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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 30, 2019
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Office of the General Counsel (Davis,
Cibula)
Division of Economics
(Draper, Merryday, Guffey)
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RE:
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Docket No. 20180143-EI – Petition to
initiate rulemaking to revise and amend portions of Rule 25-6.0426, F.A.C.,
Recovery of Economic Development Expenses, by Florida Power & Light
Company, Gulf Power Company, and Tampa Electric Company.
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AGENDA:
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06/11/19 – Regular Agenda – Rule Proposal – Interested Persons May
Participate
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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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RULE STATUS:
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Proposal May Be Deferred
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SPECIAL INSTRUCTIONS:
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None
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Case Background
Rule 25-6.0426,
Florida Administrative Code, (F.A.C.), addresses the recovery of economic development
expenses for public electric utilities. The rule implements Section 288.035,
Florida Statutes (F.S.), which requires the Commission to adopt rules for the
recovery of economic development expenses by public utilities, including the
sharing of expenses by shareholders.
On July 30,
2018, Florida Power & Light Company (FPL), Gulf Power Company (Gulf), and
Tampa Electric Company (TECO) (collectively, petitioners) filed a joint
petition to initiate rulemaking to amend Rule 25-6.0426, F.A.C. In their
petition, the petitioners requested that the Commission amend the rule to
increase the cap on recoverable economic development expenses on a phased-in
basis through 2023.
On August 2, 2018, the Office of
Public Counsel (OPC) filed a notice of intervention which was acknowledged by Order
No. PSC-2018-0420-PCO-EI. Staff and OPC issued interrogatories and production of
documents to the petitioners, Duke Energy Florida (DEF), and Florida Public
Utilities Company (FPUC). The Commission granted the petition to initiate
rulemaking and noticed the development of the rule in the September 7, 2018
edition of the Florida Administrative Register, Vol. 44, No. 175.
A rule development workshop was
held on January 16, 2019, to obtain stakeholder comment on potential amendments
to the rule. FPL, Gulf, TECO, and OPC participated in the workshop and filed
post-workshop written comments. On March 14, 2019, the petitioners, Duke, and
FPUC responded to staff’s data request regarding the Statement of Estimated
Regulatory Cost (SERC).
This recommendation addresses
whether the Commission should propose the amendment of Rule 25-6.0426, F.A.C.,
as set forth in Attachment A to the recommendation. The Commission deferred
consideration of the recommendation to the June 11, 2019 Agenda Conference.
The rule amendments as shown in Attachment A provide for an increase in the cap
of recoverable economic development expenses; however, they differ from the
petitioners’ proposed amendments. Attachment B to the recommendation
illustrates recoverable economic development expenses for electric utilities
for 2019 under the current rule, petitioners’ proposed rule, OPC’s proposal
(based on OPC’s post-workshop comments), and staff’s recommended amendments. Revised
Attachment C further reflects the phased-in approach of percentage increases in
the cap from 2019-2023 as proposed in the petitioners’ proposed rule amendments.
Attachment D includes the Statement of Estimated Regulatory (SERC) costs. At
the May 14, 2019 Agenda Conference, the Commission directed staff to provide
additional options for its consideration, which staff has provided in
Attachment E.
Staff’s recommended rule amendments are based on the petition, the petitioners’
responses to staff’s and OPC’s interrogatories, the presentations and comments
made during the workshop, and the post-workshop written comments. The
Commission has jurisdiction pursuant to Sections 120.54, 350.127, and 288.035,
F.S.
Discussion
of Issues
Issue 1:
Should the Commission propose the amendment of Rule
25-6.0426, F.A.C., Recovery of Economic Development Expenses?
Recommendation:
Yes, the Commission should propose the amendment of
Rule 25-6.0426, F.A.C., as set forth in Attachment A. The Commission should
certify Rule 25-6.0426, F.A.C., as a minor violation rule. (Davis, Draper,
Merryday)
Staff Analysis:
Staff recommends that the Commission propose the
amendment of Rule 25-6.0426, F.A.C., as set forth in Attachment A. Subsection
(3) of Rule 25-6.0426, F.A.C., is the only section of the rule for which
amendments were offered. Subsection (3) of Rule 25-6.0426, F.A.C., places a cap
on the amount of economic development expenses utilities may report for
surveillance reports and earnings review calculations in between rate cases. Staff’s
explanation as to its recommendation for the rule amendments is set forth in
more detail below.
