Case Background
On September 12,
2018, Peoples Gas System (Peoples or company) filed a petition for approval of
its final 2017 true-up, projected 2018 true-up, and 2019 revenue requirement
and surcharges associated with the cast iron/bare steel replacement rider (Rider
CI/BSR or rider). The rider was originally approved in Order No.
PSC-12-0476-TRF-GU (2012 order) to recover the cost of accelerating the
replacement of cast iron and bare steel distribution pipes through a surcharge
on customers’ bills. Peoples’ current surcharges were approved
in Order No. PSC-2017-0433-TRF-GU. In
the 2012 order, the Commission found that “replacement of these types of
pipelines is in the public interest to improve the safety of Florida’s natural
gas infrastructure, and reduce the possibility of loss of life and destruction
of property should an incident occur.”
The Commission approved a comprehensive settlement
agreement between Peoples and the Office of Public Counsel (OPC) in Order No.
PSC-17-0066-AS-GU. The
settlement agreement, in part, added problematic plastic pipe (PPP) installed
in the company’s distribution system to eligible replacements under the rider.
PPP was manufactured before 1983 and has significant safety concerns. In
certain areas, the PPP is interspersed with, or connected to, the cast
iron/bare steel pipe that is being replaced under the rider. As provided for in
the settlement agreement, PPP replacements are included in the calculation of
the 2019 rider surcharges.
On September 12, 2018, the Commission approved a settlement
agreement between Peoples, OPC, and the Florida Industrial Power Users Group in
Docket No. 20180044-GU addressing certain impacts of the Tax Cuts and Jobs Act
of 2017 on Peoples. The settlement
agreement provides for a reduction of Peoples’ 2019 depreciation expense of
approximately $10.3 million resulting from extending the lives of certain mains
and service assets, which, consequently, reduces the depreciation expense
collected through the rider. Additionally, the settlement agreement provides that
Peoples’ revenue requirement calculations incorporate the lower federal income
tax rate effective February 6, 2018.
Peoples filed a revised petition and tariff sheet on
October 17, 2018, to remove the Regulatory Assessment Fee (RAF) adjustment of
$76,118 that Peoples had included in the original petition in the instant
docket. The RAF adjustment was intended to correct an error Peoples had made in
its rider surcharge calculations for the years 2013 through 2017. Peoples
explained that while it remitted the correct RAF amounts to the Commission, it
did not include a gross-up for RAF fees in its rider surcharge calculations from
2013 through 2017 (i.e., the rider surcharges for the years 2013 through 2017
did not include $76,118 in RAF fees paid to the Commission).
Peoples filed its response to staff’s first data request
on October 3, 2018. OPC intervened in this docket on September 18, 2018, which
was acknowledged by Order No. PSC-2018-0467-PCO-GU, issued September 19, 2018. The
proposed revised tariff page is contained in Attachment B. The Commission has
jurisdiction over this matter pursuant to Sections 366.03, 366.04, 366.05, and
366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Peoples’ proposed
rider surcharges for 2019?
Recommendation:
Yes, the Commission should approve Peoples’ proposed
2019 rider surcharges as revised on October 17, 2018, for the period January
through December 2019. (Merryday)
Staff Analysis:
The rider surcharges have been in effect since
January 2013. In 2018, Peoples’ cast iron and bare steel replacement activity
focused in St. Petersburg, Tampa, Miami, Jacksonville, and Sarasota, and
Peoples’ PPP replacement activity focused in Pompano Beach, Orlando, and
Lakeland. In 2019, Peoples states it will focus on replacement projects in
Miami, Tampa, St. Petersburg, Orlando, and Sarasota. The original projected
completion date for the CI/BSR replacement program was 2022 for mains and
services, but Peoples now expects to complete the mains replacement activity in
2021 and services replacement activity in 2022. Replacement of PPP is expected
to continue until 2028.
In the company’s 2017 Rider CI/BSR filing (Docket No.
20170192-GU), Peoples stated that it planned to secure additional contractors
so that the replacement of cast iron and bare steel, as well as PPP, can be
accelerated. In response to staff’s first data request in the instant docket,
Peoples stated that construction costs were higher than estimated due to
increased activity in congested urban areas and additional requirements for
more extensive post-construction site restoration. This led to higher capital
expenditures for replacements than anticipated.
