Case Background
On September 1,
2020, Peoples Gas System (PGS) filed a petition for approval of its final 2019
true-up, projected 2020 true-up, and 2021 revenue requirement and surcharges
associated with the cast iron/bare steel replacement rider (CI/BSR Rider or
rider). The rider was originally approved in Order No. PSC-12-0476-TRF-GU (2012
order) to recover the cost of accelerating the replacement of cast iron and
bare steel pipes through a surcharge on customers’ bills. PGS’s current surcharges were approved in
Order No. PSC-2019-0549-TRF-GU. In the 2012 order, the Commission found
that “replacement of these types of pipelines is in the public interest to
improve the safety of Florida's natural gas infrastructure, and reduce the
possibility of loss of life and destruction of property should an incident
occur."
In Order No.
PSC-17-0066-AS-GU, the Commission approved a comprehensive settlement agreement
between PGS and the Office of Public Counsel (OPC). The settlement agreement, in part, added
problematic plastic pipe (PPP) installed in the company's distribution system
to eligible replacements under the rider. PPP was manufactured before 1983 and
has significant safety concerns. In certain areas, the PPP is interspersed
with, or connected to, the cast iron/bare steel pipe that is being replaced
under the rider. As provided for in the settlement agreement, PPP replacements
are included in the calculation of the 2021 rider surcharges.
On June 8, 2020,
PGS filed a petition for a base rate increase in Docket No. 20200051-GU. As
part of the rate case, PGS requested to start billing the interruptible service
rate classes (SIS, IS, and ISLV) the CI/BSR Rider surcharges effective January
1, 2021. Currently, interruptible service customers are not paying a CI/BSR
surcharge. After discussion with staff, PGS
decided to remove the request with regards to the interruptible service
rate classes from Docket No. 20200051-GU and request consideration in the
instant docket.
On October 22,
2020, PGS filed a Joint Motion for Approval of Settlement Agreement in the rate
case docket. Included in the Settlement Agreement is a
provision to move $23.6 million of the 2021 CI/BSR revenue requirement related
to PGS’s CI/BSR investments made through December 31, 2020 ($200.7 million)
from recovery through the CI/BSR surcharges to recovery through base rates
effective January 1, 2021. The instant petition reflects this provision of the
Settlement Agreement and excludes the $23.6 million from the calculation of the
2021 CI/BSR surcharges.
In its
petition, PGS waived the 60-day file-and-suspend provision of Section
366.06(3), Florida Statutes (F.S.). The Commission has jurisdiction over this
matter pursuant to Sections 366.03, 366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve PGS’s request to apply
the CI/BSR surcharge to the interruptible service rate classes?
Recommendation:
Yes, the Commission should approve PGS’s request to
apply the CI/BSR surcharge to the interruptible service rate classes effective
January 1, 2021. This ensures that all customers are contributing towards the
CI/BSR replacement costs. (Ward)
Staff Analysis:
The CI/BSR Rider charges have been in effect since
January 2013. In PGS’s original petition, the utility excluded its interruptible
service customers from the CI/BSR Rider surcharge. Interruptible service customers
include the following rate classes: Small
Interruptible Service (SIS), Interruptible Service (IS), and Interruptible
Service – Large Volume (ISLV). In response to staff’s first data request, PGS
stated that at the time of the original petition, a majority of interruptible
service customers were directly connected to an interstate pipeline and did not
use a large portion of PGS’s distribution system.
After further consideration, the utility believes that all
customers benefit from the replacement of aging infrastructure, which allows
the utility to maintain a safe, reliable system. Therefore, the utility believes
that it is “fair and reasonable for customers in these rate classes to
contribute a proportional cost of the program.” The proposed 2021 factors for these rate
classes are included in Tariff Sheet No. 7.806 (Attachment B).
In Exhibit D of its petition, PGS provided CI/BSR factor
calculations for all rate classes with and without the interruptible rate
classes. The non-interruptible rate classes benefit from PGS’s proposal by
receiving a minor reduction in their CI/BSR factor. Staff notes that since the
allocation of the CI/BSR costs to the rate classes is based on the percent of
total plant allocated to the rate classes in PGS’s last rate case, the
interruptible service classes only receive a small percent allocation of the
total CI/BSR costs. Based on
the average therm usage for interruptible customers provided by PGS in its 2020
rate case filing, staff calculated the monthly bill impact of the proposed
CI/BSR surcharges for an SIS customer to be $117, for an IS customer to be
$182, and for an ISLV customer to be $50.
Conclusion
Staff has reviewed PGS’s filings and supporting
documentation and believes that interruptible service customers benefit from
the replacement of the utility’s aging infrastructure under this rider.
Therefore, the Commission should approve PGS’s request to apply the CI/BSR
surcharge to the interruptible service rate classes effective January 1, 2021.
This ensures that all customers are contributing towards the CI/BSR replacement
costs.
Issue 2:
Should the Commission approve PGS’s proposed CI/BSR
Rider surcharges for the period January through December 2021?
