Discussion
of Issues
Issue 1:
Should the Commission approve FPL's request to
decrease its AFUDC rate from 6.16 percent to 5.97 percent?
Recommendation:
Yes. The appropriate AFUDC rate for FPL is 5.97
percent based on a 13-month average capital structure for the period ended
December 31, 2017. (Hightower)
Staff Analysis:
FPL has requested a decrease in its AFUDC rate from
6.16 percent to 5.97 percent. Rule 25-6.0141(2), Florida Administrative Code (F.A.C.),
Allowance for Funds Used During Construction, provides the following guidance:
(2) The
applicable AFUDC rate shall be determined as follows:
(a) The most recent 13-month average embedded cost of
capital, except as noted below, shall be derived using all sources of capital
and adjusted using adjustments consistent with those used by Commission in the
utility’s last rate case.
(b) The cost rates for the components in the capital
structure shall be the midpoint of the last allowed return on common equity,
the most recent 13-month average cost of short term debt and customer deposits
and a zero cost rate for deferred taxes and all investment tax credits. The
cost of long term debt and preferred stock shall be based on end of period
cost. The annual percentage rate shall be calculated to two decimal places.
In support of its requested AFUDC rate of 5.97 percent,
FPL provided its calculations and capital structure as Schedules A and B
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-6.0141(2), F.A.C. The requested decrease in the
AFUDC rate is due principally to a slight decrease in the cost rates of long
term debt and a slightly lower ratio of common equity in the capital structure.
The cost of equity is 10.55 percent, which was approved by the Commission in
Order No. PSC-2016-0560-AS-EI.
Based on its
review, staff believes that the requested decrease in the AFUDC rate from 6.16
percent to 5.97 percent is appropriate, consistent with Rule 25-6.0141, F.A.C.,
and recommends that it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the requested 5.97 percent annual AFUDC rate?
Recommendation:
The appropriate monthly compounding rate to maintain
an annual rate of 5.97 percent is 0.484385 percent. (Hightower)
Staff Analysis:
FPL requested a monthly compounding rate of 0.484385
percent to achieve an annual AFUDC rate of 5.97 percent. In support of the
requested monthly compounding rate of 0.484385 percent, FPL provided its
calculation as Schedule C attached to its request. Rule 25-6.0141(3), F.A.C.,
provides a formula for discounting the annual AFUDC rate to reflect monthly compounding.
The rule also requires that the monthly compounding rate be calculated to six
decimal places.
Staff reviewed
the Company’s calculations and determined that they comply with the
requirements of Rule 25-6.0141(3),
F.A.C. Therefore, staff recommends that a discounted monthly AFUDC rate
of 0.484385 percent be approved.
Issue 3:
Should the Commission approve FPL's requested
effective date of January 1, 2018, for implementing the revised AFUDC rate?
Recommendation:
Yes. The revised AFUDC rate should be effective as
of January 1, 2018, for all purposes. (Hightower)
Staff Analysis:
FPL’s proposed AFUDC rate was calculated using a
13-month average capital structure for the period ended December 31, 2017. Rule
25-6.0141(5), F.A.C., provides that:
The new AFUDC rate shall be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s
requested effective date of January 1, 2018, complies with the requirement that
the effective date does not precede the period used to calculate the rate, and
therefore should be approved.
Issue 4:
Should this docket be closed?
Recommendation:
If no person whose substantial interest are affected
by the proposed agency action files a protest within 21 days of the issuance of
the order, this docket should be closed upon the issuance of a consummating
order. (Janjic)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order.
