Discussion
of Issues
Issue 1:
Should the Commission authorize Peoples Gas to
accrue an Allowance for Funds Used During Construction (AFUDC)?
Recommendation:
Yes. The Commission should authorize Peoples Gas to accrue
AFUDC. (Richards)
Staff Analysis:
In accordance with Rule 25-7.0141, Florida
Administrative Code (F.A.C.), Peoples Gas has requested that the Commission
allow the Company to accrue AFUDC to develop three expansion projects estimated
to cost $136 million in total. Peoples Gas currently is not authorized to
accrue AFUDC and does not have a Commission-approved AFUDC cost rate. Prior to
1995, Rule 25-7.0141, F.A.C., set forth comprehensive eligibility requirements
and a methodology regarding AFUDC for gas utilities. In 1995, this rule was
amended to state simply that “a utility shall not accrue allowance for funds
used during construction without prior Commission approval.”
While the rule regarding AFUDC for natural gas companies
does not specify eligibility requirements and methodology, Commission rules
regarding AFUDC for electric and water and wastewater utilities do provide such
eligibility requirements and methodology.
Rule 25-6.0141(1)(a), F.A.C., (Electric AFUDC Rule)
applies to electric utilities, and provides that the threshold requirements for
projects to be eligible to accrue AFUDC include the following:
·
The projects involve gross additions to plant in
excess of 0.5 percent of the sum of the total balance in Account 101 – Utility
Plant in Service, and Account 106 – Completed Construction not Classified, at
the time the project commence, and
o Are
expected to be completed in excess of one year after commencement of
construction, or
o
Were originally expected to be completed in one
year or less and are suspended for six months or more, or are not ready for
service after one year.
Rule 25-30.116(1)(a), F.A.C., (Water and Wastewater AFUDC
Rule) applies to water and wastewater (WAW) utilities and provides that the threshold
requirements for projects to be eligible to accrue AFUDC include the following:
·
Projects that involve gross additions to plant
in excess of $5,000 and
o
Are expected to be completed in excess of sixty
days after commencement of construction or
o
Were originally expected to be completed in
sixty days or less but are not ready for service after sixty days.
The Electric and WAW AFUDC Rules would not be controlling
on the natural gas industry; however, staff believes these rules can still
provide instructive guidance in considering Peoples Gas’s request here.
Exhibit C submitted with the Company’s petition
demonstrates that each proposed project individually exceeds 0.5 percent of the
sum of the balances in Gas Plant in Service (Account 101) and Gas Completed
Construction not Classified (Account 106); and construction on each project is
expected to take in excess of one year to complete, with each project beginning
in 2019. The total project cost of $136 million is approximately 8 percent of Account
101 and Account 106 as of January 31, 2019.
The Company stated that the Commission’s approval of its
request to accrue AFUDC on the large capital projects, and subsequently future
large projects would ensure consistency in regulatory treatment provided to the
Florida electric utilities and the water and wastewater utilities.
Staff believes the Company’s request to accrue AFUDC is
reasonable and appropriate and recommends that the Commission authorize Peoples
Gas to accrue AFUDC. Further, if one were to take guidance from the eligibility
requirements and methodology used to calculate the AFUDC for Florida electric
utilities and Florida water and wastewater utilities, staff believes that the
request would be consistent with those requirements and methodologies.
Issue 2:
Should the Commission approve Peoples Gas’s
requested AFUDC rate of 5.97 percent?
Recommendation:
Yes. The appropriate AFUDC rate for Peoples Gas is
5.97 percent based on a 13-month average capital structure for the period ended
December 31, 2018. (Richards)
Staff Analysis:
Peoples Gas requested an AFUDC rate of 5.97 percent
based on a 13-month average capital structure for the period ended December 31,
2018. Peoples Gas has used the same
formulaic approach as the electric industry to determine the appropriate AFUDC
rate.
Similarly to
the electric industry, Peoples Gas used 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 was based on end of period cost. The
annual percentage rate was calculated to two decimal places.
In support of
the requested AFUDC rate of 5.97 percent, Peoples Gas provided its calculations
and capital structure in Schedules A and B attached to its request. Staff
reviewed the schedules and determined that the proposed rate was calculated
correctly. Peoples Gas used the midpoint return on equity of 10.75 percent,
which was approved by Order No. PSC-2009-0411-FOF-GU.
Based on its
review, staff believes the AFUDC rate of 5.97 percent based on a 13-month
average capital structure for the period ended December 31, 2018, is appropriate
and recommends Commission approval.
Issue 3:
What is the appropriate monthly compounding rate to
achieve the requested 5.97 percent annual AFUDC rate?
Recommendation:
The appropriate monthly compounding rate to maintain
an annual rate of 5.97 percent is 0.484385 percent. (Richards)
Staff Analysis:
Peoples Gas requested a monthly compounding rate of
0.484385 percent to achieve an annual AFUDC rate of 5.97 percent. In support of
the requested monthly compounding rate of 0.484385 percent, the Company
provided its calculations in Schedule C attached to the amended request. The methodology
used to calculate the monthly compounding rate is consistent with the methodology
used by the Florida electric utilities. Staff reviewed the Company’s
calculations and determined they are correct. Therefore, staff recommends that
the Commission approve a monthly AFUDC rate of 0.484385 percent.
Issue 4:
Should the Commission approve Peoples Gas’ requested
effective date of January 1, 2019, for implementing the AFUDC rate?
Recommendation:
Yes. The AFUDC rate should be effective as of January
1, 2019. (Richards)
Staff Analysis:
Peoples Gas’s proposed AFUDC rate was calculated
using a 13-month average capital structure for the period ended December 31,
2018. Peoples Gas requests the new AFUDC rate be effective the month following
the end of the 12-month period used to establish that rate as is the practice
for the Florida electric and water and wastewater utilities.
The Company’s requested effective date of January 1, 2019,
does not precede the period used to calculate the rate, and therefore the
effective date should be approved. Accordingly, staff recommends an effective
date as of January 1, 2019.
Issue 5:
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
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Schrader)
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.
