|
State of Florida
|
Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
|
|
DATE:
|
September 1, 2023
|
|
TO:
|
Office of Commission Clerk (Teitzman)
|
|
FROM:
|
Office of the General Counsel (Cibula,
Harper, Sparks) AH
Division of Accounting
and Finance (Cicchetti, Norris) ALM
Division of Economics
(Galloway, McNulty, Smith II, Wu) EJD
Division of Engineering (Ellis,
King, Knoblauch, Ramos, Thompson)
TB
|
|
RE:
|
Docket No. 20220069-GU – Petition for rate
increase by Florida City Gas.
|
|
AGENDA:
|
09/12/23 – Regular Agenda – Motion for Reconsideration; Oral
Argument Request
|
|
COMMISSIONERS ASSIGNED:
|
Fay, Passidomo, La Rosa
|
|
PREHEARING OFFICER:
|
Fay
|
|
CRITICAL DATES:
|
None
|
|
SPECIAL INSTRUCTIONS:
|
None
|
|
|
|
|
Case Background
On May 31, 2022,
Florida City Gas (FCG or Company) filed a petition seeking the Florida Public
Service Commission’s (Commission) approval of a rate increase and associated
depreciation rates based on a projected test year ending December 31, 2023. FCG
is a natural gas local distribution company providing sales and transportation
of natural gas, and is a public utility subject to this Commission’s regulatory
jurisdiction under Chapter 366, Florida Statutes (F.S.). As a subsidiary of
Florida Power & Light Company (FPL), FCG currently serves approximately
116,000 residential, commercial, and industrial natural gas customers in
Miami-Dade, Broward, St. Lucie, Indian River, Brevard, Palm Beach, Hendry, and
Martin counties.
FCG’s requested
rate plan consisted of: (a) an increase in base rates and charges sufficient to
generate a total base revenue increase of $29.0 million based on a projected
2023 Test Year; (b) a 10.75 percent mid-point return on equity
(ROE) and an equity ratio of 59.6 percent from investor sources for all
regulatory purposes; (c) implementation of a reserve surplus amortization
mechanism (RSAM); (d) approval of RSAM-adjusted depreciation rates; (e) the
continuation of the Storm Damage Reserve provision approved as part of FCG’s
2018 Settlement Agreement, as modified to reflect the Commission’s new storm
rule for gas utilities; (f) a mechanism that will allow FCG to adjust base
rates in the event tax laws change during or after the conclusion of this
proceeding; (g) continuation and expansion of the existing SAFE program; and
(h) implementation of a new limited advanced metering infrastructure pilot
program (AMI Pilot). (Rate Plan).
The
Commission acknowledged intervention by the Office of Public Counsel (OPC), and
intervention was granted to the Federal Executive Agencies (FEA) and to the
Florida Industrial Power Users Group (FIPUG) (collectively “Intervenors”). An
administrative hearing was held December 12-13, 2022. At the hearing, the
Commission approved proposed stipulations on a number of issues. The parties
filed post-hearing briefs which argued their positions on the remaining litigated
issues. After the parties filed their briefs, the Commission held Special
Agenda Conferences on March 28, 2023, and April 25, 2023, to address those
issues. On June 9, 2023, the Commission issued a Final Order Granting in Part
and Denying in Part Florida City Gas’ Petition for Certain Rate Increases
(Final Order).
One
of the major issues of contention in this case was the FCG RSAM. The RSAM is an
accounting mechanism created by FCG in an effort to manage its earnings, and it
is dependent upon the presence of a theoretical surplus in the Depreciation
Reserve. The RSAM allows FCG the flexibility to use that reserve surplus to
increase or decrease depreciation expense in order to bring about a more favorable
earnings position.