Attachment A contains tables which display the replacement
progress and forecasts for Rider CI/BSR (Table 1) and for PPP (Table 2). In
addition, Peoples provided a third table which consolidates actual and
projected CI/BSR and PPP miles replaced, investment, and revenue requirement
for each year of the replacement program, both actual and forecast.
True-ups by Year
Peoples’ calculation for the 2019 revenue requirement and
surcharges includes a final true-up for 2017, an actual/estimated true-up for
2018, and projected costs for 2019. Pursuant to the 2012 order, the capital
expenditures for 2017 through 2019 exclude the first $1 million of facility
replacements each year because that amount is included in rate base and is thus
excluded from recovery through the rider. Peoples has included depreciation
expense savings as discussed in the 2012 order; however, Peoples has not
identified any operations and maintenance savings.
Final True-up for 2017
Peoples stated that the revenues collected for 2017 were
$4,273,612 compared to a revenue requirement of $6,942,323, resulting in an
under-recovery of $2,668,711. The final 2016 over-recovery of $1,708,878, 2017
under-recovery of $2,668,711, and interest of $5,397 associated with any over-
and under-recoveries results in a final 2017 under-recovery of $954,434.
Actual/Estimated 2018 True-up
Peoples provided actual revenues for January through July
and forecast revenues for August through December of 2018, totaling $11,620,032,
compared to an actual/estimated revenue requirement of $9,242,243, resulting in
an over-recovery of $2,377,789. The 2017 under-recovery of $954,434, 2018
over-recovery of $2,377,789, and interest of $13,809 associated with any over-
and under-recoveries results in a total 2018 over-recovery of $1,437,164.
Projected 2019 Costs
Peoples projects investment or capital expenditures of
$35,630,000 for the replacement of cast iron/bare steel infrastructure and PPP
in 2019. As shown in Table 3 of Attachment A, this consists of the CI/BSR
investment of $27,080,000 and the PPP investment of $8,550,000. The return on
investment (which includes federal income taxes, regulatory assessment fees,
and bad debt), depreciation expense (less savings), and property tax expense
associated with that investment are $12,317,077. After subtracting the total
2018 over-recovery of $1,437,164, the total 2019 revenue requirement is
$10,879,912. Table 1-1 displays the 2019 revenue requirement calculation.
Table 1-1
2019 Revenue Requirement
|
2019 Projected Expenditures
|
$35,630,000
|
|
Return on Investment
|
$8,968,072
|
|
Depreciation Expense (less savings)
|
1,639,999
|
|
Property Tax Expense
|
1,709,005
|
|
2018 Revenue Requirement
|
$12,317,077
|
|
Less 2018 Over-recovery
|
-1,437,164
|
|
Total 2019 Revenue Requirement
|
$10,879,912
|
Source: Exhibit
C, page 1 of the Revised Petition.
Proposed Surcharges
As established in the 2012 order, the total 2019 revenue
requirement is allocated to rate classes using the same methodology that was
used for the allocation of mains and services in the cost of service study used
in Peoples’ most recent rate case. After calculating the percentage of total
plant costs attributed to each rate class, the respective percentages were
multiplied by the 2019 revenue requirement resulting in the revenue requirement
by rate class. Dividing each rate class’s revenue requirement by projected
therm sales provides the rider surcharge for each rate class.
The proposed 2019 rider surcharge for residential
customers is $0.05274 per therm (compared to the current surcharge of
$0.05285). The monthly bill impact is $1.05 for a residential customer who uses
20 therms. The proposed tariff page as revised on October 17, 2018, is provided
in Attachment B.
Conclusion
Staff reviewed Peoples’ filings and supporting
documentation and believes that the calculations are consistent with the
methodology approved in the 2012 order and are reasonable and accurate. Staff
also reviewed Peoples’ calculation of the 2018 true-up and 2019 projected cost
calculations and verified that the calculation includes the 21 percent federal
tax rate starting February 6, 2018. Staff also verified that Peoples lowered
the deprecation expense effective January 2019. Therefore, staff recommends
approval of Peoples’ proposed 2019 Rider CI/BSR surcharges as revised on
October 17, 2018, effective 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 tariff 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. (Trierweiler)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariff 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.
