Discussion
of Issues
Issue
1:
Should
the Commission approve TECO's Mid-Course Petition to adjust its fuel and
capacity cost recovery factors and the associated tariff sheets?
Recommendation:
The revised fuel and capacity
cost recovery factors are presented in Attachment A and the associated tariff sheets
are presented in Attachment D. (Barrett, Guffey)
Staff
Analysis:
Mid-course
Adjustment for Fuel and Capacity Cost Recovery Factors
In the
Mid-Course Petition, TECO presents data from two time periods, true up results
from 2018, and projected information for 2019. A secondary distinction is drawn
between fuel cost recovery amounts and capacity cost recovery amounts for each
period, resulting in four individual components to evaluate as part of TECO’s
Mid-Course Petition:
1.
Fuel cost recovery amounts from 2018;
2.
Capacity cost recovery amounts from 2018;
3.
Projected fuel cost recovery amounts for 2019; and
4.
Projected capacity cost recovery amounts for 2019.
TECO
analyzed its actual and estimated balances using the calculation set forth in
Rule 25-6.0424, F.A.C., to arrive at two variations for recovering the amounts identified
in the Mid-Course Petition.
First, the Company calculated a mid-course adjustment based
on the recovery of all aspects of the fuel and capacity cost recovery balances.
This calculation yielded a mid-course correction value of 24.9 percent.
Although TECO referenced the results of this calculation, the Company did not
include supporting schedules for this alternative in its Mid-Course Petition.
TECO also calculated a mid-course adjustment based on the
recovery of revised capacity-related costs for 2018 and 2019, and the revised 2019
fuel costs. TECO’s calculation did not include the revised shortfall of its
2018 fuel cost true-up. According to the Company, the mid-course calculation
using these balances results in a mid-course correction of 16.0 percent. This
alternative aligns with the requested relief, and TECO asserts that it will
prepare a petition to request recovery of the final fuel cost amounts for 2018 for
consideration at the November 5-7, 2019 hearing.
True-Up Amounts from
2018 (Fuel and Capacity)
On the fuel
cost recovery side, TECO states that elevated natural gas prices were the principle
driver of the $36,970,912 under-recovery balance for fuel for 2018. In response
to a data request, the Company stated that lower than historic average gas
storage levels and early season cold weather in the northeast sparked higher
market prices in the latter portions of 2018. TECO did not incorporate the
under-recovery balance in the calculations to determine the new cost recovery
factors that are presented in the Mid-Course Petition. Rather, the Company asserts
that this balance will be addressed in the normal hearing cycle planned for the
fall of 2019. By forgoing cost recovery of this amount during the remainder of
2019, TECO hopes to mitigate what otherwise would be a significant increase in
customer bills. By delaying the recovery of the unrecovered balance, the amount
will be included in the calculation of total fuel expenses for 2020, and
recovered in factors over a 12-month period, compared to a 9-month period if
the balance was included in the requested mid-course correction.
On the
capacity cost recovery side, TECO states that the true-up balance for 2018 was a
$5,458,886 under-recovery. For context, an under-recovery amount of $2,784,988
was approved for collection in 2019 in the 2018 Fuel Order. In the Mid-Course
Petition, the Company included the final true-up adjustment under-recovery
amount of $2,673,898 in its calculations of the revised cost recovery factors
for April through December, 2019.
Revised Projected
Amounts for 2019 (Fuel and Capacity)
As a basis
for its Mid-Course Petition, TECO revised its fuel and capacity cost recovery
projections for 2019. The original projections for 2019 were filed on August
24, 2018, and evaluated in Docket No. 20180001-EI. The fuel and capacity cost
recovery factors that were approved in the 2018 Fuel Order are based, in large
part, on the forecasted projections for 2019.
As
reflected in Schedule E1, TECO’s original projection for fuel costs in 2019
reflects an estimate of $537,871,753 for its Total Fuel and Net Power
Transactions. The Company states that its revised projection for 2019 shows an
increase of $75,514,842, reflecting a new amount of $613,386,595. As with the
under-recovered fuel cost recovery balance from 2018, TECO attributes the
increase to elevated projected natural gas prices for the period. In response
to a data request, the Company stated that the concerns over limited supplies
of natural gas contributed to higher projected prices for 2019, compared to the
prior forecast. As referenced earlier, weather-related concerns impact forward
market prices for natural gas.
