Discussion
of Issues
Issue 1:
Should the Commission approve FPL’s calculation of
the tax savings associated with the IRA for 2022?
Recommendation:
Yes. The Commission should approve FPL’s
calculations for the net tax savings of $35,747,856 for 2022 resulting from the
Company’s election to use PTCs instead of ITCs as allowed by the IRA. (D. Buys,
Mouring)
Staff Analysis:
Effective January 1, 2022, the IRA expanded federal
income tax benefits for renewable energy by allowing owners of solar projects
which begin construction before 2025 the option to elect to receive Production
Tax Credits (PTCs) instead of Investment Tax Credits (ITCs). FPL has elected to
use PTCs instead of ITCs because it provides a greater tax benefit and customer
savings. The application of PTCs to FPL’s six rate base solar facilities
results in a tax savings of $31,195,561. In comparison, the amortization of
ITCs is $1,773,277 per year. The ITC amortization, and a $7,548,582 adjustment
to account for the impact to the capital structure due to a net decrease of
unamortized ITCs and increase in accumulated deferred income taxes (ADITs), is netted
against the PTC balance. In addition, state income tax expense and other
non-jurisdictional adjustments increased by $1,223,010 due to the removal of
the ITCs and is also offset against PTC tax savings. In total, the net change
in FPL’s jurisdictional adjusted base revenue requirement is a reduction of $35,747,856.[2] Staff
reviewed FPL’s calculations in the amended petition filed on November 14, 2022,
in the instant docket, and believes they are reasonable and appropriate. FPL’s
calculations are summarized in Table 1-1. Based on the aforementioned, staff
recommends the Commission approve FPL’s calculations of net tax savings of $35,747,856
for 2022 resulting from the Company’s election to use PTCs instead of ITCs as
allowed by the IRA.
|
Table 1-1
|
|
Calculation
of PTC impact on 2022 Revenue Requirement
|
|
Production Tax Credits
|
$31,195,561
|
|
ITC Amortization Removal
|
(1,773,277)
|
|
State Income Tax Expense and Other Non-Jurisdictional
Adjustments
|
(1,223,010)
|
|
ITC Capital Structure Impact
|
7,548,582
|
|
Net Reduction in 2022 Revenue Requirement
|
$35,747,856
|
Source: DN 11040-2022.
Issue 2:
Should the Commission approve FPL’s request to flow
back to customers the full 2022 tax reform impact through a one-time reduction
to its Capacity Cost Recovery Clause (CCR) factors in January 2023?
Recommendation:
Yes. Staff recommends the Commission approve a
refund of $35,747,856 in January 2023 through a one-time reduction to FPL’s CCR
factors. (Cordell)
Staff Analysis:
As discussed in Issue 1, FPL’s application of PTCs
has reduced its 2022 jurisdictional adjusted revenue requirement by $35,747,856.
Paragraph 13(a) of the 2021 Settlement states: “[a]ny effects of tax reform on
the retail revenue requirements (but no earlier than January 1, 2022) through
the date of the base rate adjustment shall be flowed back to, or collected
from, customers through the [CCR] Clause on the same basis as used in any base
rate adjustment.”[3]
The impact of this refund on the capacity cost portion of
a 1,000 kilowatt-hour (kWh) residential bill for January 2023 will be a credit
of $1.97 on the 1,000 kWh residential bill. The Company believes applying the
entire 2022 refund to a single month, with a commensurate one-month rate impact,
will provide a more noticeable reduction to customers’ bills than spreading the
refund over a full twelve-month period. After January, or from February through
December 2023, the proposed residential capacity charge will be $2.12 per 1,000
kWh.
Staff has reviewed the Company’s calculation of the net tax savings from the
effective date of the IRA, through the base rate adjustment, and recommends the Commission approve a refund of
$35,747,856 in January 2023 through a one-time reduction to FPL’s CCR factors.
Issue 3:
Should the Commission approve FPL’s calculation of
the projected tax savings associated with the IRA for 2023?
Recommendation:
Yes. The Commission should approve FPL’s calculations
of net tax savings of $69,743,460 for 2023 resulting from the Company’s
election to use PTCs instead of ITCs as allowed by the IRA. (D. Buys, Mouring)
Staff Analysis:
As discussed in Issue 1, FPL has selected the option
to receive PTCs instead of ITCs as allowed by the IRA. The application of PTCs
to FPL’s ten solar facilities results in a tax savings of $82,432,142, which is
offset by a reduction to the ITC amortization balance of $12,688,682, for a net
tax savings of $69,743,460. The incremental change in 2023 jurisdictional
adjusted base revenue requirement is a reduction of $33,995,604, in addition to
the 2022 net tax savings of $35,747,856, for a total reduction in base revenue
requirement of $69,743,460.[5] FPL will
not finalize its 2023 Forecast Earnings Surveillance Report until early 2023,
and consequently, did not take into account the impacts to the capital
structure which would likely decrease the 2023 tax savings. FPL did not include
the 2023 state income tax impact which may also slightly decrease the tax
savings similar to its effect on the 2022 calculation. The effects of the IRA
on the Company’s capital structure and overall weighted average cost of capital
should be taken into account. Staff recommends that FPL be required to file
updated information within 90 days of when the 2023 Forecast Earning
Surveillance Report is filed with the Commission. Any necessary adjustments
should be addressed in a future proceeding. The projected change in FPL’s base
revenue requirements is comprised of a $82.4 million reduction due to lower
operating income tax expense resulting from the inclusion of PTCs associated
with the Company’s base rate solar plants, offset by a $12.7 million increase
due to the removal of ITC amortization associated with the 2022 and 2023 solar
plants. FPL’s calculations are summarized in Table 3-1. Staff reviewed FPL’s
calculations in the amended petition filed on November 14, 2022, in the instant
docket, and believe they are reasonable and appropriate. Based on the aforementioned,
staff recommends the Commission approve FPL’s calculations of net tax savings
of $69,743,460 for 2023 resulting from the Company’s election to use PTCs
instead of ITCs as allowed by the IRA.
