Discussion
of Issues
Issue 1:
Should the Commission approve FPL's proposed URD
tariff and associated charges filed in the amended petition?
Recommendation:
Yes. The Commission should approve FPL’s proposed
URD tariffs and associated charges filed in the amended petition, effective October
13, 2016. (Ollila, Wooten)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code
(F.A.C.), defines investor-owned utilities’ (IOU) responsibilities for filing
updated URD tariffs. IOUs are required to file supporting data and analyses for
URD tariffs at least once every three years. In October of each year, IOUs are
required to file an updated cost differential using current labor and material
costs. If the October cost differential varies from the Commission-approved
differential by plus or minus 10 percent or more, then the IOU must file
revised tariffs, supporting data and analyses the following April even if it
has been less than three years. In its October 2015 filing, FPL reported that
the updated cost differential, when compared to the 2014 order, decreased by more
than 10 percent; therefore, FPL filed the instant petition.
The URD tariffs provide standard charges for underground
service in new residential subdivisions and represent the additional costs, if
any, the utility incurs to provide underground service in place of standard
overhead service. The cost of standard overhead construction is recovered
through base rates from all ratepayers. In lieu of overhead construction,
customers have the option of requesting underground facilities. Any additional
cost is paid by the customer as contribution-in-aid-of construction (CIAC).
Typically, the URD customer is the developer of a subdivision.
Traditionally,
three standard model subdivision designs have been the basis upon which each
IOU submits URD tariff changes for Commission approval: low density, high
density, and a high density subdivision where dwelling units take service at
ganged meter pedestals (groups of meters at the same physical location).
Examples of this last subdivision type include mobile home and recreational
vehicle parks. While actual construction may differ from the model subdivisions,
the model subdivisions are designed to reflect average overhead and underground
subdivisions.
Table 1-1 shows the current and proposed per service
lateral URD differential charges for the low and high density subdivisions. The
current and proposed URD differential for a ganged meter installation is $0. As
shown in Table 1-1, the proposed URD differentials show a decrease for all
subdivisions. The primary reason for the decrease in the URD differentials are
larger increases in overhead labor and material costs than in underground labor
and material costs.
Table 1-1
Comparison of Differential
Per Service Lateral
|
Types of
Subdivision
|
Number of Service Laterals in Subdivision
|
Current URD Differential
|
Proposed URD Differential
|
|
Low Density
|
Tier 1 – 200 or more
|
$165.99
|
$0
|
|
Tier 2 – 85 – 199
|
$415.99
|
$183.35
|
|
Tier 3 – less than 85
|
$498.99
|
$266.35
|
|
High Density
|
Tier 1 – 300 or more
|
$0
|
$0
|
|
Tier 2 – 100-299
|
$105.71
|
$0
|
|
Tier 3 – less than 100
|
$188.71
|
$57.97
|
|
Ganged Meter
|
All Tiers
|
$0
|
$0
|
Source: 2014 order and FPL’s 2016 filing
The calculations of the proposed URD charges include (1)
updated labor and material costs and associated loading factors, and (2)
operational costs. The costs are discussed below.
Labor and Material Costs
The installation
costs of both underground and overhead facilities include the labor and
material costs to provide primary, secondary, and service distribution lines as
well as transformers. The costs of poles are specific to overhead service while
the costs of trenching and backfilling are specific to underground service. Current
URD charges are based on 2014 data and the proposed charges are based on 2016
data.
The cost of labor
increased for overhead activities at approximately twice the rate it increased
for underground activities, resulting in a decrease in the differential. FPL explained
in response to staff’s first data request that it uses a labor rate that
reflects both FPL and contractor labor rates for all overhead and underground
activities, as there are no overhead or underground activities that are
exclusively performed by FPL or its contractors. Contractual agreements
determine the labor rates for both FPL employees and contractors. The overall
overhead labor cost increase is primarily the result of increased overhead
contractor labor rates, which have increased more than contractor underground
labor rates.
