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State of Florida |
Public Service Commission Capital Circle Office Center ● 2540 Shumard
Oak Boulevard -M-E-M-O-R-A-N-D-U-M- |
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DATE: |
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TO: |
Office of Commission Clerk (Teitzman) |
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FROM: |
Division of Accounting and Finance (Higgins) Division of Economics (Draper, Coston) Office of the General Counsel (Brownless) |
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RE: |
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AGENDA: |
03/01/22 – Regular Agenda – Interested Persons May Participate |
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COMMISSIONERS ASSIGNED: |
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PREHEARING OFFICER: |
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SPECIAL INSTRUCTIONS: |
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On January 19, 2022, Tampa Electric Company (TECO or Company), filed for a mid-course correction (MCC Petition) of both its 2022 fuel and capacity cost recovery factors. TECO’s currently-effective 2022 fuel and capacity cost recovery factors were approved at the November 2, 2021 final hearing.[1]
Underlying the approval of TECO’s 2022 factors was the Florida Public Service Commission’s (Commission) review of the Company’s projected 2022 fuel- and capacity-related costs. These costs are recovered through the fuel and capacity cost recovery factors that are set/reset annually in this docket. These cost recovery factors are usually effective for a period of 12 months. However, by Rule 25-6.0424, Florida Administrative Code (F.A.C.), the Commission requires that if an investor-owned electric utility’s fuel or capacity cost recovery position is projected to exceed a specified range within the standard 12-month timeframe, then the utility shall promptly notify the Commission.
Mid-Course
Corrections
Mid-course corrections are used by the Commission between annual clause hearings whenever costs deviate from revenue by a significant margin. Under Rule 25-6.0424, F.A.C., which is commonly referred to as the “mid-course correction rule,” a utility must notify the Commission whenever it expects to experience an under- or over-recovery of certain service costs greater than 10 percent. The notification of a 10 percent cost-to-revenue variance shall include a petition for mid-course correction to the fuel cost recovery or capacity cost recovery factors, or shall include an explanation of why a mid-course correction is not practical. The mid-course correction rule and its codified procedures are further discussed throughout this recommendation.
TECO’s
Petition for Mid-Course Correction
Through its MCC Petition, TECO is proposing a mid-course correction of its 2022 fuel and capacity charges.[2] Specifically, the Commission is being asked to approve increases to TECO’s fuel and capacity cost recovery factors due to the Company now projecting a period-ending 2022 under-recovery of fuel and capacity costs that exceed the 10 percent thresholds. The proposed increase to TECO’s currently-authorized fuel and capacity charges is being driven by 2021 and 2022 fuel costs being greater than originally estimated. This topic is discussed further in Issue 1.
The Company is requesting that the revised fuel and capacity factors and associated tariff become effective beginning with the first billing cycle of April 2022. The effective date is further discussed in both Issues 1 and 2.
The Commission is vested with jurisdiction over the subject matter of this proceeding by the provisions of Chapter 366, Florida Statutes (F.S.), including Sections 366.04, 366.05, and 366.06, F.S.
Issue 1:
Should the Commission modify TECO’s currently-approved fuel and capacity factors for purposes of addressing currently-projected under-recoveries of 2022 fuel and capacity costs?
Recommendation:
Yes. Staff recommends the Commission approve adjustments to TECO’s currently-approved fuel cost recovery factors to incorporate the total projected period-ending 2022 under-recovery of fuel costs of $165,639,603. Staff further recommends the Commission approve adjustments to TECO’s capacity cost recovery factors to incorporate the projected period-ending 2022 under-recovery of capacity costs of $3,037,188. (Higgins)
Staff Analysis:
TECO participated in the Commission’s most-recent fuel hearing which took place on November 2, 2021. The Fuel Order issued with respect to TECO set forth the Company’s fuel and capacity cost recovery factors effective with the first billing cycle of January 2022.[3] However, as discussed below, both the currently-authorized fuel and capacity cost recovery factors are now projected to produce period-ending 2022 under-recovery positions of greater than 10 percent.
Mid-Course Correction – Fuel and
Purchased Power
TECO filed for a mid-course correction of its fuel charges on January 19, 2022.[4] The Company’s petition satisfies the filing requirements of Rule 25-6.0424(1)(b), F.A.C.