Depreciation
parameter values are routinely adjusted during the
life of the underlying plant assets, and the change in depreciation rates can
lead to a reserve imbalance. Depending on the adjustment, a theoretical reserve
surplus can be created. For example, increasing the estimated service life of
an asset can result in a theoretical reserve surplus based on the fact that
depreciation expense was being collected at a higher rate in the early years of
an asset based on the shorter service life. When that service life is then
increased, which allows for more time to recover the undepreciated balance, a
theoretical reserve surplus may now exist. In this case, three proposals were
put forth regarding the depreciation parameters: those that resulted from FCG’s
depreciation study, FCG’s RSAM-adjusted parameters, and OPC’s proposed parameters. The
Commission ultimately approved the RSAM-adjusted parameters in its Final Order.
On June 23,
2023, the Office of Public Counsel (OPC) filed its Citizens’ Motion for
Reconsideration (Motion) pursuant to Rule 25-22.060, Florida Administrative
Code (F.A.C.), and a Request for Oral Argument on Citizens’ Motion for
Reconsideration (Request) pursuant to Rule 25-22.0022, F.A.C. In its Motion OPC
took issue with the Commission’s approval of FCG’s RSAM, which it claimed
warrants reconsideration. OPC also appealed the Final Order to the Florida
Supreme Court, but the appeal was stayed by the Court pending the Commission’s
disposition of the Motion.
On
June 30, 2023, FCG filed its Florida City Gas Response to Office of Public
Counsel Motion for Reconsideration (Motion Response) and argued that
reconsideration was neither necessary nor appropriate. FCG also filed its
Response in opposition to Office of Public Counsel’s Request for Oral Argument
(Request Response).
This
recommendation addresses OPC’s Request for Oral Argument and OPC’s Motion for
Reconsideration, and FCG’s responses thereto. The Commission has jurisdiction
over this matter pursuant to Chapter 366, F.S., including Sections 366.041, 366.06,
and 366.071, F.S.
Discussion
of Issues
Issue 1:
Should OPC’s Request for Oral Argument on its Motion
for Reconsideration be granted?
Recommendation:
No. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion for
Reconsideration. However, if the Commission wants to exercise its discretion to
hear oral argument, staff recommends 5 minutes per party as sufficient. (Sparks,
Harper)
Staff Analysis:
Law
Rule 25-22.0022(1), F.A.C., allows a party to request oral
argument before the Commission for any dispositive motion before the Commission
by filing a separate written pleading filed concurrently with the motion on
which argument is requested and stating with particularity why oral argument
would aid the Commission. Granting or denying oral argument is within the sole
discretion of the Commission under Rule 25-22.0022(3), F.A.C.
OPC’s Position
OPC requested the opportunity to provide 10 minutes of
oral argument on its Motion for Reconsideration to further elaborate on the
arguments made within and to aid the Commissioners in understanding and
evaluating the issues raised as well as answer any questions.
FCG’s Position
In its Response, FCG argues that OPC’s Request fails to
articulate with particularity why oral argument would aid the Commissioners as
required by Rule 25-22.0022(1), F.A.C. FCG further argues that oral argument is
unnecessary as the issues raised in OPC’s Motion are straightforward and do not
require further explanation.
Analysis:
Granting or denying oral argument is within the sole
discretion of the Commission. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends 5 minutes per party as sufficient.
Issue 2:
Should OPC’s Motion for Reconsideration be granted?
Recommendation:
No. OPC’s Motion for Reconsideration should be
denied as to both points raised within. However, staff recommends clarifying
the Final Order so that it is clear that the Commission has the authority to
approve the RSAM-adjusted depreciation parameters under section 366.06(1), F.S.
