Discussion
of Issues
Issue 1:
Should the Commission approve FPUC's proposed Gas
Utility Access and Replacement Directive’s (GUARD) program to be implemented on
January 1, 2024?
Recommendation:
Yes, in part. The
Commission should approve FPUC’s proposed 10-year GUARD program and its associated
components for: (1) replacement of problematic pipes and (2) relocation of
mains and facilities from rear lot to front lot easements, to be implemented as
an annual surcharge mechanism starting on January 1, 2024. The above two components
of the proposed GUARD program should enhance the safety and accessibility of
portions of its natural gas distribution system. The Commission should deny
inclusion of the proposed reliability program component because they are part
of the utility’s normal operations and therefore more appropriately addressed
through traditional ratemaking processes.
FPUC should be required to file
its annual GUARD program petitions to revise the surcharge on or before September
1 of each year and implement the revised surcharge effective January 1 through
December 31 of the following year. The first petition should be filed on
September 1, 2023, for GUARD factors to be effective January 1 through December
31, 2024. The annual GUARD program petitions should include all calculations to
show a final true-up, actual-estimated true-up, projected year investments and
associated revenue requirements, and the calculations of the GUARD factors by
rate class. The annual petitions should also include a report including the
location, date, description, and associated costs of all replacement projects
completed and all projects scheduled for the following year. The remaining GRIP
total investment of $5.84 million and any remaining GRIP over- or
under-recoveries should be included in the 2024 GUARD cost recovery. In FPUC’s
next rate case, and any subsequent rate cases, the GUARD revenue requirement
should be moved into rate base. (Guffey, Thompson)
Staff Analysis:
Overview of the Proposed GUARD Program
In the recently concluded FPUC
rate case in Docket No. 20220067-GU, utility witnesses Bennett
and Cassel
testified about the potential separate future request to establish Phase 2 of
GRIP. The rate case docket also moved $19.8 million of GRIP revenue requirement
to rate base. According to FPUC, the proposed GUARD program represents this
Phase 2 aspect.
Although the utility’s GRIP
program is largely completed, the utility asserts that it identified additional
safety risks and reliability concerns that need to be addressed by the proposed
GUARD program. FPUC stated that the proposed GUARD program and its associated
projects are not the result of an official regulatory requirement, but
that the program is driven by risks identified under FPUC’s Distribution
Integrity Management Program (DIMP)
and risk assessments performed by an independent contractor.
The utility consulted with an
outside contractor to review and perform a risk assessment of its natural gas distribution
system and facilities and to complete a risk ranking model. FPUC will use the contractor’s
recommendation to assess and prioritize projects that will be completed
annually through the GUARD program. Projects that would address the highest
risk will be prioritized starting April 2023. In response to staff’s first data
request, the utility stated that the GUARD projects to be completed from April
2023 to December 2024 are located in the City of Winter Springs, the Town of
Lake Park, the Village of Indiantown, unincorporated Palm Beach County, and the
City of West Palm Beach. Other project areas include Winter Haven, Sanford,
Debary and New Smyrna Beach. FPUC
asserts that the GUARD program is not an expansion of its natural gas
distribution system, but rather identifies risks associated with existing
infrastructure.
The utility believes that the
10-year term for GUARD program is adequate to complete the projects described
in this filing. FPUC asserts that it will continue to assess the distribution
system and add projects as needed, which will allow the utility to keep the
system safe without the increased cost of a rate case. The utility believes
that the accelerated 10-year term will have the benefit of construction related
cost savings over the life of the program and will avoid the impact of
increased inflation and labor costs in the future. The utility also believes
that it is prudent to re-evaluate the GUARD program at the completion of its
initial 10-year term.
The proposed three GUARD projects
are described below.
Replacement of Problematic Mains
The utility asserts that it has
identified various types of problematic distribution mains and service lines
that need to be replaced on an expedited basis. FPUC explained that the
problematic pipes are those manufactured or installed over 30 years ago, while the
new piping materials are of superior quality and manufactured to new industry
standards. Examples of problematic mains include previously unidentified bare
steel mains, steel tubing, span pipe, shallow and exposed pipe, and obsolete
pipe and facilities.
