Discussion
of Issues
Issue 1:
Should the Commission approve DEF's Petition for a
mid-course correction to its 2017 fuel cost recovery factors and the associated
tariff sheets?
Recommendation:
Yes. Staff recommends that the Commission approve
DEF’s Petition for mid-course correction to its 2017 fuel cost recovery factors
and the associated tariff sheets. The revised fuel cost recovery factors and
associated tariff sheets should become effective with the July 2017 billing
cycle and continue until the generation base rate adjustment (GBRA) for the Citrus
Unit 1 Combined Cycle facility (Citrus 1) is placed into rates. (Barrett, Vogel)
Staff Analysis:
DEF’s currently authorized 2017 fuel factors were
set by the Commission following the November 2, 2016 fuel hearing, and codified
in Order No. PSC-16-0547-FOF-EI.
These factors are based on the Company’s projected fuel costs for 2017, plus prior
period true-up amounts. According to DEF, there are two related components that
prompted this filing: the impact of the final true-up amount from 2016, and changes
in fuel price and sales forecasts for 2017, as detailed below.
Impact
of Final True-Up Amount from 2016
In the
instant petition, DEF updated its 2016 actual/estimated true-up amount to
reflect twelve months of actual data (January through December 2016).
Originally, the actual/estimated true-up amount for 2016 was an under-recovery
of $26,217,663. DEF’s true-up filing and its mid-course correction filing show
the actual true-up amount for 2016 is an under-recovery of $85,111,174. The
difference between the actual/estimated amount and the final actual amount for
2016 is an under-recovery of $58,893,512. The principal drivers of the under-recovery
in 2016 were lower sales and higher across-the-board fuel costs than originally
projected.
Impact
of Fuel Price changes (Actual and Estimated amounts for 2017)
On
September 1, 2016, DEF filed testimony and exhibits to project what its
forecasted fuel needs would be for 2017. As noted in DEF’s Petition, in May
2016, the Company prepared fuel price forecasts for the four fuel types the
Company uses in its generating plants. In mid-March of 2017, DEF revised those forecasts.
The original and revised fuel price forecasts were for light oil, two varieties
of coal, and natural gas. Staff notes that light oil is used as a starter fuel,
and the coal varieties and natural gas are used as principal fuels.
Light Oil
DEF states
that its originally-projected average cost for light oil futures for each month
of 2017 was $62.16 per barrel, or $10.73 per MMbtu. These
figures were based on the fuel cost forecast the Company prepared on May 13,
2016.
As noted
in DEF’s Petition, the Company updated its fuel cost forecast on March 16,
2017. In the revised forecast, the average cost for light oil futures for each
month of 2017 is $62.92 per barrel, or $10.85 per MMbtu. On a comparative basis,
the average price for light oil increased by $0.76 per barrel (1.22 percent),
or $0.12 per MMbtu (1.19 percent).
Coal
In its
projection filing for 2017, DEF projected that coal as a fuel source would
supply about 28 percent of the Company’s generating mix. At its Crystal River
generating station, DEF operates four coal-burning units. Crystal River Units 1
and 2 (CR 1 and 2) use a different coal variety than Crystal River Units 4 and
5 (CR 4 and CR 5). In its
fuel cost forecasting, the coal prices are expressed for each variety. Based on
its May 2016 forecast, DEF’s projected average cost for coal at CR 1 and 2 for
each month of 2017 was $91.70 per ton, or $3.90 per MMbtu. In the March 2017
forecast, the average cost for coal at CR 1 and 2 for each month of 2017 is
$94.20 per ton, or $4.12 per MMbtu. On a comparative basis, the average price
for this variety of coal increased by $2.50 per ton (2.73 percent), or $0.22
per MMbtu (5.64 percent).
Based on
its May 2016 forecast, DEF’s projected average cost for coal at CR 4 and 5 for
each month of 2017 was $63.50 per ton, or $2.80 per MMbtu. In the March 2017
forecast, the average cost for coal at CR 4 and 5 for each month of 2017 is
$70.21 per ton, or $3.04 per MMbtu. On a comparative basis, the average price
for this variety of coal increased by $6.71 per ton (10.57 percent), or $0.24
per MMbtu (8.71 percent).
Natural Gas
In its
projection filing for 2017, DEF projected that natural gas as a fuel source
would supply about 72 percent of the Company’s generating mix. DEF states that
its original projected cost for natural gas used the New York Mercantile
Exchange (NYMEX)[5] futures
contract prices for each month of 2017, based on a forward curve as of May 13,
2016. DEF states that its originally-projected average cost for natural gas for
delivery in each month of 2017 was $2.92 per MMbtu.