TECO
states that it has continuously evaluated its fuel and purchased power cost
recovery revenue and expenses since the approval of its currently authorized
fuel and capacity cost recovery factors. Based on these updates to its cost and
revenue projections, at this point in the accounting cycle, TECO expects a
period-ending 2022 under-recovery of fuel costs in excess of the 10 percent
threshold set forth in Rule 25-6.0424(1)(a), F.A.C. The Company primarily attributes
the need for a mid-course correction to higher natural gas prices than
originally assumed. Some factors driving the increase in natural gas prices are:
high demand for liquefied natural gas; uncertainty regarding near-term production
levels; and increased seasonal (winter) demand.
Preceding
the filing of its instant MCC Petition and in accordance with the noticing
requirement of Rule 25-6.0424(2), F.A.C., TECO filed a letter on October 8,
2021, informing the Commission that it was projecting an under-recovery
position of greater than 10 percent for the 2022 recovery period.[5]
However, in analyzing settlement prices for natural gas, the Company determined
that the continuing price volatility warranted deferring a decision as to
whether to file for a mid-course correction of its fuel charges, but would
update the Commission by December 1, 2021.
On November 19, 2021, TECO filed a petition for mid-course correction of both its 2022 fuel and capacity charges.[6] Specifically and similar to the instant request, the Commission was being asked to approve increases in fuel and capacity charges beginning with the first billing cycle of February 2022. However, by letter dated January 3, 2022, TECO withdrew this request.[7] As indicated by the instant MCC filing, TECO determined that a mid-course correction of its 2022 customer fuel and capacity charges would still be necessary. By the instant MCC Petition, the Company is requesting to collect the subject fuel cost under-recovery over an 9-month period, or from April through December 2022.
Mid-Course Correction – Capacity
As previously mentioned, TECO filed for a mid-course correction of its capacity charges along with its fuel mid-course correction. TECO states the projected capacity cost under-recovery is primarily caused by additional economically viable power purchases that include capacity premiums. As proposed, and in similar fashion to the fuel cost recovery proposal, the mid-course correction related to capacity costs will be collected over the same 9-month period as the fuel cost under-recovery, or from April through December 2022.
Period-Ending 2021 Recovery Positions
Fuel
For 2021, TECO initially projected through its
actual/estimated filing a fuel cost under-recovery of ($325,418), which is the
amount recognized in the currently-authorized 2022 fuel factors.[8]
Recognized in the derivation of this amount were the dollars (under-recovery)
included in TECO’s first mid-course correction filing of 2021, which the
Commission ultimately approved in the amount of ($73,680,277).[9]
However, TECO now reports through this MCC Petition an additional (actual) period-ending
2021 under-recovery of ($72,171,466).[10]
This additional 2021 under-recovery is being proposed for collection as part of
this mid-course correction.
Capacity
Concerning TECO’s capacity costs, the Company initially
projected through its 2021 actual/estimated filing an under-recovery of
($25,180), which is the amount recognized in the currently-authorized 2022
capacity factors.[11]
Included in the derivation of this amount are the dollars (under-recovery)
included in TECO’s first mid-course correction filing of 2021, which the
Commission ultimately approved in the amount of ($9,628,629).[12] However,
TECO’s actual period-ending 2021 capacity position is an under-recovery of ($39,496).[13]
The actual 2021 capacity under-recovery is being proposed for collection as
part of this mid-course correction.
Projected 2022 Recovery Positions
Fuel
TECO’s original 2022 fuel cost projection filed for the purposes of cost recovery was on September 3, 2021, as part of its Petition for Approval of Fuel Cost Recovery and Capacity Cost Recovery Factors for January 2022 through December 2022.[14] TECO subsequently amended this filing on October 1, 2021 to capture certain associated effects of its then-proposed 2021 base rate settlement.[15] Staff notes the requested level of fuel cost recovery remained the same between the two filings. The Commission ultimately approved the 2021 base rate settlement on October 21, 2021.[16]
The underlying market-based natural gas price data used to produce the original 2022 projection was sourced the week-ended July 2, 2021.[17] This projection of future natural gas prices was used to produce an average 2022 natural gas cost (including delivery) of $4.30 per million British thermal unit (MMBtu).[18] However, as shown in the MCC Petition, TECO now projects its average cost of natural gas in 2022 will be $4.98 per MMBtu, representing an increase of 15.8 percent.[19] The updated cost projection was based on a five-day average of monthly 2022 natural gas futures ended January 5, 2022.[20]
For comparative purposes, staff evaluated the March through December 2022 commodity-only, i.e., excluding delivery cost, price projection for natural gas underlying the Company’s mid-course correction filing to current market prices.[21] Staff observes the arithmetic average of TECO’s commodity-only natural gas price projection for the 10-month period, or March through December 2022, is $3.70 per MMBtu.[22] As previously indicated, TECO’s pricing information was based on a five-day average of monthly 2022 natural gas futures ended January 5, 2022. Using more-current data, or information sourced on February 3, 2022, staff calculates an average natural gas (commodity-only) price of $4.83 per MMBtu for the same 10-month period. The results of this comparison (at the time performed) indicate that natural gas prices over the subject period have increased since the development of the MCC Petition. However, staff notes that natural gas prices are continuously subject to market (and other) forces and therefore can be volatile.