Span pipes are segments of pipe
that cross over a barrier such as a creek, river, ditch, or highway. Being
above ground, the span pipes are susceptible to damage and corrosion. Shallow and
exposed pipes that are no longer safely buried due to erosion and other changes
in the environment, are similarly susceptible to damage and corrosion. The
obsolete piping includes Aldyl-A pipe, a type of first generation plastic pipes
(pre-1982). FPUC states that as the pre-1982 pipe continue to age, the risk of
developing leaks continues to grow. FPUC explained that the risk assessment
study concluded that FPUC currently operates over 97 miles of at-risk
problematic pipe, of which approximately 76 miles are considered to show a
moderate to high level of risk. The risk assessment study also states that FPUC
currently operates and maintains 66 above ground span pipe segments, of which
51 are deemed moderate to high risk.
Staff believes that the replacement
of problematic mains through a surcharge is a reasonable approach to improve
the safety of Florida’s natural gas infrastructure and to reduce risk to life
and property. Therefore, consistent with the Commission’s prior Order No.
PSC-2012-0490-TRF-GU approving the GRIP program, staff recommends that this
component of the GUARD program should be eligible for expedited recovery to
address safety concerns raised by the utility’s DIMP.
FPUC provided estimated total
10-year costs of $20.4 million to replace span pipe and $10.4 million to
replace Aldyl-A pipes in Indiantown for a total projected cost of $30.8 million
to replace problematic pipes. The utility states that it currently does not
have an estimate of the costs for any other problematic pipeline replacements.
FPUC states that any remaining bare steel would be replaced as discovered and
shallow and exposed pipe would be replaced based on a safety analysis.
Relocation of Mains and Services Located in
Rear Easements
FPUC asserts that its proposed
relocation of mains and services located in rear easements is similar to
Florida City Gas’s (FCG) Safety, Access, and Facility Enhancement (SAFE)
program approved by the Commission in 2015. In
the order approving the SAFE program, the Commission found that FCG’s SAFE
program is in the public interest and will serve to improve safety, reduce
potential damage to property, and impede theft.
FPUC states that the primary driver
for the relocation is to make it easier and more efficient to operate and
maintain the system and conduct inspections and repairs. FPUC identified
certain areas such as fenced-in properties, and where construction of
buildings, pools, or patios, and vegetation growth makes it difficult for FPUC
personnel to access their facilities. Furthermore, FPUC states that rear lot
facilities could contribute to increased opportunities for gas theft or
diversion, increasing the risk of safety incidents.
FPUC asserts that it has
approximately 446 miles of residential mains located in rear easements, and
estimates that approximately 237 miles will need to be replaced initially due
to their higher risk of failure.
FPUC expects to replace 284 miles which is approximately 20 percent more pipes
than are retired (237 miles) as a result of relocating to the front easements. In
addition to the mains, the utility would also replace 9,554 service line
facilities that are associated with the rear lot easements.
Relocation of mains and services would
improve system safety and operations for both customers and FPUC employees. Therefore,
consistent with the Commission’s prior Order No. PSC-2015-0390-TRF-GU approving
the SAFE program, staff recommends that this component of the GUARD program
should be eligible for expedited recovery to address these safety concerns. The
proposed surcharge cost recovery mechanism should enable FPUC to expedite the
necessary relocation projects without a general rate case proceeding. The utility
estimates a total 10-year cost of approximately $174 million for the relocation
projects.
Enhancing System Reliability
FPUC is also requesting to
include two reliability projects under its GUARD program to address reliability
issues for segments in higher population areas as soon as possible. The utility
has indicated that its pipeline system is safe and reliable, but has identified
several communities that are at a higher risk of reliability issues than
others. One
reliability project consists of installing pipeline loops in certain
communities to operate in parallel to existing pipelines that were installed
with smaller diameters than what current design practices require. FPUC states
that this project would improve volume capacities to reduce the potential of
outages. The utility estimates the cost of this project to be approximately $5
million. The second reliability project consists of installing secondary feeds
in certain communities being served by a single pipeline. By installing a
secondary feed at a different geographic point than the existing sole source,
FPUC believes this would reduce the risk of an outage to the community if the
existing pipeline sustains damage or other operating conditions limit its
ability to function as designed. In response to staff’s first data request,
FPUC listed the following municipalities which need to have a secondary feed:
Palm Beach Shores, Singer Island, South Palm Beach, Manalapan, New Smyrna
Beach, Edgewater, Deerfield Beach, and Hypoluxo Island. The utility estimates
the cost of this project to be approximately $5 million.
