Case Background
On
September 1, 2023, Florida Public Utilities Company (FPUC or Company) filed a
petition for approval of its Gas Utility Access and Replacement Directive (GUARD
program) cost recovery factors for January through December 2024. The petition
includes the direct testimony and Exhibits RCW-1 and RCW-2 of Robert
Waruszewski providing the calculations of the proposed factors.
In
Order No. PSC-2023-0235-PAA-GU (GUARD Order),the
Commission approved FPUC’s 10-year GUARD program consisting of two components: (1)
replacement of problematic pipes and facilities and (2) relocation of mains and
service lines located in rear easement and other difficult to access areas to
the front lot easements. As established in the GUARD Order, FPUC would
be able to recover the revenue requirements of expedited programs to replace problematic
pipes and facilities and to relocate certain facilities in rear easements and
other difficult to access areas in order to enhance the safety of portions of
FPUC’s natural gas distribution system through a monthly surcharge on
customers’ bills. The GUARD Order further established the methodology for
annually setting the GUARD surcharge to recover the costs of the program.
In 2012, the
Commission approved FPUC’s 10-year Gas Reliability and Infrastructure Program
(GRIP).[2] The purpose of GRIP was to recover the
cost of accelerated replacement of cast iron and bare steel distribution mains
and services that are subject to corrosion through a separate surcharge on
customers’ bills. In the recently concluded FPUC rate case in Docket No.
20220067-GU, the Company moved $19.8 million of GRIP revenue requirement to
rate base. Any remaining GRIP amounts that were not
moved into base rates are included in the instant petition in the beginning
balance for the GUARD program. The GRIP program was completed in July 2023. The
GRIP program was originally scheduled to conclude at the end of December 2022;
however, due to some permit delays, approximately 0.5 miles of pipeline were
replaced in 2023.
The methodology
to calculate the GUARD program surcharges is the same that was approved for the
GRIP. The GUARD cost recovery procedure requires an annual filing with three
components, similar as those approved in the 2012 GRIP Order:
1. A
final true-up showing the actual replacement costs, actual surcharge revenues,
and over- or under-recovery amount for the 12-month historical period from
January 1 through December 31 of the year prior to FPUC’s annual GUARD
petition.
2. An
actual/estimated true-up showing seven months of actual and five months of
projected replacement costs, surcharge revenues, and over- or under-recovery
amount.
3. A revenue requirement projection showing 12 months of
projected GUARD revenue requirement for the period beginning January 1
following FPUC’s annual GUARD petition filing.
In
the GUARD Order, the Commission directed FPUC to file its annual GUARD program
petition to revise the surcharge on or before September 1 of each year, to
implement the revised surcharge effective January 1 through December 31 of the
following year, and to file its first GUARD cost recovery petition on September
1, 2023. FPUC, in its petition, included revised tariff sheets 7.000 through
7.002 (Index), 7.403, 7.404, and 7.405.
The
Commission further ordered FPUC to (1) 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,
(2) provide a report including the location, date, description, and associated
costs of all replacement projects completed and all projects scheduled for the
following year, and (3) include any remaining GRIP over- or under-recovery in
the 2024 GUARD cost recovery.
FPUC
has complied with the GUARD Order directives stated above. Since the GUARD
Order established that any remaining GRIP investments that were not included
for recovery in base rates in the rate case Docket No. 20220067-GU shall be
rolled into the GUARD program for cost recovery, there will be no GRIP
surcharge on customers’ bills starting January 1, 2024. Accordingly, the
proposed GUARD surcharge would replace the GRIP surcharge. The current 2023
GRIP factors have been approved in Order No. PSC-2022-0401-TRF-GU. Finally, the GUARD Order provided for FPUC
to start GUARD program expenditures in April 2023 and request recovery of any
2023 expenditures starting on January 1, 2024.
During the
review process, staff issued a data request to FPUC on September 11, 2023, for
which the responses were received on September 18, 2023. In Order No. PSC-2023-0304-PCO-GU,
the Commission suspended the proposed tariffs. The Commission has jurisdiction
over this matter pursuant to Sections 366.04, 366.05, and 366.06, Florida
Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve FPUC's 2024 Gas
Utility Access and Replacement Directive (GUARD) cost recovery factors and
associated revised tariff sheets (Nos. 7.000 through 7.002, 7.403, 7.404, and
7.405) for the period January to December 2024?
Recommendation:
Yes. The Commission should approve FPUC's 2024 GUARD
cost recovery factors and associated revised tariff sheets (Nos. 7.000 through
7.002, 7.403, 7.404, and 7.405), included in Attachment B, to be effective for
the first billing cycle of January through the last billing cycle of December
2024. The GUARD surcharge would allow FPUC to replace problematic pipes and
facilities and relocate certain facilities located in rear easements, and
recover the project costs on an expedited basis. (Guffey)
Staff Analysis:
The GRIP surcharges have been in place since 2013
and the GRIP program is complete. As discussed in the GUARD Order, the Company
identified additional safety risks and reliability concerns. Specifically, the GUARD
program is driven by risks identified under FPUC’s Distribution Integrity
Management Program (DIMP)[5] and risk
assessments performed by an independent contractor. The prioritized projects
for 2023 and 2024 are included in Attachment A to this recommendation.