The Order should be clarified to state that the Commission has the authority under
366.06(1), F.S., to set depreciation rates using another utility’s depreciation
parameters as long as the parameters are applied to the utility’s own used and
useful assets, such as in this case. (Sparks, Harper)
Staff Analysis:
Law
The appropriate standard of review for reconsideration of
a Commission order is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. See Stewart Bonded Warehouse, Inc. v. Bevis, 294 So. 2d 315
(Fla. 1974); Diamond Cab Co. v. King, 146 So. 2d 889 (Fla. 1962); and Pingree
v. Quaintance, 394 So. 2d 162 (Fla. 1st DCA 1981). It is not appropriate to
reargue matters that have already been considered. Sherwood v. State,
111 So. 2d 96 (Fla. 3d DCA 1959); citing State ex. rel. Jaytex Realty Co. v.
Green, 105 So. 2d 817 (Fla. 1st DCA 1958). Furthermore, a motion for reconsideration
should not be granted “based upon an arbitrary feeling that a mistake may have been
made, but should be based upon specific factual matters set forth in the record
and susceptible to review.” Stewart Bonded Warehouse, Inc., 294 So. 2d at 317.
OPC’s
Motion
In its Motion, OPC argues that (1) the depreciation
parameters approved in the Final Order violate section 366.06(1), F.S., and (2)
the Commission’s primary justification for approval of the RSAM and the
RSAM-adjusted parameters was subsequently eliminated after the Commission’s
vote on those issue.
OPC first argues that the Commission failed to consider
whether “adopting another company’s depreciation parameters” violated the
provisions of section 366.06(1), F.S. This section states:
The commission shall investigate
and determine the actual legitimate costs of the property of each utility
company, actually used and useful in
the public service, and shall keep a current record of the net investment of
each public utility company in such property which value, as determined by the
commission, shall be used for ratemaking purposes and shall be the money honestly and prudently invested by the
public utility company in such property used and useful in serving the public,
less accrued depreciation, and shall not include any goodwill or going-concern
value or franchise value in excess of payment made therefor.
Section
366.06(1), F.S., (emphasis added). There is no disagreement that the
depreciation parameters approved in the Final Order were taken from the
People’s Gas rate case. OPC argues “using a different utility company’s
depreciation parameters instead of the depreciation parameters of FCG’s actual,
used and useful property violates [Florida statutes].” OPC states that it
previously argued that the Commission lacked the authority to approve an RSAM
in general, but now it argues against FCG’s RSAM for the specific reason that
it establishes depreciation rates not developed using the actual assets of
the company. In other words, OPC’s motion argues the FCG’s RSAM parameters are
taken from assets in use by another company and this is inappropriate under
section 366.06(1), F.S.
OPC also argues its position in its motion for
reconsideration differs from the position taken by Commission staff in its
recommendation. OPC argues “[c]onsidering whether there is precedent” for using
another company’s depreciation parameters is different from considering whether
using another company’s depreciation parameters violates section 366.06(1),
F.S. OPC contends this distinction is a matter of law which warrants
reconsideration.
Second, OPC argues that the “Commission’s primary reason
for approving the RSAM – rate stability – was eliminated subsequent to the
Commission’s approval.” OPC claims that all of FCG’s “guarantees” were premised
on the entirety of its proposed Rate Plan being approved, and because not all
of the elements of FCG’s requested Rate Plan were approved (in this case the
Commission lowered FCG’s Return on Equity (ROE) from what it requested in its
petition), “the record does not support the rationale that underlies the
approval of the RSAM.” OPC cites FCG witness Kurt Howard’s testimony, which
states that the “rate plan, in its entirety, will allow us to stay out for four
years.” OPC further states that “[b]y correctly finding that the four-year plan
was unenforceable and by failing to approve the entirety of FCG’s proposed
four-year plan, the Commission eliminated the primary basis for approving the
RSAM; therefore, the Commission should reconsider its approval of the RSAM.”
FCG’s Response
FCG first addresses the argument that approval of the
RSAM-adjusted depreciation parameters violates section 366.06(1), F.S., arguing
that OPC did not raise this argument in its testimony or anywhere in its pre-
or post-hearing filings. FCG argues that for OPC to raise this specific issue
here for the first time raises “serious due process concerns” under section
120.57(1)(b), F.S., and should therefore be denied. According to FCG, while OPC
did cite to section 366.06(1), F.S., in its post-hearing brief, OPC did not
raise the specific issue that use of the RSAM-adjusted depreciation parameters
themselves violate the statute and only argued that the RSAM as a whole
violates the statute. FCG also contends that raising an issue not set out in
the Order Establishing Procedure without showing just cause violates that
Order.