In its Petition, DEF noted that projected natural gas
commodity prices have increased since its original projections were developed.
For its mid-course calculations, DEF used NYMEX futures contract prices based
on a forward curve as of March 16, 2017, reflecting a price of $3.10 per MMbtu
(an increase of 6.16 percent). Staff notes that because natural gas is the
primary generating fuel DEF relies upon, an increase in the projected cost of
gas can significantly increase its fuel factors.
Impact
of lower sales (Actual and Estimated amounts for 2017)
In its
projection filing for 2017, DEF estimated its total fuel and net power
transactions, excluding true-ups, would be $1,413,729,784. In the Company’s
revised projections for 2017, which include actual data through March 2017 and
estimated data for the remainder of 2017, the total is now $1,468,975,926, a
difference of $55,246,142.
In a data
request response, the Company stated that in addition to the changes in
forecasted prices for the fuel types used in its generating plants, mild
weather impacted sales and revenues and contributed to the DEF mid-course
correction. As noted
previously, the original projections for 2017 were filed on September 1, 2016.
Based on Schedule E-1, line 21, from DEF’s Projection filing for 2017, the
Company’s Jurisdictional Sales amount of $1,436,253,271 was based on sales of
39,424,485 megawatt hours. In the Company’s revised projections for 2017, DEF has
estimated Jurisdictional Sales of $1,339,629,347 based on sales of 37,585,611
megawatt hours. On a comparative basis, the revised forecast is lower in
dollars and megawatt hours. The lower revenue and sales figures, coupled with
elevated fuel costs for 2017, are the principal drivers of the incremental
under-recovery of $123,151,067.
When the
final true-up amount from 2016 (an under-recovery of $58,893,512) is added to
the estimated true-up amount for 2017 (an under-recovery of $123,151,067), the
total true-up balance is an under-recovery of $182,044,578.
Calculation
of Mid-Course Correction Percentage
Based on
Rule 25-6.0424, F.A.C., the mid-course percentage is the estimated
end-of-period total net true-up amount divided by the current period’s total
actual and estimated jurisdictional fuel revenue applicable to period amount.
Schedule E1-B in DEF’s Petition shows that the Company’s most current actual
and estimated jurisdictional fuel revenue applicable to 2017 is projected to be
$1,339,629,347. Dividing the total under-recovery of $182,044,578 by the total
applicable revenue for the period of $1,339,629,347 results in an
under-recovery percentage of 13.59 percent.
Options
For Implementing Mid-Course Correction
The
Company has requested that the revised fuel factors become effective with the
July 2017 billing cycle and remain in-place until the Citrus 1 GBRA is placed
into rates. Although the Company presented its calculation of the impact of
this adjustment based on a 12-month period, the actual duration of the
mid-course adjustment may be more or less than a 12 month period, depending on
the actual in-service date of Citrus 1. In a data request response, the Company
stated that the “best case” scenario for when Citrus 1 would enter commercial
service is June 2018, and the “worse case” scenario is September 2018. The
Company noted that if the mid-course factor remains in place for greater than
or less than 12 months, any over or under-recovered amounts will be addressed
in the 2018 fuel clause hearing.
Staff notes
that DEF’s request is unique, but not unprecedented. Mid-course corrections to
fuel cost recovery factors are generally applied over the remaining months in a
given year before such factors are re-set in the annual fuel clause hearing
process. In
the instant case, DEF is requesting that the impact of this correction begin in
July of this year, and extend into 2018. Staff believes the Commission has the discretion
to approve recovery applied over the remaining months of this year, or in the
manner requested by DEF.
According
to DEF, implementing this mid-course correction over an extended period of time
will result in its customers seeing a smaller monthly increase in bills than if
the recovery period was shorter. DEF presented calculations based on a 12-month
recovery period, but requests that the mid-course correction factors remain
in-place until the Citrus 1 GBRA is placed into rates. As shown in Schedule E10
in DEF’s Petition, the mid-course correction amount is $4.70 for a residential
customer using 1,000 kWh of electricity.
In DEF’s
Petition, the Company stated that when Citrus 1 is placed into service, DEF’s
customers will see a base rate adjustment for the new plant being placed into
service, and the concurrent expiration of the mid-course correction. DEF
estimates that the Citrus 1 GBRA adjustment to base rate will be $4.25 per
month for a residential customer using 1,000 kWh of electricity. The Company
believes ending the mid-course correction adjustment at the same time the
Citrus 1 GBRA adjustment is implemented will offset the overall bill impact for
its customers, because both adjustments will be addressed in a single billing
adjustment.
