL’s residential energy charges, resulted in the second tier energy charge to be more than one cent higher than the first tier energy charge. As shown on page 1 of Schedule 3, FPL has proposed to revert back to the one cent inversion, consistent with the Commission’s original approved design. To achieve the residential target revenues, the resulting second tier energy charge is lower than the current energy charge, reducing the impact on large residential users.
Based upon the vote in Issue 172 in this docket, the revised rates will be effective for meter readings taken on or after March 1, 2010. The Commission has jurisdiction pursuant to Chapter 366, F.S., including Sections 366.041, 366.06, 366.07, and 366.076, F.S.
Issue 159:
What are the appropriate customer charges?
Recommendation:
The appropriate customer charges are shown in Schedule 3. Staff requests that the Commission grant staff the authority to administratively approve the tariffs filed to implement the rates, charges, and credits presented in Schedule 3. (Draper)
Staff Analysis:
The appropriate customer charges are shown in Schedule 3. In Issue 159 at the revenue requirement agenda, the Commission approved the methodology for FPL to design the customer charges. The customer charges recover the costs associated with meter reading, metering equipment, customer service, and bill processing. Staff requests that the Commission grant staff the authority to administratively approve the tariffs filed to implement the rates, charges, and credits presented in Schedule 3.
Issue 160:
What are the appropriate demand charges?
Recommendation:
The appropriate demand charges are shown in Schedule 3. (Draper)
Staff Analysis:
The appropriate demand charges are shown in Schedule 3. In Issue 160 at the revenue requirement agenda, the Commission approved the methodology for FPL to design the demand and energy charges.
Issue 161:
What are the appropriate energy charges?
Recommendation:
The appropriate energy charges are shown in Schedule 3. (Draper)
Staff Analysis:
The appropriate energy charges are shown in Schedule 3. The energy charges were set at a level that, in combination with the remaining rate components, will result in the recovery of the total revenues allocated to each rate class.
Issue 162:
What are the appropriate lighting rate charges?
Recommendation:
The appropriate lighting rate charges are shown in Schedule 3. (A. Roberts)
Staff Analysis:
The appropriate lighting rate charges are shown in Schedule 3.
Issue 163:
What is the appropriate level and design of the charges under the Standby and Supplemental Services (SST-1) rate schedule?
Recommendation:
The appropriate charges under the Standby and Supplemental Services (SST-1) rate schedule are shown in Schedule 3. (Draper)
Staff Analysis:
The appropriate charges under the SST-1 rate schedule are shown in Schedule 3. These rates are calculated consistent with Commission Order 17159, issued February 6, 1987, in Docket No. 850673-EU, In re: Generic Investigation of Standby Rates for Electric Utilities.
Issue 164:
What is the appropriate level and design of charges under the Interruptible Standby and Supplemental Services (ISST-1) rate schedule?
Recommendation:
The appropriate charges under the Interruptible Standby and Supplemental Services (ISST-1) rate schedule are shown in Schedule 3. (Draper)
Staff Analysis:
The appropriate charges under the ISST-1 rate schedule are shown in Schedule 3. These rates are calculated consistent with Commission Order 17159, issued February 6, 1987, in Docket No. 850673-EU, In re: Generic Investigation of Standby Rates for Electric Utilities.
Should these dockets be closed?
Recommendation:
Yes, these dockets should be closed after the time for filing an appeal has run. (Bennett)
Staff Analysis:
These dockets should be closed 32 days after issuance of the order, to allow the time for filing an appeal to run.