Attachment A indicates that FPUC will replace obsolete/Aldyl-A and certain span
pipes, and relocate pipes from rear lot to the street front in Martin, Palm
Beach and Seminole counties in 15 projects for an estimated investment of $33
million during 2023 and 2024. As indicated in FPUC’s response to staff’s data
request, the selected project areas include existing distribution mains and
services that are considered high risk due to, but not limited to, Aldyl-A and
vintage plastic pipes, damage due to excavation in rear lots, corrosion, leaks,
and inaccessible rear lot facilities.
Remaining GRIP Revenue Requirement
As authorized by the GUARD Order, FPUC included the
remaining GRIP investment and the remaining GRIP over- or under-recoveries in
the 2024 GUARD cost recovery. Exhibit RCW-1, page 5 of 9, of the petition
reflects the GRIP investments from the rate case being removed from the
calculations at the end of February 2023 and only reflect the GRIP investments
above the amount approved in the rate case ($4,197,096). The GRIP investment
approved to be moved into rate base represents the total investment projected
at the time of the rate case filing in May 2022. FPUC explained that the actual
final GRIP investment was higher than projected, resulting in a remaining GRIP investment
of $4,197,096.
The Company has been collecting Commission-approved GRIP factors
from its customers in 2022 and 2023. FPUC’s calculations for the 2022 and January
– July 2023 GRIP revenue requirement and surcharges include a final GRIP
true-up amount for the period ending July 31, 2023 of $332,795 (over-recovery).
That over-recovery amount is being applied to the GUARD program in July 2023
(termination date for the GRIP program).
2023 GUARD Revenue Requirement
The Company initiated work on the GUARD program in April
2023. Specifically, the Company explained that in April and May of 2023
activities were related to project material procurement, engineering design,
and permitting necessary to start construction activities in June of 2023.
The April through December 2023 GUARD investment and
associated revenue requirement amounts are shown on Exhibit RCW-1, page 6 of 9.
The forecasted GRIP revenues for the remainder of 2023 exceed the GUARD 2023 revenue
requirement, resulting in an over-recovery of $227,566, inclusive of interest
of $9,613, for the period April through December 2023. Therefore, the total
GUARD true-up, which includes the final over-recovery for GRIP, is $560,361
($332,795+$227,566), inclusive of interest. As shown in Table 1-1 below, that
amount is being applied to the 2024 GUARD revenue requirement, resulting in a
lower revenue requirement to be recovered from customers in 2024.
Exhibit RCW-1, page 6 of 9, shows the 2023 year end net
book value investment of $16,965,008. This amount represents the final GRIP
investment moved into the GUARD program as of July 2023 ($4,347,919) and the
2023 GUARD investment ($12,617,089). That amount is reflected as the beginning
balance for the 2024 GUARD calculations discussed below.
Projected 2024 GUARD Revenue Requirement
For 2024, FPUC projects to invest $20,371,485 ($12,415,872
for mains and $7,955,613 for services), resulting in a total projected 2024
investment of $36,783,862 (including the year-end 2023 investment). Similar to
the GRIP, the GUARD program revenue requirement includes a return on
investment, depreciation expense, customer notification expense, and property
taxes; all expenses are dependent upon the level of investment costs. Pursuant
to witness Waruszewski’s testimony, the Company also included $49,416 for the
2024 projection period as operating and maintenance costs which are for
extending customer-owned downstream fuel lines to connect to meters that are
required to be relocated due to safety concerns. After
subtracting the $560,361 over-recovery true-up amount, the 2024 GUARD revenue requirement
to be recovered through the proposed surcharges is $2,296,223.
Table 1-1
2024 GUARD Revenue
Requirement Calculation
|
2024 Projected
Investment
$36,783,862
|
|
Return on Investment
|
$1,903,237
|
|
Depreciation Expense
|
$552,631
|
|
Operations & Maintenance Expense
|
$49,416
|
|
Property Tax Expense
|
$339,300
|
|
Customer Notification Expense
|
$12,000
|
|
2024 GUARD Revenue Requirement
|
$2,856,584
|
|
Less 2023 Over-Recovery
|
-$560,361
|
|
2024 Total Revenue Requirement
|
$2,296,223
|
Source: Witness Waruszewski Testimony Exhibit RCW-1
Proposed GUARD Surcharges
As approved in the GUARD Order, the total 2024 revenue
requirement is allocated to the rate classes using the same methodology used
for the allocation of mains and services in the cost of service study used in
the Company’s most recent rate case. The respective percentages were multiplied
by the 2024 revenue requirements and divided by each rate class’s projected
therm sales to provide the GUARD surcharge for each rate class. This
methodology was originally established by the 2012 Order approving the GRIP
program.
The proposed 2024 GUARD surcharge for FPUC’s residential
customers who use 20 therms a month (240 therms annually) on the Residential
Service tariff (RES-2) would pay $0.03263 per therm compared to the 2023 GRIP
surcharge of $0.02166 per therm. The monthly bill impact is $0.65 for a
residential customer using 20 therms per month or $7.83 per year. The proposed GUARD
surcharges are shown in Attachment B, in Tariff Sheet No. 7.403.
Conclusion
Staff believes
the calculation of FPUC’s GUARD revenue requirement and surcharges for each
rate class are reasonable and accurate.
Staff therefore recommends approval of FPUC’s proposed GUARD surcharges,
effective for January 1, 2024. The proposed GUARD surcharge factors should be
applied to each rate class during the billing period January 1 through December
31, 2024.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If 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 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.