Material costs increased
for overhead and decreased for underground from 2014 to 2016, further decreasing
the differential. FPL explained in response to staff’s first data request that FPL’s
2016 overhead designs incorporated for the first time automated lateral
switches or reclosers. These devices automatically mitigate the effects of a
lateral interruption, including clearing temporary faults, isolating the impact
of an outage, and avoiding field visits to replace blown fuses. Without the
reclosers, 2016 overhead material costs would have been less than 2014 costs.
According to FPL, the decline in underground material costs is primarily due to
prices obtained through competitive bidding and favorable automatic price
adjustments from commodity price changes, for example, resin in PVC conduit.
FPL’s proposed URD tariff also includes updated charges to
reflect current labor and material costs for additional customer-requested
equipment such as feeder mains or switch packages and credits if a customer
performs trenching or installs equipment, such as a splice box. The proposed URD
tariff also updates charges for installing underground service laterals from
overhead systems, and for the replacement of existing overhead and underground
services with underground service laterals.
Loading Factors
The stores loading factor is applied to material costs and
declined from 9.3 percent in 2014 to 5.44 percent in this filing. The rate is a
calculation, which divides year-to-date stores expense by the year-to-date
total cost of inventory. FPL explained in its response to staff’s first data
request that the decrease is mainly due to an increased level of inventory
because of a higher level of construction activity. The 2016 engineering factor
is applied to labor and material. It incorporates both engineering and
corporate overhead, which were shown separately in the 2014 filing. The
combined factor declined from 27.8 percent in 2014 to 26.9 percent in 2016.
Table 1-2 provides the labor and material differential or
pre-operational costs. As Table 1-2 shows, in 2016, only the low density cost
differential is a positive number ($141.35), indicating that underground
labor/material costs are higher than overhead labor/material costs for the low
density subdivision.
Table 1-2
Labor and Material Costs
(Pre-operational Costs)
|
Low Density
|
2014 Costs
|
2016 Costs
|
Difference
|
|
Underground labor/material costs
|
$2,325.60
|
$2,413.84
|
$88.24
|
|
Overhead labor/material costs
|
$1,951.61
|
$2,272.49
|
$320.88
|
|
Per service lateral
differential
|
$373.99
|
$141.35
|
($232.64)
|
|
High Density
|
|
|
|
|
Underground labor/material costs
|
$1,590.63
|
$1,640.45
|
$49.82
|
|
Overhead labor/material costs
|
$1,510.92
|
$1,691.48
|
$180.56
|
|
Per service lateral differential
|
$79.71
|
($51.03)
|
($130.74)
|
|
Ganged Meter
|
|
|
|
|
Underground labor/material costs
|
$1,052.50
|
$1,051.82
|
($0.68)
|
|
Overhead labor/material costs
|
$1,213.77
|
$1,344.17
|
$130.40
|
|
Per service lateral
differential
|
($161.27)
|
($292.35)
|
($131.08)
|
Source: 2014 Order and FPL’s 2016 filing
Operational Costs
Rule 25-6.078, F.A.C., requires that the differences in
net present value of operational costs between overhead and underground
systems, including average historical storm restoration costs over the life of
the facilities, be included in the URD charge. The non-storm operational costs
represent the cost differential between maintaining and operating an
underground versus an overhead system over the life of the facilities. The
storm cost component represents storm restoration costs avoided when an area is
undergrounded, thereby reducing the cost to restore an overhead system. The
avoided storm cost is subtracted from pre-operational and non-storm operational
costs, thus reducing the URD differential charge.
FPL’s operational costs, last updated for the 2014 filing,
are a five-year average, which according to FPL, mitigate any significant
future volatility. FPL explained that average changes in the non-storm and
storm operational cost per lot were approximately 2 percent and 1 percent per
year, respectively, from 2007-2014.
