Case Background
On August 31, 2023, Florida City Gas (FCG or utility) filed
a petition for approval of its safety, access, and facility enhancement program
(SAFE) true-up and 2024 cost recovery factors. The SAFE program was originally
approved by the Commission in Order No. PSC-15-0390-TRF-GU (2015 Order) to
recover the cost of relocating on an expedited basis certain existing gas mains
and associated facilities from rear lot easements to the street front.[1] In the 2015 Order,
the Commission found that the relocation of mains and services to the street
front provides for more direct access to the facilities and will enhance the
level of service provided to all customers through improved safety and
reliability. The SAFE factor is a surcharge on customers' bills.
In the 2015
Order, the Commission required the utility to file an annual petition,
beginning in 2016, for review and resetting of the SAFE factors to true-up any
prior over-or under-recovery and to set the surcharge for the coming year. The
SAFE program was originally approved as a 10-year program and was planned to
finish in 2025.
During the
utility’s 2022 rate case, the Commission approved a stipulation for the
expansion of the SAFE program in Order No. PSC-2023-0177-FOF-GU (Rate Case
Order). The parties agreed and the Commission
found that the continuation of the SAFE program beyond its original 2025
expiration date and the relocation of an additional approximately 150 miles of
mains and 13,874 services was reasonable.
In the Rate Case
Order, the Commission further approved a stipulation for the replacement of
approximately 160 miles and 8,059 associated services of “orange pipe,” through
the SAFE program. All parties to the rate case agreed that
orange pipe is a specific plastic material that was used in the 1970s and 1980s
that has been studied by the United States Department of Transportation
Pipeline and Hazardous Materials Safety Administration and shown through
industry research to exhibit premature failure in the form of cracking.
In addition, as
part of its rate case, FCG moved the SAFE investment and related expenses as of
December 31, 2022, from clause recovery to base rates, in compliance with the
2015 Order. Specifically, the 2015 Order stated that
“…if FCG files a base rate case prior to 2025, the then-current SAFE surcharge
program would be folded into any newly approved rate base, and the surcharge
would begin anew.” The Commission approved FCG’s proposal to
move the SAFE surcharge into base rates in the Rate Case Order. The rate case decision was effective May
1, 2023.
The current 2023
SAFE factors were approved by Order No. PSC-2022-0403-TRF-GU (2022 Order). The SAFE factors effective January 2023
were calculated based on the assumption that the Commission would approve the
request to roll SAFE investments into rate base in the rate case docket and
therefore decreased compared to the 2022 SAFE factors. Since the rate case
decision became effective May 1, 2023 (as opposed to January 2023), FCG did not
collect the full SAFE revenue requirement in 2023, resulting in a 2023
under-recovery. The 2022 Order provided that if the Commission has not made a
decision in the 2022 rate case prior to the January 1, 2023 effective date,
then any SAFE revenue requirement not collected in 2023 would be trued-up in
the next SAFE filing. Accordingly, FCG has included the 2023 under-recovery
with the proposed 2024 SAFE factors.
Finally, in the
Rate Case Order, the Commission required FCG to propose a new
investment/construction schedule and term for the SAFE program in its next
applicable annual SAFE filing. Subsequently, FCG now proposes in this petition
to extend the SAFE program for an additional 10-year period through 2035 for
the replacement of orange pipe and relocation of rear lot mains and services to
the street front. The utility proposes to begin the replacement of orange pipe
in 2024 and continue through 2033. FCG also proposes to begin the relocation of
mains and services in 2026 and continue through 2035.
In Order No.
PSC-2023-0302-PCO-GU, the Commission suspended the proposed tariffs to allow
staff sufficient time to analyze the utility’s filing, pursuant to Section 366.06(3),
Florida Statue (F.S.). Commission staff issued their first data request to FCG
on September 13, 2023, for which FCG provided a response on September 19, 2023.
Staff issued a second data request on September 22, 2023 for responses were
received September 28, 2023.
FCG’s annual
progress in the SAFE program is shown in Attachment A to the recommendation. The
proposed 2024 SAFE factors are shown in Attachment B to the recommendation on
Tariff Sheet No. 79.
The Commission has jurisdiction over the matter pursuant to Sections
366.04, 366.041, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve FCG's proposed SAFE
tariffs for the period January through December 2024?
Recommendation:
Yes. The Commission should approve FCG’s proposed
SAFE tariff for the period January through December 2024. After reviewing FCG’s
filings and supporting documentation, the calculations of the 2024 SAFE factors
appear consistent with the methodology approved in the 2015 Order and are
reasonable and accurate. Furthermore, staff recommends that the Commission
approve FCG’s proposed 10-year SAFE investment and construction schedule. The
proposed tariffs, provided in Attachment B to this recommendation, should be
effective for the first billing cycle in January 2024 through the last billing
cycle of December 2024. (P. Kelley, Hampson)
Staff Analysis:
Under the SAFE program
originally approved in 2015, FCG was ordered to relocate or replace 254.3 miles
of mains and 11,443 associated service lines from rear property easements to
the street over a 10- year period, ending in 2025. The utility began its mains
and services replacements at the end of 2015. The surcharges have been in
effect since January 2016. During 2023, the utility has replaced 26 miles of
mains and 1,399 services, as shown in Attachment B to the recommendation.