In the
2018 Fuel Order, the Commission approved $17,124,796 as the projected amount of
capacity costs for TECO in 2019. The Company asserts that its original
projection for capacity in 2019 was based upon a planned capacity purchase that
did not materialize. Because this purchase for 2019 did not materialize, the
Company’s revised end-of-period balance for 2019 is an over-recovery of $14,240,130.
Summary of Mid-Course
Petition
TECO is requesting mid-course adjustments to fully recover
the capacity-related balances (2018 and 2019), and the revised estimate of its 2019
fuel costs. At this time, the Company is not seeking to recover the 2018 true-up
under recovery. The revised fuel and capacity cost recovery balances the
Company seeks to recover would be recovered between April and December, 2019
through the fuel and capacity cost recovery factors, as shown on Tables 1 and 2
of Attachment A, and the associated tariff sheets presented in Attachment D.
Table 1-1
below shows that if TECO’s Mid-Course Petition is approved, a residential
customer using 1,000 kilowatt hours (kWh) of electricity will see a net
increase of $4.05 per month on their bill, with the fuel cost recovery portion
of their bill rising by $5.08 per month, partially offset by a reduction on the
capacity portion of the bill.
Table 1-1
Requested Recovery
TECO Typical 1,000-kWh Residential
Customer Bill Comparison
for the period January-December, 2019
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Component
|
Current
(January-December)
|
Proposed
(April-December)
|
Bill Impact
|
|
Base Charge
|
$66.53
|
$66.53
|
$0.00
|
|
Fuel Cost Recovery
|
24.05
|
29.13
|
5.08
|
|
Conservation Cost
Recovery
|
3.21
|
3.21
|
0.00
|
|
Capacity Cost Recovery
|
1.03
|
(0.10)
|
(1.13)
|
|
Environmental Cost
Recovery
|
2.22
|
2.22
|
0.00
|
|
Subtotal
|
$97.04
|
$100.99
|
$3.95
|
|
Gross Receipts Tax
|
2.49
|
2.59
|
0.10
|
|
Totals
|
$99.53
|
$103.58
|
$4.05
|
Source:
Mid-Course Correction filing, Schedule E10, Bates Stamped Page 46.
Analysis
As
noted above, the currently-approved
fuel and capacity cost recovery factors for TECO were developed based,
in large part, on the projected fuel and capacity cost amounts for 2019 that
were filed in Docket No. 20180001-EI, on August 24, 2018. The Company stated
that the main driver for the under-recovery balance for fuel in 2018 was the
cost difference between projected and actual prices for natural gas. Because
TECO observed these elevated market prices in the final months of 2018, the
Company re-examined its 2019 fuel price forecasts and filed its Mid-Course
Petition for adjusted cost recovery factors.
Staff’s review of the
requested relief
TECO
prepares fuel forecasts on a regular and routine basis, and filed its
Mid-Course Petition in order to respond to market-driven changes to costs the
Company incurred for the predominate fuel used in its generating fleet, natural
gas. Although capacity-related over-recovered balances are presented, staff
believes the balances for fuel-related costs are the principle concern that
TECO has for requesting new cost recovery factors.
In order
to prepare its forward year projection filing, the Company analyzed forecasted
fuel price data for 2019 based on a forward natural gas price forecast
utilizing the NYMEX natural gas futures contract prices for five consecutive
business days in April 2018.
For its fuel price projections, a delivered price of $3.82 per MMBtu was
calculated for natural gas.
In its original projection filing, TECO estimated 16,516,370 megawatt-hours
(87.90 percent) of its generation would come from natural gas, while coal would
account for 1,249,950 megawatt-hours (6.66 percent).
The original and revised forecasts used the same sources for forecasting data,
although in response to a data request, the Company acknowledged that slightly
modified forecasting assumptions were incorporated in its revised forecast.
On a
comparative basis, the revised fuel price forecast used NYMEX futures contract
pricing data for natural gas prices for five consecutive business days in early
December 2018. A revised delivered price of $4.20 per MMBtu was used for
natural gas in the more recent fuel price projection. Based on the revised
data, system generation is up slightly, with natural gas generation estimated
at 16,822,800 megawatt-hours (86.34 percent), while coal is up slightly to
1,639,120 megawatt-hours (8.41 percent.)
