Discussion
of Issues
Issue 1:
Should currently prescribed depreciation rates for
Florida Public Utilities Company be revised?
Recommendation:
Yes. The review of FPUC’s plant and
depreciation-related information indicates a need to revise the Company’s
currently prescribed depreciation rates. (Smith)
Staff Analysis:
FPUC’s last depreciation filing was made on September
3, 2019. By Order No. PSC-2020-0347-AS-EI, the Commission approved revised
depreciation rates that became effective January 1, 2020.
Rule 25-6.0436, F.A.C., requires electric utility companies
to file a comprehensive depreciation study at least once every four years from
the submission date of the previously filed study or pursuant to Commission
order. A review of the Company’s plant activity and data indicates the need for
revising depreciation rates. Staff’s recommended depreciation components and
rates are discussed in Issue 3 and shown on Attachments A, B, and C.
Issue 2:
What should be the implementation date for newly
proposed depreciation rates?
Recommendation:
Staff recommends January 1, 2023, for implementing newly
proposed depreciation rates as shown on Attachments A, B, and C to this
recommendation. (Smith)
Staff Analysis:
Rule 25-6.0436, F.A.C., requires that the data
submitted in a depreciation study, including plant and reserve balances or
Company estimates, “shall be brought to the effective date of the proposed
rates.” The supporting data and calculations provided by FPUC match an implementation
date of January 1, 2023.
Issue 3:
What are the appropriate depreciation parameters and
resulting rates?
Recommendation:
Staff recommends the Commission approve the lives,
reserve percentages, net salvage percentages, and resulting remaining life
depreciation rates for FPUC that are
shown on Attachments A and C. As shown on Attachment B, the corresponding
depreciation and amortization expense effect of staff’s rate recommendations is
a decrease of $868,148 annually, or 18.3 percent, based on December 31, 2022
investments. (Smith)
Staff Analysis:
Staff’s recommendations are the result of a
comprehensive review of FPUC’s plant depreciation data filed in this docket.
The Company provided plant addition, retirement, and net salvage (NS) data spanning
2019-2022. FPUC’s electric distribution and general plant accounts grew by
approximately seven percent over the 2023 Study’s timeframe.
2023 Depreciation Study Approach
FPUC explained that it used a similar approach to the 2023
Study that the Company has used for its depreciation studies for more than 20
years. FPUC calculated the average ages for each account using its continuing
property record. To determine if a change to the average service life (ASL) for
each account was warranted, FPUC utilized the aged retirement data and average ages for each account, along with the
ASLs of other Florida based electric utilities. Due to the low level of
retirements, FPUC was not able to statistically generate Iowa curves for any of
its accounts. However, the currently-approved curves were analyzed using
retirement data and average ages of each account.
Based on FPUC’s 2023 Study, for its depreciable accounts,
the Company is proposing an increase to the ASLs for 18 accounts and changes to
the Iowa curves for two accounts. FPUC is also proposing to establish two new
amortizable accounts, as well as extending the amortization periods for two existing
accounts.
Average Service Lives
As mentioned above, FPUC is proposing extending the ASLs
for 18 of its Transmission, Distribution, and General Plant accounts. No
reductions to any ASLs are being put forward by the Company. FPUC states that
the reason for no ASL reductions is the result of extremely low level of
retirements experienced by the Company since its last depreciation study. Staff
is in agreement with FPUC’s need to extend the ASLs for these 18 accounts.
However staff has concerns with the magnitude of the ASL increase proposed by
FPUC for three of the 18 accounts. Although the proposed ASLs for these three
accounts are within the range approved for other Florida electric utilities,
staff believes a more gradual increase is appropriate at this time.
For Account 352 – Structures & Improvements, FPUC is
proposing extending the ASL for this account from 60 years to 75 years. This
represents an increase of 25 percent. Staff believes that a more modest
increase is appropriate at this time. Therefore, staff is recommending an ASL
of 70 years for this account.
