Case Background
On September 4,
2018, Florida City Gas (City Gas or company) filed a petition for approval of
its safety, access, and facility enhancement program (SAFE program) true-up and
2019 cost recovery factors. The SAFE program was originally approved by the
Commission in Order No. PSC-15-0390-TRF-GU (2015 order) to recover the cost of
relocating on an expedited basis certain existing gas mains and associated
facilities from rear lot easements to the street front. In the 2015 order, the Commission found
that the relocation of mains and services to the street front provides for more
direct access to the facilities and will enhance the level of service provided
to all customers through improved safety and reliability. The SAFE factor is a
surcharge on customers’ bills. The Commission ordered the company to file an
annual petition, beginning in 2016, for review and resetting of the SAFE
factors to true-up any prior over- or under-recovery and to set the surcharge
for the coming year. The SAFE program is a 10-year program effective from 2015
through 2025.
In City Gas’s
2017 rate case, the Commission approved a Stipulation and Settlement Agreement
(settlement) among the parties to the rate case. The settlement included a provision that the
$3.5 million SAFE investment at the time of the rate case be moved into rate
base and recovered through base rates (instead of being recovered through a
separate SAFE surcharge on customers’ bills) and the 2018 SAFE factors were
reset to $0 for the period June through December 2018. Since the SAFE program
is a 10-year program projected to continue until 2025, City Gas filed the
instant petition for SAFE factors effective January 2019. The settlement
further required City Gas to use a 21 percent federal tax rate for the
six-month January through May 2018 true-up calculation and for the 12-month
2019 calculation. The federal tax rate is included in the SAFE return on
investment calculation.
During the
review process of the current petition, staff issued a data request to the
company, for which the responses were received on September 28, 2018. The
responses included revised tariff Sheet No. 79 to include a minor correction.
The revised tariff is shown in Attachment 2 to this recommendation. On October
12, 2018, the company filed an amended response to question 4 of staff’s first
data request regarding notifications to customers. The Commission has
jurisdiction over this matter pursuant to Sections 366.03, 366.04, 366.05,
366.06, and 368, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve City Gas's proposed
SAFE factors for the period January through December 2019?
Recommendation:
Yes. The Commission should approve City Gas’s
proposed SAFE factors for the period January through December 2019. (Guffey)
Staff Analysis:
Under the SAFE program, City Gas will relocate or
replace 254.3 miles of mains and 12,462 associated services from rear property
easements to the street front over a 10-year period ending in 2025. City Gas
began its mains and services replacements at the end of 2015, as provided for
in the 2015 order, and the surcharges have been in effect since January 2016.
As of 2018, the company has replaced 82.2 miles of mains and 4,667 services as
shown in Attachment 1 to this recommendation.
As stated in City Gas’s response to staff’s data request,
the company’s current 2018 replacement plans include 10 projects located in Merritt
Island in Brevard County, City of Hialeah, City of Miami Gardens, South Miami
Heights neighborhood, and Westchester neighborhood in Miami-Dade County. The
company’s projected 2019 replacement plans include nine additional projects
located in the City of Port Saint Lucie in Saint Lucie County, the City of
Miami Gardens, the City of Hialeah, Sierra neighborhood, and Westchester
neighborhood in Miami-Dade County.
City Gas stated that its replacement projects are
generally prioritized based on the risk assessment model in the company’s
Distribution Integrity Management Program. Prioritization factors include, but
are not limited to, location of the pipeline, rear lot pipelines with maintenance
access complications and customer encroachments, leak incident rate, material
of pipe, age of the pipeline, and operating pressure of the pipeline.
True-ups by Year
As required in the 2015 order, City Gas’s calculations for
the 2019 revenue requirement and SAFE factors include a final true-up for 2017,
an actual/estimated true-up for 2018, and projected costs for 2019. City Gas
currently does not include interest on any over- or under-recoveries in its
calculations.
Final True-up for 2017
City Gas stated that the revenues collected for 2017 were $2,018,776
compared to a revenue requirement of $2,283,402, resulting in an under-recovery
of $264,626. Adding the 2016 final over-recovery of $182,647, and the $264,626
under-recovery of 2017, results in a final 2017 under-recovery of $81,979.
Actual/Estimated 2018 True-up
As stated in the case background,
the SAFE factor was reset to $0 for the period
June through December 2018; therefore, the actual/estimated 2018 true-up only
includes actual data for January through May 2018. The company collected $1,450,631
from January to May compared to the revenue requirement of $1,029,927 for the
same period, resulting in an over-recovery of $420,704. Adding the final 2017 under-recovery
of $81,979 to the 2018 over-recovery of $420,704, the
resulting total 2018 true-up is an over-recovery of $338,727.
Projected 2019 Costs
The company’s projected investment for 2019 is $10,530,795
for its nine projects located in Saint Lucie and Miami-Dade Counties. The
revenue requirement, which includes a return on investment, depreciation, and
taxes, is $629,977. The return on investment calculation includes federal
income taxes, regulatory assessment fees, and bad debt. After adding the 2018 over-recovery of $338,727, the total 2019 revenue
requirement is $291,250. Table 1-1 displays the projected 2019 revenue
requirement calculation.
Table 1-1
2019 Revenue Requirement
Calculation
|
2019 Projected Investment
|
$10,530,795
|
|
Return on Investment
|
$427,027
|
|
Depreciation Expense
|
152,868
|
|
Property Tax Expense
|
50,082
|
|
2019 Revenue Requirement
|
$629,977
|
|
Less 2018 Over-recovery
|
-338,727
|
|
Total 2019 Revenue Requirement
|
$291,250
|
Source: Attachment A
of the Petition and Attachment 1 (Excel file)
in response to Staff’s First Data Request No. 9.
Proposed 2019 SAFE Factors
The SAFE factors are fixed monthly charges. City Gas’s
cost allocation method was approved in the 2015 order and was used in the
instant filing. The approved methodology allocates the current cost of a 2-inch
pipe to all customers on a per customer basis and allocates the incremental
cost of replacing a pipe larger than 2 inches to customers who use over 6,000
therms per year. For customers who require 4-inch pipes, the cost takes into
account that the minimum pipe is insufficient to serve their demand and,
therefore, allocates an incremental per foot cost in addition to the
all-customer cost. The resulting allocation factors are applied to the 2019
total revenue requirement to develop the monthly SAFE factors.
The proposed fixed monthly SAFE factor is $0.21 for
customers using less than 6,000 therms per year (current factor is $0). The
proposed fixed monthly SAFE factor for customers using more than 6,000 therms
per year is $0.40 (current factor is $0).
Conclusion
Staff has reviewed City Gas’s filings and supporting
documentation and believes that the calculations are consistent with the
methodology approved in the 2015 order and are reasonable and accurate. Staff
also reviewed City Gas’s calculation of the 2018 true-up and 2019 projected
cost calculations and verified that the calculation includes the 21 percent
federal tax rate, as required by the settlement. Therefore, staff recommends
approval of City Gas’s proposed SAFE factors 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.