Table 1-1 below shows the total fuel and net power costs associated with the original and updated projections of 2022, as well as the components of the total mid-course correction true-up amount (estimated 2022 End-of-Period Total Net True-up).
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Table 1-1 |
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Fuel Mid-Course
Correction |
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Category |
Original
Projection[23] ($) |
Mid-Course Projection ($) |
Difference
from Original Projection (%) |
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Total Fuel and Net Power
Transactions for 2022 |
$598,798,451 |
$691,483,208 |
15.5% |
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Actual 2021 True-Up |
- |
($72,171,466) |
- |
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Estimated 2022 True-Up |
- |
($93,300,446) |
- |
|
Interest Provision |
- |
($493,109) |
- |
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Estimated 2022
End-of-Period Total Net True-up[24] |
- |
($165,639,603) |
- |
Sources: Document Nos. 11810-2021 and 00350-2022.
Following
the methodology prescribed in Rule 25-6.0424(1)(a), F.A.C., the mid-course
percentage is equal to the estimated end-of-period total net true-up amount,
including interest, divided by the current period’s total actual and estimated
jurisdictional fuel revenue applicable to period, or ($165,639,603) / $598,182,762.
This calculation results in a mid-course correction level of (27.7) percent.[25]
Fuel Factor
TECO’s
currently-approved annual levelized fuel factor beginning January 2022 is 3.052
cents per kilowatt-hour (kWh).[26]
The Company is requesting to increase its currently-approved 2022 annual levelized
fuel factor to 4.010 cents per kWh, or by 31.4 percent.[27]
Capacity
Through the MCC Petition, the Company is proposing to increase its 2022 capacity cost recovery factors to incorporate an estimated period-ending 2022 under-recovery of ($3,037,188).
TECO’s
original 2022 capacity cost projection filed for the purposes of cost recovery
was on September 3, 2021, as part of its Petition
for Approval of Fuel Cost Recovery and Capacity Cost Recovery Factors for
January 2022 through December 2022.[28]
TECO subsequently amended this filing on October 1, 2021 to capture certain
associated effects of its then-proposed 2021 base rate case settlement
agreement.[29] In the
filing for 2022 rates, TECO projected its 2022 capacity cost to be $5,184,806.
However, TECO now expects its 2022 capacity cost to be $8,178,725, for a difference
of $2,993,919. This change, coupled with the actual 2021 under-recovery
discussed above, as well as a Solar Base Rate Adjustment (SoBRA) refund and
interest, results in a projected period-ending 2022 under-recovery of
($3,037,188). Staff notes the SoBRA-related refund of $85,648 was recognized by
the Commission as part of the total recoverable 2022 capacity cost amount
identified in Order No. PSC-2021-0442-FOF-EI (Issue 31). TECO is proposing to
increase its 2022 capacity cost recovery factors to incorporate the projected ($3,037,188)
under-recovery.
The Company’s year-end 2022 capacity mid-course correction position following the calculation methodology in Rule 25-6.0424(1)(a), F.A.C., is (59.8) percent, or ($3,037,188) / 5,079,473.[30]
Bill Impacts
Table 1-2 below shows the bill impact on a typical residential customer using 1,000 kWh of electricity a month associated with new fuel and capacity cost recovery factors. In the discussion below Table 1-2, staff addresses the impacts of the fuel MCC on non-residential customers:
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Table 1-2 |
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Monthly Residential
Billing Detail for the First 1,000 kWh |
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Invoice Component |
Currently-Approved Charges Beginning
January 2022 ($) |
Proposed New Charges April Through December 2022 ($) |
Approved to Proposed Difference ($) |
Approved to Proposed Difference (%) |
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Base Charge |
$78.69 |
$78.69 |
$0.00 |
- |
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Fuel Charge |
27.45 |
37.91 |
10.46 |
38.1% |
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Conservation
Charge |
2.36 |
2.36 |
0.00 |
- |
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Capacity Charge |
0.31 |
0.53 |
0.22 |
71.0% |
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Environmental
Charge |
1.38 |
1.38 |
0.00 |
- |
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Storm
Protection Plan Charge |
3.29 |
3.29 |
0.00 |
- |
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Clean Energy
Transition Mechanism |
4.41 |
4.41 |
0.00 |
- |
|
Gross Receipts Tax |
3.02 |
3.30 |
0.28 |
9.3% |
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Total |
$120.91 |
$131.87 |
$10.96 |
9.1% |
Source: TECO MCC Petition, Schedule E-10.