With regard to Account 360.1 – Land Rights, FPUC is
proposing extending the ASL for this account from 60 years to 75 years. This
represents an increase of 25 percent. Staff believes that a more modest
increase is appropriate at this time. Therefore, staff is recommending an ASL
of 70 years for this account.
For Account 373 – Street Lighting and Signal Systems, FPUC
is proposing extending the ASL for this account from 22 years to 37 years. This
represents an increase of 59 percent. Staff believes that a more gradual
increase is appropriate at this time. Therefore, staff is recommending an ASL
of 30 years for this account.
Iowa Curves
FPUC states that it did not have sufficient retirement activity
to generate useful statistical analysis of the retirement patterns for each
account. Therefore the Company reviewed each currently-approved Iowa curve for
each account by using the average age of the account along with the retirement
activity since the last depreciation study to see if a change in the curve was
warranted. Based on FPUC’s analysis, the Company has put forward changes to the
Iowa curves for two accounts. FPUC is proposing a change from the
currently-approved S2 curve to an R2 curve for Account 356 – Overheard
Conductors. For Account 369 – Services, FPUC is proposing a change from the
currently-approved R5 curve to an R3 curve. Due to the low level of retirements
experienced in these accounts, staff agrees with the Company that a change in
these curves is reasonable.
Net Salvage
As discussed, FPUC has experienced very few retirements
since its last depreciation study. As a result, the Company has very little
salvage and cost of removal data to analyze as well. Consequently, FPUC did not
put forward any changes to its currently-approved net salvage percentages.
Given the lack of data justifying a change in FPUC’s currently-approved NS
percentages, staff agrees with the Company’s proposal. Therefore, staff is
recommending retaining all of FPUC’s net salvage values.
Extended Amortization Periods and New Accounts
FPUC currently has four software systems that it records
in Account 391.4 – Software. These systems include Outage Management System
(OMS), PowerPlan, Utilities International (UI Ph3), and Power Analytics. The
current amortization period for this account is five years. FPUC is proposing
moving the plant and associated reserve amounts for OMS, PowerPlan, and UI Ph3
to Account 303.1 – Miscellaneous Intangible Plant. The Company states that this
transfer is appropriate due to the large amount of customization to FPUC’s
operations that is incorporated into these systems.
FPUC also points out that this treatment is similar to
that which has been approved for other Florida utilities for their customized
software. Further, FPUC believes extending the amortization period for Account
303.1 from 5 years to 15 years is appropriate. This change is due to the
Company’s experience with its previous software systems which lasted from 10
years to 13 years. Given the range of 15 to 20 years that has been approved for
similar software for other Florida utilities,
staff recommends that the Commission approve FPUC’s request to move the plant
and associated reserve amounts for OMS, PowerPlan, and UI Ph3 software systems
to Account 303.1 – Miscellaneous Intangible Plant and that the amortization
period for this account be extended to 15 years.
FPUC’s Power Analytics software, the fourth of the four
software systems, is an out-of-the-box software package which lacks
customization specifically for FPUC. For that reason, FPUC proposes leaving the
Power Analytics software in Account 394.1 – Software. FPUC stated that
additional licensing and fees were paid for this software in 2020. FPUC
believes an extension of the amortization period from the currently-approved
5-year period to 10 years is warranted. Staff agrees with FPUC and recommends
the Commission approve FPUC’s request to extend the amortization period for
Account 391.4 – Software be extended from 5 years to 10 years.
Customer Information System
To consolidate the different billing systems for all of
its divisions in Florida, Delaware, and Maryland, Chesapeake Utility
Corporation is planning to implement a new Customer Information System (CIS)
for its regulated electric and natural gas businesses in 2025. FPUC stated that
$6M of the new CIS system will be allocated to its electric division. In
preparation for this implementation, FPUC is requesting the Commission approve
a new subaccount, 303.2 – Miscellaneous Intangible Plant – CIS, with an
amortization period of 20 years.