In response to a data request, TECO confirmed that no fuel delivery or transportation
arrangements changed between the period of time when the original and the
revised forecasts were prepared, and emphasized that the primary reason for
needing the requested mid-course adjustment to cost recovery factors is the change
in the forecasted price of natural gas. The Company stated that the elevated
prices that are presented in the most current forecast were likely triggered by
storage level concerns. Staff observes that storage-related concerns and
weather-driven demand are both factors in the commodity markets for natural gas
that are well outside of TECO’s control, but nevertheless influence the actual
costs the Company has, or will, incur when purchasing natural gas.
As noted
previously, TECO examined two variations for recovering the amounts identified
in the Mid-Course Petition, and requested the option that recovers the capacity
cost recovery amounts from 2018, the revised projected fuel cost recovery
amounts for 2019, and the revised projected capacity cost recovery amounts for
2019. TECO evaluated both variations in the context of how the requested relief
would impact the bill of a typical residential customer. Staff notes, however,
that by not including all known changes in costs in its requested relief, the
Company is pursuing an alternative that carries an element of risk.
Although
staff believes the requested relief presents a reasonable alternative for a
mid-course correction to TECO’s 2019 fuel and capacity cost recovery factors,
staff believes that with data from two time periods and a further breakdown
between fuel cost recovery amounts and capacity cost recovery amounts for each
period, other reasonable mid-course correction options can be constructed using
the same data. In order for the Commission to consider the range of options
available, two additional options that differ from the Company’s requested
relief are presented for the Commission to evaluate.
Option 1 (Full recovery
of all known changes in costs)
As noted
previously, mid-course corrections are considered preliminary procedural
decisions, and any over-recoveries or under-recoveries caused by or resulting
from the Commission-approved adjustments may be included in the following
year’s fuel or capacity factors. In the most recent mid-course correction
petitions the Commission has evaluated, all
known changes in costs were evaluated and incorporated into the revised factor
calculations. For consistency with that approach, Option 1 uses the Company’s
requested relief as a starting point, and adds in the true-up shortfall of the
2018 balance that TECO proposes to address at the November 5-7, 2019 hearing.
Staff
believes that by taking action on all known and updated estimated costs at the point
in time that such changes in costs are known, the effect of stacked (or
“pancaked”) cost recovery amounts is addressed. By not deferring action on any
costs, the hearing can focus on any new costs or adjustments that developed
without a concern of stacked amounts for recovery. Additionally, Option 1 allows
for recovery of all balances through revised 2019 fuel and capacity cost
recovery factors.
For comparative
purposes, the schedules to support the full recovery of all known changes in amounts
(Option 1) reflect that the fuel cost recovery portion of the bill for a
residential customer using 1,000 kilowatt hours (kWh) of electricity would rise
by $7.97 per month, rather than by $5.08 under the Company’s requested option.
The fuel amount is partially offset by the capacity cost amounts. The net bill
impact for Option 1 is an increase of $7.01 per month, as reflected in Table 1-2
below:
Table 1-2
Option 1 - - Full recovery
of all known changes in costs
TECO Typical 1,000-kWh Residential
Customer Bill Comparison
for the period January-December, 2019
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Component
|
Current
(January-December)
|
Option 1
(April-December)
|
Bill Impact
|
|
Base Charge
|
$66.53
|
$66.53
|
$0.00
|
|
Fuel Cost Recovery
|
24.05
|
32.02
|
7.97
|
|
Conservation Cost
Recovery
|
3.21
|
3.21
|
0.00
|
|
Capacity Cost Recovery
|
1.03
|
(0.10)
|
(1.13)
|
|
Environmental Cost
Recovery
|
2.22
|
2.22
|
0.00
|
|
Subtotal
|
$97.04
|
$103.88
|
$6.84
|
|
Gross Receipts Tax
|
2.49
|
2.66
|
0.17
|
|
Totals
|
$99.53
|
$106.54
|
$7.01
|
Source:
Tampa Electric Company’s Response to Staff’s First Data Request, Request No. 8, Schedule E10, Bates Stamped
Page 15.