TECO’s current total residential charge for the first 1,000 kWh of usage beginning January 2022 is $120.91. If TECO’s mid-course correction proposal is approved, the current total residential charge for the first 1,000 kWh of usage, beginning April 2022, will be $131.87. This represents an increase of 9.1 percent. For non-residential customers, TECO reported that based on average levels of usage and specific rate schedules, bill increases for small commercial customers would be approximately 8.2 percent, bill increases for medium-size commercial customers would be approximately 9.5 percent, and approximately 14.0 to 18.5 percent for large commercial and industrial customers.[31] TECO’s proposed tariff is shown on Appendix A to this recommendation.
Summary
Staff recommends TECO’s fuel cost recovery factors be adjusted to incorporate its projected 2022 end-of-year fuel cost under-recovery. Staff also recommends TECO’s capacity cost recovery factors be adjusted to incorporate its projected 2022 end-of-year capacity cost under-recovery. The revised fuel and capacity factors associated with staff’s recommendations are shown on Appendix A.
Conclusion
Staff recommends the Commission approve adjustments to TECO’s currently-approved fuel cost recovery factors to incorporate the total projected period-ending 2022 under-recovery of fuel costs of $165,639,603. Staff further recommends the Commission approve adjustments to TECO’s capacity cost recovery factors to incorporate the projected period-ending 2022 under-recovery of capacity costs of $3,037,188.
Issue 2:
If approved by the Commission, what is the appropriate effective date for TECO’s revised fuel and capacity cost recovery factors?
Recommendation:
Staff recommends that the fuel cost recovery and capacity cost recovery factors as shown on Appendix A become effective with the first billing cycle of April 2022. (Coston, Brownless)
Staff Analysis:
In its petition, TECO has requested that the revised fuel and capacity cost recovery factors become effective with the first billing cycle of April 2022.
Over the last 20 years in the Fuel Clause docket, the Commission has considered the effective date of rates and charges of revised fuel cost recovery factors on a case-by-case basis. The Commission has approved fuel cost recovery factor rate decreases effective sooner than the next full billing cycle after the date of the Commission’s vote with the range between the vote and the effective date being from 25 to 2 days. The rationale for that action being that it was in the customers’ best interests to implement the lower rate as soon as possible.[32] With regard to fuel cost recovery factor rate increases, the Commission has approved an effective date of the revised factors ranging from 14 to 29 days after the vote.[33] In five of these cases, the Commission noted that the utility had given its customers 30 days’ written notice before the date of the vote that a fuel cost recovery factor increase had been requested and provided the proposed effective date of the higher fuel factors.[34]
In its MCC
Petition, TECO proposes to collect the current under-recoveries of fuel and
capacity costs over 9 consecutive months, beginning with the first billing
cycle of April 2022, and ending with the last billing cycle of December 2022. In
the instant case, there are 30 days between the Commission’s vote on March 1st
and the beginning of TECO’s April billing cycle (April 1st).[35]
Concerning customer advisement of the instant request, TECO states that the proposed rate-change notifications are planned for customer bills beginning with March 2022 invoices. Additionally, on January 19, 2022, which is the same day TECO submitted its instant MCC Petition, the Company posted a “news release” to its website describing the proposal and provided telephone and email correspondence to 60 large customers informing them of the proposed mid-course changes.[36]
Conclusion
Staff recommends that the fuel cost recovery and capacity cost recovery factors as shown on Appendix A become effective with the first billing cycle of April 2022.
Issue 3:
Should this docket be closed?
Recommendation:
No. The 20220001-EI docket is an on-going proceeding and should remain open. (Brownless)
Staff Analysis:
The fuel docket is on-going and should remain open.
