Discussion
of Issues
Issue 1:
Should the Commission approve FPUC’s, Chesapeake’s,
and Fort Meade’s proposed GRIP surcharges for the period January through
December 2019?
Recommendation:
Yes, the Commission should approve FPUC’s,
Chesapeake’s, and Fort Meade’s proposed GRIP surcharges for the period January through
December 2019. (Merryday)
Staff Analysis:
The GRIP surcharges have been in place since January
2013 for FPUC and Chesapeake, while Fort Meade’s surcharges were first
implemented in January 2017. In response to staff’s data requests, the companies
stated that replacement projects in Winter Haven, Eagle Lake, Lake Wales, West
Palm Beach, and Palm Beach were completed in 2018 and additional replacement
projects in Winter Haven, Bartow, West Palm Beach, Lake Worth, Haines City, and
Fort Meade were projected to continue into 2019. Attachment A provides an
update of mains and services replaced and replacement forecasts. The companies
stated that they prioritize the potential replacement projects focusing on
areas of high consequence and areas more susceptible to corrosion.
The Commission’s 2012 order states that FPUC and Chesapeake
agreed to report any operations and maintenance and depreciation expense
savings in their annual petitions for the GRIP surcharge. In response to
staff’s second data request, the companies stated that no depreciation or
operations and maintenance expense savings were included as a reduction in
expenses. The companies further stated that they had determined that if there
were any depreciation expense savings, they would be offset by the change in
asset life caused by the increased cost of removal.
The impacts of the Tax Cuts and Jobs Act of 2017 on the
companies’ 2018 GRIP calculations are currently being considered in separate
dockets that are scheduled to go to hearing November 27-30, 2018. Specifically,
in Docket No. 20180051-GU, FPUC proposed to treat the $1,040,141 in 2018 tax
savings as an over-recovery in the 2019 GRIP projection. In Docket No.
20180054-GU, Chesapeake proposed to treat the $324,362 in 2018 tax savings as
an over-recovery for the 2019 GRIP projection. In Docket No. 20180053-GU, Fort
Meade proposed to retain the $2,376 of 2018 tax savings. In response to staff’s
second data request, the companies suggested that the GRIP factors should be
adjusted after the Commission makes a final decision in those tax dockets. The
2019 GRIP calculations include the lower federal tax rate.
FPUC’s True-ups by Year
FPUC’s calculation for the 2019 GRIP revenue requirement
and surcharges include a final true-up for 2017, an actual/estimated true-up
for 2018, and projected costs for 2019. FPUC was authorized to recover $747,727
of annual GRIP expenses in base rates; therefore, the $747,727 is excluded from
the GRIP surcharge calculation.
Final True-up for 2017
FPUC stated that the revenues collected through the GRIP
surcharges for 2017 were $13,957,004, compared to a revenue requirement of
$10,278,434, resulting in an over-recovery of $3,678,570. The 2016
under-recovery of $1,456,443, the 2017 over-recovery of $3,678,570, and interest
of $9,137 associated with any over- and under-recoveries results in a final
2017 true-up is an over-recovery of $2,231,264.
Actual/Estimated 2018 True-ups
FPUC provided actual revenues for January through July 2018
and estimated revenues for August through December 2018, totaling $10,141,296,
compared to an actual/estimated revenue requirement for 2018 of $11,000,516,
resulting in an under-recovery of $859,220. The 2017 over-recovery of
$2,231,264, the 2018 under-recovery of $859,220, and interest of $41,848
results in a total 2018 over-recovery of $1,413,891.
Projected 2019 Costs
FPUC expects capital expenditures of $12,000,000 for the
replacement of cast iron/bare steel infrastructure in 2019. This compares with final
2017 expenditures of $7,208,720 and actual/estimated 2018 expenditures of
$6,133,092. The return on investment (which includes federal income taxes,
regulatory assessment fees, and bad debt), depreciation expense, and property
tax and customer notification expense associated with that investment are $11,414,481.
Subtracting the revenue requirement for bare steel replacement included in base
rates results in a 2019 revenue requirement of $10,666,754. After subtracting
the total 2018 over-recovery of $1,413,891, the 2019 revenue requirement is $9,252,863.
Table 1-1 shows FPUC’s 2019 revenue requirement calculation.
Table 1-1
FPUC 2019 Revenue
Requirement Calculation
|
2019 Projected Expenditures
|
$12,000,000
|
|
Return on Investment
|
$7,063,378
|
|
Depreciation Expense
|
2,589,547
|
|
Property Tax and Customer Notice Expense
|
1,761,557
|
|
2019 Revenue Requirement
|
$11,414,481
|
|
Less Revenue Requirement in Base Rates
|
-747,727
|
|
2019 GRIP Revenue Requirement
|
$10,666,754
|
|
Less 2018 Over-recovery
|
-1,413,891
|
|
2019 Total Revenue Requirement
|
$9,252,863
|
|
|
|
Source: Wight
testimony page 5 of 5, Schedule C-2 pages 4-5 of 15
Chesapeake’s True-ups by Year
Chesapeake’s calculation for the 2019 GRIP revenue
requirement and surcharges include a final true-up for 2017, an
actual/estimated true-up for 2018, and projected costs for 2019. Chesapeake
does not have a replacement recovery amount embedded in base rates.