FCG disagrees with OPC’s assertion that a plain reading of
the statute prohibits it from using the RSAM-adjusted depreciation parameters.
FGC takes the position that applying the RSAM-adjusted depreciation parameters
from People’s Gas to its own used and
useful plant in service satisfies the requirements of section 366.06(1).
FCG further states that “nothing in the Florida statutes precludes the
Commission from approving depreciation lives and net salvage based on the
application of depreciation parameter data for a similar Florida natural gas
utility with assets similar to the utility’s property used and useful in
serving customers.” FCG contends that holding otherwise would limit the
Commission from approving the RSAM in this case and would set a precedent that
would preclude the Commission from considering or approving alternative
depreciation parameters proposed by other parties as proxies or included in
settlements. Furthermore, FCG asserts that contrary to OPC’s allegations, use
of the RSAM-adjusted parameters is consistent with Commission practice. FCG
points to Docket No. 20220067-GU, In re: Petition for rate
increase by Florida Public Utilities Company, Florida Division of Chesapeake
Utilities Corporation, Florida Public Utilities Company - Fort Meade, and
Florida Public Utilities Company – Indiantown Division, Order No. 2023-0103-FOF-GU,
issued March 15, 2023, as a
similar case in which the Commission approved a depreciation study that relied
on the service life estimates of other similar utilities.
FCG also states that, regardless of whether or not the
issue was properly raised, it is clear the Commission considered and addressed
the authority to approve the RSAM-adjusted depreciation parameters. FCG states
the “record in this proceeding clearly demonstrates that the Commission in fact
considered . . . whether the RSAM-adjusted depreciation parameters violate
[section 366.06(1), F.S.].” FCG maintains that OPC’s interpretation of the
statute is incorrect, and that the RSAM-adjusted depreciation parameters are
service life estimates that are in fact applied to FCG’s used and useful plant
in service.
FCG also addresses OPC’s second argument regarding rate
stability. FCG states that OPC failed to identify a mistake of fact or law or
identify anything overlooked by the Commission. Instead, “OPC misinterprets the
Commission’s denial of FCG’s four-year rate plan as a determination, wholly
unsupported by the record, that RSAM is not effective in providing a measure of
rate stability to customers.” FCG states there is nothing in the record to
support the conclusion that the rate stability provided by the RSAM was
contingent upon approval of FCG’s proposed plan in its entirety. Without any
evidence to support this conclusion, FCG contends that the Commission could not
have overlooked or failed to consider it.
Furthermore, FCG states the Commission did clearly
consider whether the RSAM would provide rate stability to customers, citing the
text of the Final Order which states, “We find the RSAM will result in a
reduction of revenue requirement, save customers money on their utility bills,
and give FCG the ability to manage its day-to-day business fluctuations, and
allow FCG to take on the risk of increases in interest rates and inflation.”
FCG also argues this finding was supported by record evidence, citing to the
staff recommendation as well as the transcript of the March 28, 2023 Special
Agenda Conference. FCG contends that, in failing to identify something that was
overlooked, OPC instead asks the Commission to reweigh the evidence it already
considered and to reach a different conclusion.
Analysis
Depreciation Parameters and Section 366.06(1), F.S.
The appropriate standard of review for reconsideration of
a Commission order is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. Because there was testimony that FCG’s use of PGS as a source for its
depreciation parameters was reasonable, the Commission voted in favor of FCG’s RSAM-adjusted
depreciation parameters. However, it may be unclear whether the
Commission considered OPC’s particular interpretation of how the depreciation
parameters did not fall under section 366.06(1), F.S., and thus, staff
recommends clarifying the Final Order so that the authority to approve the
RSAM-adjusted depreciation parameters under section 366.06(1), F.S., is clear.
