Discussion
of Issues
Issue 1:
Should the Commission approve Duke's proposed URD
tariffs and associated charges?
Recommendation:
Yes, the Commission should approve Duke’s proposed
URD tariffs and associated charges as shown in Attachment A, effective July 7,
2020. (Forrest)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
defines investor-owned utilities’ (IOU) responsibilities for filing updated URD
tariffs. Duke has 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 differential, using current labor and material costs,
varies from the Commission-approved differential by more than ten percent. On
October 15, 2019, pursuant to Rule 25-6.078, F.A.C., Duke informed the
Commission that its differential for the low density subdivision would change
by more than 10 percent from the differential approved in the 2019 order,
requiring Duke to file the instant petition.
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 a contribution-in-aid-of-construction (CIAC). Typically, the URD customer is
the developer of a subdivision.
Traditionally, three standard model subdivision designs
have been the basis upon which each IOU submits URD tariff changes for
Commission approval: low density, high density, and a high density subdivision
where dwelling units take service at ganged meter pedestals (groups of meters
at the same physical location). While actual construction may differ from the
model subdivisions, the model subdivisions are designed to reflect average overhead
and underground subdivisions.
Costs for underground construction have historically been
higher than costs for standard overhead construction and the additional cost is
paid by the customer as a CIAC. However, as shown on Table 1-1, Duke’s proposed
URD differential charges remain $0 per lot for the low density and ganged meter
subdivisions. For the high density subdivision, the proposed differential
decreased from the current $34 to $0 per lot. The decrease in the differentials
is primarily attributable to changes in Duke’s labor, material, and operational
costs.
Table 1-1 shows the current and proposed URD differentials
for the low density, high density, and ganged meter subdivisions. The charges
shown are per-lot charges.
Table 1-1
Comparison of URD
Differential per Lot
|
Types of
Subdivision
|
Current URD Differential
|
Proposed URD Differential
|
|
Low Density
|
$0
|
$0
|
|
High Density
|
$34
|
$0
|
|
Ganged Meter
|
$0
|
$0
|
Source:
Order PSC-2019-0443-TRF-EI and Duke’s 2020 Petition
The calculations of the proposed URD charges include (1)
updated labor and material costs along with the associated loading factors and
(2) operational costs. The costs are discussed below.
Labor and Material Costs
The installation costs of both overhead and underground
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. The utilities are required by Rule 25-6.078
(5), F.A.C., to use current labor and material costs.
Duke’s labor costs for overhead and underground
construction are comprised of costs associated with work performed by both in-house
employees and outside contractors. Duke’s in-house labor rates are based upon
actual labor costs negotiated in bargaining unit contracts and labor rates with
contractors are negotiated. Table 1-2 compares total 2019 and 2020 labor and
material costs for the three subdivision models.
Table 1-2
Duke Trench and Install
Conduit
Labor and Material Costs per
Lot
|
|
2019 Costs
|
2020 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/Material
costs
|
$1,620
|
$2,263
|
$643
|
|
Overhead Labor/Material costs
|
$1,323
|
$2,343
|
$1,020
|
|
Per lot Differential
|
$297
|
$(80)
|
$(377)
|
|
High Density
|
|
Underground Labor/Material
Costs
|
$1,484
|
$1,978
|
$494
|
|
Overhead Labor/Material Costs
|
$1,009
|
$1,642
|
$633
|
|
Per Lot Differential
|
$475
|
$336
|
$(139)
|
|
Ganged Meter
|
|
Underground Labor/Material
Costs
|
$581
|
$774
|
$193
|
|
Overhead Labor/Material Costs
|
$750
|
$1,295
|
$545
|
|
Per lot Differential
|
$(169)
|
$(521)
|
$(352)
|
Source: 2019 Order and Duke’s 2020
filing.
As Table 1-2 shows, the majority of overhead and
underground total labor and material costs increased since the 2019 petition.