Current Rule 25-6.0426, F.A.C.
Subsection (3) of the rule currently states:
Prior to each utility’s next rate
change enumerated in subsection (6), the amounts reported for surveillance
reports and earnings review calculations shall be limited to the greater of:
(a) The amount approved in each
utility’s last rate case escalated for customer growth since that time, or
(b) 95 percent of the expenses incurred for the
reporting period so long as such does not exceed the lesser of 0.15 percent of
gross annual revenues or $3 million.
When the rule was initially adopted in 1995, the
Commission established the cap on economic development expenses in paragraph
(3)(b) as the lesser of 0.15 percent of gross annual revenues or $3 million. The
rule provided that ratepayers would be responsible for 90 percent of economic
development expenses and shareholders for the remaining ten percent of economic
development expenses. The Commission established the 95 percent sharing
requirement when the rule was amended in 1998.
Petition to Initiate Rulemaking
The petitioners requested that subsection (3) of the rule
be amended as follows:
Prior to each utility’s next rate
change enumerated in subsection (6), the amounts reported for surveillance
reports and earnings review calculations shall be limited to the greater of:
(a) The amount approved in each
utility’s last rate case escalated for customer growth since that time, or
(b) 95 percent of the expenses
incurred for the reporting period so long as such does not exceed the greater
lesser of 0.15 percent of gross annual revenues or $3 million.
Beginning on January 1, 2020, the amounts reported for surveillance reports and
earnings review calculations shall not exceed the greater of $3 million or 95
percent of the following percentages of gross annual revenues: January 1, 2020
– 0.175 percent; January 1, 2021 – 0.2 percent; January 1, 2022 – 0.225
percent; and, January 1, 2023 and beyond – 0.25 percent.
Attachment C illustrates the
phased-in approach of percentage increases in the cap from 2019-2023 as
proposed in the petitioners’ proposed rule amendments. The petitioners stated that
although Rule 25-60.426, F.A.C., is intended to promote economic development in
Florida, the rule in its current form has become unduly restrictive. The $3
million expense cap set forth in the rule has not changed since 1995. For a
large utility like FPL, according to the petitioners, the current rule has limited
FPL’s recoverable economic development expenses to a flat $3 million per year
in each and every year since the rule’s inception over 20 years ago.
The petitioners asserted that the
impact of the utilities’ recoverable economic development expenses has steadily
eroded since the rule was first established in 1995, with the expense cap
decreasing by approximately 65 percent since 1995 due to inflation. The
petitioners further explained that both the restrictive impact of the cap on
large utilities and the steady erosion of the real value of the cap could be
substantially avoided by the above-requested amendments. The petitioners stated
in their post-workshop comments that these rule amendments are needed to
encourage utilities to broaden economic development in Florida by allowing
recovery of economic development expenses at levels commensurate with the
economic size and reach of each utility.
According to the petitioners, the
suggested rule amendments are not projected to have any adverse impacts to
their general body of ratepayers. The petitioners contend that customers will
see no rate increases as a result of the proposed rule amendments between rate
cases and that the revenue increases from new and expanding business will allow
for long-term fixed costs to be spread over a larger customer base, thereby
benefiting existing customers.
During the staff workshop, FPL explained that the current
$3 million cap creates tension between funding for economic development
staffing and other economic development activities, such as rate discounts. FPL
stated in its post-workshop comments that the proposed amendments to the rule “will
gradually increase the level of funding for promotion of economic development
for FPL from the current $3 million to approximately $27 million by 2023.” It
asserted that this will “permit FPL to continue expanding its promotion of
economic development in Florida” and “increase the funding available for
economic development activities of all Florida investor-owned utilities.” This
increase includes funding for staff in FPL’s Office of Economic Development
which “will provide an enhanced staff focus in the following areas: (1)
business development; (2) competitiveness; and (3) capacity building.”
