Case Background
On
August 6, 2020, Florida City Gas (FCG or Company) filed a request for approval
of amortization rate for Starnik customer information system (CIS) and other
software accounting adjustments (Petition). The Company’s request is in
accordance with Section 366.115, Florida Statutes (F.S.), and Rules
25-7.045(2)(a) and 25-7.045(3)(b), Florida Administrative Code (F.A.C.),
which require that: (i) “[n]o utility shall
change any existing depreciation rate or initiate any new depreciation rate without
prior Commission approval,” and (ii) “[u]pon establishing a new account
or subaccount classification, each utility shall request Commission approval of
a depreciation rate for the new plant category.”
Pursuant to Rule
25-7.045(3)(a), F.A.C., gas 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 25-7.045(1), F.A.C.[1]
In
its Petition, FCG explains that their current billing system, referred to as
the Oracle Utilities Customer Care & Billings (CC&B) system, has been
in service since April 2006, when FCG was owned by Nicor Gas. FCG further
explains that prior to June 2020, the Company was contracting with Southern
Company for the use of CC&B, and therefore had no direct control over
modifying or improving the system to meet FCG’s specific needs. In June 2020,
FCG replaced CC&B with Starnik CIS. The net asset value on FCG’s books for
CC&B is $0.
According to FCG, the new Starnik CIS software will
increase customer information system functionalities, including providing an
integrated, state-of-the-art billing system and customer platform that will
enhance FCG customers’ digital experience. FCG further
states that the Starnik CIS will tie into FCG’s field operations software to offer
the Company increased customer support capabilities.
In
addition to Starnik CIS, FCG is also requesting approval of other software
accounting adjustments. These other adjustments are related to traditional capitalized
software and future Software-as-a-Service (SaaS) arrangements.
FCG’s current
depreciation rates were established when the Commission approved the
Stipulation and Settlement (2018 Settlement) entered into between the Company
and the Office of Public Counsel to resolve the Company’s last rate case and
depreciation study.
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 the Commission approve FCG’s request to
establish new subaccounts within FERC account 303 – Miscellaneous Intangible
Plant for its Starnik CIS software and traditional capitalized software
arrangements, and, if so, what are the appropriate corresponding depreciation
rates?
Recommendation:
Yes, new subaccounts
within FERC account 303 – Miscellaneous Intangible Plant and annual depreciation rates applicable to FCG’s new
Starnik CIS software and traditional software arrangements should be approved. The
Commission should approve the establishment of subaccount 303.20 –
Software as a Service – 20 years, for the Starnik CIS software. The appropriate
annual depreciation rate for this subaccount is 5 percent. The Commission
should also approve the establishment of two subaccounts for traditional
capitalized software arrangements, subaccount 303.01 - Software Non-Enterprise,
and subaccount 303.02 - Computer Software. The
appropriate annual depreciation rates for traditional capitalized software for
subaccounts 303.01 and 303.02 are 10 percent and 8.3 percent, respectively. As proposed by FCG, the Company should transfer
all plant balances to and record all future acquisition amounts of Starnik CIS
software and traditional software arrangements in these proposed subaccounts. (Kunkler)
Staff Analysis:
Starnik CIS
FCG states that Starnik CIS is a cloud-based SaaS system
that offers an all-in-one, real-time solution for managing the business
processes of: (1) receiving gas consumption measurement data; (2) accurately
billing; and (3) ensuring consistent collection of revenues for services
rendered to customers.
According to the Company, the Starnik CIS software enhances FCG’s ability to
effectively manage and accurately bill all customer segments, including
residential, commercial, industrial, and transportation service providers (TSP),
within a single system.
The total capital cost associated with Starnik software is $5.2 million as of
August 2020.
FCG stated that the Starnik CIS software is currently
recorded in subaccount 391.11, Computer Software.
This account has an approved amortization period of 12 years. The Company is requesting
authorization to establish a new subaccount specifically for the Starnik CIS
software within FERC account 303, Miscellaneous Intangible Plant. If approved
by the Commission, the Company will transfer the balance of $5.2 million from account
391.11 to the newly established subaccount 303.20 - Software as a Service. The
Company indicates that it is proposing to transfer the recording of these
assets from General Plant accounts to Intangible Plant accounts to provide consistency
with how its parent company, Florida Power & Light Company (FPL), records
its capitalized software for both traditional and SaaS arrangements.
