Discussion
of Issues
Issue 1:
Should the Commission approve FPUC, Fort Meade, and
Chesapeake's proposed GRIP surcharge factors for 2017?
Recommendation:
Yes. The Commission should approve FPUC, Fort Meade,
and Chesapeake's proposed GRIP surcharge factors for 2017 commencing with bills
rendered for meter readings taken on or after January 6, 2017. (Guffey)
Staff Analysis:
The FPUC and Chesapeake GRIP surcharges have been in
effect since January 2013, while Fort Meade’s surcharges will be first
implemented in January 2017. The petitioners assert that certain replacement
projects in high consequence areas within cities and larger municipalities
continue to be on an accelerated track. In response to staff’s data request,
the company stated that it has performed replacement projects in West Palm
Beach, Lake Worth, Deland, Debary, Winter Haven, Haines City, Auburndale, Lake Wales,
Palm Beach, and North Palm Beach. The accelerated status of these projects has
resulted in increased GRIP costs due to various construction requirements
imposed by the municipalities. The company anticipates that as the projects in
high consequence areas are completed and the activity shifts to less populated
areas, the overall GRIP costs will decline.
Attachment 1 provides an update of mains and services
replaced and replacement forecasts through the end of the term of the GRIP
programs for the companies. The companies appear to be on track to complete the
replacements on time. Attachments 2 through 4 show the proposed tariffs.
FPUC’s True-Ups by Year
FPUC’s calculations for the 2017 GRIP revenue requirement
and surcharges include a final true-up for 2015, an actual/estimated true-up
for 2016, and projected costs for 2017. Staff notes that FPUC recovers $747,733
of annual GRIP expenses in base rates. This amount included in base rates is
excluded from the GRIP surcharge calculation.
Final True-Up for 2015
FPUC stated that the GRIP revenues for 2015 were $4,089,962,
compared to a revenue requirement of $5,774,298. The resulting under-recovery
is $1,684,336. After adding interest of $1,954 and the end of 2014 under-recovery
of $1,281,394, the final 2015 true-up is an under-recovery of $2,967,684.
Actual/Estimated True-Up for 2016
FPUC provided actual GRIP revenues for January through
July and estimated revenues for August through December 2016, totaling
$8,026,637. The actual/estimated revenue requirement for 2016 is $8,938,870,
and it includes a return on investment, depreciation expense, and property tax expense.
The forecasted under-recovery for 2016 is $912,233. After adding interest of $7,444,
and the final 2015 under-recovery of $2,967,684, the total 2016 under-recovery
is $3,887,361.
Projected Costs for 2017
FPUC projects capital expenditures of $5,139,504 for the
replacement of cast iron/bare steel infrastructure in 2017. This compares with
final 2015 expenditures of $27,181,346 and actual/estimated 2016 expenditures
of $17,944,442. The return on investment, net depreciation expense, customer
notification, and property tax expenses associated with that investment are $11,090,358.
Subtracting the revenue requirement for bare steel replacement investment included
in base rates results in a 2017 revenue requirement of $10,342,631. After
adding the total 2016 under-recovery of $3,887,361, the 2017 revenue
requirement is $14,229,992. Table 1-1 shows FPUC’s 2017 revenue requirement calculation.
Table 1-1
FPUC 2017 Revenue
Requirement Calculation
|
2017 Projected Expenditures
|
$5,139,504
|
|
Return on Investment
|
$7,516,062
|
|
Depreciation Expenses
|
$2,021,364
|
|
Tax and Customer Notice Expenses
|
$1,552,932
|
|
2017 Revenue Requirement
|
$11,090,358
|
|
Less Revenue Requirement in Base Rates
|
$747,727
|
|
2017 GRIP Revenue Requirement
|
$10,342,631
|
|
Plus 2016 Under-Recovery
|
$3,887,361
|
|
2017 Total Revenue Requirement
|
$14,229,992
|
Source: GRIP Schedule
C-2 of Exhibit MC-1, page 4 of 14
Chesapeake’s True-Ups by Year
Chesapeake does not have a replacement recovery amount
embedded in base rates. Chesapeake’s
calculations for the 2017 GRIP revenue requirement and surcharges include a
final true-up for 2015, an actual/estimated true-up for 2016, and projected
costs for 2017.
Final True-Up for 2015
Chesapeake
stated that the GRIP revenues for 2015 were $1,775,375, compared to total
replacement costs of $1,689,514. The resulting over-recovery is $85,861. After
adding interest of $105 and the end of 2014 under-recovery amount of $211,175,
the final 2015 under-recovery is $125,419.
Actual/Estimated True-Up for 2016
Chesapeake provided actual GRIP revenues for January
through July and estimated revenues for August through December 2016, which
total $2,237,448. The actual/estimated GRIP revenue requirement for 2016 is $2,424,705
and includes a return on investment, depreciation expense, and property tax
expense. The forecasted under-recovery for 2016 is $187,257. After adding
interest of $121 and the 2015 under-recovery amount of $125,419, the total 2016
under-recovery is $312,797.
