Discussion
of Issues
Issue 1:
Should the Commission approve Tampa Electric's
request to decrease its AFUDC rate from 6.46 percent to 5.97 percent?
Recommendation:
No. The appropriate AFUDC rate for Tampa Electric is
5.98 percent based on a 13-month average capital structure for the period ended
December 31, 2021. (Mathis)
Staff Analysis:
Tampa Electric requested a decrease in its AFUDC
rate from 6.46 percent to 5.97 percent. Rule 25-6.0141(3), 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 5.97 percent,
Tampa Electric 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.
However, due to a rounding error involving the relative percentages of the
capital structure components, the correct AFUDC rate is 5.98 percent as shown
on Schedule 1. In its calculation of the capital structure component ratios,
the Company used percentages carried out to two decimal places. Staff performed
the same calculation using ratios carried out to three decimal places, which
changed the weighted average cost of capital upward by one basis point. This is the same scenario that occurred in
Tampa Electric’s last request for a change in its AFUDC rate in Docket No.
20140033-EI. In that docket, the Commission approved staff’s recommended
methodology and downward adjustment of one basis point.
The requested decrease in the AFUDC rate is due
principally to a decrease of 60 basis points in the weighted cost of long-term
debt, offset by an increase of 11 basis points in the weighted cost of common
equity and an increase of 2 basis points in the weighted cost of short-term
debt. In its calculation, the Company appropriately used the mid-point return
on equity of 9.95 percent, which was approved by Order No. PSC-2021-0423-S-EI.
Based on its review, staff believes that the requested
decrease in the AFUDC rate from 6.46 percent to 5.97 percent is not
appropriate. Alternatively, staff recommends that 5.98 percent is the
appropriate AFUDC rate.
Issue 2:
What is the appropriate monthly compounding rate to
achieve the staff recommended 5.98 percent annual AFUDC rate?
Recommendation:
The appropriate compounding rate to achieve an
annual AFUDC rate of 5.98 percent is 0.004852. (Mathis)
Staff Analysis:
Tampa Electric requested a monthly compounding rate
of 0.004844 to achieve an annual AFUDC rate of 5.97 percent. In support of the
requested monthly compounding rate of 0.004844, 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.
Based on
staff’s recommendation in Issue 1 to increase Tampa Electric’s requested annual
AFUDC rate of 5.97 percent to 5.98 percent, the appropriate monthly compounding
rate is 0.004852 as shown on Schedule 2. Therefore, staff recommends that a
discounted monthly AFUDC rate of 0.004852 be approved.
Issue 3:
Should the Commission approve Tampa Electric's
requested effective date of January 1, 2022, for implementing the revised AFUDC
rate?
Recommendation:
Yes. The revised AFUDC rate should be effective
January 1, 2022, for all purposes. (Mathis)
Staff Analysis:
Tampa Electric’s proposed AFUDC rate was calculated
using a 13-month average capital structure for the period ended December 31,
2021. 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, 2022, 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. (Stiller)
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.
