Discussion
of Issues
Issue 1:
Should the Commission grant Duke’s petition for a
determination under Rule 25-6.115(12), F.A.C., to waive certain costs and
approve the associated revised Tariff Sheet No. 4.122?
Recommendation:
Yes. The Commission should grant Duke’s petition for
a determination under Rule 25-6.115(12), F.A.C., to waive certain costs and
approve the associated revised Tariff Sheet No. 4.122. As required by Rule
25-6.115(12), F.A.C., Duke has provided an analysis quantifying the benefits of
waiving certain costs from the CIAC calculation for customers choosing to underground
non-hardened overhead distribution facilities. Staff believes Duke’s analysis
showing the expected storm restoration savings as a result of undergrounding is
reasonable. In addition, encouraging the undergrounding of non-hardened
facilities provides benefits to the general body of ratepayers through future
reductions in Storm Protection Plan costs.
(Ward, Draper)
Staff Analysis:
Current CIAC Calculation
Rule 25-6.115, F.A.C., and Duke’s tariff provide the terms
under which applicants are to pay CIAC for the conversion of existing overhead
distribution facilities to underground. The CIAC is designed to recover the incremental costs Duke
incurs resulting from a conversion, over and above the cost of serving the
conversion area with overhead facilities. Overhead service is paid by all
customers through base rates. In lieu of overhead service, customers have the
option of requesting to convert existing overhead to underground facilities. The
CIAC paid by an applicant is to ensure that the general body of ratepayers do
not bear any costs associated with the conversion.
The formula to calculate CIAC is defined in Rule
25-6.115(8), F.A.C., and in Duke's Tariff Sheet No. 4.122 (the tariff refers to
the CIAC as Facility Charge). Paragraph (8)(b) of the rule requires Duke to
include the estimated remaining net book value of the existing facilities to be
removed less the estimated net salvage value of the facilities to be removed
(existing facilities cost). Paragraph (12)
of the rule allows a utility to waive all or any portion of the cost for
providing underground facilities. If the utility waives any charge, the utility
is required to reduce net plant in service unless the Commission determines
that there is a quantifiable benefit to the general body of ratepayers
commensurate with the waived charge.
Storm Protection Plan and Cost Recovery
In February 2020, Rules 25-6.030, F.A.C., Storm Protection
Plan (SPP), and 25-6.031, F.A.C., Storm Protection Plan Cost Recovery Clause
(SPP Clause), were implemented to codify Section 366.96, F.S. These rules
establish a utility’s process for reporting to the Commission its hardening efforts
for transmission and distribution facilities from extreme weather events and to
allow for the recovery of prudent hardening-related costs. Under the SPP, a
utility must provide the Commission with a storm protection plan outlining its
hardening initiatives for the upcoming 10-year period. In addition, the utility
must update its plan with the Commission every three years. The SPP Clause
allows the utility to seek recovery from the general body of ratepayers of
these hardening costs through an annual cost recovery mechanism. Prior to the
SPP statute being implemented, utilities made investments in storm hardening
under Rule 25-6.042, F.A.C. (storm hardening rule).
Duke’s Proposal
Duke’s proposed modifications would exclude the cost of
existing facilities from the calculation of the CIAC for customers requesting
to underground overhead facilities that have not been hardened under the
utility’s SPP. Attachment A to the recommendation is Duke's proposed revision
to Tariff Sheet No. 4.122, which contemplates that elements a, b, and c of the
CIAC formula be excluded from the CIAC calculation for an applicant that
intends to convert qualifying, non-hardened overhead facilities to underground.
Specifically, the elements to be excluded are: a) the remaining net book value
of existing overhead facilities to be removed, b) the removal cost of existing
overhead facilities, and c) the salvage value of existing overhead facilities.
In general, hardening includes the strengthening of the
overhead system or the conversion of overhead to underground. To support its
petition, Duke stated the utility intends to eventually harden all overhead
facilities as part of its SPP and seek cost recovery through the SPP Clause
paid by all customers. Duke contends that customers who pay CIAC to underground
non-hardened facilities are effectively hardening the facilities and, thereby,
save the general body of ratepayers from the cost of having to harden those
facilities through the SPP Clause. Duke explained that the utility will review
each request for undergrounding to determine if the distribution lines were
previously hardened under the SPP to ensure that only facilities that have not
been hardened yet are eligible for the proposed revised CIAC calculation.
Duke states in response to a staff data request that the
utility has just begun the hardening of its lateral lines under its SPP and
that approximately 96 percent of current lateral lines still require hardening
efforts. The utility states that it will take approximately 40 years to
complete the hardening of these facilities.