Staff
believes Option 1 presents a reasonable alternative for a mid-course correction
to TECO’s 2019 fuel and capacity cost recovery factors, and is consistent with
the most recent past mid-course correction petitions the Commission has
evaluated.
Option 2 (Full recovery
of the 2018 costs only)
Option 2
is a proposal that blends aspects of TECO’s requested relief and the first option.
Absent a mid-course adjustment, the final cost recovery balances from a prior
year are ordinarily presented at the fall hearing, and the adjustments
resulting from those balances would be incorporated into the calculations to
develop forward-year cost recovery factors. Because TECO proposed parsing the treatment
of the fuel and capacity amounts from 2018 in the requested relief in its
Mid-Course Petition, the traditional process is modified.
If the
Mid-Course Petition is granted, the capacity balances from 2018 and 2019 are
combined, whereas under Option 2, only the 2018 portion would be incorporated
in revised factors for April through December 2019, and the adjustment balance for
2019 would be addressed in the fall hearing, with that balance being
incorporated into the calculation to develop the cost recovery factors for 2020
and recovered over a 12-month period. Option 2 aligns the treatment of the 2018
fuel and capacity balances, and proposes to recover these amounts in modified
factors for April through December 2019.
Under Option
2, no portion of estimated fuel and capacity balances for 2019 would be addressed
in the mid-course adjustment. The mid-course adjustment would be limited to
correcting the current recovery factors to recover the 2018 true-up of fuel and
capacity costs. The 2019 balances would be evaluated in the November 5-7, 2019
hearing. Although there is a risk that the balances for 2019 could grow larger
before the hearing takes place, the opposite could occur as well, and the fuel
and/or the capacity balances could be smaller. In addition, although the most
current fuel price forecast reflects more updated information than the original
forecast, the fuel and capacity balances for 2019 in the current forecast
contains estimated data for every month. By pursuing Option 2 and by deferring
recovery of the fuel and capacity estimates for 2019 at this time, the balances
presented in the November hearing are likely to include 6 to 7 months of actual
data, as well as estimated data based on a later forecast.
For
comparative purposes, the schedules to support Option 2 reflect that the fuel
cost recovery portion of the bill for a residential customer using 1,000 kilowatt
hours (kWh) of electricity would rise by $2.64 per month, compared to $5.08 for the Company’s
requested option, and $7.97 under Option 1. The bill impact for the capacity
portion would also rise by $0.25 per month. When the Gross Receipts Tax is
incorporated, the total bill impact to fully recover only the 2018 costs is an
increase of $2.96 per month, as reflected in Table 1-3 below:
Table 1-3
Option 2 - - Full recovery
of 2018 costs only
TECO Typical 1,000-kWh Residential
Customer Bill Comparison
for the period January-December, 2019
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Component
|
Current
(January-December)
|
Option 2
(April-December)
|
Bill Impact
|
|
Base Charge
|
$66.53
|
$66.53
|
$0.00
|
|
Fuel Cost Recovery
|
24.05
|
26.69
|
2.64
|
|
Conservation Cost
Recovery
|
3.21
|
3.21
|
0.00
|
|
Capacity Cost Recovery
|
1.03
|
1.28
|
0.25
|
|
Environmental Cost
Recovery
|
2.22
|
2.22
|
0.00
|
|
Subtotal
|
$97.04
|
$99.93
|
$2.89
|
|
Gross Receipts Tax
|
2.49
|
2.56
|
0.07
|
|
Totals
|
$99.53
|
$102.49
|
$2.96
|
Source: Tampa Electric Company’s Response to
Staff’s Second Data Request, Request No. 7, Schedule E10, Bates Stamped Page 19.
Staff
believes Option 2 presents a reasonable alternative for a mid-course correction
to TECO’s 2019 fuel and capacity cost recovery factors.
Summary of all cost
recovery options
Table 1-4
below summarizes the three cost recovery options discussed above. For ease of
reference, the cost recovery components that are part of TECO’s Mid-Course
Petition are listed below:
1.
Fuel cost recovery amounts from 2018;
2.
Capacity cost recovery amounts from 2018;
3.
Projected fuel cost recovery amounts for 2019; and
4.
Projected capacity cost recovery amounts for 2019.
