Discussion
of Issues
Issue 1:
Should the Commission approve DEF's request to
increase its AFUDC rate from 6.07 percent to 6.18 percent?
Recommendation:
Yes. The appropriate AFUDC rate for DEF is 6.18
percent based on a 13-month average capital structure for the period ended
December 31, 2020. (Mathis)
Staff Analysis:
DEF requested an increase in its AFUDC rate from
6.07 percent to 6.18 percent. Rule 25-6.0141(3), Florida Administrative Code
(F.A.C.), Allowance for Funds Used During Construction, provides the following
guidance:
(3) The applicable AFUDC rate will be determined as
follows:
(a) The most recent 13-month average embedded cost of
capital, except as noted below, will be derived using all sources of capital
and adjusted using adjustments consistent with those used by the Commission in
the utility’s last rate case.
(b) The cost rates for the components in the capital
structure will be the midpoint of the last allowed return on common equity, the
most recent 13-month average cost of short-term debt and customer deposits, and
a zero cost rate for deferred taxes and all investment tax credits. The cost of
long-term debt and preferred stock will be based on end of period cost. The
annual percentage rate must be calculated to two decimal places.
In support of its requested AFUDC rate of 6.18 percent,
DEF provided its calculations and capital structure in Schedules A and B
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-6.0141(3), F.A.C. The
requested increase in the AFUDC rate is due principally to an increase of 5
basis points in the weighted cost of long-term debt and an increase of 10 basis
points in the weighted cost of common equity, offset by a decrease of 3 basis
points in the weighted cost of short-term debt. In its calculation, the Company
appropriately used the mid-point return on equity of 10.50 percent, which was
approved by Order No. PSC-2010-0131-FOF-EI.
Based on its review, staff believes that the requested
increase in the AFUDC rate from 6.07 percent to 6.18 percent is appropriate,
consistent with Rule 25-6.0141, F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the requested 6.18 percent annual AFUDC rate?
Recommendation:
The appropriate compounding rate to achieve an
annual AFUDC rate of 6.18 percent is 0.005008. (Mathis)
Staff Analysis:
DEF requested a monthly compounding rate of 0.005008
to achieve an annual AFUDC rate of 6.18 percent. In support of the requested
monthly compounding rate of 0.005008, the Company provided its calculations in
Schedule C attached to its request. Rule 25-6.0141(4), F.A.C., provides a
formula for discounting the annual AFUDC rate to reflect monthly compounding.
The rule also requires that the monthly compounding rate be calculated to six
decimal places.
Staff reviewed the Company’s calculations and determined
that they comply with the requirements of Rule 25-6.0141(4), F.A.C. Therefore,
staff recommends that a monthly compounding AFUDC rate of 0.005008 be approved.
Issue 3:
Should the Commission approve DEF's requested
effective date of January 1, 2021, for implementing the revised AFUDC rate?
Recommendation:
Yes. The revised AFUDC rate should be effective
January 1, 2021, for all purposes. (Mathis)
Staff Analysis:
DEF’s proposed AFUDC rate was calculated using a
13-month average capital structure for the period ended December 31, 2020. Rule
25-6.0141(6), F.A.C., provides that:
No utility may charge or change its AFUDC rate without
prior Commission approval. The new AFUDC rate will be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of January 1, 2021,
complies with the requirement that the effective date does not precede the
period used to calculate the rate, and therefore should be approved.
Issue 4:
Should this docket be closed?
Recommendation:
If no person whose
substantial interests are affected by the proposed agency action files a
protest within 21 days of the issuance of the order, this docket should be
closed upon the issuance of a consummating order. (Trierweiler)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order.
