Discussion
of Issues
Issue 1:
Should the Commission approve DEF's request to
decrease its AFUDC rate from 7.44 percent to 6.46 percent?
Recommendation:
Yes. The appropriate AFUDC rate for DEF is 6.46
percent based on a 13-month average capital structure for the period ended
December 31, 2018. (Smith II)
Staff Analysis:
DEF has requested a decrease in its AFUDC rate from
7.44 percent to 6.46 percent. Rule 25-6.0141(2), Florida Administrative Code
(F.A.C.), Allowance for Funds Used During Construction, provides the following
guidance:
(2) The
applicable AFUDC rate shall be determined as follows:
(a) The most recent 13-month average embedded cost of
capital, except as noted below, shall be derived using all sources of capital
and adjusted using adjustments consistent with those used by the Commission in
the utility’s last rate case.
(b) The cost rates for the components in the capital
structure shall be the midpoint of the last allowed return on common equity,
the most recent 13-month average cost of short term debt and customer deposits
and a zero cost rate for deferred taxes and all investment tax credits. The
cost of long term debt and preferred stock shall be based on end of period
cost. The annual percentage rate shall be calculated to two decimal places.
In support of its requested AFUDC rate of 6.46 percent,
DEF provided its calculations and capital structure as Schedules A and B
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-6.0141(2), F.A.C. The requested decrease in the
AFUDC rate is due principally to a decrease of 63 basis points in the weighted cost
of long term debt and a decrease of 15 basis points in the weighted cost of
common equity. Customer deposits are 13 basis points lower and short-term debt
is 6 basis points lower. DEF used the midpoint return on equity of 10.50
percent, which was approved by the Commission in Order No. PSC-10-0131-FOF-EI.
Based on its review, staff believes that the requested
decrease in the AFUDC rate from 7.44 percent to 6.46 percent is appropriate,
consistent with Rule 25-6.0141, F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the requested 6.46 percent annual AFUDC rate?
Recommendation:
The appropriate monthly compounding rate to maintain
an annual rate of 6.46 percent is 0.523400 percent. (Smith II)
Staff Analysis:
DEF requested a monthly compounding rate of 0.523400
percent to achieve an annual AFUDC rate of 6.46 percent. In support of the
requested monthly compounding rate of 0.523400 percent, DEF provided its
calculation as Schedule C attached to its request. Rule 25-6.0141(3), F.A.C.,
provides a formula for discounting the annual AFUDC rate to reflect monthly
compounding. The rule also requires that the monthly compounding rate be
calculated to six decimal places.
Staff reviewed the Company’s calculations and determined
that they comply with the requirements of Rule 25-6.0141(3), F.A.C. Therefore, staff recommends that a
discounted monthly AFUDC rate of 0.523400 percent be approved.
Issue 3:
Should the Commission approve DEF's requested
effective date of January 1, 2019, for implementing the revised AFUDC rate?
Recommendation:
Yes. The revised AFUDC rate should be effective as
of January 1, 2019, for all purposes. (Smith II)
Staff Analysis:
DEF’s proposed AFUDC rate was calculated using a
13-month average capital structure for the period ended December 31, 2017. Rule
25-6.0141(5), F.A.C., provides that:
The new AFUDC rate shall be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of January 1, 2019,
complies with the requirement that the effective date does not precede the
period used to calculate the rate, and therefore should be approved.
Issue 4:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Brownless)
Staff Analysis:
If no person whose substantial interests are affected
by the proposed agency action files a protest within 21 days of the issuance of
the order, this docket should be closed upon the issuance of a consummating
order.
