Discussion
of Issues
Issue 1:
Should the Commission approve FPUC’s, Chesapeake’s,
and Fort Meade’s proposed GRIP surcharges for 2018?
Recommendation:
Yes, the Commission should approve FPUC’s,
Chesapeake’s, and Fort Meade’s proposed 2018 GRIP surcharge for each rate class
effective for all meter readings for the period January – December 2018.
(Ollila)
Staff Analysis:
The FPUC and Chesapeake GRIP surcharges have been in
effect since January 2013, while Fort Meade’s surcharges were first implemented
in January 2017. In response to staff’s data request, FPUC and Chesapeake
stated that the replacement projects scheduled to be completed in 2017 are in Lake
Worth, Palm Beach, Bartow, Lake Wales, and Winter Haven. Projects begun in 2017
and scheduled to be completed in early 2018 are in West Palm Beach and Lake
Wales. Attachment A provides an update of mains and services replaced and
replacement forecasts.
The GRIP replacement program for FPUC and Chesapeake is expected
to be complete in 2022 as scheduled. In its response to staff’s data request, the
company explained that in the early part of the program, based on their
Distribution Integrity Management Program (DIMP), FPUC and Chesapeake
aggressively replaced high risk qualifying facilities first, which increased
capital expenditures. As a result, more than 50 percent of the mains and
service projects have been completed with five years remaining in the GRIP. FPUC
and Chesapeake stated that they are attempting to allocate the remaining projects
over the five years left in the program. The company noted that the program may
be accelerated if municipal roadway improvement projects arise where qualifying
facilities are located, helping to reduce the replacement costs.
Fort Meade’s GRIP replacement program was originally
expected to be complete by the end of 2018; the company stated that due to
non-FPUC construction work in the area of its qualifying facilities and the
lack of available contractor resources, Fort Meade has experienced delays and the
replacement may extend beyond 2018.
FPUC agreed to report any depreciation and/or operations
and maintenance savings as described in the 2012 order. In its response to
staff’s data request, the company stated that there were no depreciation and/or
operations and maintenance expense savings included as a reduction in expenses.
The company stated that it had determined that if there were any depreciation
expense savings, they would be offset by other factors, including increased
cost of removal.
FPUC’s True-ups by Year
FPUC’s calculations for the 2018 GRIP revenue requirement
and surcharges include a final true-up for 2016, an actual/estimated true-up
for 2017, and projected costs for 2018. FPUC recovers $747,727 of annual GRIP
expenses in base rates; therefore, the $747,727 is excluded from the GRIP
surcharge calculations.
Final True-up for 2016
FPUC stated that the revenues collected for 2016 were
$10,524,264, compared to a revenue requirement of $9,006,529, resulting in an over-recovery
of $1,517,735. Adding the 2015 under-recovery of $2,967,684, the 2016
over-recovery of $1,517,735, and subtracting interest of $6,494 associated with
any over- and under-recoveries, the final 2016 true-up is an under-recovery of
$1,456,443.
Actual/Estimated 2017 True-up
FPUC provided actual revenues for January through July and
estimated revenues for August through December 2017, totaling $12,397,877,
compared to an actual/estimated revenue requirement for 2017 of $10,297,955, resulting
in an over-recovery of $2,099,922. Adding the 2016 under-recovery of $1,456,443,
the 2017 over-recovery of $2,099,922, and interest of $5,099, the resulting total
2017 over-recovery is $648,578.
Projected 2018 Costs
FPUC projects capital expenditures of $6,600,000 for the
replacement of cast iron/bare steel infrastructure in 2018. This compares with
final 2016 expenditures of $19,571,150 and actual/estimated 2017 expenditures
of $6,071,766. The return on investment, depreciation expense, and property tax
and customer notification expense associated with that investment are
$11,640,975. Subtracting the revenue requirement for bare steel replacement
investment included in base rates results in a 2018 revenue requirement of
$10,893,248. After subtracting the total 2017 over-recovery of $648,578, the
2018 revenue requirement is $10,244,670. Table 1-1 shows FPUC’s 2018 revenue
requirement calculation.
Table 1-1
FPUC 2018 Revenue
Requirement Calculation
|
2018 Projected Expenditures
|
$6,600,000
|
|
Return on Investment
|
$7,669,444
|
|
Depreciation Expense
|
$2,308,044
|
|
Tax and Customer Notice Expense
|
$1,663,487
|
|
2018 Revenue Requirement
|
$11,640,975
|
|
Less Revenue Requirement in Base Rates
|
$747,727
|
|
2018 GRIP Revenue Requirement
|
$10,893,248
|
|
Less 2017 Over-recovery
|
$648,578
|
|
2018 Total Revenue Requirement
|
$10,244,670
|
Source: Cassel testimony, page 5 of 5
& Schedule C-2, page 4 of 15
Chesapeake’s True-ups by Year
Chesapeake’s calculations for the 2018 GRIP revenue
requirement and surcharges include a final true-up for 2016, an actual/estimated
true-up for 2017, and projected costs for 2018. Chesapeake does not have a
replacement recovery amount embedded in base rates.
Final True-up for 2016
Chesapeake stated that the revenues collected for 2016
were $2,590,372 compared to a revenue requirement of $2,474,720, resulting in
an over-recovery of $115,652. Adding the 2015 under-recovery amount of $125,419,
the 2016 over-recovery of $115,652, and interest of $88 associated with any
over- and under-recoveries, the final 2016 under-recovery is $9,679.