Proposed SAFE
Timeline
FCG proposes a 10-year investment
and construction schedule for the continuation and expansion of the SAFE
program projects, as approved in the Rate Case Order. FCG stated in response to staff’s data
request that the 10-year schedule aligns similarly with the original approval
for the 2015 SAFE program, which had a 10-year period.
FCG also explained that delaying projects would prevent customers and
communities from safe access to natural gas in the form of declining pipe
integrity. FCG further stated that accelerating the respective 10-year timeline
would have a negative impact on customers’ billing and could potentially
require FCG to engage additional outside resources.
Staff believes that the proposed 10-year investment and construction schedule
for the SAFE program projects is reasonable, based on FCG’s provided arguments
and the Commission’s previous approval of similar timelines for investments
made through a surcharge.
Staff recommends that FCG should be required to file a final true-up of the
actual SAFE program costs at the end of the 10-year period, once all program
costs are known.
Prioritization
of SAFE Relocation and Replacement Projects
The utility stated that
prioritization of the SAFE relocation and replacement projects was determined
by FCG’s risk assessment model, the Distribution, Integrity, and Management
Program (DIMP). Based on FCG’s DIMP, the utility has prioritized future SAFE
projects based on the location of the pipelines, material of the pipelines,
leak incident rates, maintenance access complications, and customer
encroachments.
True-ups by Year
As required by the 2015 Order,
the utility’s calculations for the 2024 revenue requirement and SAFE factors
include a final true-up for 2022, and an estimated/actual true-up for 2023, and
projected costs for 2024.
Final
True-up for 2022
FCG stated that the revenues
collected for 2022 were $4,562,635, compared to a revenue requirement of $4,305,208
resulting in an over-recovery of $257,427. Adding the 2021 final under-recovery
of $326,212 and the $257,427 over-recovery of 2022, including interest, results
in a final 2022 under-recovery of $35,929.
Actual/Estimated
2023 True-up
FCG provided actual revenues for
January through June and forecasted revenues for July through
December 2023, totaling $674,737
as compared to a projected revenue requirement of $2,506,526, resulting in an under-recovery
of $1,831,789. Adding the 2022 under-recovery of $35,929 to the 2023
under-recovery of $1,831,789, the resulting total 2023 true-up, including
interest, is an under-recovery of $1,935,339.
Projected
2024 Costs
The utility’s projected
investment for 2024 is $29,851,712 for its projects located in Miami-Dade and
Brevard County. The revenue requirement, which includes a return on investment,
depreciation, and taxes is $2,682,570. The return on investment calculation
includes federal income taxes, regulatory
assessment fees, and bad debt. After adding the 2023 under-recovery of
$1,935,339, the total 2024 revenue requirement is $4,647,910. Table 1-1
displays the projected 2024 revenue requirement calculation.
Table 1-1
2024 Revenue Requirements Calculation
|
2024 Projected Investment $29,851,712
|
|
Return on Investment $1,861,231
Depreciation Expense $441,201
Property Tax Expense $380,138
2024 Revenue Requirement $2,682,570
Plus 2023 Under-recovery $1,965,339
Total 2024 Revenue
Requirement $4,647,910
|
Source: Page 6 of Attachment D of the petition and
Attachment 2 in response to Staff’s First Data Request No. 1
Proposed 2024 SAFE Factors
The SAFE factors are fixed monthly charges. FCG’s cost
allocation methodology was approved in the 2015 Order and was used in the
instant filing. The approved methodology allocates the current cost of a 2-inch
pipe to all customers on a per customer basis and allocates the incremental
cost of replacing a 4-inch pipe to customers who use over 6,000 therms per
year. For customers who require 4-inch pipes, the cost takes into account that
the minimum pipe is insufficient to serve their demand, and therefore,
allocates an incremental per foot cost in addition to the all-customer cost.
The resulting allocation factors are applied to the 2024 total revenue
requirement to develop the monthly SAFE factors.
The proposed fixed monthly SAFE factor is $3.17 for
customers using less than 6,000 therms per year (current factor is $0.44). The
proposed fixed monthly SAFE factor for customers using more than 6,000 therms
per year is $5.44 (current factor is $0.98). Staff notes that the current 2023
SAFE factors decreased from 2022 since the Commission approved moving SAFE
investments into rate base in the Rate Case Order, resulting in a lower SAFE
factor.
Conclusion
The Commission should approve FCG’s proposed SAFE tariff
for the period January through December 2024. After reviewing FCG’s filings and
supporting documentation, the calculations of the 2024 SAFE factors appear
consistent with the methodology approved in the 2015 Order and are reasonable
and accurate. Furthermore, staff recommends that the Commission approve FCG’s
proposed 10-year SAFE investment and construction schedule. The proposed
tariffs, provided in Attachment B to this recommendation, should be effective
for the first billing cycle in January 2024 through the last billing cycle of
December 2024.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. 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.
(Thompson)
Staff Analysis:
Yes. 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.
