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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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May 2, 2019
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Accounting and Finance (Perez,
Snyder, D. Smith, Mouring)
Division of Economics
(Guffey, Draper)
Division of Engineering
(P. Buys, Doehling, Thompson, Wooten, Ellis, Graves)
Office of the General
Counsel (Simmons, J. Crawford, A. King)
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RE:
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Docket No. 20190038-EI – Petition for
limited proceeding for recovery of incremental storm restoration costs
related to Hurricane Michael, by Gulf Power Company.
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AGENDA:
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05/14/19 – Regular Agenda – Participation is at the Commission’s
Discretion
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Fay
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CRITICAL DATES:
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07/01/19 (Requested Implementation Date)
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SPECIAL INSTRUCTIONS:
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None
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Case Background
On February 6,
2019, Gulf Power Company (Gulf or Company) filed a petition for a limited
proceeding seeking authority to implement an interim storm restoration recovery
charge to recover a total of $342 million for incremental restoration costs
related to Hurricane Michael and to replenish its storm reserve. In its
petition, Gulf asserts that as a result of Hurricane Michael, Gulf incurred
total retail recoverable costs of approximately $350 million less the $48
million pre-storm balance of the storm reserve, resulting in net recoverable
costs of $302 million. In addition, Gulf proposes to replenish its storm
reserve to the $41 million balance as of December 31, 2016. The $342 million includes interest of $15.3
million on the unamortized storm reserve balance. Gulf filed its petition pursuant to the
provisions of the Stipulation and Settlement Agreement (SSA) approved by the Commission
in Order No. PSC-2017-0178-S-EI. Pursuant to Paragraph 7(a) of the SSA,
Gulf can recover storm costs, not exceeding $4.00/1,000 kWh on monthly
residential customer bills, on an interim basis, beginning 60 days following
the filing of a petition for recovery. In addition, pursuant to Paragraph 7(b),
Gulf may petition the Commission to allow for a charge greater than $4.00/1,000
kWh, or a period longer than 12 months, if costs exceed $100 million in a
calendar year. In its petition, Gulf has requested an interim storm restoration
recovery charge of $8.00/1,000 kWh on a residential bill, effective with the
first billing cycle for April 2019. On
March 13, 2019, Gulf requested that the Commission suspend the 60-day timeframe
set forth in the SSA, and requested that the Commission approve the storm
restoration recovery charge to become effective with the first billing cycle in
July 2019. The Company estimates that
the proposed recovery charge will need to be in effect for approximately 60
months.
The Office of
Public Counsel’s intervention in this docket was acknowledged in Order No.
PSC-2019-0087-PCO-EI, issued March 6, 2019.
The Commission
has jurisdiction over this matter pursuant to Sections 366.04, 366.05, 366.06,
and 366.076, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission authorize Gulf to implement an
interim storm restoration recovery charge?
Recommendation:
Yes. The Commission
should authorize Gulf to implement an interim storm restoration recovery charge,
subject to refund. Once the total actual
storm costs are known, Gulf should be required to file documentation of the
storm costs for Commission review and true up of any excess or shortfall. (Perez,
Mouring)
Staff Analysis:
As stated in the Case Background, Gulf filed a petition
for a limited proceeding seeking authority to implement an interim storm
restoration recovery charge to recover a total of $342 million for the
incremental restoration costs related to Hurricane Michael and to replenish its
storm reserve. The requested recovery of
$342 million represents net retail recoverable costs of approximately $302
million, plus an additional $41 million to replenish the storm reserve to the
balance that existed on December 31, 2016. In
addition, the $342 million includes interest on the unamortized storm reserve
balance of $15.3 million. Gulf has
requested an interim storm restoration recovery charge of $8.00 on a monthly
1,000 kWh residential bill, effective with the first billing cycle for July
2019. The Company estimates that the
proposed recovery charge will need to be in effect for approximately 60 months.
In its petition, Gulf asserts that it incurred total
retail recoverable costs of approximately $350 million as a result of Hurricane
Michael. Gulf represented that this
amount was calculated in accordance with the Incremental Cost and
Capitalization Approach (ICCA) methodology prescribed in Rule 25-6.0143,
Florida Administrative Code (F.A.C.).
The net retail recoverable costs of $302 million were determined by
reducing the $350 million total costs by the pre-storm storm reserve balance of
$48 million. The SSA also allows Gulf to
request the replenishment of its storm reserve to the $41 million balance that
existed on December 31, 2016.
