Discussion
of Issues
Issue 1:
Should the Commission approve TECO’s proposed
underground residential distribution tariffs and associated charges?
Recommendation:
Yes, the Commission should approve TECO’s proposed underground
residential distribution tariffs and associated charges, effective on the date
of the Commission vote. The proposed URD charges are cost-based and staff
recommends approval
of the tariffs shown in Attachment A. (P. Kelley, Hampson)
Staff Analysis:
Rule 25-6.078, Florida Administrative Code (F.A.C.),
defines investor-owned utilities’ (IOU) responsibilities for filing updated URD
tariffs. TECO has filed the instant petition pursuant to subsection (3) of the
rule, which requires IOUs to file supporting data and analyses for updated URD
tariffs if the cost differential, using current labor and material costs,
varies from the Commission-approved differential by more than 10 percent. On
October 14, 2022, pursuant to Rule 25-6.078, F.A.C., TECO informed the
Commission that its differential for the low density subdivision would change
by more than 10 percent from the differential approved URD charges, requiring
TECO to file the instant petition.
The URD tariffs provide standard charges for underground
service in new residential subdivisions and represent the additional costs, if
any, the utility incurs to provide underground service in place of overhead
service. The cost of standard overhead construction is recovered through base
rates from all ratepayers. In lieu of overhead construction, customers have the
option of requesting underground facilities. Typically, the developer of a new
residential subdivision would be the utility customer utilizing the URD
tariffs.
In its petition, the utility updated its cost calculations
and supporting documentation for its low-density and high-density per lot
service lateral cost differentials. The currently approved high-density cost
differential is $0.00 and the currently approved low-density cost differential
is $370.29. The utility’s calculations determined the per lot undergrounding
differential for high-density and low-density subdivisions should be $0.00.
While labor and material costs have increased since the 2021 filing, the main
reason for the decrease in the low-density differential is a change in the
operations cost of overhead versus underground facilities, as discussed further
below. A lower, or zero, URD differential charge is typically the result of the
avoided storm restoration costs associated with underground facilities,
offsetting any higher labor and material costs associated with underground
construction.
Table 1-1
Comparison of URD
Differential per Lot
|
|
Current
Differential
|
Proposed
Differential
|
|
Low-density
|
$370.29
|
$0.00
|
|
High-density
|
$0.00
|
$0.00
|
Source: DN 03161-2021 (Docket No. 20210034-EI) and DN
02456-2023 (Docket No. 20230035-EI).
Two primary factors impacted the calculation of TECO’s
proposed URD charges which are discussed in greater detail below: (1) updated
labor and material costs and (2) updated operational costs.
Updated Labor and Material Costs
The installation costs of both underground and overhead
facilities include the labor and material costs to provide primary, secondary,
and service distribution lines as well as transformers. The costs of poles are
specific to overhead service while the costs of trenching and backfilling are
specific to underground service. Table 1-2 compares the currently approved 2021
costs and 2023 costs for underground and overhead labor and material for the two
subdivision models.
Table 1-2
Labor and Material Costs per
Lot
|
|
2021 Costs
|
2023 Costs
|
Difference
|
|
Low-density
|
|
|
|
|
Underground labor/material costs
|
$2,441
|
$4,108
|
$1,667
|
|
Overhead labor/material costs
|
$1,429
|
$1,797
|
$369
|
|
Per lot differential
|
$1,013
|
$2,310
|
$1,298
|
|
High-density
|
|
|
|
|
Underground labor/material costs
|
$1,881
|
$3,052
|
$1,170
|
|
Overhead labor/material costs.
|
$1,122
|
$1,413
|
$291
|
|
Per lot differential
|
$760
|
$1,639
|
$879
|
Source: DN 03161-2021 (Docket No. 20210034-EI) and DN 02456-2023
(Docket No. 20230035-EI).