[1]Order No. PSC-2021-0442-FOF-EI, issued November 30, 2021, in Docket No. 20210001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor.
[2]Document No. 00350-2022
[3]Order No.
PSC-2021-0442-FOF-EI.
[4]Document
No. 00350-2022.
[5]Document
No. 11992-2021.
[6]Document No. 12790-2021.
[7] Document
No. 00027-2022.
[8]Order No.
PSC-2021-0442-FOF-EI.
[9]Order No.
PSC-2021-0329-PCO-EI.
[10]Document
No. 00350-2022.
[11]Order
No. PSC-2021-0442-FOF-EI.
[12]Order
No. PSC-2021-0329-PCO-EI.
[13]Document No. 00350-2022.
[14]Document
No. 10086-2021.
[15]Document
No. 11810-2021.
[16]Order
No. PSC-2021-0423-S-EI, issued November 10, 2021, in Docket No. 20210034-EI, In re: Petition for rate increase by Tampa
Electric Company, and Docket No. 20200264-EI, In re: Petition for approval of 2020 depreciation and dismantlement
study and capital recovery schedules, by Tampa Electric Company.
[17]Calendar
year 2022 pricing information is based on forward market (New York Mercantile
Exchange, or “NYMEX”) data using an average of five consecutive trading days. See
Document No. 12892-2021, filed November 30, 2021, TECO’s Responses to Staff’s
Second Data Request, No. 2.
[18]Document
No. 11810-2021.
[19]Document
No. 00350-2022.
[20]Id.
[21]Staff obtained its natural gas pricing information from the CME Group Inc. CME Group pricing information with respect to natural gas can be located through the following web address: https://www.cmegroup.com/markets/energy/natural-gas/natural-gas.quotes.html
[22]Document No. 00350-2022.
[23]Order No. PSC-2021-0442-FOF-EI.
[24]Figure includes the 2021 true-up of ($325,418) as specified in Order No. PSC-2021-0442-FOF-EI.
[25]Document No. 00350-2022.
[26]Order
No. PSC-2021-0442-FOF-EI.
[27]Document No. 00350-2022. Recovery factor shown on “Exhibit C,” page 4 of 43, Schedule E1, line 35.
[28]Document
No. 10086-2021.
[29]Document No. 11810-2021.
[30]Document No. 00350-2022.
[31]Document
No. 00818-2022, filed January 28, 2022, TECO’s Responses to Staff’s Third Data
Request, No. 4.
[32]Order No. PSC-08-0825-PCO-EI, issued December 22, 2008, in Docket No. 080001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-09-0254-PCO-EI, issued April 27, 2009, in Docket No. 090001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-11-0581-PCO-EI, issued on December 19, 2011, in Docket No. 110001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-12-0342-PCO-EI, issued July 2, 2012, in Docket No. 120001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-2012-0082-PCO-EI, issued February 24, 2012, in Docket No. 120001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-15-0161-PCO-EI, issued April 30, 2015, in Docket No. 150001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-2018-0313-PCO-EI, issued June 18, 2018, in Docket No. 20180001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order PSC-2020-0154-PCO-EI, issued May 14, 2020, in Docket No. 20200001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor.
[33]Order No. PSC-03-0381-PCO-EI, issued March 19, 2003, in Docket No. 030001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-03-0382-PCO-EI, issued March 19, 2003, in Docket No. 030001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-03-0400, issued March 24, 2003, in Docket No. 030001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-03-0849-PCO-EI, issued July 22, 2003, in Docket No. 030001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-09-0213-PCO-EI, issued April 9, 2009, in Docket No. 090001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-2019-0109-PCO-EI, issued March 22, 2019, in Docket No. 20190001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor. Order No. PSC-2021-0328-PCO-EI, issued August 30, 2021, in Docket No. 20210001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-2021-0329-PCO-EI, issued August 30, 2021, in Docket No. 20210001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor; Order No. PSC-2021-0460-PCO-EI, issued December 15, 2021, in Docket No. 20210001-EI, In re: Fuel and purchased power cost recovery clause with generating performance incentive factor.
[34]Order No. PSC-09-0213-PCO-EI; Order No. PSC-2019-0109-PCO-EI.
[35]Document No. 00818-2022, filed January 28, 2022, TECO’s Responses to Staff’s Third Data Request, No. 2.
[36]Document No. 00818-2022, filed January 28, 2022, TECO’s Responses to Staff’s Third Data Request, No. 8.