Discussion
of Issues
Issue 1:
Should the Commission approve TECO's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve TECO’s proposed
URD tariffs and other associated charges as shown in Attachment A, effective
July 13, 2017. (Draper, Rome)
Staff Analysis:
Rule 25-6.078 Florida Administrative Code (F.A.C.), defines
investor-owned utilities’ (IOU) responsibilities for filing updated URD
tariffs. TECO has filed the instant petition pursuant to subsection (3) of the
rule, which requires IOUs to seek Commission approval of updated URD tariff
charges if the utility’s per-lot cost differentials between overhead and
underground service based on current material and labor costs vary by more than
10 percent from the existing Commission-approved differentials. All IOUs are
required 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 the
utility incurs to provide underground service in place of 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. Costs for underground construction have
historically been higher than for standard overhead construction and the
additional cost is paid by the customer as a
contribution-in-aid-of-construction (CIAC). Typically, the URD customer is the
developer of the subdivision.
TECO’s URD charges are based on two standard model
subdivisions: (1) a 210-lot low density (LD) subdivision, and (2) a 176-lot
high density (HD) subdivision. While actual construction may differ from the
model subdivisions, the model subdivisions are designed to reflect average
overhead and underground subdivisions. TECO does not utilize a model HD
subdivision where dwelling units take service at ganged meter pedestals (groups
of meters at the same physical location).
In response to a staff data request, TECO stated that the
designs used for the LD and HD underground subdivisions in this docket were the
same as those used in the Company’s 2015 docket. However, TECO identified two
changes to the designs for the LD and HD overhead subdivisions: (a)
substitution of 35-foot Class 4 wooden poles for 30-foot Class 6 wooden poles
to meet wind-loading/clearance guidelines, and (b) addition of more lightning
arrester stations to address a deficiency in the prior design. The impacts of
these design changes are discussed later in this recommendation.
Table 1-1 presents a comparison between the currently
approved and proposed URD differentials for the LD and HD subdivisions. The
charges shown are per-lot charges.
Table 1-1
Comparison of URD
Differential per Lot
|
|
Current Differential
|
Proposed Differential
|
|
Low Density
|
$373.86
|
$247.69
|
|
High Density
|
$47.64
|
$0.00
|
Source:
Petition page 2; paragraphs 6 and 7
As shown in Table 1-1 above, the differentials per lot
have decreased for both subdivisions. Two primary factors impacted the calculation
of TECO’s proposed URD charges and are discussed in greater detail below: (1)
updated labor and material costs, and (2) calculation of operational costs.
Updated 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. TECO’s current URD charges are based on 2015 labor and material costs,
and the proposed charges are based on 2017 costs. Table 1-2 compares the
per-lot 2015 and 2017 underground and overhead labor and material costs
(rounded to whole dollars) for the two subdivisions.
Table 1-2
Labor and Material Costs per
Lot
|
|
2015 Costs
|
2017 Costs
|
Difference
|
|
Low Density
|
|
Underground labor/material costs
|
$2,127
|
$2,156
|
$29
|
|
Overhead labor/material costs
|
$1,269
|
$1,379
|
$110
|
|
Per lot differential
|
$858
|
$777
|
($81)
|
|
High Density
|
|
Underground labor/material costs
|
$1,638
|
$1,640
|
$2
|
|
Overhead labor/material costs
|
$979
|
$1,001
|
$22
|
|
Per lot differential
|
$659
|
$639
|
($20)
|
Source:
Petition Exhibit pages LD 1 and HD 1
As indicated in Table 1-2 above, the total labor and
material cost differentials decreased for both the LD and HD model subdivisions
because the costs of overhead construction increased at a greater rate than the
costs of underground construction. Documentation provided by TECO indicated
that the two design changes noted earlier in this recommendation pertaining to
the model subdivisions with overhead service affected the associated
construction costs for overhead service.
The materials cost for overhead construction increased due
to the substitution of more expensive 35-foot Class 4 wooden poles for 30-foot
Class 6 wooden poles in order to meet wind-loading/clearance guidelines. Materials
costs for overhead service also increased due to the addition of more lightning
arrester stations to address a deficiency in the design used in the 2015 docket.
The additional labor hours necessary to install the additional lightning
arrester stations and the larger poles also increased the associated labor cost
portion of overhead construction.
TECO provided other relevant documentation to show that
the Company decreased its material handling factor from 23.38 percent to 15.31
percent. The recalculation of the factor to reflect current material handling
practices had the effect of mitigating the increases to construction costs for
both the LD and HD model subdivisions.
