Discussion
of Issues
Issue 1:
Should the Commission approve Gulf's proposed
underground differential tariff revisions and proposed commercial differential
tariffs?
Recommendation:
Yes, the Commission should approve Gulf’s proposed
URD and UCD tariffs and associated charges, as shown in Attachments A and B,
effective August 6, 2020. (Ward)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
specifies investor- owned utilities' (IOU) responsibilities for filing updated
URD tariffs. Gulf 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 varies from the Commission-approved differential by more
than ten percent. On October 15, 2019, pursuant to Rule 25-6.078, F.A.C., Gulf
informed the Commission that while it was not finished calculating the avoided
storm costs associated with Hurricane Michael, it anticipated filing supporting
data and analysis by April 1, 2020 demonstrating a 10 percent low-density
differential in URD costs. The proposed URD tariffs, therefore, include
Hurricane Michael data in the calculation of the operational cost differential.
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 contribution-in-aid-of construction. Typically, the URD customer is the
developer of a subdivision.
Gulf’s URD charges are based on two standard model
subdivisions: a 210-lot low density subdivision and a 176-lot high density
subdivision. While actual construction may differ from the model subdivisions,
the subdivisions are designed to reflect average overhead and underground design
plans.
Table 1-1 shows the current and proposed URD differentials
for the low and high density subdivisions. The charges shown are per-lot
charges. While the charges noted in this table represent the utility performing
all construction, Gulf’s URD tariffs also provide cost options for a customer who may choose to supply, or install,
the primary trench, secondary trench, or duct system.
Table 1-1
Comparison of URD Differential per Lot
|
Type
of Subdivision
|
Current
URD
Differential
|
Proposed
URD
Differential
|
|
Low Density
|
$568
|
$0
|
|
High Density
|
$609
|
$0
|
Source: Commission Order No. PSC-2019-0448-TRF-EI and 2020
Petition.
Labor and Material Costs
The installation costs of both underground and overhead
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. Utilities are required by Rule 25-6.078(5),
F.A.C., to use current labor and materials costs in calculating underground and
overhead differentials.
Gulf stated that it has made design modifications for
installations in both low and high density subdivisions in this petition. The
utility explained that these changes were necessary to ensure its designs met
the extreme wind loading requirements and the utility’s improved construction
standards related to storm hardening. These changes increased certain materials
costs, such as poles and transformers.
The assumed contributions of Gulf employee and contractor
labor remains the same as in 2019. Gulf employees continue to perform
distribution construction activities, while contract labor is utilized to
perform distribution overhead construction. Both Gulf and contractor labor rates
have increased as specified in their respective contracts. Table 1-2 below
compares total 2019 and 2020 per-lot labor and material costs for the two
subdivisions.
Table 1-2
Labor and Material Costs per
Lot
|
|
2019 Costs
|
2020 Costs
|
Difference
|
|
Low Density
|
|
Underground Labor/Material Costs
|
$2,749
|
$3,080
|
$331
|
|
Overhead Labor/Material Costs
|
$1,972
|
$2,521
|
$549
|
|
Per lot Differential
|
$777
|
$560
|
$218
|
|
High Density
|
|
Underground Labor/Material Costs
|
$2,198
|
$2,421
|
$223
|
|
Overhead Labor/Material Costs
|
$1,528
|
$2,075
|
$547
|
|
Per lot Differential
|
$670
|
$346
|
$324
|
Source: Commission Order No. PSC-2019-0448-TRF-EI and 2020
Petition.
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
and 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 differential 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 Gulf for calculating the NPV of operational costs was approved by Order
No. PSC-12-0531- TRF-EI. Gulf’s NPV calculation used a 32-year life of the
facilities and a 7.35 percent discount rate. Staff notes that operational costs
may vary in amount for different IOUs as a result of differences in size of
service territory, miles of coastline, regions subject to extreme winds, age of
the distribution system, or construction standards.
Prior to adding the year 2019 to its operational cost calculation
cycle, the utility did not have a significant amount of avoided storm
operational costs in its URD calculation. In 2019, the utility incorporated the
impact of Hurricane Michael in its avoided storm cost calculations. In response
to staff’s data request, Gulf states that its overhead storm restoration costs
related to Hurricane Michael were approximately $342 million, compared to $38
million in underground costs.
The incorporation of these costs created a significant shift in the operational
cost offset. The proposed differential is $0 when the calculation results in a
negative number.
Table 1-3 presents the pre-operational, non-storm
operational, and the avoided storm restoration cost differentials between
overhead and underground systems.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
Type of
Subdivision
|
Pre-Operational
(A)
|
Non-Storm Operational
Costs
(B)
|
Avoided Storm Costs
(C)
|
Proposed URD
Differentials
(A)+(B)+(C)
|
|
Low Density
|
$560
|
$816
|
($9,480)
|
$0
|
|
High Density
|
$346
|
$599
|
($9,376)
|
$0
|
Source: 2020 Petition.
URD Tariff Language
In this petition, Gulf has proposed to restructure certain
language in its URD tariffs. In response to staff’s data request, the utility
stated that the modified language offers a more simplified cost structure which
should allow customers to better gauge the total costs for installing
underground facilities. Additionally, the new language allows the customer to
choose either credits per lot or per distance, which should provide flexibility
in the amount of work a customer is able to contribute in undergrounding their
facilities. Overall, the utility believes the changes will encourage customers
to install new underground facilities. Staff believes the changes are clear and
the restructuring maintains the intent of the tariffs. The proposed tariff
language is similar to Florida Power & Light Company’s current Commission-approved
URD tariffs.
Proposed Underground Commercial Differential Tariffs
Along with its revised URD tariffs, Gulf is requesting
approval of its initial Underground Commercial Differential (UCD) tariffs. These
tariffs would apply to requests for underground service facilities made by
small commercial/industrial applicants for new service. UCD tariffs are not
required by Rule 25-6.078, F.A.C., and as such, are not required to use the
operational or avoided storm cost methodology in calculating the overhead/underground
cost differentials. Gulf stated in its petition that while it considered the
effects of overhead hardening in its UCD calculation, the operational cost
structure used in its URD tariffs is not directly transferable to its UCD
calculation approach. Gulf stated that its proposed UCD tariff charges are
tailored to specific equipment and materials that are utilized to provide
underground service to a single or limited number of commercial buildings. The
utility stated that commercial facilities can vary widely and differ between
customers. As such, the utility did not apply the operational cost differential
to UCD tariffs, rather, the tariffs provide specific labor and material cost
differential for differing construction options.
Staff reviewed the proposed initial UCD tariffs and
determined that the utility provided appropriate support for the material and
labor costs associated with the differing commercial overhead and underground
installations. Gulf stated in its petition that the cost estimates were based
on standard company design criteria and system-wide costs, as of the end of
2019. Staff believes the UCD tariffs are appropriate and provide additional
clarity for commercial customers. In addition, staff recognizes that Gulf’s UCD
tariffs are similarly structured to the current Commission-approved Florida
Power & Light Company UCD tariffs.
Conclusion
Staff has reviewed Gulf’s proposed URD and UCD tariffs and
associated charges, its accompanying work papers, and responses to staff’s data
request. Staff believes the proposed URD and UCD tariffs and associated charges
are reasonable. Staff recommends approval of Gulf’s proposed URD and UCD
tariffs and associated charges, as shown in Attachments A and B, effective
August 6, 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. (Stiller)
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.
