Discussion
of Issues
Issue 1:
Should the Commission approve Gulf's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve Gulf’s proposed
URD tariffs and associated charges, as shown in Attachment A, effective
September 7, 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. Gulf 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, 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.
Gulf’s URD charges are based on two standard model
subdivisions: a 210-lot low density
subdivision and a 176-lot high density subdivision. While actual
construction may differ from the model subdivisions, the model subdivisions are
designed to reflect average overhead and underground subdivisions.
Table 1-1 shows the current and proposed URD differentials
for the low and high density subdivisions. The charges shown are per-lot
charges. Gulf’s URD tariffs also provide for reduced charges if the customer
chooses to supply and/or install the primary and secondary trench and duct
system.
Table 1-1
Comparison of URD
Differential per Lot
|
|
Current Differential
|
Proposed Differential
|
|
Low Density
|
$402
|
$498
|
|
High Density
|
$521
|
$562
|
Source:
2015 Order and 2017 Petition
As shown in Table 1-1, the proposed URD differentials show
an increase for both 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.
Gulf stated, in response to staff’s data request, that
there have not been any design changes to either the low or high density
subdivision since 2015. The mix of Gulf employee and contractor labor remains
the same as it was in 2015. Gulf employees perform most overhead construction
activities while contractor labor is used for underground construction. Both
Gulf and contractor labor rates increase as specified in their respective
contracts.
Total labor and material costs increased from 2015 to 2017
by a larger amount for underground construction than for overhead construction,
resulting in an increase in the differential. The driver of the increase is
material cost. Gulf explained in its response to staff’s data request that since
2015 the cost of underground material outpaced the cost of material used in overhead
construction. As an example, Gulf stated that the cost of underground padmount
transformers increased while the cost of overhead transformers remained stable.
Loading factors increased from 2015 to 2017. The Stores
Handling loading factor increased from 4 percent in 2015 to 17 percent in this
filing because of a higher volume of transmission material purchases. The
Stores Handling factor includes supervision, labor, and expenses incurred for
stores-related activities such as the operation of general storerooms. Gulf
explained that the increase in the Engineering loading factor from 48 to 52
percent is due to increases in its engineering labor rate.
Table 1-2 below compares total 2015 and 2017 per-lot labor
and material costs for the two subdivisions.
Table 1-2
Labor and Material Costs per
Lot
|
|
2015 Costs
|
2017 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/Material Costs
|
$2,307
|
$2,460
|
$153
|
|
Overhead Labor/Material Costs
|
$1,715
|
$1,740
|
$25
|
|
Per lot Differential
|
$592
|
$720
|
$128
|
|
High Density
|
|
Underground Labor/Material Costs
|
$1,895
|
$1,976
|
$81
|
|
Overhead Labor/Material Costs
|
$1,331
|
$1,352
|
$21
|
|
Per lot Differential
|
$564
|
$624
|
$60
|
Source:
2015 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. Gulf’s
operational costs, last updated for the 2015 filing, represent a five-year
average (2012 – 2016). The methodology used by Gulf in this filing for
calculating the NPV of operational costs was approved in Order No. PSC-12-0531-TRF-EI.
Gulf’s NPV calculation used a 32-year life of the
facilities and a 6.69 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 2015 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 small differences in the differentials from 2015 to 2017.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
|
2015 Calculation
|
2017 Calculation
|
Difference
|
|
Low Density
|
|
Underground NPV – Operational Costs
|
$436
|
$416
|
($20)
|
|
Overhead NPV- Operational Costs
|
$626
|
$638
|
$12
|
|
Per lot Differential
|
($190)
|
($222)
|
($32)
|
|
High Density
|
|
Underground NPV – Operational Costs
|
$274
|
$261
|
($13)
|
|
Overhead NPV – Operational Costs
|
$317
|
$323
|
$6
|
|
Per lot Differential
|
($43)
|
($62)
|
($19)
|
Source: 2015 Order and 2017 Petition
Other Proposed Tariff Changes
In addition to the proposed tariff changes discussed
above, Gulf proposed modifications to the reduced URD charges paid by customers
who either supply and install the primary and secondary trench and duct system
(system) or who only install the system. In addition, Gulf proposed
modifications to the charges that apply when a three-phase lift station for
sewage is requested in a new residential subdivision. Finally, Gulf proposed modifications
to binding cost estimates for URD conversions.
Conclusion
Staff has reviewed Gulf’s proposed URD tariffs and
associated charges, its accompanying work papers, and responses to staff’s data
requests. Staff believes the proposed URD tariffs and associated charges are reasonable.
Staff recommends approval of Gulf’s proposed URD tariffs and associated charges,
as shown in Attachment A, effective September 7, 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. (Janjic)
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.
