Discussion
of Issues
Issue 1:
Should the Commission approve Duke's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve Duke’s proposed
URD tariffs and associated charges as shown in Attachment A, effective September
5, 2019. (Draper, Coston)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
defines investor-owned utilities’ (IOU) responsibilities for filing updated URD
tariffs. Duke has filed the instant petition pursuant to subsection (3) of the
rule, which requires IOUs to file supporting data and analyses for updated URD
tariffs if the cost differential varies from the Commission-approved
differential by more than ten percent. On October 15, 2018, pursuant to Rule
25-6.078, F.A.C., Duke informed the Commission that its differential for the
low density subdivision decreased by 81 percent from the differential approved
in the 2017 order, requiring Duke to file the instant petition.
The URD tariffs provide charges for underground service in
new residential subdivisions and represent the additional costs, if any, the
utility incurs to provide underground service in place of overhead service. The
cost of standard overhead construction is recovered through base rates from all
ratepayers. In lieu of overhead construction, customers have the option of
requesting underground facilities. Any additional cost is paid by the customer
as contribution-in-aid-of-construction (CIAC). Typically, the URD customer is the
developer of a subdivision.
Traditionally, three standard model subdivision designs
have been the basis upon which each IOU submits URD tariff changes for
Commission approval: low density, high density, and a high density subdivision
where dwelling units take service at ganged meter pedestals (groups of meters
at the same physical location). While actual construction may differ from the
model subdivisions, the model subdivisions are designed to reflect average
overhead and underground subdivisions.
Costs for underground construction have historically been
higher than costs for standard overhead construction and the additional cost is
paid by the customer as a CIAC. However, as shown on Table 1-1, Duke’s proposed
URD differential charges are $0 per lot for the low density and ganged meter
subdivisions. Therefore, the URD customer will not be assessed a CIAC charge
for requesting underground service in the low density and ganged meter
subdivisions. For the high density subdivision the proposed differential decreased
from $403 to $34 per lot. The decrease in the differentials is primarily
attributable to changes in Duke’s operational costs, as discussed in more
detail in the section of the recommendation titled operational costs.
Table 1-1 shows the current and proposed URD differentials
for the low density, high density, and ganged meter subdivisions. The charges
shown are per-lot charges.
Table 1-1
Comparison of URD
Differential per Lot
|
Types of
Subdivision
|
Current URD Differential
|
Proposed URD Differential
|
|
Low Density
|
$694
|
$0
|
|
High Density
|
$403
|
$34
|
|
Ganged Meter
|
$158
|
$0
|
Source:
Order PSC-2017-0283-TRF-EI and Duke’s 2019 Petition
The calculations of the proposed URD charges include (1) updated
labor and material costs along with the associated loading factors and (2) operational
costs. The costs are discussed below.
Labor and Material Costs
The installation costs of both overhead and underground
facilities include the labor and material costs to provide primary, secondary,
and service distribution lines, as well as transformers. The costs of poles are
specific to overhead service while the costs of trenching and backfilling are
specific to underground service. The utilities are required by Rule 25-6.078
(5), F.A.C., to use current labor and material costs.
Duke’s labor costs for overhead and underground
construction are comprised of costs associated with work performed by both
in-house employees and outside contractors. Duke’s in-house labor rates are
based upon actual labor costs negotiated in bargaining unit contracts and labor
rates with contractors are negotiated. Table 1-2 compares total 2017 and 2019
labor and material costs for the three subdivision models.
Table 1-2
Labor and Material Costs per
Lot
|
|
2017 Costs
|
2019 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/Material Costs
|
$1,477
|
$1,620
|
$143
|
|
Overhead Labor/Material Costs
|
$1,069
|
$1,323
|
$254
|
|
Per lot Differential
|
$408
|
$297
|
($111)
|
|
High Density
|
|
Underground Labor/Material Costs
|
$1,181
|
$1,484
|
$303
|
|
Overhead Labor/Material Costs
|
$865
|
$1,009
|
$144
|
|
Per lot Differential
|
$316
|
$475
|
$159
|
|
Ganged Meter
|
|
Underground Labor/Material Costs
|
$686
|
$581
|
($105)
|
|
Overhead Labor/Material Costs
|
$609
|
$750
|
$141
|
|
Per lot Differential
|
$77
|
($169)
|
($246)
|
Source: 2017
Order and Duke’s 2019 filing
As Table 1-2 shows, the majority of overhead and
underground labor and material costs have increased since 2017. Because of a
design change as discussed in more detail in the section of the recommendation
titled subdivision design changes, the only exception to the increase in costs
can be seen in the underground ganged meter labor and material costs (decrease
from $686 to $581).