Neither of the reliability
projects discussed above are included in FPUC’s DIMP as they are not
safety-related and are not a result of the Pipeline and Hazardous Safety
Administration’s (PHMSA) federal regulations, but are rather a part of the
utility’s normal operations. As such, staff does not believe that it is
appropriate to include these projects under a potentially long-term,
safety-related program with accelerated recovery and the intent of expedited
installation/replacement. Therefore, staff recommends that the proposed
reliability projects be removed from FPUC’s GUARD program.
Staff notes that FPUC has alternative mechanisms available
to seek cost recovery of the reliability projects as needed, such as through a
petition for a limited proceeding or base rate proceeding. In response to
Staff’s Second Data Request, FPUC indicated that reliability projects are
typically evaluated and prioritized based upon a variety of factors as
resources allow, and indicated that it also has processes in place to provide
short-term emergency supply to communities and intake points if needed.
Therefore, FPUC may address the proposed reliability projects, and any others,
by availing itself of other traditional ratemaking processes.
Remaining GRIP Costs
The rate case docket moved $19.8
million of GRIP revenue requirement, associated with the GRIP investments
projected at the time of the rate case filing in May 2022, into rate base.
Following the rate case filing, FPUC had additional months of actual investment
costs and updated investment amounts. This updated investment amount, which
excludes the amount moved into rate base, was the basis for 2023 GRIP factors
the Commission approved in Order No. PSC-2022-0401-TRF-GU. FPUC filed its
petition for 2023 GRIP factors in September 1, 2022.
The utility requests that it be
allowed to move the GRIP investments that were not rolled into rate base in
Docket No. 20220067-GU, as the beginning balance to be recovered via the
proposed GUARD program. The total remaining GRIP amount to be rolled into the GUARD
program is the beginning balance of $5.84 million. Staff confirmed that $5.84
million is the correct GRIP investment amount that has not been moved into rate
base in the rate case and has been approved by the Commission in Order No.
PSC-2022-0401-TRF-GU. Specifically, the $5.84 million represent $5,915,090 of
investment cost for FPUC and ($75,759) for Chesapeake that remained after the
rate case. The amount for Chesapeake is a negative number, because actual
investment cost were lower than the amount included in the rate case. Additionally,
the utility requests that any remaining over- or under-recovery from the GRIP program
be included in the proposed GUARD program cost recovery.
Staff believes it is appropriate
for any remaining GRIP amounts to be rolled into the GUARD program for cost
recovery. Accordingly, there would be no GRIP surcharge on customers’ bills
starting January 1, 2024; the proposed GUARD surcharge would replace the GRIP
surcharge.
Determination of GUARD Revenue Requirement
FPUC is seeking cost recovery for
an estimated $215 million for the 10-year (2024-2034) GUARD program as
summarized in the table below:
Table 1-1
Projected 2024-2034 Total
GUARD Costs
|
GUARD Project Type
|
Estimated Cost ($ in millions)*
|
|
Problematic Mains
|
|
|
Span pipe
replacement
|
$20.4
|
|
Pre-1982 pipe
replacement (Indiantown)
|
$10.4
|
|
Relocate mains and services from rear to front
|
$174
|
|
Reliability projects
|
|
|
Pipeline loops
|
$5
|
|
Secondary Feeds
|
$5
|
|
TOTAL (rounded)
|
$215
|
Source: Docket No. 20230029-GU
Petition.
*These estimated costs will be refined as the program is
developed.
FPUC stated that the GUARD program
cost is estimated to be composed of 80 percent mains, 14 percent services, and
6 percent meters and regulator equipment. During
the first year (2023) of implementing the GUARD program, the utility proposes to
spend an estimated $7.6 million, in order to be sensitive to the base rate
increase approved in its recent rate case.
Following the initial year of GUARD, the utility will begin to increase its
projects. The utility is requesting that all projected program expenditures to
be expended starting in April 2023 be recovered starting on January 1, 2024. Staff
believes that if the Commission approves the proposed GUARD projects discussed
in this Issue, the utility should include any projects that started in 2023 for
cost justification in its September 2023 petition.
FPUC asserts that the proposed
methodology to calculate GUARD program surcharges is the same as that utilized
for the approved GRIP program. Specifically, the utility is not proposing any
modifications to the surcharge at this time and proposes that the cost
allocation methodology utilized for GRIP, but updated with the allocations from
the recently approved rate case, be used in GUARD calculations.