FPUC’s current CIS system has been in service since 2000,
but was fully amortized in 2005 given the 5-year amortization period for this
account. Since FPUC’s current CIS system has been in service for more than 22
years, and the new CIS system will be cloud-based and continuously updated,
staff believes establishing a new subaccount with a 20-year amortization period
is appropriate. This amortization period is also in line with other Florida
based electric utility companies.
AMI Meter Account
Despite the fact that FPUC does not currently have plans
to begin installing AMI meters, FPUC is proposing to establish a new subaccount
for the possibility of such installations.. FPUC proposed an ASL of 20 years
with a negative 10 percent NS which results in a whole life rate of 5.5
percent. These depreciation parameters are similar to those of other Florida
based electric utilities. Staff believes this proposal is efficient and
appropriate. Therefore, staff is recommending the Commission approve Account
370.1 – Meters – AMI, and the Company’s proposed ASL and NS.
Reserve Transfer
As part of reviewing FPUC’s 2023 depreciation study, staff
verified the book reserve balance of each plant account. Staff also calculated
the associated theoretical reserve balance of each plant account using the
current recommended life and net salvage parameters. The difference between an
account’s book and theoretical reserve amounts may be described as an
imbalance, either positive or negative, or as a surplus or deficiency. When
imbalances are present, corrective transfers among accounts should be
considered, and if warranted, should be performed.
Table 3-1
Accumulated Depreciation
Transfers
|
Acct. No.
|
Account Title
|
Staff Recommended
Transfer Amount
|
|
392.1
|
Transportation – Cars
|
(10,373)
|
|
392.2
|
Transportation – Light Trucks & Vans
|
135,660
|
|
392.3
|
Transportation – Heavy Trucks
|
(125,287)
|
Source: Staff’s Calculations
As shown in Table 3-1, staff is recommending a reserve
transfer for Account 392.1 – Transportation – Cars due to this account having a
reserve balance but no plant balance. This resulted from the Company
identifying necessary reclassifications and transfers to affiliates, and net
salvage adjustments related to FPUC’s transportation accounts. FPUC also
calculated a reserve surplus associated with Account 392.3 – Transportation –
Heavy Trucks and a reserve deficit associated with Account 392.2 –
Transportation – Light Trucks & Vans. Therefore, staff recommends
transferring $10,373 from Account 392.1 – Transportation – Cars and $125,287
from Account 392.3 – Transportation – Heavy Trucks to Account 392.1 –
Transportation – Light Trucks & Vans in order to correct the reserve balance
in Account 392.1 mentioned above, and to offset the Theoretical reserve deficit
associated with Account 392.2 and the surplus associated with Account 392.3.
Prior Period Adjustments
By Order No. PSC-2020-0347-AS-EI in docket 20190155-EI,
the Commission approved the establishment of a regulatory asset for the recovery
of the undepreciated plant and cost of removal for assets that were retired due
to damage from Hurricane Michael. Exhibit G of the 2023 Study reflects the
adjustments to remove those costs from FPUC’s plant and reserve account.
In its Study, FPUC explained that while developing its
2023 Study the Company discovered:
…instances where prior period adjustments related to
the last study were inadvertently missed and not recorded; investment and
reserve entries were unintentionally recorded in the wrong account; and assets
were accidentally loaded incorrectly during the implementation of the new fixed
asset system PowerPlan.
The Company stated that Exhibit G of the Study reflects
the corrections with explanations of each one. FPUC stated these corrections
are incorporated into the plant and reserve balances in Exhibits A-E of the
2023 Study.
Attachments A and C to this recommendation show a
comparison of the currently-approved depreciation parameters and rates to those
that staff is recommending become effective January 1, 2023 (Issue 2).
Displayed on Attachment B is a comparison of depreciation expenses between
currently-approved and staff’s proposed rates based on December 31, 2022
investments. Staff and the Company are in agreement on all proposed depreciation
parameters and resulting rates.
