Discussion
of Issues
Issue 1:
Should the Commission approve Duke's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve Duke’s proposed
URD tariffs and associated charges as
shown in Attachment A, effective July 13, 2017.
(Ollila)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
defines investor-owned utilities’ (IOU) responsibilities for filing updated URD
tariffs. Duke has filed the instant petition pursuant to subsection (3) of the
rule, which requires IOUs to file supporting data and analyses for URD tariffs
at least once every three years.
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
Comparison of URD Differential
per Lot
|
|
Current Differential
|
Proposed Differential
|
|
Low Density
|
$768
|
$694
|
|
High Density
|
$459
|
$403
|
|
Ganged Meter
|
$211
|
$158
|
Source: 2014
Order and 2017 Petition
As shown in Table 1-1, the proposed URD differentials show a decrease for
all model subdivisions. The calculations of the proposed URD charges include updated
labor and material costs, as well as updated operational costs.
Updated Labor and Material Costs
The installation costs of both overhead and underground
facilities include the labor and material costs to provide primary, secondary,
and service distribution lines, as well as transformers. The cost to provide
overhead service also includes poles. The cost to provide underground service
includes the cost of trenching and backfilling. Duke reevaluated each
subdivision design to determine if the designs still met current construction
standards for the National Electric Safety Code (NESC) and Duke. According to
Duke, all subdivision designs had minor modifications to meet NESC and Duke
standards. Duke reported that it upgraded certain padmounted transformers in
the underground designs, resulting in a minor increase in the differential
cost.
Labor and material costs decreased from 2014 to 2017. Duke
explained that material costs have fluctuated marginally, i.e., plus or minus
five percent; thus, the decrease in labor cost is the primary driver in cost
reduction. Overhead construction continues to be performed by Duke employees
and underground construction continues to be performed by contractors. Labor
rates for Duke employees have remained relatively flat; the decrease is due to a
decrease in Duke’s other (i.e., non-pension) post-employment benefit plan. Other
post-employment benefits do not include pension, but may include healthcare or
life insurance premiums. In response to staff’s data request, Duke explained
that its predecessor company’s (Progress Energy Florida, Inc.) benefit plan was
harmonized, i.e., blended, with Duke’s plan, resulting in a plan amendment
which reduced benefits for a four-year period beginning in the fourth quarter
of 2014.
Contractor labor costs decreased due to the move from
hourly pricing to unit-based pricing. Duke explained that hourly pricing
compensates contractors for the duration to complete the work, including, for
example, any unforeseen delays. Under unit-based pricing, contractors are
compensated based on fixed prices for specific work; therefore, contractors
absorb the cost of any unforeseen delays.
Loading factors decreased from 2014 to 2017. The Design
and Project Management loading factor decreased from 17.90 to 13.90 percent of
labor. The Management and Supervision loading factor decreased from 35.67 to
28.86 percent of labor. Both factors decreased because the investment in
distribution costs increased at a greater rate than the actual management and
supervision costs.
Table 1-2 below compares total 2014 and 2017 labor and
material costs for the three subdivisions. As Table 1-2 shows, the total labor
and material cost differentials decreased for all three model subdivisions
because the cost of underground construction decreased at a greater rate than
the cost of overhead construction.
Table 1-2
Labor and Material Costs per
Lot
|
|
2014 Costs
|
2017 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/material Costs
|
$1,654
|
$1,477
|
($177)
|
|
Overhead Labor/material Costs
|
$1,168
|
$1,069
|
($99)
|
|
Per lot Differential
|
$486
|
$408
|
($78)
|
|
High Density
|
|
|
|
|
Underground Labor/material Costs
|
$1,309
|
$1,181
|
($128)
|
|
Overhead Labor/material Costs
|
$946
|
$865
|
($81)
|
|
Per lot Differential
|
$363
|
$316
|
($47)
|
|
Ganged Meter
|
|
|
|
|
Underground Labor/material Costs
|
$753
|
$686
|
($67)
|
|
Overhead Labor/material Costs
|
$627
|
$609
|
($18)
|
|
Per lot Differential
|
$126
|
$77
|
($49)
|
Source: 2014 Order and 2017 Petition
Updated Operational Costs
Rule 25-6.078(4), F.A.C., requires that the differences in
net present value (NPV) 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 inclusion of the operational
cost is intended to capture longer term costs and benefits of undergrounding.
Operational costs include operations and maintenance costs
and capital costs and represent the cost differential between maintaining and
operating an underground versus an overhead system over the life of the
facilities. The inclusion of the storm restoration cost in the URD differential
lowers the differential, since an underground distribution system generally
incurs less damage than an overhead system as a result of a storm, and
therefore, less restoration costs when compared to an overhead system. Duke’s
operational costs, last updated for the 2014 filing, represent a five-year
average (2012 – 2016). The methodology used by Duke in this filing for
calculating the NPV of operational costs was approved in Order No.
PSC-12-0348-TRF-EI.
Duke’s NPV calculation used a 34-year life of the
facilities and a 6.80 percent discount rate. Staff notes that operational costs
may vary among IOUs as a result of differences in size of service territory,
miles of coastline, regions subject to extreme winds, age of the distribution
system, or construction standards.
Table 1-3 below compares the 2014 and 2017 NPV
calculations of operational and storm restoration cost differentials between
overhead and underground systems on a per lot basis. As Table 1-3 shows, there
are minor differences in the differentials from 2014 to 2017.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
|
2014 Calculation
|
2017 Calculation
|
Difference
|
|
Low Density
|
|
Underground NPV - Operational Costs
|
$1,022
|
$1,189
|
$167
|
|
Overhead NPV - Operational Costs
|
$741
|
$903
|
$162
|
|
Per lot Differential
|
$282
|
$286
|
$4
|
|
High Density
|
|
Underground NPV - Operational Costs
|
$520
|
$605
|
$85
|
|
Overhead NPV - Operational Costs
|
$424
|
$517
|
$93
|
|
Per lot Differential
|
$96
|
$87
|
($9)
|
|
Ganged Meter
|
|
Underground NPV - Operational Costs
|
$400
|
$466
|
$66
|
|
Overhead NPV - Operational Costs
|
$315
|
$385
|
$70
|
|
Per lot Differential
|
$85
|
$81
|
($4)
|
Source: 2014 and 2017 Petitions
Other Proposed Tariff Changes
In addition to the proposed tariff changes discussed
above, Duke proposed modifications to the charges and credits for feeder mains
within the subdivision, customer-provided trenching and backfilling, new
underground service laterals from overhead distribution systems, and for the
conversion of existing service laterals from overhead to underground. Factors
which contributed to the changes include the updated labor and material
charges. In addition, Duke proposed a change in language in the construction
contract’s facility charge from cost-specific information to a description of
the costs themselves.
Conclusion
Staff has reviewed Duke’s proposed URD tariffs and
associated charges, its accompanying work papers, and its responses to staff’s
data request. Staff believes the proposed URD tariffs and associated charges
are reasonable. Staff recommends approval of Duke’s proposed URD tariffs and
associated charges as shown in Attachment A, effective July 13, 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. (DuVal)
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.