Similar to the GRIP, the GUARD program
revenue requirement would include a return on investment, depreciation expense,
customer notification expense, and ad valorem taxes; all expenses are dependent
upon the level of investment costs. Staff believes that the proposed expenses
are consistent with the approved GRIP revenue requirements and are reasonable
with the exception of the proposed reliability projects; however, the revenue
requirements should be reviewed in the annual petitions. FPUC should also
quantify any operations and maintenance and depreciation cost savings resulting
from the new replacement pipes and use the savings to offset the GUARD program revenue
requirement. Any savings should be shown as a separate line item in the
filings. If no savings can be identified, FPUC should provide an explanation in
its annual GUARD petitions.
FPUC states it would calculate the
return on investment using the equity and debt components of the weighted
average cost of capital from FPUC’s recent rate case as reflected in its most
recent year end surveillance report. For subsequent GUARD program true-up
filings, the utility would use the most recent earnings surveillance report. Consistent
with the GRIP calculations, the GUARD surcharge would include depreciation
expense associated with the replacement pipes at the rates approved in the most
recent depreciation study.
Notification expenses include
noticing required for regulatory purposes, general publications of planned activities,
and notice to customers directly affected by replacement activities. FPUC
anticipates that the ad valorem taxes will increase as a result of the capital
projects to be undertaken during the 10-year project period. The utility
requests that it be allowed to recover the ad valorem taxes through the
surcharge grossed up for federal and state income taxes. The utility has
estimated an ad valorem tax rate at 2 percent for this filing. The actual
composite ad valorem tax rate for each year will be applied in the annual
petitions.
GUARD Rate Impacts
In response to staff discovery,
FPUC provided GUARD rate impacts for 2024 through 2034, assuming there is no
rate case in the next 10 years in which the GUARD program revenue requirement
would be rolled into rate base and the GUARD surcharge would be reset. A
residential customer on the RES-2/REST-2 rate schedule, using 20 therms a
month, would have in 2024 an expected monthly bill impact of $0.47 or $5.65
annually. In year 10, the projected impact on a residential customer on the
RES-2/REST-2 rate schedule, using 20 therms a month, would be $4.62 per month,
or $55.60 annually. FPUC states that the costs are estimated expenses and
projects filed and completed each year would vary based on numerous factors
such as contractor resources, timelines, or cost of projects.
Conclusion
The Commission should approve
FPUC’s proposed 10-year GUARD program and two of its associated components: (1)
replacement of problematic pipes, and (2) relocation of mains and facilities
from rear lot to front lot easements, to be implemented as an annual surcharge
mechanism starting on January 1, 2024. The above two components of the proposed
GUARD program should enhance the safety and accessibility of portions of its
natural gas distribution system. The Commission should deny inclusion of the
proposed reliability program component because they are part of the utility’s
normal operations and therefore more appropriately addressed through
traditional ratemaking processes.
Without the surcharge, it is
reasonable to expect that FPUC would have to file for more frequent base rate
proceedings to recover the expenses. The annual filings should provide the
Commission with the oversight to ensure that projected expenses are reasonable
and only actual costs are recovered. The GUARD program and associated
surcharges should terminate when all replacements have been made and the
revenue requirement has been rolled into rate base. If FPUC wishes to continue
the GUARD program beyond the 10 years requested in this petition, FPUC should
file a petition with the Commission seeking approval to continue or modify the
GUARD program.
FPUC should be required
to file its annual GUARD petitions to revise the surcharge on, or before,
September 1 of each year and implement the revised surcharge effective January
1 through December 31 of the following year. The first petition should be filed
on September 1, 2023, for GUARD factors to be effective January 1 through December
31, 2024. The annual GUARD petitions should include all calculations to show a
final true-up, actual-estimated true-up, projected year investments and
associated revenue requirements, and the calculations of the GUARD factors by
rate class. The annual petitions should also include a report including the
location, date, description, and associated costs of all replacement projects
completed and all projects scheduled for the following year. The remaining GRIP
amount of $5.84 million and any remaining over- or under-recoveries should be
included in the 2024 GUARD program cost recovery. In FPUC’s next rate case, and
any subsequent rate cases, the GUARD program revenue requirement should be
moved into rate base.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no protest is filed by a person whose
substantial interests are affected 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 protest is filed by a person whose substantial
interests are affected within 21 days of the issuance of the Order, this docket
should be closed upon the issuance of a Consummating Order.