Both Gulf and TECO stated in their post-workshop comments
that they are not currently spending up to the existing cap limits. Both
utilities also stated that they have no immediate plans to increase their
involvement in economic development activities should the cap be increased.
However, both utilities asserted that given the amount of time since the rule
has been amended and due to the increasing importance of fostering economic
development in Florida, it is appropriate to amend the rule to put the
utilities in a posture to respond to and address changing conditions in the
economic development marketplace.
OPC’s Comments
OPC stated in its post-workshop comments that it does not
“categorically object to some level of increase in the amount allowed in the
Rule as long as shareholders bear some of the increased costs that assumedly
will contribute to their return.” OPC pointed out that all the utilities stated
at the workshop that the utilities contribute no more than the five percent
required under paragraph (3)(b) of the rule. OPC stated that it is concerned
with “maintaining the appropriate balance between customer and shareholder
responsibility regarding the amount spent on economic development and the
amount paid by customers.”
In regard to the utilities’ request to change the word
“lesser” to “greater” in paragraph (3)(b) of the rule, OPC asserted that the
rule should remain the same. Instead, OPC suggested that the rule be amended to
increase the $3 million cap to $10 million.
OPC stated it is concerned that use of the word “greater”
instead of the limiting language “lesser” would “allow for increases in the
amount that can be spent on economic development with no dollar amount ‘cap’ in
the future.” It is concerned that there is a lack of evidence warranting the
level of increase requested by the utilities. It further stated that the
utilities did not “show that they were either foregoing economic development
opportunities due to lack of funding or that they were spending more than five
percent of shareholder monies on the costs for economic development
opportunities that would otherwise be foregone.”
OPC asserted that the limitations in the rule are
necessary because 95 percent of the costs are flowed through to the customers
and the majority of the utilities have not been spending the allowable amounts
under the current rule. It further asserted that “[a]llowing the cap to
increase from $3 million to $10 million is a 333 percent increase which would
allow all utilities to significantly increase spending for economic development
above what they are currently spending.”
Staff’s Recommended Amendments to the Rule
Based on the petition, the petitioners’ responses to
staff’s and OPC’s interrogatories, the presentations and comments made during
the workshop, and the post-workshop written comments, staff believes that Rule
25-6.0426, F.A.C., should be revised to further encourage utilities to promote
continued economic development. Therefore, as reflected in Attachment A, staff
recommends that Section (3) of Rule 25-6.0426, F.A.C., be amended as follows:
Prior to each utility’s next rate
change enumerated in subsection (6), the amounts reported for surveillance
reports and earnings review calculations shall be limited to the greater of:
(a) The amount and level of
sharing approved in each utility’s last rate case escalated for customer
growth since that time, or
(b) 95 percent of the total economic development
expenses incurred for the reporting period so long as the total economic
development expenses do such does not exceed the greater lesser
of 0.15 percent of jurisdictional
gross annual revenues or $53 million.
Attachment B to the recommendation illustrates recoverable
economic development expenses for electric utilities for 2019 under the current
rule, the petitioners’ proposed rule, OPC’s proposal (based on OPC’s post-workshop
comments), and staff’s recommended amendment as shown in Attachment A to the
recommendation. Attachment C essentially illustrates the phased-in approach of the
petitioners’ proposed annual cap increases from 2019-2023. Staff does not favor
a phased-in approach of cap increases for the reasons discussed below. Instead,
staff recommends a more moderate approach described as follows.
First, staff recommends that the Commission amend
paragraph (3)(b) of the rule to change the word “lesser” to “greater” and to
retain the current 0.15 percent ceiling. This amendment allows economic
development expenses to increase commensurate with a utility’s size, addressing
the petitioners’ concerns that the current rule is unduly restrictive for large
utilities such as FPL (when measured in operating revenues). This will result
in the ability of larger utilities to increase economic development expenses over
time as operating revenues grow.
