Discussion
of Issues
Issue 1:
Should the Commission approve City Gas' proposed
SAFE factors effective January 2018?
Recommendation:
Yes. The Commission should approve City Gas’
proposed SAFE factors with an effective date of the first billing cycle of
January 2018. (Guffey)
Staff Analysis:
Under the SAFE program, City Gas will relocate and
replace 254.3 miles of mains and associated facilities from rear property
easements to the street front over a 10-year period, ending in 2025. City Gas
began its replacements at the end of 2015, as provided for in the 2015 order,
and the surcharges have been in effect since January 2016.
The 2016 order approving the current surcharges states
that “if City Gas files a rate case before 2025, the then-current SAFE
surcharge program would be folded into any newly approved rate base, and the
surcharge would begin anew.” On October
23, 2017, City Gas filed a petition for a rate increase and the Commission opened
Docket No. 20170179-GU to address the rate case proceeding. In the rate case,
City Gas witness Michael Morley testifies that City Gas proposes to incorporate
the SAFE program revenue requirement ($3.5 million) in the requested base rate
increase of $19.3 million and reset the SAFE surcharge to $0 at the time
revised base rates will go into effect. Since the SAFE program is expected to
continue until 2025, the SAFE surcharge would begin anew in 2019.
As stated in City Gas’ response to staff’s data request, the
company's 2017 replacement plans include eight projects. Seven projects are in
the Miami area (Cutler Bay, Hialeah, and South Miami Heights neighborhood). One
project is in Brevard County (Merritt Island). The company’s projected 2018 replacement
plans include nine projects. Eight projects will be in the Miami area (South
Miami Heights neighborhood, Westchester neighborhood, Hialeah, and Miami
Gardens) and one project will be in Brevard County (Merritt Island). Attachment
1 of this recommendation displays City Gas' mains and services replacement
progress, both actual and forecasted.
City Gas stated that its replacement projects are
generally prioritized based on the risk assessment model in its Distribution
Integrity Management Program (DIMP). Prioritization factors include, but are
not limited to, the location of the pipeline, pipeline material, leak incident
rates, and rear lot pipelines with maintenance access complications and
customer encroachments.
True-ups by Year
As required by the initial 2015 order, City Gas’
calculations for the 2018 revenue requirement and SAFE factors include a final
true-up for 2016, an actual/estimated true-up for 2017, and projected cost for
2018. City Gas does not currently include interest on any over- or
under-recoveries in its calculations.
Final True-up for 2016
City Gas stated that the revenues collected for 2016 were
$931,973 compared to a revenue requirement of $749,325, resulting in
over-recovery of $182,647.
Actual/Estimated 2017 True-up
City Gas provided actual revenues for January through July
and forecast revenues for August through December of 2017, totaling $2,025,987,
compared to an actual/estimated revenue requirement of $2,259,077, resulting in
an under-recovery of $233,090. Adding the 2016 over-recovery of $182,647 to the
2017 under-recovery of $233,090, the resulting total 2017 true-up is an
under-recovery of $50,443.
Projected 2018 Costs
The company projects investment of $30,634,858 for the
relocation of gas mains from rear property easements to the street front in
2018. The corresponding revenue requirement, which includes return on
investment, depreciation, and taxes, is $3,452,072. After adding the 2017
under-recovery of $50,443, the total 2018 revenue requirement is $3,502,515.
Table 1-1 displays the 2018 revenue requirement calculation.
Table 1-1
2018 Revenue Requirement
Calculation
|
2018 Projected Replacements
|
$30,634,858
|
|
Return on Investment
|
$2,315,506
|
|
Depreciation Expense
|
$905,272
|
|
Property Tax Expense
|
$231,294
|
|
2018 Revenue Requirement
|
$3,452,072
|
|
Plus 2017 Under-recovery
|
$50,443
|
|
Total 2018 Revenue Requirement
|
$3,502,515
|
Source: Exhibit B of the Petition
Proposed SAFE Factors
The SAFE factors are fixed monthly surcharges. The company's
cost allocation method was approved in the 2015 order, and according to City
Gas, used for the instant filing. The approved methodology allocates the current
cost of a 2-inch pipe to all customers (other than those with pre-existing
contracts) on a per customer basis and allocates the incremental cost of
replacing a pipe larger than 2 inches to customers who use over 6,000 therms
per year. For larger customers, the cost pool takes into account that the
minimum pipe is insufficient to serve their demand, and therefore, allocates an
incremental per foot cost in addition to the all-customer cost. The resulting
allocation factors are applied to the 2018 total revenue requirement to develop
the monthly customer SAFE factors.
Staff notes that the average residential customer uses approximately
240 therms per year. The proposed fixed monthly factor is $2.60 for customers
using less than 6,000 therms per year, compared to the current factor of $1.53
per month. For customers using 6,000 therms or more per year, the proposed
fixed monthly factor is $4.76, compared to the current factor of $2.77 per month.
Conclusion
Staff has reviewed City Gas’ filing and supporting
documentation and believes that the calculations are consistent with the
methodology and are reasonable and accurate. Therefore, staff recommends
approval of City Gas' proposed 2018 SAFE surcharge factors with an effective
date of the first billing cycle of January 2018.
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.