The Company also is requesting an amortization period of
20 years for this Starnik CIS-specific subaccount with an annual depreciation
rate of 5 percent. A zero percent net salvage value (NSV) is associated with
these assets. The
Company makes clear in its petition that the proposed 20-year average service
life (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-2018-0190-FOF-GU.
To support the Company’s proposed 20-year ASL for Starnik
CIS, FCG referenced Docket No. 20120015-EI,
in which FPL requested to extend the depreciable life of its newly implemented
general ledger accounting system, SAP,
from five to 20 years, in order to more closely align with the period in which
customers would experience the benefit of the system.
The Commission approved a settlement in that docket which, although not
precedential, recognized a depreciable life of 20 years for the SAP system.
FCG also referenced Docket No. 20200059-EI,
in which Gulf Power Company sought to extend the depreciable life of its newly
implemented Customer Account Management System, CAMS, from seven to 20 years.
The Commission approved Gulf’s amortization rate for CAMS in Order No.
PSC-2020-0210-PAA-EI, issued June 25, 2020.
FCG states that its requested extension
of the Starnik CIS amortization period will serve to better align the costs of
Starnik CIS to the expected useful life of the software. The Company further
explains that extending the amortization period will have the added benefit of
decreasing the revenue requirement associated with Starnik CIS when the
Company’s base rates are next set.
Given the circumstances presented
by FCG, staff agrees that a 20-year life is a more accurate reflection of the
expected service life of the Starnik CIS system, and will result in a more appropriate
depreciation expense. Staff also agrees with FCG’s proposed zero NSV. With
these parameters, a 5 percent depreciation rate appears reasonable. Staff believes
that FCG’s request to establish the subaccount 303.20 – Software as a Service as
the subaccount for this asset is appropriate.
Traditional Software
FCG states that traditional software is software that has
been developed or obtained for internal use, whereas SaaS arrangements involve
cloud computing arrangements. FCG
is currently recording traditional software arrangements in subaccount 391.10 –
Software Non-Enterprise and subaccount 391.11 – Computer Software.
Subaccount 391.10 currently has a depreciation rate of 10
percent, while subaccount 391.11 currently has a depreciation rate of 8.3
percent. The Company is requesting to transfer the remaining balances for these
traditional software assets to newly established subaccounts 303.01 – Software
Non-Enterprise and subaccount 303.02 – Computer Software (see Issue 2). The Company is also requesting to use these proposed
subaccounts for all similar acquisitions in the future, with no change to
depreciation rates. FCG explains that the reason for this proposed transfer is
to allow the Company to separately identify traditional capitalized software, which
is maintained on the Company's internal servers, and use a depreciation rate
based on the anticipated useful life of the software, from SaaS arrangements,
which are maintained on a vendor's servers ("Cloud Computing"). Staff
believes FCG’s proposal as relates to the establishment of the proposed
subaccounts for traditional capitalized software at the proposed depreciation
rates is reasonable.
Conclusion
For the reasons outlined in this analysis staff recommends
approval of FCG’s proposal to establish new subaccount 303.20 – Software as a
Service, for purposes of recording Starnik CIS assets at an annual depreciation
rate of 5 percent. Staff also recommends that the Commission approve FCG’s proposed
subaccounts, 303.01 - Software Non-Enterprise and 303.02 – Computer Software,
established to allow the in-transfer of the balances of traditional software
assets currently recorded in subaccounts 391.10 and 391.11, respectively. Staff recommends that these new subaccounts,
303.01 and 303.02, feature the same depreciation rates of 10 percent and 8.3
percent as the current subaccounts, respectively. In addition, staff recommends
that FCG record all going-forward acquisitions of like assets to these new
subaccounts.
Issue 2:
If the Commission approves staff’s recommendation in
Issue 1, should any accounting entries or adjustments be authorized, and if so,
what should be the effective date?
