Discussion
of Issues
Issue 1:
Should the Commission approve Gulf's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve Gulf’s proposed
URD tariffs and associated charges, as shown in Attachment A, effective October
3, 2019. (Coston, Draper)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
specifies investor-owned utilities’ (IOU) responsibilities for filing updated
URD tariffs. Gulf 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 varies from the Commission-approved differential by more
than ten percent. On October 30, 2018, Gulf informed the Commission that its
differential for the low density subdivision increased by 14 percent from the
differential approved in the 2017 order.
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.
Gulf’s URD charges are based on two standard model
subdivisions: a 210-lot low density subdivision and a 176-lot high density
subdivision. While actual construction may differ from the model subdivisions,
the model subdivisions are designed to reflect average overhead and underground
subdivisions.
Table 1-1
shows the current and proposed URD differentials for the low and high density
subdivisions. The charges shown are per-lot charges. Gulf’s URD tariffs also
provide for reduced charges if the customer chooses to supply and/or install
the primary and secondary trench and duct system.
Table 1-1
|
Type of Subdivision
|
Current URD
Differential
|
Proposed URD
Differential
|
|
Low Density
|
$498
|
$568
|
|
High Density
|
$562
|
$609
|
Comparison of URD Differential per Lot
Source: Commission Order PSC-2017-0356-TRF-EI and 2019
Petition.
As shown in Table 1-1, the proposed URD differentials show
an increase for both model subdivisions. The calculations of the proposed URD
charges include (1) updated labor and material costs along with the associated
loading factors and (2) operational costs. These costs are discussed below.
Labor and Material Costs
The installation costs of both underground and overhead
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. Utilities are required, by Rule 25-6.078(5) F.A.C., to
use current labor and materials costs in calculating its underground and
overhead differential.
Gulf stated that there have not been any design changes to
either the low or high density subdivision since 2015. The mix of Gulf employee
and contractor labor remains the same as it was in 2017. Gulf employees
continue to perform distribution construction activities. However, contract
labor is also utilized to perform distribution overhead construction. Both Gulf
and contractor labor rates have increase as specified in their respective
contracts. Table 1-2 below compares total 2017 and 2019 per-lot labor and
material costs for the two subdivisions.
Table 1-2
Labor and Material Costs per
Lot
|
|
2017 Costs
|
2019 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/Material Costs
|
$2,460
|
$2,749
|
$289
|
|
Overhead Labor/Material Costs
|
$1,740
|
$1,972
|
$232
|
|
Per lot Differential
|
$720
|
$777
|
$57
|
|
High Density
|
|
Underground Labor/Material Costs
|
$1,976
|
$2,198
|
$222
|
|
Overhead Labor/Material Costs
|
$1,352
|
$1,528
|
$176
|
|
Per lot Differential
|
$624
|
$670
|
$46
|
Source: Commission
Order PSC-2017-0356-TRF-EI and 2019 Petition.
As Table 1-2 shows, there has been an increase in underground
and overhead labor and material costs. Gulf explained that the increase is due
to increases in its direct labor rate, material costs, and engineering and
supervision overhead for both labor and materials. Specifically, labor costs
have increased approximately 20 percent for both overhead and underground since
2017.
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
and 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 differential
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. Gulf’s
operational costs, last updated for the 2017 filing represent a five-year
average of historical operational costs (2013-2017). The methodology used by
Gulf for calculating the NPV of operational costs was approved in Order No.
PSC-12-0531-TRF-EI. Gulf’s
NPV calculation used a 32-year life of the facilities and a 7.35 percent
discount rate. Staff notes that operational costs may vary in amount for
different IOUs as a result of differences in size of service territory, miles
of coastline, regions subject to extreme winds, age of the distribution system,
or construction standards.
Gulf’s combined
non-storm operational costs and avoided storm costs have decreased slightly for
both overhead and underground since 2017. In the low density model, the
combined cost differential is -$209, as compared to -$222 in 2017. For the high
density model, the combined cost differential is -$61, as compared to -$62 in
2017. Overhead operational costs for both subdivisions are higher than
underground operational costs. Therefore, the inclusion of the operational
costs results in a reduction to the pre-operational differential.
Gulf
states that hurricane Michael storm costs are not included in the calculations
of avoided storm costs in this filing. Staff notes that Rule 25-6.078(3),
F.A.C., requires IOUs to file with the Office of Commission Clerk in the
undocketed filings by October 15 of each year an updated calculation of the low
density subdivision using current costs. If the calculated cost differential
varies from the Commission-approved differential by more than ten percent, the
utility is required to file a petition for updated URD tariffs on or before
April 1 of the following year.
Table 1-3 presents the pre-operational, non-storm
operational, and the avoided storm restoration cost differentials between
overhead and underground systems. As noted above, the operational cost
differentials are slightly lower than in the 2017. Overall, the proposed URD
differential increase is related to the pre-operational labor and materials.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
Type of
Subdivision
|
Pre-Operational
(A)
|
Non-storm
Operational costs
(B)
|
Avoided Storm
costs
(C)
|
Proposed URD
Differentials
(A)+(B)+(C)
|
|
Low Density
|
$777
|
($174)
|
($35)
|
$568
|
|
High Density
|
$670
|
($43)
|
($18)
|
$609
|
Source: 2019 Petition and Staff Data Requests.
Conclusion
Staff has reviewed Gulf’s proposed URD tariffs and
associated charges, its accompanying work papers, and responses to staff’s data
requests. Staff believes the proposed URD tariffs and associated charges are
reasonable. Staff recommends approval of Gulf’s proposed URD tariffs and
associated charges, as shown in Attachment A, effective October 3, 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. (Schrader)
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.