Section
366.06(1), F.S., requires the Commission investigate and determine the amount
of money that (1) is honestly and prudently invested by the utility; (2) in
assets that are used and useful; (3) less accrued depreciation; and (4) excludes
any goodwill, going concern, or franchise value in excess of payment.
In this case, FCG used PGS’s
depreciation parameters to determine FCG’s appropriate depreciation parameters
arguing the assets used by PGS were similar to its own. FCG then applied the
PGS depreciation parameters to its own assets to arrive at the depreciation rates used to calculate FCG’s
depreciation expense, and thus, FCG’s accrued depreciation, which is
contemplated by the statutory phrase “less accrued depreciation.”
For the
reasons noted previously, OPC argues that FCG’s use of PGS’s depreciation
parameters violated section 366.06(1), F.S. However, there is testimony showing
that, while FCG used PGS’s depreciation parameters, it applied them to its own
assets to arrive at its depreciation rates. The Commission was persuaded
by the testimony that FCG’s approach was reasonable and would result in lower
revenue requirements than the amount requested by FCG if the RSAM was not
approved. Because FCG applied PGS’s depreciation parameters to its own assets
to arrive at the depreciation rates, and because these assets are used and
useful in providing service, there is no conflict with section 366.06(1), F.S.
The Order should be clarified to state that the Commission has the authority under
366.06(1), F.S., to set depreciation rates using another utility’s depreciation
parameters as long as the parameters are applied to the utility’s own used and
useful assets, such as in this case.
Justification for the RSAM
OPC argues that because not all of the elements of FCG’s
requested rate plan were approved “the record does not support the rationale
that underlies the approval of the RSAM.” OPC in essence argues that the
utility prefaced its guarantee of rate stability on the Commission granting all of the elements of its proposed Rate
Plan, and thus, when the Commission did not approve FCG’s requested ROE, an
element of its Rate Plan, there was no guarantee of rate stability, and the
Commission’s “primary reason for approving the RSAM” was therefore eliminated.
The appropriate standard of review for reconsideration of
a Commission order is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. See Stewart Bonded Warehouse. On
this issue OPC fails to identify any points of fact or law that were overlooked
or not considered. The Order considers whether the RSAM would be a benefit to
consumers regardless of any guarantees from the Utility. The Order states:
We find the RSAM will result in a reduction of revenue
requirement, save customers money on their utility bills, and give FCG the
ability to manage its day-to-day business fluctuations, and allow FCG to take
on the risk of increases in interest rates and FCG.
Final Order at page 17. The Final Order further states:
By approving the RSAM, we believe FCG is in the best
position to maintain its ROE within the approved range and thus reduce the
likelihood of additional rate increases in the near future.
Final Order at page 16. OPC points to no support in the
record for its contention that the RSAM could only contribute to rate stability
if FCG’s proposal was granted in its entirety, nor does OPC cite to anything in
the record showing the benefits of the RSAM are solely conditioned upon the
approval of all elements of the Rate Plan or the proposed rate structure as a
whole. In fact, the Order acknowledged that, even if all of the elements of
FCG’s proposal were approved exactly as requested, there could still be no
binding commitment by FCG to “stay out” of future rate proceedings. See Order at page 6. Thus, because the
Final Order acknowledges FCG’s inability to make a binding commitment, OPC’s
argument is without merit and the record supports the rationale that underlies
the approval of the RSAM.
Conclusion:
OPC’s Motion for Reconsideration should be denied as to
both points raised within. However, staff recommends clarifying the Final Order
so that it is clear the Commission believes it has the authority to approve the
RSAM-adjusted depreciation parameters under section 366.06(1), F.S., as
referenced above.
Issue 3:
Should this docket be closed?
Recommendation:
No. This docket shall remain open while OPC’s appeal
is processed at the Florida Supreme Court. (Sparks, Harper)