Final True-up for 2017
Chesapeake stated that the revenues collected for 2017
were $2,919,064, compared to a revenue requirement of $3,073,570, resulting in
an under-recovery of $154,506. The 2016 under-recovery of $9,679, 2017
under-recovery of $154,506, and $12 for interest associated with any over- and
under-recoveries results in a final 2017 under-recovery of $164,174.
Actual/Estimated 2018 True-up
Chesapeake provided actual GRIP revenues for January
through July 2018 and estimated revenues for August through December 2018,
totaling $3,495,194, compared to an actual/estimated revenue requirement of
$3,630,319, resulting in an under-recovery of $135,126. The 2017 under-recovery
of $164,174, 2018 under-recovery of $135,126, and interest of $2,526 associated
with any over- and under-recoveries results in a total 2018 under-recovery of
$301,825.
Projected 2019 Costs
Chesapeake projects capital expenditures of $3,000,000 for
the replacement of cast iron/bare steel infrastructure in 2019. This compares with
final 2017 expenditures of $3,628,451 and actual/estimated 2018 expenditures of
$6,799,478. The return on investment, depreciation expense, and property tax
and customer notification expense to be recovered in 2019 totals $3,868,130. After
adding the total 2018 under-recovery of $301,825, the total 2019 revenue
requirement is $4,169,955. Table 1-2 shows Chesapeake’s 2019 revenue
requirement calculation.
Table 1-2
Chesapeake 2019 Revenue
Requirement Calculation
|
2019 Projected Expenditures
|
$3,000,000
|
|
Return on Investment
|
$2,353,222
|
|
Depreciation Expense
|
890,826
|
|
Property Tax and Customer Notice Expense
|
624,082
|
|
2019 Revenue Requirement
|
$3,868,130
|
|
Plus 2018 Under-recovery
|
301,825
|
|
2019 Total Revenue Requirement
|
$4,169,955
|
Source: Wight
Testimony Schedule C-2 and D-1
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. Fort
Meade’s replacement program was originally scheduled to be completed in 2018.
However, the companies explained that as a result of delays in contractor
availability and permitting the replacement program will conclude in 2019.
Final True-up for 2017
Fort Meade stated that the revenues collected for 2017
were $32,852, compared to a revenue requirement of $16,822, resulting in an
over-recovery of $16,031. Adding the 2016 under-recovery of $2,582, the 2017
over-recovery of $16,031, and $80 for interest associated with any over- and
under-recoveries, the final 2017 over-recovery is $13,528.
Actual/Estimated 2018 True-up
Fort Meade provided actual GRIP revenues for January
through July 2018 and estimated revenues for August through December 2018
totaling $7,414, compared to an actual/estimated revenue requirement of $27,205,
resulting in an under-recovery of $19,792. Adding the 2017 over-recovery of
$13,528, the 2018 under-recovery of $19,792, and interest of $85 associated
with any over- and under-recoveries, the resulting total 2018 true-up is an under-recovery
of $6,178.
Projected 2019 Costs
Fort Meade projects capital expenditures of $20,000 for
the replacement of cast iron/bare steel infrastructure in 2019. This compares
with 2017 final expenditures of $117,860 and actual/estimated 2018 expenditures
of $68,079. The return on investment, depreciation expense, and property tax
expense to be recovered in 2019 totals $29,579. After adding the 2018 under-recovery
of $6,178, the total 2019 revenue requirement is $35,757. Table 1-3 shows Fort
Meade’s 2019 revenue requirement calculation.
Table 1-3
Fort Meade 2019 Revenue
Requirement Calculation
|
2019 Projected Expenditures
|
$20,000
|
|
Return on Investment
|
$17,699
|
|
Depreciation Expense
|
6,924
|
|
Property Tax Expense
|
4,956
|
|
2019 Revenue Requirement
|
$29,579
|
|
Plus 2018 Under-recovery
|
6,178
|
|
2019 Total Revenue Requirement
|
$ 35,757
|
Source:
Wight Testimony Schedules C-1 and D-1
Proposed Surcharges for FPUC, Chesapeake, and
Fort Meade
As established in the 2012 order approving the GRIP program,
the total 2019 revenue requirement is allocated to the rate classes using the
same methodology used for the allocation of mains and services in the cost of
service study used in the companies’ most recent rate case. The respective
percentages were multiplied by the 2019 revenue requirements and divided by
each rate class’ projected therm sales to provide the GRIP surcharge for each
rate class.
The proposed 2019 GRIP surcharge for FPUC’s residential
customers on the RS schedule is $0.21356 per therm (compared to the current
surcharge of $0.24395 per therm). The monthly bill impact is $4.27 for a
residential customer using 20 therms per month. The proposed FPUC tariff page
is Attachment B.
The proposed 2019 GRIP surcharge for Chesapeake’s
residential customers on the FTS-1 schedule is $0.13593 per therm (compared to
the current surcharge of $0.11838). The monthly bill impact is $2.72 for a
residential customer using 20 therms per month. The proposed Chesapeake tariff
pages are contained in Attachment C.
The proposed 2019 GRIP surcharge for Fort Meade’s
residential customers on the RS schedule is $0.29382 per therm (compared to the
current surcharge of $0.08198). The monthly bill impact is $5.88 for a residential
customer using 20 therms per month. The proposed Fort Meade tariff pages are
contained in Attachment D.
Conclusion
Staff believes the calculation of the 2019 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 GRIP surcharges for the period January through
December 2019.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. 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. (Davis)
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.
