Case Background
On December 19,
2019, Duke Energy Florida, LLC (DEF or Company) filed a petition for a limited
proceeding seeking authority to recover a total of $171.3 million for the
incremental restoration costs related to Hurricane Dorian and Tropical Storm
Nestor. This amount includes $2.1 million for interest and the regulatory
assessment fee gross-up. In its petition, DEF requests approval of an interim
storm restoration recovery charge to commence with the first billing cycle of
March 2020.
DEF filed its
petition pursuant to the provisions of the Second Revised and Restated 2017
Settlement Agreement (2017 Settlement) approved by the Commission in Order No.
PSC-2017-0451-AS-EU. Pursuant to the 2017 Settlement, DEF can
recover storm costs, without a cap on the level of charges on customer bills,
on an interim basis beginning 60 days following the filing of a petition for
recovery. DEF proposes to implement an interim charge for a 12-month period
effective March 2020. The interim charge results in an increase of $5.34 per
1,000 kilowatt hour (kWh) on a residential bill.
On December 31, 2019,
White Springs Agricultural Chemicals, Inc. filed a petition to intervene. On January 7, 2020, the Office of Public
Counsel filed a petition to intervene.
The Commission
has jurisdiction over this matter pursuant to Sections 366.04, 366.05, 366.06, and
366.076, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission authorize DEF to implement an
interim storm restoration recovery charge?
Recommendation:
Yes, the Commission should authorize DEF to
implement an interim storm restoration recovery charge. Once the total actual
storm costs are known, DEF should be required to file documentation of the
total storm costs for Commission review and true-up of any excess or shortfall.
(Sewards)
Staff Analysis:
As stated in the Case Background, DEF filed a
petition for a limited proceeding seeking authority to recover a total of $171.3
million for the incremental restoration costs related to Hurricane Dorian and
Tropical Storm Nestor. The $171.3 million includes $2.1 million for interest
and regulatory assessment fee gross-up. The petition was filed pursuant to the
provisions of the 2017 Settlement approved by the Commission in Order No.
PSC-2017-0451-AS-EU. Pursuant to Paragraph 38 of the 2017 Settlement, DEF can
begin recovery of storm costs, without a cap, 60 days following the filing of a
petition for recovery. DEF has requested an interim storm restoration recovery
charge to implement for a 12-month period, effective the first billing cycle of
March 2020 and continuing through February 2021.
In its petition, DEF asserts that it incurred total retail
recoverable costs of approximately $171.3 million as a result of Hurricane Dorian
and Tropical Storm Nestor. DEF further asserts that this amount was calculated
in accordance with the Incremental Cost and Capitalization Approach (ICCA)
methodology prescribed in Rule 25-6.0143, Florida Administrative Code.
The approval of an interim storm restoration recovery
charge is preliminary in nature and is subject to refund pending further review
once the total actual storm restoration costs are known. After the actual costs
are reviewed for prudence and reasonableness, and are compared to the actual
amount recovered through the interim storm restoration recovery charge, a
determination will be made whether any over/under recovery has occurred. The
disposition of any over/under recovery, and associated interest, would be
considered by the Commission at a later date.
Based on a review of the information provided by DEF in
its petition, staff recommends that the Commission authorize DEF to implement
an interim storm restoration recovery charge, subject to refund. Once the total
actual storm costs are known, DEF should be required to file documentation of
the storm costs for Commission review and true-up of any excess or shortfall.
Staff emphasizes that this recommendation is only for interim recovery charges
and is not a confirmation or endorsement of the prudence of DEF’s forecasted
costs and plans. This recommendation only allows DEF to begin recovery on an
interim basis in accordance with the 2017 Settlement. This interim recovery is
subject to refund following a hearing or formal proceeding where the veracity
and prudence of DEF’s actual restoration costs can be fully vetted.
Issue 2:
Should the Commission approve DEF’s proposed
Hurricane Dorian and Tropical Storm Nestor interim storm cost recovery
surcharges and associated tariffs?