Duke’s tariff specifies the terms and conditions for
customers, or applicants, seeking the undergrounding of existing distribution
facilities by Duke. The tariff also defines which distribution facilities do
not qualify for underground conversions pursuant to Tariff Sheet No. 4.122. To
provide context, staff included Tariff Sheet Nos. 4.120 and 4.121 (pages 1 and
2 of Attachment A), which shows which customers qualify and which do not
qualify for conversion pursuant to this tariff. Municipalities are typically
the type of customer requesting the undergrounding of distribution facilities.
The utility noted that in 2021, three municipalities requested a conversion
that would have qualified under this proposal. The average CIAC for the three
municipalities was $1.53 million. If the proposed tariff revision is approved,
Duke stated that customers with active underground conversion projects for
facilities that were not previously hardened will receive a reduction in the
CIAC estimate already received.
In addition, Duke requests that the Commission determine
that there are quantifiable benefits to the general body of ratepayers from the
exclusion of the existing non-storm hardened facilities cost from the CIAC
calculation for the underground conversions. This Commission determination
would allow Duke, pursuant to Rule 25-6.115(12), F.A.C., to treat these
existing facilities costs as net plant in service costs that can be recovered
from all customers.
In response to staff’s first data request, Duke provided
an analysis quantifying the benefits of undergrounding. Specifically, based on
three undergrounding projects, Duke compared the estimated storm restoration
savings for a hardened overhead system to the estimated storm restoration
savings for the same underground system over 40 years. Duke explained that while
both a hardened overhead system and an underground system provide savings in
storm restoration costs, an underground system provides greater savings. Duke’s
analysis shows that an underground system, on a net present value basis,
provides 45 percent greater savings in storm restoration costs on a per mile
basis compared to a hardened overhead system. Staff reviewed Duke’s analysis,
and based on the three projects chosen by Duke, it appears reasonable.
Benefit to the General Body of Ratepayers
Duke stated in its petition four benefits to the general
body of ratepayers from excluding the cost from the calculation of CIAC for
underground conversions of the existing non-hardened overhead facilities.
First, Duke asserts that the general body of ratepayers would not pay any
additional costs related to the conversion because these costs would eventually
be included as part of Duke’s SPP Clause
process. Second, Duke asserts that in instances where the utility’s SPP is
scheduled to keep the existing facilities overhead, but hardened, the utility
states that undergrounding provides greater storm resiliency which would
benefit all customers. Third, Duke states that because the converting customer
is accelerating the timing of when the utility would have hardened the
facilities, the general body of ratepayers would receive the benefits of such
hardening more quickly. Finally, the utility asserts that the cost of
conversion may incentivize more customers to convert, which would further
reduce the hardening projects that the general body of ratepayers would have to
pay through the SPP Clause.
The Commission has previously recognized the benefits of
undergrounding. In 2007, Rule 25- 6.115, F.A.C., was amended to include in the
CIAC calculation the cost of maintenance and storm restoration activities over
time to capture the longer-term costs and benefits of undergrounding. Prior to
this rule amendment, the CIAC was based on estimated work order cost only.
In 2018, the Commission approved the same revision to the
CIAC calculation and the request to include the waived existing facilities cost
in net plant in service for Florida Power & Light Company (FPL). The
SPP Clause rule was not in effect in 2017; however, utilities made storm
hardening investments pursuant to the storm hardening rule with
Commission-approved costs being born by the general body of ratepayers through
base rates.
Conclusion
Based on the discussion above, staff recommends that the
Commission should grant Duke’s petition for a determination under Rule
25-6.115(12), F.A.C., to waive certain costs and approve associated revised Tariff
Sheet No. 4.122. As required by Rule 25-6.115(12), F.A.C., Duke has provided an
analysis quantifying the benefits of waiving certain costs from the CIAC
calculation for customers choosing to underground non-hardened overhead
distribution facilities. Staff believes Duke’s analysis showing the expected
storm restoration savings as a result of undergrounding is reasonable. In
addition, encouraging the undergrounding of non-hardened facilities provides
benefits to the general body of ratepayers through future reductions in Storm
Protection Plan costs.
Issue 2:
Should this docket be closed?
Recommendation:
If a protest is filed within 21 days of the issuance
of the order approving the proposed tariffs, the current tariffs should remain
in effect pending resolution of the protest. If no timely protest is filed, the
approved tariffs should go into effect, and the docket be closed, upon the
issuance of a consummating order. (Brownless)
Staff Analysis:
If a protest is filed within 21 days of the issuance
of the order approving the proposed tariffs, the current tariffs should remain
in effect pending resolution of the protest. If no timely protest is filed, the
approved tariffs should go into effect, and the docket be closed, upon the
issuance of a consummating order.