Table 1-4
Summary of Options
TECO Typical 1,000-kWh Residential Customer
Bill Comparison
for the period January-December, 2019
|
|
Company Proposal
(Cost recovery for components 2, 3, and 4 in
mid-course correction)
|
Option 1 Proposal
(Cost recovery for all components in mid-course correction)
|
Option 2 Proposal
(Cost recovery for components 1 and 2 in mid-course
correction)
|
|
Compo-
nent
|
Current
(January-December)
|
Proposed
(April-December)
|
Bill Impact
|
Proposed
(April-December)
|
Bill Impact
|
Proposed
(April-December)
|
Bill Impact
|
|
Base Charge
|
$66.53
|
$66.53
|
$0.00
|
$66.53
|
$0.00
|
$66.53
|
$0.00
|
|
Fuel Cost
Recovery
|
24.05
|
29.13
|
5.08
|
32.02
|
7.97
|
26.69
|
2.64
|
|
Conserv. Cost Recovery
|
3.21
|
3.21
|
0.00
|
3.21
|
0.00
|
3.21
|
0.00
|
|
Capacity
Cost Recovery
|
1.03
|
(0.10)
|
(1.13)
|
(0.10)
|
(1.13)
|
1.28
|
0.25
|
|
Envirom.Cost Recovery
|
2.22
|
2.22
|
0.00
|
2.22
|
0.00
|
2.22
|
0.00
|
|
Subtotal
|
$97.04
|
$100.99
|
$3.95
|
$103.88
|
$6.84
|
$99.93
|
$2.89
|
|
Gross Receipts Tax
|
2.49
|
2.59
|
0.10
|
2.66
|
0.17
|
2.56
|
0.07
|
|
Totals
|
$99.53
|
$103.58
|
$4.05
|
$106.54
|
$7.01
|
$102.49
|
$2.96
|
Customer
Notifications
In response to a staff data request,
TECO stated that it issued news releases and information on social media
concurrent with its filing of the Mid-Course Petition (dated January 15, 2019).
The Company will notify customers about this pending matter with on-bill messaging
for paper and paperless bills in advance of the rates taking effect. In
addition, TECO stated that a website link provides information regarding the
proposed rate change effective with the April 2019 billing cycle.
The Company stated that it plans a second news release after the Commission
votes on its Mid-Course Petition.
If
approved by the Commission at the March 5, 2019 Agenda Conference, TECO’s
Mid-Course Petition will result in higher fuel cost recovery factors, and lower
capacity cost recovery factors for TECO’s customers, effective with the April
2019 billing cycle. Typically, effective dates are set a minimum of 30 days
after a Commission vote modifying the charges as the result of a mid-course
correction.[11] This time
limit is imposed in order to prevent new rates from being applied to energy
consumed before the effective date of the Commission’s action, i.e., the date
of the vote. However, the Commission also has implemented charges in less than
30 days when circumstances warrant.[12]
In this instance, the interval between the Commission’s vote on this matter
(March 5, 2019) and the proposed implementation date (April 2019 billing cycle,
which begins on April 2, 2019) is 27 days. Although this filing, if approved,
results in a net increase to cost recovery factors, staff believes the notification
interval is sufficient.
Conclusion
The
revised fuel and capacity cost recovery factors are presented in Attachment A
and the associated tariff sheets are presented in Attachment D.
Alternatively,
the Commission may consider options to adjust TECO’s fuel and capacity cost
recovery factors. Option 1 is a mid-course correction that allows for the
recovery of the 2018 and 2019 projected fuel and capacity costs through revised
2019 fuel and capacity factors, while Option 2 is a mid-course correction that
limits the mid-course recovery to the 2018 projected fuel and capacity costs. The
revised fuel and capacity cost recovery factors for Options 1 and 2 are presented
in Attachments B and C, respectively. Under either of these options, the
revised fuel and capacity cost recovery factors should become effective with
the April 2019 billing cycle, which begins on April 2, 2019.
If the
Commission approves Options 1, 2, or another alternative, the Commission should
give staff administrative authority to approve the tariff sheets that implement
the Commission’s vote.
Issue
2:
Should
this docket be closed?
Recommendation:
The
fuel docket is on-going and should remain open. (Brownless, Nieves)
Staff Analysis:
The fuel docket is on-going and should remain open.