Additionally, staff’s proposed language would allow
smaller utilities to increase their economic development expenses. Under the
current “lesser” language, 0.15 percent of revenues is the economic development
expense cap for Gulf and FPUC because 0.15 percent of jurisdictional operating
revenues falls below the current $3 million cap, as shown in Column 2 of
Attachment B. Under staff’s proposed amendment, changing “lesser” to “greater”
will increase the allowed expenditures for Gulf and FPUC to the dollar cap in
the rule, which would be $5 million as reflected in Column 6 of Attachment B.
Second, staff recommends that the Commission amend
paragraph (3)(b) to increase the $3 million cap to $5 million to address the
effects of inflation since 1995. Staff used the Consumer Price Index for all
Urban Consumers (CPI-U) to bring $3 million in 1995 dollars to a present value
of $4.95 million. This figure was rounded to $5 million for simplification. Adjusting
the cap from $3 million to $5 million, in conjunction with changing “lesser” to
“greater,” would allow all electric utilities to expand their economic
development spending as shown in Column 6 of Attachment B. Staff notes that
OPC’s proposal, as shown in Column 5 of Attachment B, does not provide for an
increase in economic development expenses for TECO, Gulf, and FPUC.
Finally, staff is recommending three minor modifications
to the rule to provide clarity to the rule. Staff recommends that the phrase
“and the level of sharing” be added to paragraph (3)(a) of the rule. The current
language may create uncertainty as to the percentage of economic development expenses
approved in a utility’s last rate case subject to sharing between shareholders
and ratepayers, if the Commission does not specifically address it. Section
288.035, F.S., states the “Commission shall adopt rules for the recovery of
economic development expenses by public utilities, including the sharing of
expenses by shareholders.” Therefore, this clarifies that the level of sharing by
the Commission in a rate case shall be utilized for surveillance purposes.
Staff also recommends that paragraph (3)(b) be amended to
add the phrase “total economic development expenses” to clarify that the cap
prescribed by paragraph (3)(b) includes a 5 percent shareholder contribution. The
amount reported for surveillance reports and earnings review calculations reflects
only the 95 percent ratepayer contribution.
Staff further recommends that subsection (3)(b) be amended
to add the word “jurisdictional” to clarify that the cap is derived from
jurisdictional gross annual revenues, as opposed to system gross annual
revenues. Jurisdictional revenues are derived from retail customers, which are
under the Commission’s jurisdiction. System revenues include retail as well as
wholesale customers, which are under federal jurisdiction. Staff believes this
clarification is needed after communications with the utilities revealed
different understandings of the term “gross annual revenues.”
The petitioners proposed phased-in increases to the
percentage cap, from 0.175 percent in 2020 to 0.25 percent in 2023, as shown in
Columns 2 and 5 of Attachment C of the recommendation. In the staff workshop,
the petitioners communicated that, if the rule is amended as the petition
proposes, the utilities are unlikely to immediately increase spending up to the
caps. This reflects the petitioners’ stated belief that spending should gradually
increase to a higher percentage over time. Staff believes having 0.15 percent
revenue cap (as in the current rule), rather than 0.25 percent, better
mitigates potential rate increases resulting from a larger increase in spending
allowed under the phased-in approach. Further, the utilities did not adequately
demonstrate the need to increase the existing percentage of revenues cap.
Therefore, staff does not believe the petitioners’ phased-in increases to the
percentage cap are warranted. If, with experience, the petitioners determine
that the proposed amendments limit economic development activities, then this can
be addressed in a rate case or further rule amendments may be proposed.
Minor Violation Rule Certification
Pursuant to Section 120.695, F.S., beginning July 1, 2017,
for each rule filed for adoption the agency head shall certify whether any part
of the rule is designated as a rule the violation of which would be a minor
violation. Rule 25-6.0426, F.A.C., is currently listed on the Commission’s website
as a rule for which a violation would be minor because violation of the rule
would not result in economic or physical harm to a person or have an adverse
effect on the public health, safety, or welfare or create a significant threat
of such harm. The amendments to the rule would not change its status as a minor
violation rule. Thus, staff recommends that the Commission certify Rule
25-6.0426, F.A.C., as a minor violation rule.
