Discussion
of Issues
Issue 1:
Should the Commission approve Gulf Power Company’s request
for approval to establish a regulatory asset for recording costs attributable
to COVID-19?
Recommendation:
Yes. The Commission should approve Gulf’s request to
establish a regulatory asset for recording costs incurred due to COVID-19. The approval
to establish a regulatory asset, for accounting purposes, does not limit the
Commission’s ability to review the amounts, recovery method, recovery period,
and other related matters for reasonableness in a future proceeding in which
the regulatory asset is included.
Gulf should be required to track any assistance or benefits
received by the Company in connection with COVID-19, regardless of form, that
would offset any COVID-19-related expenses. This would include, but is not
limited to, any cost savings directly attributable to the suspension of
disconnections or other activities during the emergency declaration. The
regulatory asset costs and offsets should be recorded and maintained in a
detailed manner that will allow incremental costs and any benefits and savings
to be readily identifiable in a future proceeding. In addition, Gulf should be prepared to
explain what actions and efforts it has undertaken to reduce or minimize these
costs and to maximize the receipt of any available COVID-19 assistance or
benefits. Finally, Gulf should be required to file quarterly reports identifying
the amounts of the costs incurred, any assistance or benefits received, and any
cost savings realized which have been recorded in the regulatory asset in
conjunction with its earnings surveillance report (ESR). The first COVID-19
regulatory asset report should be filed on August 17 with Gulf’s June 2020 ESR
and every three months thereafter until the Company presents the regulatory
asset for Commission consideration. (Sewards)
Staff Analysis: The Commission is charged
with the duty of ensuring that utilities provide safe, adequate, and reliable
utility service at reasonable rates. By law, such rates must allow utilities
the opportunity to recover the prudently incurred costs and a fair rate of return
on capital invested by utilities for the purpose of providing such service. In
turn, utilities have a responsibility,
and are expected, to manage their business in a manner that addresses changes
in costs and variability in sales.
On May 22, 2020, Gulf filed a petition for approval to
establish a regulatory asset to defer certain costs incurred due to COVID-19. Gulf
has requested approval to record incremental bad debt expense and safety-related
costs attributable to COVID-19 in the requested regulatory asset.
Gulf has calculated bad debt expense of approximately $2.1
million for April 2020, while the historic monthly average for April is
approximately $0.3 million. Gulf anticipates that COVID-19-related bad debt
expense will continue to increase in future months. An allowance for bad debt
expense is included in base rates. This allowance is typically based on the
three-year average of bad debt expense experienced by the utility.
Gulf currently estimates that safety-related costs for its
employees, contractors, and customers will exceed $4.0 million for 2020, of
which approximately $2.0 million will be recorded as operating expenses. Staff
notes that Gulf’s total COVID-related safety costs remain subject to change.
The concept of deferral accounting allows companies to
defer costs due to events beyond their control and seek recovery through rates
at a later time. The alternative would be for a company to seek a rate case
each time it experiences an exogenous event. The costs in the instant docket are
attributed to the COVID-19 pandemic. Due to the uncertainty of this situation, Gulf
states that it is not possible to fully anticipate the scope or timeframe of
the financial impact on the Company and its customers related to COVID-19. Because
of the unique circumstances resulting from the global pandemic, staff
recommends that the Commission approve Gulf’s request to establish a regulatory
asset for recording costs incurred due to COVID-19 and defer Commission
consideration of the potential recovery of the amounts recorded in the
regulatory asset to a future proceeding. The approval to establish a regulatory
asset, for accounting purposes, does not limit the Commission’s ability to
review the amounts, recovery method, recovery period, and other related matters
for reasonableness in a future proceeding in which the regulatory asset is
included. If staff’s recommendation herein is approved, the order that issues
will be procedural and preliminary in nature.
An adversely affected party’s point of entry to request an evidentiary
hearing before the Commission will be afforded in a future proceeding
addressing cost recovery of the regulatory asset.
In addition, staff recommends that Gulf
be required to track any assistance or benefits received by the Company in
connection with COVID-19, regardless of form, that would offset any
COVID-19-related expenses. This would include, but is not limited to, any cost
savings directly attributable to the suspension of disconnections or other
activities during the emergency declaration. The regulatory asset costs and
offsets should be recorded and maintained in a detailed manner that will allow
incremental costs and any benefits and savings to be readily identifiable in a
future proceeding. In addition, Gulf should be prepared to explain what actions
and efforts it has undertaken to reduce or minimize these costs and to maximize
the receipt of any available COVID-19 assistance or benefits. Finally, Gulf
should be required to file quarterly reports identifying the amounts of the
costs incurred, any assistance or benefits received, and any cost savings
realized which have been recorded in the regulatory asset in conjunction with its
ESR. The first COVID-19 regulatory asset report should be filed on August 17
with Gulf’s June 2020 ESR and every three months thereafter until the Company
presents the regulatory asset for Commission consideration.
