Discussion
of Issues
Issue 1:
Should the Commission approve FPL's request to
increase its AFUDC rate from 6.22 percent to 6.37 percent?
Recommendation:
Yes. The appropriate AFUDC rate for FPL is 6.37
percent based on a 13-month average capital structure for the period ended
December 31, 2022. (D. Buys)
Staff Analysis:
FPL requested an increase in its AFUDC rate from
6.22 percent to 6.37 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 6.37 percent,
FPL 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. The
requested increase in the AFUDC rate is due to an increase of 37 basis points
in the weighted cost of common equity, offset by a decrease of 17 basis points
in the weighted cost of long-term debt, and a decrease of 5 basis points in the
weighted cost of short-term debt. In its calculation, the Company appropriately
used the mid-point return on equity of 10.80 percent, which was approved by
Order No. PSC-2022-0358-FOF-EI, issued October 1, 2022. The
AFUDC rate calculation and capital structure are presented in Attachment 1.
Based on its review, staff believes that the requested
increase in the AFUDC rate from 6.22 percent to 6.37 percent is appropriate,
consistent with Rule 25-6.0141, F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve FPL's requested annual AFUDC rate of 6.37 percent?
Recommendation:
The appropriate monthly compounding rate to achieve
an annual AFUDC rate of 6.37 percent is 0.005159. (D. Buys)
Staff Analysis:
FPL requested a monthly compounding rate of 0.005159
to achieve an annual AFUDC rate of 6.37 percent. In support of the requested
monthly compounding rate of 0.005159, 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.
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
that it was derived in accordance with Rule 25-6.0141(4), F.A.C. as shown on
Attachment 2. Therefore, staff recommends that a monthly compounding AFUDC rate
of 0.005159 be approved.
Issue 3:
Should the Commission approve FPL's requested
effective date of January 1, 2023, for implementing the new AFUDC rate?
Recommendation:
Yes. The AFUDC rate should be effective January 1,
2023, for all purposes. (D. Buys)
Staff Analysis:
FPL’s requested AFUDC rate was calculated using a
13-month average capital structure for the period ended December 31, 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 January 1, 2023,
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. (Watrous)
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.