Statement of Estimated Regulatory Costs
Pursuant to Section 120.54, F.S., agencies are encouraged
to prepare a statement of estimated regulatory costs (SERC) before the
adoption, amendment, or repeal of any rule. The SERC is appended as Attachment D
to this recommendation. The SERC analysis also includes whether the rule is
likely to have an adverse impact on growth, private sector job creation or
employment, or private sector investment in excess of $1 million in the
aggregate within five years of implementation.
The SERC concludes that the rule will not likely directly
or indirectly increase regulatory costs in excess of $200,000 in the aggregate
in Florida within one year after implementation. Further, the SERC concludes that the rule
will not likely have an adverse impact on economic growth, private sector job
creation or employment, private sector investment, business competitiveness,
productivity, or innovation in excess of $1 million in the aggregate within
five years of implementation. Thus, the rule does not require legislative
ratification pursuant to Section 120.541(3), F.S. In addition, the SERC states that the rule
will not have an adverse impact on small business and will have no impact on
small cities or counties. No regulatory alternatives were submitted pursuant to
paragraph 120.541(1)(a), F.S. None of
the impact/cost criteria established in paragraph 120.541(2)(a), F.S., will be
exceeded as a result of the recommended revision.
Customer Bill Impacts
The SERC includes an analysis of customer bill impacts of
the rule amendment as shown in Attachment D, page 24. As explained in the SERC,
estimated customer bill impacts for residential and small commercial customers
are projected by the petitioners, Duke, and FPUC to be minimal. In addition,
the customers will see no rate increases as a result of an increase in economic
development spending between rate cases. Finally, the petitioners assert in
their responses to staff’s SERC data requests, that any new load resulting from
economic development activities allows the petitioners to spread fixed costs
over a greater customer base, putting downward pressure on rates for all
customers.
Conclusion
Staff agrees with the petitioners that the current cap is
unduly restrictive, especially for a large utility like FPL, and that inflation
since 1995 has eroded the value of the $3 million cap. However, staff also
believes that while the Commission should continue to encourage economic
development, the Commission should consider moderation in the increase of
recoverable economic development expenses. Based on the foregoing, staff
recommends that the Commission propose the amendment of Rule 25-6.0426, F.A.C.,
as set forth in Attachment A. This more moderate approach when compared to the
petitioners’ request will provide the petitioners with the opportunity for
increased economic development spending to the benefit of the State of Florida.
In addition, the Commission should certify Rule 25-6.0426, F.A.C., as a minor
violation rule.
25-6.0426 Recovery of Economic Development
Expenses.
(1)
Pursuant to Section 288.035, F.S., the Commission shall allow a public utility
to recover reasonable economic development expenses subject to the limitations
contained in subsections (3) and (4), provided that such expenses are prudently
incurred and are consistent with the criteria established in subsection (7).
(2)
Definitions.
(a)
“Economic Development” means those activities designed to improve the quality
of life for all Floridians by building an economy characterized by higher
personal income, better employment opportunities, and improved business access
to domestic and international markets.
(b)
“Economic development organization” means a state, local, or regional public or
private entity within Florida that engages in economic development activities,
such as city and county economic development organizations, chambers of
commerce, Enterprise Florida, the Florida Economic Development Council, and
World Trade Councils.
(c)
“Trade show” means an exhibition at which companies, organizations, communities,
or states advertise or display their products or services, in which economic
development organizations attend or participate to identify potential
industrial prospects, to provide information about the locational advantages of
Florida and its communities, or to promote the goods and services of Florida
companies.
(d)
“Prospecting mission” means a series of meetings with potential industrial
prospects at their business locations with the objectives of convincing the
prospect that Florida is a good place to do business and offers unique
opportunities for that particular business, and encouraging the prospect to
commit to a visit to Florida if a locational search is pending or in progress.