Table 1-3 presents the pre-operational, non-storm operational,
and the avoided storm restoration cost differentials between overhead and
underground systems. The proposed differential is $0 when the calculation
results in a negative number.
Table 1-3
Components of the URD
Charges
|
Type of Subdivision
|
Number of Service
Laterals in Subdivision
|
Pre-operational
Costs
(A)
|
Non-storm
operational costs
(B)
|
Avoided Storm costs
(C)
|
Proposed URD
Differentials
(A)+(B)+(C)
|
|
Low Density
|
Tier 1 – 200 or more
|
$141.35
|
$208
|
($416)
|
$0
|
|
Tier 2 – 85 – 199
|
$208
|
($166)
|
$183.35
|
|
Tier 3 – less than 85
|
$208
|
($83)
|
$266.35
|
|
High Density
|
Tier 1 – 300 or more
|
($51.03)
|
$192
|
($416)
|
$0
|
|
Tier 2 – 100 – 299
|
$192
|
($166)
|
$0
|
|
Tier 3 – less than 100
|
$192
|
($83)
|
$57.97
|
|
Ganged Meter
|
Tier 1 – 300 or more
|
($292.35)
|
$192
|
($416)
|
$0
|
|
Tier 2 – 100 – 299
|
$192
|
($166)
|
$0
|
|
Tier 3 – less than 100
|
$192
|
($83)
|
$0
|
Source: FPL’s 2016 Filing
Conclusion
Staff has reviewed FPL’s proposed URD tariffs and
associated charges, its accompanying work papers, and its responses to staff’s
data requests. Staff believes the proposed URD tariffs and associated charges
are reasonable and recommends approval. FPL requested that the tariffs be made
effective 30 days after the Commission vote. Staff recommends that the
Commission approve FPL’s proposed URD tariffs and associated charges filed in
the amended petition, effective October 13, 2016.
Issue 2:
Should the Commission approve FPL’s proposed UCD
tariffs and associated charges filed in the amended petition?
Recommendation:
Yes. The Commission should approve FPL’s proposed
UCD tariffs and associated charges filed in the amended petition, effective October
13, 2016. (Ollila, Wooten)
Staff Analysis:
Utilities are not required to file UCD tariffs, as
they are not governed by Rule 25-6.078, F.A.C.; however, FPL has chosen to
include its proposed UCD tariffs in the instant petition. Although not required
to do so, FPL has incorporated the cost effects of hardening its overhead
system in the calculation of the UCD charges.
The UCD charges represent additional costs FPL incurs to
provide commercial customers with underground distribution service in place of
overhead service. Generally, the UCD charges are tailored to specific equipment
and material that are utilized to provide underground service to a single or
limited number of commercial buildings in distinct and widely varying
circumstances.
The UCD tariffs contain charges for commercial underground
distribution facilities such as laterals, risers, and hand-holes. In addition,
the UCD tariffs provide for credits that apply if the applicant provides
trenching and backfilling. The UCD charges are derived from cost estimates of
underground commercial facilities and their equivalent overhead designs. The
proposed charges are based on FPL’s standard design, estimating practices, and
costs as of 2016.
Staff believes the filing of the tariffs is reasonable and
promotes transparency and efficiency and reduces controversy regarding the UCD
charges. FPL requested that the tariffs be made effective 30 days after the
Commission vote. Staff recommends that the Commission approve FPL’s proposed
UCD tariffs and associated charges filed in the amended petition, effective
October 13, 2016.
Issue 3:
Should this docket be closed?
Recommendation:
If a protest is filed within 21 days of the issuance
of the order, this tariff should remain in effect, with any revenues held
subject to refund, pending resolution of the protest. If no timely protest is
filed, this docket should be closed upon the issuance of a consummating order.
(Janjic)
Staff Analysis:
If a protest is filed within 21 days of the issuance
of the order, this tariff should remain in effect, with any revenues held
subject to refund, pending resolution of the protest. If no timely protest is
filed, this docket should be closed upon the issuance of a consummating order.