TECO also provided information to show that contractor
overhead adder rates increased from 21.85 percent to 34.83 percent. TECO
represented that the increase in adder rates was based on prior year actual
costs associated with all projects using contract labor. Some of the more
common activities typically performed by contractors include trenching, transformer
pad site preparation, and splice box installation. These contractor services
are performed in association with underground construction; therefore, the
increase in contractor overhead adder rates had a greater effect on underground
construction costs than on the construction costs for overhead service.
However, increases in labor costs associated with underground construction were
mitigated by decreases in material costs.
Updated Operational Costs
Rule 25-6.078(4), F.A.C., provides 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. Operational costs include
operations and maintenance (O&M) costs and capital costs. The inclusion of
the operational costs is intended to capture longer term costs and benefits of
undergrounding.
TECO used its actual historical O&M and capital
expenses for the period 2014 through 2016 to calculate the operational cost difference
for overhead and underground facilities. Table 1-3 below compares the 2015 and
2017 NPV calculations of operational cost differentials (rounded to whole
dollars) between overhead and underground systems on a per-lot basis.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
|
2015 Calculation
|
2017 Calculation
|
Difference
|
|
Low Density
|
|
Underground NPV - Operational Costs
|
$906
|
$1,025
|
$119
|
|
Overhead NPV - Operational Costs
|
$1,390
|
$1,554
|
$164
|
|
Per lot Differential
|
($484)
|
($529)
|
($45)
|
|
High Density
|
|
Underground NPV - Operational Costs
|
$432
|
$484
|
$52
|
|
Overhead NPV - Operational Costs
|
$1,044
|
$1,157
|
$113
|
|
Per lot Differential
|
($612)
|
($673)
|
($61)
|
Source: Petition Exhibit
pages LD 1 and HD 1
Table 1-3 shows that the NPV of operational costs for
overhead service is higher than the NPV for underground service. This reflects
the inclusion of storm restoration costs in the NPV calculations; storm
restoration costs are higher for overhead service than for underground service.
This has the effect of reducing the differential in the per-lot calculations.
The methodology used by TECO in its 2015 filing for
calculating the NPV of operational costs was approved in Order No.
PSC-09-0784-TRF-EI. In
response to a staff data request, TECO stated that it used the same approved
methodology in the instant docket with the exception of the period over which
storm restoration costs were averaged. The storm restoration costs in the
current filing are based on the previous three-year average of hurricane
recovery costs for the distribution system; the value used in the 2015 docket
was based on the average of hurricane recovery costs for the period 2004
through 2008 inclusive (five years).
TECO represented that the use of the most recent
three-year average is consistent with the methodology used in the NPV
calculations for non-storm operating costs. The Company also asserted that the
most recent three-year period is more representative of current and future
costs of restoration and better reflects storm activity in TECO’s service
territory than the older data used in the Company’s prior URD filing. Using the
most recent three-year period had the effect of mitigating the increase in the
NPV of operational costs associated with overhead construction.
TECO’s NPV calculation used a 35-year life of the
facilities and a 6.61 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.
Other Proposed Tariff Changes
In addition to the proposed tariff changes discussed
above, TECO proposed to revise its non-refundable deposits for estimates of
CIAC for conversion of existing overhead distribution facilities to underground
facilities. To develop the proposed deposits, TECO adjusted its current deposit
amounts by the Consumer Price Index (CPI) factors published by the United
States Department of Labor Bureau of Labor Statistics in Table 24 of the CPI
Detailed Report.
TECO also proposed modifications to the charges and
credits for customers requesting 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 Company’s requested
modifications included the shift to using 35-foot poles for clearance reasons
and the increases in contractor labor costs associated with conversions to
underground service.
Conclusion
Documentation provided by TECO supports the Company’s
assertion that the per-lot cost differentials for the model LD and HD
subdivisions have decreased. A significant factor contributing to the decrease in
the differentials is that the costs of overhead construction increased at a
greater rate than the costs of underground construction. The increases in the
cost of overhead construction may be attributed in part to the Company’s design
changes to subdivisions with overhead service to better reflect actual
construction practices.
Staff has reviewed TECO’s proposed changes to its URD tariffs
and associated charges, the accompanying work papers, and responses to staff’s
data requests. Staff believes TECO’s proposed URD tariffs and other associated
charges are reasonable; staff recommends approval of the tariffs 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. (Mapp)
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.