Account-Specific Analysis
Intangible Plant
Account 303.1 – Miscellaneous Intangible Plant
– 15 Years
As reflected in Exhibit A of the 2022 Study, this account
has an average age of 7.3 years. The Company proposes retaining the
currently-approved ASL of 40 years and (5) percent NS. Using these parameters
with the S3 curve, an Average Remaining Life (ARL) of 32.7 years is calculated.
This ARL value is then used to produce a remaining life depreciation rate of
2.7 percent for this account.
Account 303.2 – Miscellaneous Intangible Plant
– CIS
This account has an average age of 19.8 years. The Company
proposes retaining the currently-approved 40-year ASL and NS of (30) percent.
Using these parameters with the S3 curve, an ARL of 20.6 years is calculated.
This ARL is then used to produce a remaining life depreciation rate of 3.2
percent for this account.
Transmission
Plant
Account 352 – Structures & Improvements
Referring to Exhibit A of the 2023 Study, this account has
an average age of 6.2 years. In an effort to reflect the inclusion of a more
gradual approach to increasing the account’s ASL, staff proposes to increase
this account’s currently-approved ASL of 60 years to 70 years, rather than 75
years, while retaining the currently-approved 0 percent NS. Using these
parameters with the S5 curve, an ARL of 63.8 years is calculated. This ARL
value is then used to produce a remaining life depreciation rate of 1.4 percent
for this account.
Account 353 – Station Equipment
This account has an average age of 10.2 years. The Company
proposes retaining the currently-approved ASL of 53 years and 0 percent NS.
Using these parameters with the S3 curve, an ARL of 43.0 years is calculated. A
remaining life depreciation rate of 1.9 percent results from applying these
parameters to this account.
Account 354 – Towers & Fixtures
The Towers and Fixtures account has an average age of 48.5
years. The Company proposes increasing the currently-approved ASL of 60 years to
70 years, while retaining the currently-approved (15) percent NS. Using these
parameters with the S6 curve, an ARL of 22.0 years is calculated. Using an ARL
value of 22.0 years produces a remaining life depreciation rate of 1.0 percent
for this account.
Account 355 – Poles & Fixtures
Account 355 – Poles and Fixtures currently has an average
age of 17.0 years. The Company proposes increasing the currently-approved ASL
of 50 years to 54 years, while retaining the currently-approved (50) percent
NS. Applying these parameters with the R4 curve, an Average Remaining Life of 37.0
years is calculated. This ARL value is then used to produce a remaining life
depreciation rate of 3.0 percent for this account.
Account 355.1 – Poles & Fixtures – Concrete
As reflected in Exhibit A of the 2022 Study, this account
has an average age of 8.8 years. The Company proposes increasing the
currently-approved ASL of 56 years to 65 years, and retaining the
currently-approved (30) percent NS. Using these parameters with the R4 curve,
an ARL of 56.0 years is calculated. This ARL is then used to produce a
remaining life depreciation rate of 2.0 percent for this account.
Account 356 – Overhead Conductors & Devices
This account has an average age of 12.1 years. The Company
proposes increasing the currently-approved ASL of 55 years to 60 years, while
retaining the currently-approved (20) percent NS. FPUC is also proposing to
change the currently-approved S2 curve to an R2. Given the low amount of
retirements experienced in this account over the Study period, staff believes
this change is reasonable. Therefore, with the above parameters and the R2
curve, an ARL of 49.0 years is calculated. A remaining life depreciation rate
of 2.1 percent results for this account.
Account 359 – Roads & Trails
For the Roads & Trails account, there is an average
age of 37.7 years. The Company proposes increasing the currently-approved ASL
of 70 years to 75 years, and keeping the currently-approved 0 percent NS. These
parameters along with the SQ curve generate an ARL of 37.0 years. An ARL of
37.0 years is then used to produce the remaining life depreciation rate of 0.2
percent for the Roads & Trails account.
Distribution Plant
Account 360.1 – Land Rights
This account has an average age of 37.5 years. Staff
proposes increasing the currently-approved ASL of 60 years to 70 years, rather
than 75 years, and retaining the currently-approved 0 percent NS. Using these
parameters with the SQ curve, an ARL of 32.5 years is calculated. This ARL is
then used to produce a remaining life depreciation rate of 1.1 percent for this
account.