Recommendation:
Yes, the Commission should approve PGS’s proposed
CI/BSR Rider surcharges for the period January through December 2021. (Ward)
Staff Analysis:
The
CI/BSR Rider charges have been in effect since January 2013. Rider PPP charges
have been in effect since 2017. In 2020, PGS’s cast iron and bare steel
replacement activity focused in the areas of Miami, Tampa, St. Petersburg,
Orlando, Jacksonville, Eustis, Daytona, and Ocala. In 2021, PGS states it will
focus on replacement projects in Miami, Tampa, St. Petersburg, Orlando, Jacksonville,
Avon Park, Daytona, and Ocala. The projected completion date for the CI/BSR
replacement program is 2022 for mains and services. The replacement of PPP is
expected to continue until 2028.
Attachment A
to this recommendation contains tables which display the replacement progress
and forecasts for CI/BSR (Table 2) and for PPP (Table 3). Additionally, PGS
provided Table 1 which consolidates the actual and projected CI/BSR and PPP
miles replaced investment for each year of the program and the corresponding
revenue requirements.
True-ups by Year
PGS's
calculation for the 2021 revenue requirement and surcharges includes a final
true-up for 2019, an actual/estimated true-up for 2020, and projected costs for
2021. Pursuant to the 2012 order, the capital expenditures for 2017 through
2019 exclude the first $1 million of facility replacements each year because
that amount is included in rate base. PGS has included depreciation expense
savings as discussed in the 2012 order; however, the utility has not identified
any operations and maintenance savings.
Final
True-up for 2019
Exhibit A of
the petition shows that the revenues collected for 2019 were $10,398,531
compared to a revenue requirement of $13,781,390, resulting in an
under-recovery of $3,382,859. The final 2018 over-recovery of $15,885, 2019
under-recovery of $3,382,859, and interest of $15,576 associated with any over-
and under-recoveries results in a final 2019 under-recovery of $3,382,549.
Actual/Estimated
2020 True-up
In Exhibit B
of the petition, PGS provided actual revenues for January through July and
forecast revenues for August through December of 2020, totaling $18,660,466,
compared to an actual/estimated revenue requirement of $19,287,435, resulting
in an under-recovery of $626,969. The final 2019 under-recovery of $3,382,549,
2020 under-recovery of $626,969, and interest of $14,824 associated with any
over- and under- recoveries results in a total 2020 under-recovery of $4,024,341.
Projected
2021 Costs
Exhibit C of
the petition shows PGS projects investment or capital expenditures of
$35,475,247 for the replacement of cast iron/bare steel infrastructure and PPP
in 2021. As shown in Table 1 of Attachment A of the recommendation, this
consists of the CI/BSR infrastructure investment of $16,171,113 and the PPP
investment of $19,304,134. The return on investment (which includes federal
income taxes, regulatory assessment fees, and bad debt), depreciation expense
(less savings), and property tax expense associated with that investment is
$1,427,069. After adding the total 2020 under-recovery of $4,024,341, the total
2021 revenue requirement is $5,451,411. Table 2-1 displays the 2021 revenue
requirement calculation.
Table
2-1
2021 Revenue Requirement
|
2021 Projected Expenditures
|
$35,475,247
|
|
Return on Investment
|
$1,295,164
|
|
Depreciation Expense (less savings)
|
170,926
|
|
Property Tax Expense
|
(39,021)
|
|
2021 Revenue Requirement
|
$1,427,069
|
|
Plus 2020 Under-recovery
|
4,024,341
|
|
Total 2021 Requirement
|
$5,451,411
|
Source: Page
1 of 3 in Exhibit C in petition (Docket No. 20200206-GU).
Proposed Surcharges
As
established in the 2012 order, the total 2021 revenue requirement is allocated
to rate classes using the same methodology that was used for the allocation of
mains and services in the cost of service study used in PGS's most recent rate
case. After calculating the percentage of total plant costs attributed to each
rate class, the respective percentages were multiplied by the 2021 revenue
requirement resulting in the revenue requirement by rate class. Dividing each
rate class's revenue requirement by projected therm sales provides the rider
surcharge for each rate class. In the instant petition, PGS has requested to
alter the allocation methodology to include interruptible service customers in
the CI/BSR surcharge.
If the
Commission approves Issue 1, the proposed 2021 rider surcharge for residential
customers would be $.02188 per therm (compared to the current surcharge of
$.09203). The 2021 monthly bill impact will be $.44 for a residential customer
who uses 20 therms. The reduction in the surcharges is the result of a Settlement
Agreement filed in the rate case docket, as discussed in the case background,
which moves $23.6 million of the 2021 revenue requirement to recovery through
base rates effective January 1, 2021. The proposed Tariff Sheet No. 7.806 is
Attachment B to this recommendation.
Conclusion
Staff reviewed PGS’s filings and supporting documentation
and believes that the calculations are consistent with the methodology approved
in the 2012 order and are reasonable and accurate. Therefore, staff recommends
approval of PGS’s proposed 2021 CI/BSR Rider surcharges to be effective for the
period January through December 2021.
Issue 3:
Should this docket be closed?
Recommendation:
Yes. If Issues 1 and 2 are approved and a protest
is filed within 21 days of the issuance of the order, the tariff 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. (Osborn, Crawford)
Staff Analysis:
If Issues 1 and 2 are approved and a protest is
filed within 21 days of the issuance of the order, the tariff 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.