The approval of an interim storm restoration recovery
charge is preliminary in nature and is subject to refund pending a further
review once the total actual storm restoration costs are known. After the actual costs are reviewed for
reasonableness and prudence, and are compared to the actual amount recovered
through the interim storm restoration recovery charge, a determination will be
made whether any over/under recovery has occurred. The disposition of any over/under recovery,
and associated interest, would be considered by the Commission at a later date.
Based on a review of the information provided by Gulf in
its petition, staff recommends that the Commission authorize Gulf to implement
an interim storm restoration recovery charge, subject to refund. Once the total actual storm costs are known,
Gulf should be required to file documentation of the storm costs for Commission
review and true up of any excess or shortfall.
Issue 2:
Should the Commission approve Gulf's proposed interim
storm restoration recovery tariffs as shown in Attachment A to the
recommendation?
Recommendation:
Yes, the Commission should approve Gulf's proposed
interim storm restoration recovery tariffs as shown in Attachment A to the
recommendation. The proposed tariffs should become effective with the first
billing cycle of July 2019. (Guffey, Draper)
Staff Analysis:
In its March 13, 2019 letter to the Commission, Gulf
proposed to begin applying the interim storm restoration recovery charge to
customer bills with the first billing cycle of July 2019, and to include the
charge in the non-fuel energy charge on customer bills. The proposed
approximate 60-month recovery period would be subject to modification based upon
the Commission’s final decision regarding actual charges. In support of its
rate calculations, Gulf provided Exhibit E to the petition.
Exhibit E illustrates the computation of the proposed
interim storm restoration recovery charges for each rate class. Gulf
represented that it followed the methodology for allocation of storm costs
among rate classes consistent with the cost of service study filed in its 2016
rate case (Docket No. 20160186-EI). Staff reviewed Gulf’s calculations and
believes the allocation methodology to be reasonable. The storm restoration
costs are weighted to reflect storm restoration costs by function such as
distribution and transmission (92 percent and 7 percent, respectively).
Application of the allocation methodology for the
residential customer rate class results in a proposed interim storm recovery
charge of 0.8 cents per kilowatt hour (kWh), which equates to $8.00 on a 1,000
kWh residential electric bill. The proposed interim charges for all rate
classes are presented in Twenty-Second Revised Sheet No. 6.25, included in
Exhibit F to Gulf’s petition. Revised
Exhibit F also includes Table of Contents to add the interim storm restoration
recovery charge. The proposed tariff
sheets are included in Attachment A to this recommendation.
In its response to staff’s first data request, Gulf
provided customer notifications for staff review and stated that the customers
will be notified by media news releases, Company website, bill inserts, and by
telephone to the Company’s largest commercial customers.
Based on its review of the information provided by Gulf,
staff recommends the Commission approve Gulf's proposed interim storm
restoration recovery tariffs, subject to refund, as shown in Attachment A to
the recommendation. The proposed tariffs should become effective with the first
billing cycle of July 2019.
Issue 3:
What is the appropriate security to guarantee the
amount collected subject to refund through the interim storm restoration recovery
charge?
Recommendation:
The appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking. (Hightower, D. Buys)
Staff Analysis:
Staff recommends that all funds collected subject to
refund be secured by a corporate undertaking. The criteria for a corporate
undertaking include sufficient liquidity, ownership equity, profitability, and
interest coverage to guarantee any potential refund. Staff reviewed Gulf’s
financial statements to determine if the Company can support a corporate
undertaking to guarantee the funds collected for recovery of incremental storm
restoration costs related to Hurricane Michael. Gulf’s 2015, 2016, and 2017
financial statements were used to determine the financial condition of the
Company. Gulf’s financial performance demonstrates adequate levels of
liquidity, ownership equity, profitability, and interest coverage to guarantee
the potential refund.
Staff believes Gulf has adequate resources to support a
corporate undertaking in the amount requested. Based on this analysis, staff
recommends that a corporate undertaking of $68 million is acceptable. This
brief financial analysis is only appropriate for deciding if the Company can
support a corporate undertaking in the amount proposed and should not be considered
a finding regarding staff's position on other issues in this proceeding.
Issue 4:
Should this docket be closed?
Recommendation:
No, this docket should remain open pending final
reconciliation of actual recoverable Hurricane Michael storm costs with the
amount collected pursuant to the interim storm restoration recovery charge, and
the calculation of a refund or additional charge if warranted. (Simmons)
Staff Analysis:
No, this docket should remain open pending final
reconciliation of actual recoverable Hurricane Michael storm costs with the
amount collected pursuant to the interim storm restoration recovery charge, and
the calculation of a refund or additional charge if warranted.
