Discussion
of Issues
Issue 1:
Should the Commission approve FPL's request to
decrease its AFUDC rate from 6.34 percent to 6.16 percent?
Recommendation:
Yes. The appropriate AFUDC rate for FPL is 6.16
percent based on a 13-month average capital structure for the period ended
December 31, 2016. (Richards)
Staff Analysis:
FPL requested a decrease in its AFUDC rate from 6.34
percent to 6.16 percent. Rule 25-6.0141(2), Florida Administrative Code (F.A.C.),
Allowance for Funds Used During Construction, provides the following guidance:
(2) The applicable AFUDC rate
shall be determined as follows:
(a) The most recent 13-month average embedded cost of
capital, except as noted below, shall be derived using all sources of capital and
adjusted using adjustments consistent with those used by the Commission in the
utility’s last rate case.
(b) The cost rates for the components in the capital
structure shall be the midpoint of the last allowed return on common equity,
the most recent 13-month average cost of short term debt and customer deposits
and a zero cost rate for deferred taxes and all investment tax credits. The
cost of long term debt and preferred stock shall be based on end of period
cost. The annual percentage rate shall be calculated to two decimal places.
In support of the requested AFUDC rate of 6.16 percent,
FPL provided its calculations and capital structure in Schedules A and B
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-6.0141(2), F.A.C. The
requested decrease in the AFUDC rate is due principally to a decrease in the
cost rates of long term debt and short term debt, and an increase in the amount
of zero-cost deferred income taxes in the capital structure. This decrease is
modestly offset by a slight increase in the return on equity (ROE). The ROE
increased from 10.50 percent to 10.55 percent in FPL’s last rate case.
Based on its review, staff believes that the requested
decrease in the AFUDC rate from 6.34 percent to 6.16 percent is appropriate,
consistent with Rule 25-6.0141, F.A.C., and recommends that it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the requested 6.16 percent annual AFDUC rate?
Recommendation:
The appropriate monthly compounding rate to maintain
an annual rate of 6.16 percent is 0.499682 percent. (Richards)
Staff Analysis:
FPL requested a monthly compounding rate of 0.499682
percent to achieve an annual AFUDC rate of 6.16 percent. In support of the
requested monthly compounding rate of 0.499682 percent, FPL provided its
calculations in Schedule C attached to its request. Rule 25-6.0141(3), F.A.C.,
provides a formula for discounting the annual AFUDC rate to reflect monthly
compounding. The rule also requires that the monthly compounding rate be
calculated to six decimal places.
Staff reviewed the Company’s calculations and determined
that they comply with the requirements of Rule 25-6.0141(3), F.A.C. Therefore,
staff recommends that a discounted monthly AFUDC rate of 0.499682 percent be
approved.
Issue 3:
Should the Commission approve FPL's requested
effective date of January 1, 2017, for implementing the revised AFUDC rate?
Recommendation:
Yes. The revised AFUDC rate should be effective as
of January 1, 2017, for all purposes. (Richards)
Staff Analysis:
FPL’s proposed AFUDC rate was calculated using a
13-month average capital structure for the period ended December 31, 2016. Rule
25-6.0141(5), F.A.C., provides that:
The new AFUDC rate shall be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of January 1, 2017,
complies with the requirement that the effective date does not precede the
period used to calculate the rate, and therefore should be approved.
Issue 4:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Mapp)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order.