Subdivision Design Changes
Duke stated that the utility began using a new underground
design software in the fall of 2017. Duke explained that the new software
incorporates the most recent loading parameters for cables and transformers to
design the most cost-effective way (in terms of number of transformers,
transformer size, and cable length) to serve a home. The high density subdivision
design was modified to reflect front lot construction as required by Rule
25-6.0341(1), F.A.C.
With respect to the underground ganged meter subdivision
design, Duke explained that the design was modified to reflect townhome
construction. Duke has had very few new underground mobile home parks that are
typically served by a ganged meter, but several new townhome projects taking
underground service at a ganged meter. The result of incorporating townhome
construction is more units served from the ganged meter, and therefore, reduced
per lot costs. As seen in Table 1-2 above, the total underground labor and
material costs decreased from $686 to $581.
The three overhead designs had minor modifications to meet
both National Electric Safety Code and Duke’s construction standards. Specifically,
the overhead design was modified to incorporate Duke’s current standards that
require increased insulation levels, taller poles, and increased spaces between
the phases.
Operational Costs
Rule 25-6.078(4), F.A.C., requires that the differences in
net present value (NPV) of operational costs between overhead and underground
systems, including average historical storm restoration costs over the life of
the facilities, be included in the URD charge. The inclusion of the operational
cost is intended to capture longer term costs and benefits of undergrounding.
Operational costs include operations and maintenance costs
along with capital costs and represent the cost differential between
maintaining and operating an underground versus an overhead system over the
life of the facilities. The inclusion of the storm restoration cost in the URD calculations
lowers the differential, since an underground distribution system generally
incurs less damage than an overhead system as a result of a storm, and
therefore, less restoration costs when compared to an overhead system.
The utility used a 5-year average of historical
operational costs (2014-2018) for its calculations in this docket. The
methodology used by Duke in this filing for calculating the NPV of operational
costs was approved in Order No. PSC-12-0348-TRF-EI.
Staff notes that operational costs may vary among IOUs due to multiple factors,
including differences in size of service territory, miles of coastline, regions
subject to extreme winds, age of the distribution system, or construction
standards.
Non-storm Operational Costs
Duke’s operational costs for an overhead system have increased
more than the operational cost for an underground system. The resulting
differentials are shown in Column B in Table 1-3. For the low density
subdivision, the operational cost differential in 2017 was $350 (indicating
that underground operational costs were higher than overhead operational
costs). As shown in Table 1-3, the operational cost differential for the low
density subdivision is now $80. For the high density and ganged meter
subdivisions, the operational cost differentials decreased from $126 and $109
to -$20 and -$1, respectively, indicating that overhead operational costs are
slightly higher than underground operational costs. Duke explained that the
primary reason for this change in operational costs is the increase in overhead
operational costs as a result of Duke’s increased maintenance, such as pole
replacements, on its overhead distribution system.
Avoided Storm Restoration Costs
Duke explained that the recent hurricane season
significantly increased the avoided storm restoration costs impacts. Specifically, Duke stated the utility
incorporated overhead storm restoration costs for hurricanes Irma, Nate, Michael,
Matthew, Hermine, and tropical storm Colin. Therefore, the amount representing
avoided storm restoration costs significantly increased from 2017.
Table 1-3 presents the pre-operational, non-storm
operational, and the avoided storm restoration cost differentials between
overhead and underground systems. The proposed differential is $0 when the
calculation results in a negative number.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
Type of Subdivision
|
Pre-Operational Costs
(A)
|
Non-storm Operational costs
(B)
|
Avoided Storm costs
(C)
|
Proposed URD Differentials
(A)+(B)+(C)
|
|
Low Density
|
$297
|
$80
|
($726)
|
$0
|
|
High Density
|
$475
|
($20)
|
($421)
|
$34
|
|
Ganged Meter
|
($169)
|
($1)
|
($312)
|
$0
|
Source: 2019 Filing
Conclusion
Staff has reviewed Duke’s proposed URD tariffs and
associated charges, its accompanying work papers, and its responses to staff’s
data request. Staff believes the proposed URD tariffs and associated charges
are reasonable. Staff recommends approval of Duke’s proposed URD tariffs and
associated charges as shown in Attachment A, effective September 5, 2019.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order. (Trierweiler)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order.