Projected Costs for 2017
Chesapeake projects capital expenditures of $1,623,012 for
the replacement of cast iron/bare steel infrastructure in 2017. This compares
with final 2015 expenditures of $5,692,055 and actual/estimated 2016
expenditures of $5,340,859. The return on investment, depreciation expense, and
property tax expense to be recovered in 2017 totals to $2,877,498. After adding
the total 2016 under-recovery of $312,797, the total 2017 revenue requirement
is $3,190,295. Table 1-2 shows Chesapeake’s 2017 revenue requirement
calculation.
Table 1-2
Chesapeake 2017 Revenue
Requirement Calculation
|
2017 Projected Expenditures
|
$1,623,012
|
|
Return on Investment
|
$1,927,204
|
|
Depreciation Expenses
|
$519,182
|
|
Tax and Customer Notice Expenses
|
$431,112
|
|
2017 Revenue Requirement
|
$2,877,498
|
|
Plus 2016 Under-Recovery
|
$312,797
|
|
2017 Total Revenue Requirement
|
$3,190,295
|
Source: GRIP Schedule
C-2 of Exhibit MC-1, page 9 of 14
Fort-Meade’s True-Ups by Year
When the Commission first approved the Fort Meade GRIP
program in Order No. PSC-15-0578-TRF-GU, the Commission allowed Fort Meade to
start the replacement of approximately 250 steel services in 2016; however, the
utility was required to defer collecting GRIP surcharges from customers until
January 2017. As stated in the order approving the Fort Meade GRIP program,
FPUC acquired Fort Meade’s natural gas system in 2013, and the implementation
of the GRIP surcharge for Fort Meade prior to October 2016 would be in
violation of a term in the purchase agreement of the Fort Meade system. Fort
Meade will provide notice to its customers of the proposed GRIP factors in the
December bills.
Actual/Estimated True-Up for 2016
Fort Meade did not have a GRIP surcharge in 2016.
Therefore, GRIP revenues for 2016 are $0. The actual/estimated GRIP revenue
requirement for 2016 is $4,208 and includes a return on investment and
depreciation expense. After adding interest of $2, the total 2016 under-recovery
is $4,210.
Projected Costs for 2017
Fort Meade projects capital expenditures of $277,081 for
the replacement of cast iron/bare steel infrastructure in 2017. This compares with actual/estimated 2016
expenditures of $197,915. The return on investment, depreciation expense, and
property tax expense to be recovered in 2017 totals $45,648. After adding the
total 2016 under-recovery of $4,210, the total 2017 revenue requirement is $49,858.
Table 1-3 shows
Fort Meade’s 2017 revenue requirement calculation.
Table 1-3
Fort Meade 2017 Revenue
Requirement Calculation
|
2017 Projected Expenditures
|
$277,081
|
|
Return on Investment
|
$31,380
|
|
Depreciation Expenses
|
$10,332
|
|
Tax and Customer Notice Expenses
|
$3,936
|
|
2017 Revenue Requirement
|
$45,648
|
|
Plus 2016 Under-Recovery
|
$4,210
|
|
2017 Total Revenue Requirement
|
$49,858
|
Source: GRIP Schedule
C-2 of Exhibit MC-1, page 13 of 14
Proposed Surcharges for FPUC, Chesapeake, and
Fort Meade
As established
in the 2012 order approving the GRIP, the total 2017 revenue requirement is
allocated to the rate classes using the same methodology that was used for the
allocation of mains and services in the cost of service study used in the
companies’ most recent rate case. Fort Meade has the same rate schedules as
FPUC and FPUC’s allocation factors are used to calculate the GRIP surcharges
for Fort Meade. After calculating the percentage of total plant costs
attributed to each rate class, the respective percentages were multiplied by
the 2017 revenue requirement, resulting in the revenue requirement by rate
class. Dividing each rate class’ revenue requirement by projected therm sales
provides the GRIP surcharge for each rate class.
The proposed
2017 GRIP surcharge for residential FPUC customers on the RS Schedule is $0.34225
per therm (compared to the current surcharge of $0.26393 per therm). The
monthly bill impact is $6.85 beginning January 6, 2017 for a residential
customer who uses 20 therms per month. The proposed FPUC tariff page is
provided in Attachment 2.
The proposed
2017 GRIP surcharge for residential Chesapeake customers on the FTS-1 schedule is
$0.10371 per therm (compared to the
current surcharge of $0.08568 per therm). The monthly bill impact is $2.07
beginning January 6, 2017 for a residential Chesapeake customer who uses 20
therms per month. The proposed Chesapeake tariff page is provided in Attachment
3.
The proposed
2017 GRIP surcharge for residential Fort Meade customers on the RS Schedule is $0.36931
per therm. The monthly bill impact is $7.39 beginning January 6, 2017 for a
residential Fort Meade customer who uses 20 therms per month. The proposed Fort
Meade tariff page is provided in Attachment 4.
Conclusion
Staff believes the calculation of the 2017 GRIP surcharge
revenue requirement and the proposed GRIP surcharges for FPUC, Chesapeake, and
Fort Meade are reasonable and accurate. Therefore, staff recommends approval of
FPUC, Chesapeake, and Fort Meade’s proposed 2017 GRIP surcharge for each rate
class commencing with bills rendered for meter readings taken on or after
January 6, 2017.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs 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. (Leathers)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs 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.