Recommendation:
If the Commission approves staff’s recommendation in
Issue 1, staff recommends the Commission authorize accounting entries to
reflect the new amortization rate, but the implementation date of the
adjustments should be on the date of the issuance of a final Commission Order
in this docket, rather than August 1, 2020, as proposed by FCG. (Smith II)
Staff Analysis:
FCG filed its Petition on August 6, 2020. FCG
explained in a response to staff’s data request that it placed $5.2 million
related to Starnik CIS software into Account 391.11 - Computer Software in June
2020.
FCG further explained that it began recording amortization expense related to
the Starnik system that same month at the currently approved 12-year rate.
FCG explained that if the Commission approves its request,
the Company would transfer $5.2 million related to the Starnik CIS from Account
391.11 to the requested subaccount within Account 303.
Additionally, FCG stated that it will true-up, and then transfer, the
accumulated amortization associated with the Starnik software from Account 111
– Accumulated provision for amortization of electric plant to Account 404 –
Amortization of limited-term electric plant.
FCG explained that it would record amortization expense for June and July at
the currently approved 12-year rate.
The Company further clarified that, with Commission approval, it would begin
using the new 20-year rate in August.
This would reduce depreciation expense from $35,600 per month to $21,500. As
discussed in Issue 1, any remaining balances related to traditional software
also would be transferred from Accounts 391.10 and 391.11 to Account 303.01
(10-year amortization rate) or Account 303.02 (12-year amortization rate), as
appropriate.
Staff agrees with FCG’s general approach to the accounting
adjustments. However, staff disagrees with FCG’s proposal to implement the new
rate on August 1, 2020. Staff believes that the amortization expense for the
Starnik CIS software should be recorded using the new 20-year life depreciation
rate (5 percent per annum) beginning on the date of the issuance of a final
Commission order in this docket. This is in accordance with Rule 25-7.045(2)(a),
F.A.C., which states that no utility may initiate a new depreciation rate
without prior Commission approval. As such, amortization expense recorded from
the in-service date through the date of a final Commission order would be
accrued at the existing 12-year amortization rate (8.3 percent per annum),
after which the accrual would be recorded at the requested 20-year rate (5.0
percent per annum).
Staff recommends the Commission authorize FCG to make the
appropriate accounting adjustments, as outlined above, reflecting the requested
20-year amortization rate beginning on the date of the issuance of a final
Commission Order in this docket
Issue 3:
Should the Commission approve FCG’s request to
establish new sub-accounts within FERC Account 303 – Miscellaneous Intangible
Plant for its future SaaS arrangements, and, if so, what are the appropriate
corresponding depreciation rates?
Recommendation:
No. The Commission should deny FCG’s request to
establish new sub-accounts within FERC Account 303 – Miscellaneous Intangible
Plant for its future SaaS software arrangements. (Smith II)
Staff Analysis:
The
Company requested Commission approval of the establishment of various 303
subaccounts for future SaaS arrangements to reflect different service lives.
The proposed amortization rates for these accounts mirror FCG’s Starnik CIS
software request by matching the amortization rate to the specific terms of the
service contract and the Company’s assessment of how long the software will be
utilized.
The requested subaccounts and corresponding amortization
rates are:
Account 303.10 Software as a Service – 2 years
Account 303.11 Software as a Service – 3 years
Account 303.12 Software as a Service – 4 years
Account 303.13 Software as a Service – 5 years
Account 303.14 Software as a Service – 6 years
Account 303.15 Software as a Service – 7 years
Account 303.16 Software as a Service – 8 years
Account 303.17 Software as a Service – 9 years
Account 303.18 Software as a Service – 10 years
Account 303.19 Software as a Service – 15 years
FCG stated that it currently does not have any plant
balances to transfer into these subaccounts.
Nor does the Company have any current or pending SaaS arrangements that it
plans to capitalize and record to any of these subaccounts.
Given the fact that there are no assets in place to evaluate or analyze in
order to recommend appropriate amortization rates or net salvage values, staff
believes FCG’s request to establish these subaccounts is premature. Therefore,
staff recommends the Company’s request to establish specific SaaS subaccounts
303.10 through 303.19 should be denied at this time.
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.