The total current
bill for a residential customer using 1,000 kilowatt hours (kWh) of electricity
is $117.24 per month with a fuel component of $33.77 per month. Assuming that
its mid-course correction is approved as filed, the fuel portion will increase
by $4.70 per month, to $38.47 per month. Staff notes that DEF’s Petition also
identifies its separately requested revision to the Asset Securitization Charge
(ASC). The revision to the ASC was incorporated into the tariff sheets with the
mid-course correction for administrative efficiency because both charges will
go into effect with the first billing cycle in July. The ASC portion of a
residential bill for 1,000 kWh of usage will increase by $1.14 per month. Upon
approval, the bill for a residential customer using 1,000 kilowatt hours of
electricity increases to $123.23 per month, a total increase of $5.99 per month
(including gross receipts tax), effective with the July billing cycle. The proposed
fuel cost recovery factors for this implementation are presented in Attachment A.
By
implementing the mid-course adjustment over an extended period, DEF’s customers
will see the following three changes to fuel cost recovery factors over the
next 1-year period:
1.
Effective with the first billing cycle in July 2017,
the incremental adjustment on a total bill will be $5.99 for a residential
customer using 1,000 kilowatt hours of electricity.
2.
Although the specific amount is not known at this time,
a billing change will be implemented effective with the first billing cycle in
January 2018, when all cost recovery factors will be re-set in the annual fuel
clause hearing (scheduled for October 2017).
3.
The third billing change will be effective with the
in-service date of the Citrus 1 generating facility.
Bill Impact (6 Months
versus 12 Months)
In the two
most recent mid-course correction petitions, the Commission ordered fuel cost
recovery factors be revised to apply the correction over the remaining months
in that year. For the
instant case, implementation in this manner would mean increased fuel factors
for July-December 2017. DEF’s customers will still experience three changes to their
total bills and to fuel cost recovery factors over about a 1-year period. The proposed
fuel cost recovery factors for this implementation are presented in Attachment B.
As noted
earlier, if the mid-course correction is recovered as requested by the Company,
the incremental increase for fuel cost recovery is $4.70 for a residential
customer using 1,000 kilowatt hours of electricity per month. If the mid course
correction is fully recovered in 2017, the comparative amount for fuel cost
recovery is $8.73 for a residential customer using 1,000 kilowatt hours of
electricity per month. Table 1-1 below presents a comparison of the bill impact
of recovering the mid-course correction over 6 months and 12 months.
Table 1-1
Comparison of 1,000 kWh Residential
Bill Impacts
|
Component
|
April 2017 (Current)
|
July 2017 – June 2018
(recovery
over an extended period)
|
July – Dec. 2017
(recovery within 2017)
|
|
Base Charge
|
$60.47
|
$60.47
|
$60.47
|
|
Fuel Cost Recovery
|
$33.77
|
$38.47
|
$42.50
|
|
Capacity Cost Recovery
|
$11.38
|
$11.38
|
$11.38
|
|
Energy Conservation Cost Recovery
|
$3.17
|
$3.17
|
$3.17
|
|
Environmental Cost Recovery
|
$1.51
|
$1.51
|
$1.51
|
|
Nuclear - CR3 Uprate
|
$1.56
|
$1.56
|
$1.56
|
|
Nuclear - Levy
|
$0
|
$0
|
$0
|
|
Asset Securitization Charge
|
$2.45
|
$3.59
|
$3.59
|
|
Subtotal
|
$114.31
|
$120.15
|
$124.18
|
|
Gross Receipts Tax
|
$2.93
|
$3.08
|
$3.18
|
|
Totals
|
$117.24
|
$123.23
|
$127.36
|
Source:
Schedule E-10s from DEF pleadings (FPSC Document Nos. 04213-17 and 04533-17)
Whether
the mid-course correction is implemented over the remaining months in 2017 or is
extended into 2018 as requested by the Company, a carrying charge on the
unrecovered balance will be incurred. In both instances, the 30-day commercial
paper rate is used for the calculations. As reflected on Schedule E1-B, DEF
included $1,147,272 in carrying costs for the proposed recovery period. For
comparative purposes, if the mid-course correction is fully recovered in 2017,
the carrying cost would be approximately $763,000.
Conclusion
Staff believes
implementing the mid-course correction as proposed by DEF is reasonable in this
instance. DEF’s proposed methodology provides for a lower bill to customers in
the near term compared to recovering the costs over a shorter period.
Staff recommends
that the Commission approve DEF’s Petition for Mid-Course Correction to its
2017 fuel cost recovery factors and the associated tariff sheets. The revised
fuel cost recovery factors and associated tariffs should become effective with
the July 2017 billing cycle and continue until the Citrus 1 GBRA is placed into
rates.
