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State of Florida |
Public Service Commission Capital Circle Office Center ● 2540 Shumard
Oak Boulevard -M-E-M-O-R-A-N-D-U-M- |
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DATE: |
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TO: |
Office of Commission Clerk (Teitzman) |
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FROM: |
Division of Accounting and Finance (Ferrer, D. Buys) Office of the General Counsel (Sandy) |
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RE: |
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AGENDA: |
12/05/23 – Regular Agenda – Proposed Agency Action – Interested Persons May Participate |
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COMMISSIONERS ASSIGNED: |
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PREHEARING OFFICER: |
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SPECIAL INSTRUCTIONS: |
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Florida City Gas (FCG or Company) does not currently have an authorized rate for an Allowance for Funds Used During Construction (AFUDC). On September 19, 2023, FCG filed its petition requesting approval of an AFUDC rate of 5.85 percent, effective on July 1, 2023. As required by Rule 25-7.0141(5), Florida Administrative Code (F.A.C.), FCG included Schedules A, B, and C identifying the capital structure, capital structure adjustments, and the methodology used to calculate the monthly AFUDC rate. The Commission has jurisdiction over this matter pursuant to Chapter 366, Florida Statutes (F.S.), including Sections 366.04, 366.05, and 366.06, F.S.
Issue 1:
Should the Commission approve FCG's request to establish an AFUDC rate of 5.85 percent?
Recommendation:
Yes. The appropriate AFUDC rate for FCG is 5.85 percent based on a 13-month average capital structure for the period ended June 30, 2023. (Elfouly)
Staff Analysis:
FCG filed a petition requesting approval of an AFUDC rate of 5.85 percent. Rule 25-7.0141(3), F.A.C., Allowance for Funds Used During Construction, provides the following guidance:
(3) The applicable AFUDC rate will be determined as follows:
(a) The most recent 13-month average embedded cost of capital, except as noted below, will be derived using all sources of capital and adjusted using adjustments consistent with those used by the Commission in the utility’s last rate case.
(b) The cost rates for the components in the capital structure will be the midpoint of the last allowed return on common equity, the most recent 13-month average cost of short-term debt and customer deposits, and a zero cost rate for deferred taxes and all investment tax credits. The cost of long-term debt and preferred stock will be based on end of period cost. The annual percentage rate must be calculated to two decimal places.
In support of its requested AFUDC rate of 5.85 percent, FCG provided its calculations and capital structure in Schedules A and B attached to its request. Staff reviewed the schedules and determined that the proposed rate was calculated in accordance with Rule 25-7.0141(3), F.A.C. In Schedule A, the Company appropriately used the mid-point return on equity of 9.50 percent, which was approved by Order No. PSC-2023-0177-FOF-GU.[1] The AFUDC rate calculation and capital structure are presented in Attachment 1.
Based on its review, staff believes that the requested AFUDC rate of 5.85 percent is appropriate and should be approved.
Issue 2:
What is the appropriate monthly compounding rate to achieve FCG's requested annual AFUDC of 5.85 percent?
Recommendation:
The appropriate monthly compounding rate to achieve an annual AFUDC rate of 5.85 percent is 0.004749. (Elfouly)
Staff Analysis:
FCG requested a monthly compounding rate of 0.004749 to achieve an annual AFUDC rate of 5.85 percent. In support of the requested monthly compounding rate of 0.004749, the Company provided its calculations in Schedule C attached with its request. Rule 25-7.0141(4)(a), F.A.C., provides the following formula for discounting the annual AFUDC rate to reflect monthly compounding.
M = [((1 + A/100)1/12)-1] x 100
Where: M = discounted monthly AFUDC rate
A = annual AFUDC rate
The rule also requires that the monthly compounding rate be calculated to six decimal places.
Staff reviewed the Company’s calculation and determined it was derived in accordance with Rule 25-7.0141(4), F.A.C., as presented in Attachment 2. Therefore, staff recommends that a monthly compounding AFUDC rate of 0.004749 be approved.
Issue 3:
Should the Commission approve FCG's requested effective date of July 1, 2023, for implementing the AFUDC rate?
Recommendation:
Yes. The AFUDC rate should be effective July 1, 2023, for all purposes. (Elfouly)
Staff Analysis:
FCG’s requested AFUDC rate was calculated using the most recent 13-month average capital structure for the period ended June 30, 2023. Rule 25-7.0141(6), F.A.C., provides that:
No utility may charge or change its AFUDC rate without prior Commission approval. The new AFUDC rate will be effective the month following the end of the 12-month period used to establish that rate and may not be retroactively applied to a previous fiscal year unless authorized by the Commission.
The Company’s requested effective date of July 1, 2023, complies with the requirement that the effective date does not precede the period used to calculate the rate, and therefore, should be approved.
Issue 4:
Should this docket be closed?
Recommendation:
Staff Analysis:
If no person whose substantial interests are affected by the proposed agency action files a protest within 21 days of the issuance of the order, this docket should be closed upon the issuance of a consummating order.
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FLORIDA CITY GAS |
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CAPITAL STRUCTURE USED FOR THE REQUESTED AFUDC RATE |
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AS OF JUNE 30, 2023 |
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STAFF RECOMMENDED |
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CAPITAL COMPONENTS |
JURISDICTIONAL AVERAGE |
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CAPITAL RATIO |
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COST OF CAPITAL |
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WEIGHTED COST OF CAPITAL |
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COMMON EQUITY |
$186,247,430 |
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45.04% |
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9.50% |
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4.28% |
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LONG-TERM DEBT |
155,152,376 |
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37.52% |
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3.88% |
1.45% |
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SHORT-TERM DEBT |
20,071,697 |
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4.85% |
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1.92%* |
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0.09% |
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CUSTOMER DEPOSITS |
3,980,696 |
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0.96% |
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2.67%* |
0.03% |
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DEFERRED INCOME TAXES |
48,041,042 |
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11.63% |
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0.00% |
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0.00% |
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TOTAL |
$413,493,241 |
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100.00% |
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5.85% |
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* 13-MONTH AVERAGE |
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FLORIDA CITY GAS |
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METHODOLOGY FOR COMPOUNDING AFUDC RATE |
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AS OF JUNE 30, 2023 |
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STAFF
RECOMMENDED |
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MONTHS |
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AFUDC BASE |
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MONTHLY AFUDC RATE |
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CUMULATIVE AFUDC RATE |
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1 |
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1.000000 |
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0.004749 |
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0.004749 |
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2 |
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1.004749 |
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0.004772 |
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0.009521 |
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3 |
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1.009521 |
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0.004794 |
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0.014315 |
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4 |
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1.014315 |
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0.004817 |
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0.019132 |
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5 |
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1.019132 |
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0.004840 |
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0.023972 |
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6 |
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1.023972 |
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0.004863 |
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0.028834 |
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7 |
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1.028834 |
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0.004886 |
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0.033720 |
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8 |
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1.033720 |
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0.004909 |
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0.038630 |
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9 |
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1.038630 |
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0.004932 |
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0.043562 |
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10 |
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1.043562 |
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0.004956 |
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0.048518 |
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11 |
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1.048518 |
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0.004979 |
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0.053497 |
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12 |
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1.053497 |
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0.005003 |
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0.058500 |
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Annual Rate
(R) = 0.0585 |
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Monthly Rate
= ((1+R)^(1/12))-1 = 0.004749 |
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[1]Order No. PSC-2023-0177-FOF-GU, issued June 9, 2023,
in Docket No. 20220069-GU, In re: Petition for rate
increase by Florida City Gas.