Case Background
On April 2,
2018, Tampa Electric Company (TECO or utility) filed a petition for approval of
its revised underground residential distribution (URD) tariffs. The proposed
tariffs and associated charges are shown in legislative format in Attachment A
of the recommendation. TECO’s current URD tariffs were approved in Order No.
PSC-2017-0293-TRF-EI.
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, if any, 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. Typically, the URD customer is the developer of the
subdivision.
Staff issued one
data request and in its response TECO provided certain corrections to the cost
support. The Commission has jurisdiction over this matter pursuant to Sections
366.03, 366.04, 366.05, and 366.06, Florida Statutes.
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 associated charges as shown in Attachment A, effective June 5,
2018. (Doherty)
Staff Analysis:
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.
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). However, as
shown on proposed tariff sheet No. 5.510, TECO’s proposed URD differential
charges are $0 for both model subdivisions. Therefore, the URD customer will
not be assessed a CIAC charge for underground service in a new residential
subdivision.
Table 1-1 presents a comparison between the currently
approved and proposed URD differentials for the LD and HD subdivision. The
charges shown are per-lot charges.
Table 1-1
Comparison of URD Differential per Lot
|
|
Current Differential
|
Proposed Differential
|
|
Low Density
|
$247.69
|
$0.00
|
|
High Density
|
$0.00
|
$0.00
|
Source: Petition page 2;
paragraphs 6 and 7
As shown in Table 1-1 above, the proposed differential for
the LD subdivision decreases to $0 per lot and the proposed differential for
the HD subdivision remains at $0. The decrease in the LD differential is
primarily attributable to the overhead operational costs increasing at a higher
rate than the underground operational costs. The calculations of the proposed
URD charges include updated labor and material costs and updated operational
costs. The costs are discussed below.
Updated Labor and Material Cost
The installation costs of 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 2016
labor and material costs and the proposed charges are based on 2017 costs.
Table 1-2 compares the per-lot 2016 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
|
|
2016 Costs
|
2017 Costs
|
Difference from 2016 – 2017
|
|
Low Density
|
|
Underground labor/material costs
|
$2,156
|
$2,082
|
($74)
|
|
Overhead labor/material costs
|
$1,379
|
$1,289
|
($90)
|
|
Per lot differential
|
$777
|
$793
|
$16
|
|
High Density
|
|
Underground labor/material costs
|
$1,640
|
$1,596
|
($44)
|
|
Overhead labor/material costs
|
$1,001
|
$1,001
|
$0
|
|
Per lot differential
|
$639
|
$595
|
($44)
|
Source: Petition Exhibit
pages LD 1 and HD 1 and revised LD 1 filed on May 4, 2018.
As indicated in Table 1-2 above, the overhead labor and
material cost for the LD model subdivision decreased at a higher rate than the
underground labor and material cost, resulting in a minor increase in the
differential ($16). For the HD model subdivision, underground labor and
material costs decreased, while overhead labor and material cost remained the
same, resulting in a decrease in the differential ($44).
Documentation provided by TECO shows that material costs
for both underground and overhead construction increased. Specifically, for the
LD subdivision model, underground material cost increased by 3.63 percent and
overhead material cost increased by one percent. TECO explained that the utility
has seen more volatility in material costs as a result of hurricane restoration
work in recent years. However, labor costs decreased by 8.55 percent for
underground construction and by 12.61 percent for overhead construction
resulting in the overall decrease in total labor/material costs shown in Table
1-2. TECO explained that labor costs mainly decreased because of a decrease in
contract labor rates. The HD subdivision model has similar changes in material
and labor costs.
Updated Operational Costs
Rule 25-6.078(4), F.A.C., provides that the differences in
Net Present Value (NPV) of actual 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 the longer term costs
and benefits of undergrounding.
TECO used its actual historical O&M and capital
expenses to calculate the operational cost difference for overhead and
underground facilities. Table 1-3 below compares 2016 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
|
|
2016 Calculation
|
2017 Calculation
|
Difference
|
|
Low Density
|
|
Underground NPV – Operational Costs
|
$1,025
|
$1,247
|
$222
|
|
Overhead NPV – Operational Costs
|
$1,554
|
$2,531
|
$977
|
|
Per lot Differential
|
($529)
|
($1,284)
|
($755)
|
|
High Density
|
|
Underground NPV – Operational Costs
|
$484
|
$590
|
$106
|
|
Overhead NPV – Operational Costs
|
$1,157
|
$1,871
|
$714
|
|
Per lot Differential
|
($673)
|
($1,281)
|
($608)
|
Table 1-3 shows that the NPV of operational costs for
overhead service increased at a significantly higher rate than the NPV of
operational costs for underground service. This has the effect of reducing the
URD differentials shown on Table 1-1 to $0. TECO explained that the inclusion
of the 2017 overhead storm restoration costs as a result of Hurricane Irma
contributed to the significant increase in the overhead operational costs. The
operational costs are based on the three-year average of TECO’s operational
costs for the years 2015 through 2017.
The methodology used by TECO in its 2017 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. TECO’s NPV calculation uses a 35-year life for
the facilities and a 6.81 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) of 2.1 percent. 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 based on
current material and labor costs.
Conclusion
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. Documentation provided by TECO supports the utility’s
assertion that the per-lot cost differentials for the model LD and HD
subdivisions is $0. Staff believes TECO’s proposed URD tariffs and associated
charges are reasonable and recommends approval of the tariffs shown in
Attachment A, effective June 5, 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. (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.
