Case Background
On February 24,
2020, Gulf Power Company (Gulf or Company) filed a request for approval of
amortization rate for its Customer Account Management System (Petition). The
Company’s request is in accordance with Section 366.04, Florida Statutes (F.S.),
and Rule 25-6.0436(3)(a) and 25-6.0436(3)(b), Florida Administrative Code
(F.A.C.).
Pursuant to Rule
25-6.0436(3)(a), F.A.C., electric utilities are required to maintain
depreciation rates and accumulated depreciation reserves in accounts or
subaccounts in accordance with the Uniform System of Accounts for Public
Utilities and Licensees, as found in the Code of Federal Regulations, which is
incorporated by reference in Rule 25-6.014(1), F.A.C.[1] Rule 25-6.0436(3)(a), F.A.C., requires
that: “[u]pon establishing a new account or subaccount classification, each
utility shall request Commission approval of a depreciation rate for the new
plant category.
In its Petition,
Gulf explains that its former billing system, referred to as Customer Service
System (CSS), is owned by Southern Company, and could only be used by Gulf through
the end of 2020. Gulf further explained that a new billing system, the Customer
Account Management System (CAMS), replaced the CSS.
Gulf
successfully instituted a partial roll-out of the new CAMS during the fourth
quarter of 2019. The Company completed the full implementation of the CAMS on
February 24, 2020. The current net book value on Gulf’s books for the CSS is
$0.
Staff is not
aware of any public comments or concerns regarding this matter.
The Commission
has jurisdiction in this matter pursuant to Sections 366.04, 366.05, and
366.06, F.S.
Discussion
of Issues
Issue 1:
Should Gulf's request to establish a new sub-account
and annual depreciation rate applicable to its CAMS software be approved, and,
if so, what is the appropriate depreciation rate?
Recommendation:
Yes, a new sub-account and annual depreciation rate applicable
to Gulf’s new CAMS software should be approved. The appropriate annual
depreciation rate for the CAMS software is 5 percent. (Kunkler)
Staff Analysis:
Gulf states that the CAMS software directly facilitates a
wide variety of customer service interactions.
According to the Company, these customer service interactions include customer billing,
maintaining an online application, and a mobile application for customers to
manage accounts.
Additionally, CAMS includes an option for starting and stopping service, as
well as an interactive phone system with digital self-service options.
The estimated total capital cost associated with the CAMS software is $92
million.
In response to Staff’s First Data Request, Gulf stated
that the CAMS software is currently recorded in Account 303, Miscellaneous
Intangible Plant. This
account has an approved amortization period of seven years. The Company is
requesting authorization to establish a sub-account within Account 303,
specifically for the CAMS software. The sub-account for the new CAMS software
is Account 303.5 – Capitalization of Software.
The Company also is requesting to extend the amortization
period in this CAMS-specific sub-account from seven to 20 years. In addition to
the Company’s request that the Commission approve a 20-year average service
life (ASL), Gulf is requesting approval of a zero percent net salvage level
(NS) for depreciating its CAMS software. An annual depreciation rate of 5
percent is computed by using these parameters.[7]
The Company makes clear in its petition that the proposed 20-year ASL or amortization
period is for accounting purposes only and will have no impact on consumer base
rates during the current settlement term, approved in Order No. PSC-2017-0178-S-EI.
To support its proposed 20-year
ASL, Gulf explained that its former billing system, CSS, was placed into
service in the late 1990s, and was still being used in 2020. In
addition, the Company stated its “request for a 20-year amortization period is
well supported by both Gulf Power and industry experience.”
Given the circumstances presented
by Gulf, staff agrees that a 20-year life is a more accurate reflection of the
expected service life of the CAMS software, and will result in a more accurate
depreciation expense.
For the reasons outlined in this
analysis, staff recommends that an annual depreciation rate of 5 percent be
approved for the new CAMS software, applicable to Gulf’s newly-established
sub-account, Account 303.5 – Capitalization of Software.
Issue 2:
If the new amortization rate in Issue 1 is approved,
what should be the effective date?
Recommendation:
If the amortization rate is approved in Issue 1, staff
recommends an implementation date of February 24, 2020. (Smith II)
Staff Analysis:
Gulf filed its Petition on February 24, 2020. Gulf
explained in a response to staff’s data request that it also began recording
depreciation expense related to the CAMS system that same month. Since
the goal of depreciation expense is to match the expense with the useful life
of the asset, staff believes it is appropriate to allow Gulf to implement the
new amortization rate as of February 24, 2020, in order for the Company to
record the appropriate amortization expense. Therefore, staff recommends an
implementation date of February 24, 2020.
Issue 3: If the Commission
approves staff’s recommendation in Issue 1, should any accounting entries or
adjustments be authorized as part of this docket?
Recommendation:
Yes. Staff recommends the Commission authorize accounting
entries to reflect the new amortization rate. (Smith II)
Staff Analysis:
Gulf stated that it placed $71.9 million related to
CAMS software into Account 303 Miscellaneous Intangible Plant. The
Company further explained that it began recording depreciation expense based on
the previously approved 7-year life.
The resulting depreciation expense of $428,000 and $856,000 was recorded in
February and March 2020, respectively.
In its Petition, Gulf requested that the new 20-year
amortization rate be implemented retroactively to the filing date of this
Petition. Gulf
explained that if the Commission approves the requested 20-year rate in the
instant case, it would reverse the depreciation expense. Gulf
further explained that this reversal would be accomplished by debiting Account
404 - Amortization of limited term Electric Plant, and crediting Account 111 - Accumulated
Provision for Amortization of Electric Utility Plant for the amounts previously
recorded at the 7-year rate, and recording the appropriate expense at the newly
approved 20-year rate. The
Company stated that if the new 20-year rate was approved in June of 2020, these
adjustments would total $1.9 million. No
transfers between accounts would be necessary.
Staff believes Gulf’s request is appropriate because, as
discussed in Issue 1, the 20-year rate more accurately reflects the useful life
of the CAMS system and, therefore, results in a more accurate and appropriate
depreciation expense. Staff recommends the Commission authorize Gulf to make
the appropriate accounting adjustments reflecting the requested 20-year
amortization rate.
Issue 4:
Should this docket be closed?
Recommendation:
If no protest to this proposed agency action is
filed by a substantially affected person within 21 days of the issuance of the
order, a consummating order should be issued and the docket should be closed. (Stiller)
Staff Analysis:
If no protest to this proposed agency action is
filed by a substantially affected person within 21 days of the issuance of the
order, a consummating order should be issued and the docket should be closed.