While both overhead and underground labor and material
costs increased, underground costs increased at a higher rate, resulting in an
increase in the differential. The utility states that the reason for the
increase in labor and material costs are due to manufacturers experiencing
extraordinary levels of inflation and supply chain shortages that is being
passed onto their customers through increased prices, also paired with wages
and salaries increasing. The utility further explained that several factors
caused material and labor costs for underground construction to escalate at a
faster rate than overheard construction. These factors included a higher demand
for underground facilities versus that of overhead facilities.
Updated Operational Costs
Rule 25-6.078(4), F.A.C., provides that the differences in
net present value (NPV) of operational costs between overhead and underground
systems, including average historical storm restoration costs over the life of
the facilities, be included in the URD charge. Operational costs include
operations and maintenance (O&M) costs and capital costs. The inclusion of
the operational costs is intended to capture longer term costs and benefits of
undergrounding.
In the current URD petition, TECO used actual costs from
storms that impacted TECO’s service area between 2020 and 2022. This resulted
in the average annual storm costs being $40,991,120 over the 3-year period.
TECO stated that based on impacts and data from Hurricanes Irma and Ian, the
utility updated the allocation factors to attribute 99 percent of the storm
costs to overhead and 1 percent to underground. Therefore, $40,581,209 (99
percent of the total $40,991,120 storm costs) represents the avoided overhead
storm restoration costs when facilities are placed underground.
Table 1-3
NPV of Operational Costs
Differential per Lot
|
|
2021 Calculation
|
2023 Calculation
|
Difference
|
|
Low-density
|
|
|
|
|
Underground NPV- Operational Costs
|
$1,254
|
$2,571
|
$1,316
|
|
Overhead NPV- Operational Costs
|
$1,897
|
$4,928
|
$3,032
|
|
Per lot Differential
|
$(642)
|
$(2,358)
|
$(1,715)
|
|
High-density
|
|
|
|
|
Underground NPV- Operational Costs
|
$584
|
$1,208
|
$624
|
|
Overhead NPV- Operational Costs
|
$1,408
|
$3,656
|
$2,248
|
|
Per lot Differential
|
$(825)
|
$(2,449)
|
$(1,624)
|
Source: DN 03161-2021 (Docket
No. 20210034-EI) and DN 02456-2023 (Docket No. 20230035-EI).
As shown above, the overhead operational costs are greater
than underground, resulting in operational savings from undergrounding. The NPV
differential of operational costs, including avoided storm restoration costs,
increased in both low-density and high-density subdivision models, resulting in
an increase in the NPV operational cost credit.
To illustrate the calculation for the low-density
subdivision URD charge, the 2023 labor and material costs differential is
$2,310 (Table 1-2). Subtracting the NPV of operational costs differential of
$2,358 (Table 1-3), results in a negative $47.34 URD differential. Since the
tariffed URD charge cannot be a negative, it is set at $0.
Other Proposed Tariff Changes
TECO’s proposed URD tariffs also include standard charges
for the installation and trenching of underground service laterals from
overhead distribution, underground service laterals converted from existing
overhead service drops, and non-refundable deposits for cost estimates for the
conversion of existing overhead distribution facilities to underground
facilities. If a customer requests an underground service lateral, the tariff
includes a credit to the customer for avoiding a pole that is otherwise
required for overhead service. The charges have been updated to reflect current
material and labor costs.
Conclusion
Staff has reviewed TECO’s proposed changes to its URD
tariffs and associated charges, the accompanying work papers, and responses to
staff’s data request. Staff believes TECO’s proposed URD tariffs and associated
charges as filed in the petition are cost-based and recommends approval of the
tariffs shown in Attachment A. These tariffs should become effective on the
date of the Commission vote.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved
and a protest is filed within 21 days of the issuance of the order, the tariffs
should remain in effect, with any revenues held subject to refund, pending
resolution of the protest. If no timely protest is filed, this docket should be
closed upon the issuance of a consummating order. (Dose)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order
