Discussion
of Issues
Issue 1:
Should the Commission approve DEF's request to
decrease its AFUDC rate from 6.46 percent to 6.07 percent?
Recommendation:
Yes. The appropriate AFUDC rate for DEF is 6.07
percent based on a 13-month average capital structure for the period ended
December 31, 2019. (Richards)
Staff Analysis:
DEF requested a decrease in its AFUDC rate from 6.46
percent to 6.07 percent. Rule 25-6.0141(2), Florida Administrative Code (F.A.C.),
Allowance for Funds Used During Construction, provides the following guidance:
(2) The
applicable AFUDC rate will be determined as follows:
(a)
The most recent 13-month average embedded cost of capital, except as noted
below, will be derived using all sources of capital and adjusted using
adjustments consistent with those used by the Commission in the utility’s last
rate case.
(b)
The cost rates for the components in the capital structure will be 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 and
preferred stock will be based on end of period cost. The annual percentage rate
must be calculated to two decimal places.
In support of its requested AFUDC rate of 6.07 percent,
DEF 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 in accordance with Rule 25-6.0141(2), F.A.C. The
requested decrease in the AFUDC rate is due principally to a decrease of 19
basis points in the weighted cost of long-term debt and a decrease of 31 basis
points in the weighted cost of common equity. DEF used the midpoint return on
equity of 10.50 percent, which was approved by Order No. PSC-2010-0131-FOF-EI.
Based on its review, staff believes that the requested
decrease in the AFUDC rate from 6.46 percent to 6.07 percent is appropriate,
consistent with Rule 25-6.0141, F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the requested 6.07 percent annual AFUDC rate?
Recommendation:
The appropriate compounding rate to maintain an
annual rate of 6.07 percent is 0.491920 percent. (Richards)
Staff Analysis:
DEF requested a monthly compounding rate of 0.491920
percent to achieve an annual AFUDC rate of 6.07 percent. In support of the
requested monthly compounding rate of 0.491920 percent, DEF provided its
calculations in Schedule C attached to its request. Rule 25-6.0141(3), F.A.C.,
provides a formula for discounting the annual AFUDC rate to reflect monthly
compounding. The rule also requires that the monthly compounding rate be
calculated to six decimal places.
Staff reviewed the Company’s calculations and determined
that they comply with the requirements of Rule 25-6.0141(3), F.A.C. Therefore,
staff recommends that a discounted monthly AFUDC rate of 0.491920 percent be
approved.
Issue 3:
Should the Commission approve DEF's requested
effective date of January 1, 2020, for implementing the revised AFUDC rate?
Recommendation:
Yes. The revised AFUDC rate should be effective as
of January 1, 2020, for all purposes. (Richards)
Staff Analysis:
DEF’s proposed AFUDC
rate was calculated using a 13-month average capital structure for the period
ended December 31, 2019. Rule 25-6.0141(5), F.A.C., provides that:
No utility may charge or change its AFUDC rate without
prior Commission approval. The new AFUDC rate will be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of January 1, 2020,
complies with the requirement that the effective date does not precede the
period used to calculate the rate, and therefore should be approved.
Issue 4:
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 the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Trierweiler)
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.