|
Table
3-1
|
|
Calculation
of PTC impact on 2023 Revenue Requirement
|
|
Production Tax
Credits
|
$82,432,142
|
|
ITC Amortization
Removal
|
(12,688,682)
|
|
Net Reduction in 2023
Revenue Requirement
|
69,743,460
|
|
Decrease in 2022
Revenue Requirement
|
(35,747,856)
|
|
Incremental Reduction
in 2023 Revenue Requirement
|
$33,995,604
|
Source: DN 11040-2022.
Issue 4:
Should the Commission approve FPL’s request to flow
back to customers the projected 2023 tax savings through a reduction to base
rates beginning January 1, 2023?
Recommendation:
Yes. The Commission should approve FPL’s request to
flow back to customers the projected net $69,743,460 tax savings through a
reduction to base rates beginning January 1, 2023. (D. Buys, Mouring)
Staff Analysis:
As discussed in Issue 3, the Company’s election to
utilize PTCs instead of ITCs under the IRA has resulted in a projected net tax
savings of approximately $69.7 million. Under the provisions of Paragraph 13 of
the 2021 Settlement, the Company is required to quantify the impacts of federal
or state tax reform on its jurisdictional base revenue requirement as projected
in its Forecast Earnings Surveillance Report and adjust its jurisdictional base
revenue requirement through a uniform percentage decrease or increase to
customer, demand, and energy base rates for all retail customer classes. Staff
has reviewed the Company’s revised calculation of the projected net tax savings
associated with the IRA and the proposed method to flow back those tax savings
to customers and recommends that the proposed permanent reduction in
jurisdictional base rates is consistent with the terms of the 2021 Settlement
and should be approved.
Issue 5:
Should the Commission approve FPL’s revised tariffs
to implement the IRA base revenue decrease effective January 2023?
Recommendation:
Yes. The Commission should approve FPL’s revised
tariffs to implement the IRA base revenue decrease effective January 2023. The
revised tariffs are shown in Attachment A to the recommendation. (Draper)
Staff Analysis:
FPL’s petition includes the proposed tariff sheets
(Exhibit B-4 to the amended petition) and the calculation of the IRA adjustment
factor of (0.775) percent (Exhibit B-3, Part 2 at page 1 of 48, of the amended petition). The IRA adjustment factor was calculated by
dividing the $69.7 million reduction to the 2023 base revenue requirement by
the 2023 projected retail base revenue from sales of electricity ($8,999.9
million). The IRA adjustment factor was applied to the base rates for all rate
classes (Exhibit B-3, Part 2 pages 3-48 to the amended petition).
In Order No. PSC-2021-0446-S-EI, the Commission approved
an increase of $560 million in FPL’s base rates effective January 2023. This
Commission-approved increase is also reflected in the revised tariffs, as both
the previously approved $560 million base rate increase and the proposed IRA
base revenue decrease are effective January 2023.
A residential customer who uses 1,000 kWh per month
currently pays $75.82 on the base rate portion of their monthly bill. Without
the IRA adjustment, the base rate portion on the 1,000 kWh residential bill
would be $80.73 effective January 2023. As a result of the IRA adjustment, the
base rate portion of the 1,000 kWh residential bill will be $80.11 effective
January 2023, an increase of $4.29 from the current $75.82.
Staff has reviewed FPL’s tariff sheets and supporting
documentation. The calculations are accurate.
The Commission should approve FPL’s revised tariffs to implement the IRA
base revenue decrease effective January 2023. The revised tariffs are shown in
Attachment A to the recommendation.
Issue 6:
Should this docket be closed?
Recommendation:
Yes. At the conclusion of the protest period, if no
protest is filed this docket should be closed upon the issuance of a
consummating order. If a protest is filed within 21 days of the issuance of the
order, the tariffs should remain in effect, subject to adjustment, pending the
resolution of the protest. (Brownless)
Staff Analysis:
At the conclusion of the protest period, if no
protest is filed this docket should be closed upon the issuance of a
consummating order. If a protest is filed within 21 days of the issuance of the
order, the tariffs should remain in effect, subject to adjustment, pending the
resolution of the protest.