Recommendation:
Yes. The Commission should approve DEF’s proposed Hurricane
Dorian and Tropical Storm Nestor interim storm cost recovery surcharges and
associated tariffs, as effective with the first billing cycle of March 2020,
subject to a final true-up. (Hampson)
Staff Analysis:
DEF is seeking approval of interim storm cost
recovery surcharges associated with Hurricane Dorian and Tropical Storm Nestor
as shown in proposed Tariff Sheet Nos. 6.105 and 6.106 (Attachment A to this
recommendation). The surcharges will be applicable to all rate classes. Tariff
Sheet No 6.105 shows the proposed interim storm cost recovery surcharges and Tariff
Sheet No. 6.106 defines the storm cost recovery surcharge.
DEF explains that it has allocated the storm cost recovery
amount to the rate classes consistent with the rate design approved in the 2017
Settlement. The calculation is shown in Appendix A on page 6 of DEF’s petition.
For residential customers, the surcharge is 0.534 cents per kilowatt-hour
(kWh), which equates to $5.34 on a 1,000 kWh residential bill. The storm cost
recovery surcharge will be included in the non-fuel energy charge on customer
bills.
Conclusion: Staff
recommends that the Commission should approve DEF’s proposed Hurricane Dorian
and Tropical Storm Nestor interim storm cost recovery surcharges and associated
tariffs, effective with the first billing cycle of March 2020, subject to a
final true-up.
Issue 3:
What is the appropriate security to guarantee the
amount collected subject to refund through the interim storm restoration
recovery charge?
Recommendation:
The appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking. (D. Buys)
Staff Analysis:
Staff recommends that all funds collected subject to
refund be secured by a corporate undertaking. The criteria for a corporate
undertaking include sufficient liquidity, ownership equity, profitability, and
interest coverage to guarantee any potential refund. Staff reviewed DEF’s
financial statements to determine if the Company can support a corporate
undertaking to guarantee the funds collected for recovery of incremental storm
restoration costs related to Hurricane Dorian and Tropical Storm Nestor. DEF’s 2016,
2017, and 2018 financial statements were used to determine the financial
condition of the Company. DEF’s financial performance demonstrates adequate
levels of ownership equity, profitability, and interest coverage, but marginal
liquidity due to negative working capital. However, the Company participates in
Duke Energy Corporation’s (DEF’s parent company) money pool and has access to
additional funds if needed.
DEF requested a 12-month collection period from March 2020
to February 2021 for Interim Storm Cost Recovery Charges of $171.2 million related
to Hurricane Dorian and Tropical Storm Nestor. By Order No.
PSC-2019-0268-PCO-EI, the Commission approved DEF’s request for Interim Storm
Cost Recovery Charges of $223.5 million for recovery of costs incurred due to
Hurricane Michael to be collected during a 12-month period from July 2019 to
June 2020. In
that Order, the Commission approved DEF’s Second Implementation Stipulation
whereby DEF agreed to use the annual tax reform benefits resulting from the Tax
Cuts and Jobs Act of 2017 as a direct offset to avoid implementing a separate
cost recovery of storm damage costs that customers would have otherwise been
obligated to pay. With the
addition of the Interim Storm Cost Recovery Surcharges for Hurricane Dorian and
Tropical Storm Nestor in the instant docket, the cumulative interim amount
subject to refund would be $394.8 million through February 2021. However, the interim
amount held subject to refund for Hurricane Michael is being offset by income
tax savings and not billed to the ratepayers.
Staff believes DEF has adequate resources to support a
corporate undertaking in the amount requested. Based on this analysis, staff
recommends that a corporate undertaking of $171.2 million is acceptable. This
brief financial analysis is only appropriate for deciding if the Company can
support a corporate undertaking in the amount proposed and should not be
considered a finding regarding staff's position on other issues in this
proceeding.
Issue 4:
Should this docket be closed?
Recommendation:
No, this docket should remain open pending final
reconciliation of actual recoverable Hurricane Dorian and Tropical Storm Nestor
storm costs with the amount collected pursuant to the interim storm restoration
recovery charge. The disposition of any over or under recovery, and associated
interest, should be considered by the Commission at a later date. (Schrader,
Lherisson)
Staff Analysis:
No, this docket should remain open pending final
reconciliation of actual recoverable Hurricane Dorian and Tropical Storm Nestor
storm costs with the amount collected pursuant to the interim storm restoration
recovery charge. The disposition of any over or under recovery, and associated
interest, should be considered by the Commission at a later date.