Actual/Estimated 2017 True-up
Chesapeake provided actual GRIP revenues for January
through July and estimated revenues for August through December 2017, totaling
$2,924,819, compared to an actual/estimated revenue requirement of $3,057,660,
resulting in an under-recovery of $132,840. Adding the 2016 under-recovery
amount of $9,679, the 2017 under-recovery of $132,840, and interest of $156,
the total 2017 true-up is an under-recovery of $142,364.
Projected 2018 Costs
Chesapeake projects capital expenditures of $3,300,000 for
the replacement of cast iron/bare steel infrastructure in 2018. This compares
with final 2016 expenditures of $6,453,987 and actual/estimated 2017
expenditures of $2,852,772. The return on investment, depreciation expense, and
property tax and customer notification expense to be recovered in 2018 totals $3,383,086.
After adding the total 2017 under-recovery of $142,364, the total 2018 revenue
requirement is $3,525,450. Table 1-2 shows Chesapeake’s 2018 revenue requirement
calculation.
Table 1-2
Chesapeake 2018 Revenue
Requirement Calculation
|
2018 Projected Expenditures
|
$3,300,000
|
|
Return on Investment
|
$2,190,536
|
|
Depreciation Expense
|
$694,550
|
|
Tax and Customer Notice Expense
|
$498,000
|
|
2018 Revenue Requirement
|
$3,383,086
|
|
Plus 2017 Under-recovery
|
$142,364
|
|
2018 Total Revenue Requirement
|
$3,525,450
|
Source: Cassel testimony, page 5 of 5
& Schedule C-2, page 9 of 15
Fort Meade’s True-ups by Year
Fort Meade started its replacement program in 2016 and
first implemented GRIP surcharges in January 2017. Unlike FPUC and Chesapeake,
only bare steel services (and no mains) require replacement in Fort Meade.
Final True-up for 2016
Since Fort Meade did not have a GRIP surcharge in 2016, the
surcharge revenue for 2016 is $0. The revenue requirement for 2016 is $2,581.
After adding interest associated with the under-recovery of $1, the total 2016
under-recovery is $2,582.
Actual/Estimated 2017 True-up
Fort Meade provided actual GRIP revenues for January through
July and estimated revenues for August through December 2017, totaling $33,624,
compared to an actual/estimated revenue requirement of $16,201, resulting in an
over-recovery of $17,603. Adding the 2016 under-recovery of $2,582, the 2017
over-recovery of $17,603, and interest of $82, the resulting total 2017 true-up
is an over-recovery of $15,103.
Projected 2018 Costs
Fort Meade projects capital expenditures of $100,000 for
the replacement of cast iron/bare steel infrastructure in 2018. This compares
with 2016 final expenditures of $104,346 and actual/estimated 2017 expenditures
of $81,806. The return on investment, depreciation expense, and property tax
expense to be recovered in 2018 totals $25,019. After subtracting the total
2017 over-recovery of $15,103, the total 2018 revenue requirement is $9,916.
Table 1-3 shows Fort Meade’s 2018 revenue requirement calculation.
Table 1-3
Fort Meade 2018 Revenue
Requirement Calculation
|
2018 Projected Expenditures
|
$100,000
|
|
Return on Investment
|
$16,718
|
|
Depreciation Expense
|
$5,313
|
|
Tax Expense
|
$2,988
|
|
2018 Revenue Requirement
|
$25,019
|
|
Less 2017 Over-recovery
|
$15,103
|
|
2018 Total Revenue Requirement
|
$9,916
|
Source: Cassel testimony, page 5 of 5
& Schedule C-2, page 14 of 15
Proposed Surcharges for FPUC, Chesapeake, and
Fort Meade
As established in the 2012 order approving the GRIP, the
total 2018 revenue requirement is allocated to the rate classes using the same
methodology that was used for the allocation of mains and services in the cost
of service study used in the companies’ most recent rate case. Fort Meade has
the same rate schedules as FPUC; therefore, FPUC’s allocation factors are used
to calculate the GRIP surcharges for Fort Meade. After calculating the
percentage of total plant costs attributed to each rate class, the respective
percentages were multiplied by the 2018 revenue requirement, resulting in the
revenue requirement by rate class. Dividing each rate class’ revenue
requirement by projected therm sales provides the GRIP surcharge for each rate
class.
The proposed 2018 GRIP surcharge for FPUC’s residential
customers on the RS Schedule is $0.24395 per therm (compared to the current
surcharge of $0.34225 per therm). The decrease in the surcharge is a result of
the decrease in capital expenditures and the 2017 over-recovery discussed
earlier. The monthly bill impact is $4.88 for a residential customer using the
typical 20 therms per month. The proposed FPUC tariff page is Attachment B.
The proposed 2018 GRIP surcharge for residential
Chesapeake customers on the FTS-1 schedule is $0.11838 per therm (compared to
the current surcharge of $0.10371 per therm). The monthly bill impact is $2.37 for
a residential customer using the typical 20 therms per month. The proposed
Chesapeake tariff pages are contained in Attachment C.
The proposed 2018 GRIP surcharge for residential Fort
Meade customers on the RS Schedule is $0.08198 per them (compared to the
current surcharge of $0.36931 per therm). The monthly bill impact is $1.64 for
a residential customer using the typical 20 therms per month. The proposed Fort
Meade tariff page is provided in Attachment D.
Conclusion
Staff believes the calculation of the 2018 GRIP surcharge
revenue requirement and the proposed GRIP surcharges for FPUC, Chesapeake, and
Fort Meade are reasonable and accurate. Staff recommends approval of FPUC’s,
Chesapeake’s, and Fort Meade’s proposed 2018 GRIP surcharge for each rate class
effective for all meter readings for the period January – December 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. (Brownless)
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.
