Case Background
Florida Public
Utilities Company (FPUC or Company) does not currently have an authorized rate
for an Allowance for Funds Used During Construction (AFUDC). On December 9,
2022, FPUC (the electric division) filed its petition requesting approval of an
AFUDC rate of 6.80 percent, effective on January 1, 2023. The Company’s request
did not comport with the filing requirements specified in Rule 25-6.0141,
Florida Administrative Code (F.A.C). On December 20, 2022, FPUC filed an
amended petition requesting approval of an AFUDC rate of 6.80 percent,
effective October 1, 2022. Staff filed its initial recommendation for this
matter on January 27, 2023, for the February 8, 2023 Commission Conference. On
February 3, 2023, the recommendation was withdrawn from the February 8, 2023
Commission Conference to allow staff more time to evaluate the Company’s
adjustments to the capital structure used to calculate the AFUDC rate. An
informal meeting was held telephonically with FPUC, the Office of Public
Counsel (OPC), and staff to resolve the concerns of the parties. On March 3, 2023,
FPUC filed revised Schedules A, B, and C in support of an AFUDC rate of 5.82
percent to be effective October 1, 2022. Subsequently, FPUC realized Schedules A,
B, and C, filed on March 3, 2023, did not reflect the appropriate adjustment to
the accumulated deferred tax balance in the capital structure. Corrected
versions of Schedules A, B, and C were submitted by FPUC to staff on March 17,
2023, reflecting an AFUDC rate of 5.12 percent. The Commission has jurisdiction over this
matter pursuant to Chapter 366, Florida Statutes (F.S.), including Sections
366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve FPUC's request to
establish an AFUDC rate of 5.12 percent?
Recommendation:
Yes. The appropriate AFUDC rate for FPUC is 5.12
percent based on a 13-month average capital structure for the period ended
September 30, 2022. (D. Buys)
Staff Analysis:
Based on its amended petition filed on December 20,
2022, and revised Schedules A and B submitted on March 17, 2023, FPUC requested
approval of an AFUDC rate of 5.12 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 5.12 percent,
FPUC provided its calculations and capital structure in Schedules A and B
submitted on March 17, 2023.
Schedule A included the 13-month average capital structure ended September 30,
2022. Staff reviewed the schedules and determined that the proposed rate was
calculated in accordance with Rule 25-6.0141(3), F.A.C. In its calculation, the
Company appropriately used the mid-point return on equity of 10.25 percent,
which was approved by Order No. PSC-2014-0517-S-EI. The AFUDC rate calculation and capital
structure are presented in Attachment 1.
Based on its review, staff believes that the requested
AFUDC rate of 5.12 percent is appropriate and should be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve FPUC's requested annual AFUDC of 5.12 percent?
Recommendation:
The appropriate monthly compounding rate to achieve
an annual AFUDC rate of 5.12 percent is 0.004170. (D. Buys)
Staff Analysis:
FPUC requested a monthly compounding rate of 0.004170
to achieve an annual AFUDC rate of 5.12 percent. In support of the requested
monthly compounding rate of 0.004170, the Company provided its calculations in
Schedule C included in its corrected response to staff’s data request submitted
on March 17, 2023. Rule
25-6.0141(4)(a), F.A.C., provides the following formula for discounting the
annual AFUDC rate to reflect monthly compounding.
M = [((1 + A/100)1/12)-1] x 100
Where: M = discounted monthly
AFUDC rate
A = annual AFUDC rate
The rule also requires that the monthly compounding rate
be calculated to six decimal places.
Staff reviewed the Company’s calculation and determined it
was derived in accordance with Rule 25-6.0141(4), F.A.C., as presented in Attachment
2. Therefore, staff recommends that a monthly compounding AFUDC rate of 0.004170
be approved.
Issue 3:
Should the Commission approve FPUC's requested
effective date of October 1, 2022, for implementing the AFUDC rate?
Recommendation:
Yes. The AFUDC rate should be effective October 1,
2022, for all purposes. (D. Buys)
Staff Analysis:
FPUC’s requested AFUDC rate was calculated using the
most recent 13-month average capital structure for the period ended September
30, 2022. 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 October 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. (Dose)
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.