The utility stated that it identified an error in its cost estimating tool
which did not allow the system to sufficiently account for the actual costs
paid for overhead contract labor, specifically in the area of setting poles and
overhead transformers. As such, after
adjusting for these changes, the cost of pole setting increased from $164 to
$644 and single-phase transformers increased from $90 to $643. The correction
of these costs contribute to the majority of increased labor costs in this
petition. Duke explained in response to staff’s data request that the utility
will continue to monitor the labor cost data to ensure their accuracy. Duke stated that material costs have
fluctuated minimally since 2019.
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
along with 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 calculations 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.
The utility used a 5-year average of historical
operational costs (2015-2019) for its calculations in this docket. The
methodology used by Duke in this filing for calculating the NPV of operational
costs was approved in Order No. PSC-12-0348-TRF-EI.
Staff notes that operational costs may vary among IOUs due to multiple factors,
including differences in size of service territory, miles of coastline, regions
subject to extreme winds, age of the distribution system, or construction
standards.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
Type of Subdivision
|
Pre-Operational Costs
(A)
|
Non-Storm Operational
Costs
(B)
|
Avoided Storm Costs
(C)
|
Proposed URD Differentials
(A)+(B)+(C)
|
|
Low Density
|
$(80)
|
$60
|
$(960)
|
$0
|
|
High Density
|
$336
|
$64
|
($547)
|
$0
|
|
Ganged Meter
|
($521)
|
($69)
|
($418)
|
$0
|
Source: 2020 Filing.
Table 1-3 presents the pre-operational, non-storm
operational, and the avoided storm restoration cost differentials between
overhead and underground systems. The proposed differential is $0 when the
calculation results in a negative number.
Duke stated in its response to staff’s data request that
the average non-storm operational costs did not change significantly from 2019
to 2020. However, the data show that avoided storm restoration costs increased when
compared to the 2019 petition. Duke’s 2019 petition included the 5-year average
of historical operational costs for 2014 to 2018, while this petition includes
operational costs for 2015 to 2019.
Additional Customer Options
In October 2019, the utility adopted a “cable in conduit”
approach, similar to other utilities in Florida. This change required that all
cable be included in conduit at installation, rather than cable being pulled
through separately installed conduit. The utility believed this approach would
reduce outages, as well as reduce repair and replacement times when failures
occur. Under the “cable in conduit” approach,
the utility removed certain costs associated with cable installation, splicing
and pulling boxes. However, as a result of this change, the utility is
proposing additional undergrounding construction options to developers in this
petition, which could impact the overall cost of installing underground
facilities. The two additional options are
discussed below:
·
Customer
Mainline-Duke Services: Customer
supply and install conduit for primary, secondary and street lights. This
option allows the developer to purchase and install primary and secondary
conduit in the subdivision; therefore, the material and labor costs associated
with the installation of primary and secondary conduit, including trenching, have
been excluded from the differential calculation. Duke continues to install
services and transformers. The developer-purchased conduit will have to be
installed meeting Duke guidelines.
·
Customer
Trench, Provide and Install Conduit: Customer supply and install conduit for
primary, secondary and street lights. This option allows the developer to
purchase and install services, primary, and secondary conduit. Therefore, the
associated costs have been excluded from the differential calculation. Duke
continues to install the transformers.
The utility notes that while the current NPV operational costs,
including avoided storm restoration, result in a $0 URD differential for these
new options, Duke recognizes that a shift in the operational costs could allow
the differential costs for these two new line costs to differ from the
traditional Duke Trench and Install
Conduit tariff, under which Duke performs the full installation.
Conclusion
Staff has reviewed Duke’s proposed URD tariffs and
associated charges, its accompanying work papers, and its responses to staff’s
data request. Staff believes the proposed URD tariffs and associated charges
are reasonable. Staff recommends the Commission approve Duke’s proposed URD
tariffs and associated charges as shown in Attachment A, effective July 7, 2020.
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. (Trierweiler)
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.