(e) “Strategic plan” means a long-range
guide for the economic development of a community or state that focuses on
broad priority issues, is growth-oriented, is concerned with fundamental
change, and is designed to develop and capitalize on new opportunities.
(f)
“Recruitment” means active efforts to encourage specific companies to expand or
begin operations within Florida.
(3)
Prior to each utility’s next rate change enumerated in subsection (6), the
amounts reported for surveillance reports and earnings review calculations
shall be limited to the greater of:
(a)
The amount and level of sharing approved in each utility’s last rate
case escalated for customer growth since that time, or
(b)
95 percent of the total economic development expenses incurred for the
reporting period so long as the total economic development expenses do such
does not exceed the greater lesser of 0.15 percent of jurisdictional
gross annual revenues or $53 million.
(4)
At the time of each utility’s next rate case and for subsequent rate
proceedings enumerated in subsection (6) the Commission will determine the
level of sharing of prudent economic development costs and the future treatment
of these expenses for surveillance purposes.
(5)
Each utility shall report its total economic development expenses as a separate
line item on its income statement schedules filed with the earnings
surveillance report required by Rule 25-6.1352, F.A.C. Each utility shall make
a line item adjustment on its income statement schedule to remove the appropriate
percentage of economic development expenses incurred for the reported period
consistent with subsections (3) and (4).
(6)
Requests for changes relating to recovery of economic development expenses
shall be considered only in the context of a full revenue requirements rate
case or in a limited scope proceeding for the individual utility.
(7)
All financial support for economic development activities given by public
utilities to state and local governments and organizations shall be pursuant to
a prior written agreement. Recoverable economic development expenses shall be
limited to the following:
(a)
Expenditures for operational assistance, including:
1.
Planning, attending, and participating in trade shows;
2.
Planning, conducting, and participating in prospecting missions designed to
encourage the location in Florida of domestic and foreign companies;
3.
Providing financial support to economic development organizations to assist
with their economic development operations;
4.
Providing financial support to economic development programs or initiatives
identified or developed by Enterprise Florida, Inc.;
5.
Participating in joint economic development efforts, including public-private
partnerships, consortia, and multi-county regional initiatives;
6.
Participating in downtown revitalization and rural community developmental
programs.
7.
Supporting state and local efforts to promote small and minority-owned business
development efforts; and
8.
Supporting state and local efforts to promote business retention and expansion
activities.
(b)
Expenditures for assisting state and local governments in the design of
strategic plans for economic development activities, including:
1.
Making financial contributions to state and local governments to assist strategic
planning efforts; and
2.
Providing technical assistance, data, computer programming, and financial
support to state and local governments in the design and maintenance of
information systems used in strategic planning activities.
(c)
Expenditures of marketing and research services, including;
1.
Assisting state and local governments and economic development organizations in
marketing specific sites for business and industry development or recruitment;
2.
Assisting state and local governments and economic development organizations in
responding to inquiries from business and industry concerning the development
of specific sites within the utility’s service area;
3.
Providing technical assistance, data, computer programming, and financial
support to state and local governments in the design and maintenance of
geographic information systems, computer networks, and other systems used in
marketing and research activities;
4.
Providing financial support to economic development organizations to assist
with their research and marketing activities;
5.
Sponsoring publications, conducting direct mail campaigns, and providing
advertising support for state and local economic development efforts;
6.
Participating in cooperative marketing efforts with economic development
organizations;
7.
Helping state and local businesses identify suppliers, markets, and sources of
financial assistance;
8.
Helping economic development organizations identify specific industries and
companies for targeting and recruitment;
9.
Working with economic development organizations to identify businesses in need
of help for expansion, going out of business, or at risk of leaving the area;
10.
Providing site and facility selection assistance, including lists of commercial
or industrial sites, computer databases, toll-free telephone numbers, maps,
photographs, videos, and other activities in cooperation with economic
development organizations; and
11.
Supporting state and local efforts to promote exports of goods and services,
and other international business activities.
Rulemaking
Authority 288.035(3), 350.127(2) FS. Law Implemented 288.035 FS. History–New
7-17-95, Amended 6-2-98, 9-25-00,______________