Account 361 – Structures & Improvements
This account has an average age of 12.7 years. The Company
proposes increasing the currently-approved ASL of 60 years to 70 years, and
retaining the currently-approved (5) percent NS. Using these parameters with
the SQ curve, an ARL of 57.0 years is calculated. This ARL is then used to
produce a remaining life depreciation rate of 1.5 percent for this account.
Account 362 – Station Equipment
Station Equipment, Account 362, has an average age of 14.8
years. The Company proposes increasing the currently-approved ASL of 55 years
to 60 years, while retaining the currently-approved 10 percent NS. These
parameters with the S3 curve generate an ARL of 45.0 years. The ARL of 45.0
years is then used to produce a remaining life depreciation rate of 1.7 percent
for this account.
Account 364 – Poles, Towers, & Fixtures
The average age for this account is 12.6 years. The
Company proposes increasing the currently-approved ASL of 44 years to 50 years,
and keeping the currently-approved (50) percent NS. Based on these parameters,
with the R4 curve, the resulting ARL for this account is 37.0 years. This ARL
is then used to produce a remaining life rate of 2.9 percent.
Account 365 – Overhead Conductors & Devices
This account has an average age of 17.3 years. The Company
proposes increasing the currently-approved ASL of 45 years to 55 years, while
retaining the currently-approved (35) percent NS. Based on these parameters
with the R5 curve, an ARL of 38.0 years is calculated. This ARL is then used to
produce a remaining life depreciation rate of 2.1 percent for this account.
Account 366 – Underground Conduit
The average age for this account is 14.6 years. The
Company proposes increasing the currently-approved ASL of 64 years to 69 years,
while retaining the currently-approved (5) percent NS. Applying these
parameters with the R5 curve, an ARL of 54.0 years is calculated. This ARL is
then used to produce a remaining life depreciation rate of 1.5 percent for this
account.
Account 367 – Underground Conductors &
Devices
The Company’s “underground conductors & devices”
account has an average age of 16.8 years. FPUC proposes retaining the
currently-approved ASL of 47 years and (5) percent NS. Using these parameters
with the R4 curve, an ARL of 30.0 years is calculated. This ARL is then used to
produce a remaining life depreciation rate of 2.0 percent for this account.
Account 368 – Line Transformers
The Line Transformers account has an average age of 17.5
years for this account. The Company proposes increasing the currently-approved
ASL of 36 years to 40 years, while retaining the currently-approved (20)
percent NS. Applying these parameters with the S4 curve, an ARL of 23.0 years
is calculated. This ARL is then used to produce a remaining life depreciation
rate of 2.3 percent for this account.
Account 369 – Services
This account has an average age of 17.0 years for this
account. The Company proposes increasing the currently-approved ASL of 48 years
to 55 years, while retaining the currently-approved (40) percent NS. FPUC is
also proposing to change the currently-approved R5 curve to an R3. Given the
low amount of retirements experienced in this account over the Study period,
staff believes this change is reasonable. Therefore, using the above parameters
with the R3 curve, an ARL of 39.0 years is calculated. This ARL is then used to
produce a remaining life depreciation rate of 2.1 percent for this account.
Account 370 – Meters
The Meters account has an average age of 17.3 years for this
account. The Company proposes retaining the currently-approved ASL of 30 years
and NS of (10). Applying these parameters with the R5 curve, an ARL of 12.7
years is calculated. This ARL is then used to produce a remaining life
depreciation rate of 3.8 percent for this account.
Account 370.1 – AMI Meters
This is a newly-proposed account, and therefore has an
average age of 0.0 years The Company proposes an ASL of 20 years, a (10)
percent NS, and R5 curve. The resulting whole life rate for this account is 5.5
percent.
Account 371 – Installations on Customers
Premises
This account has an average age of 12.4 years for this
account. The Company proposes increasing the currently-approved ASL of 25 years
to 30 years, while retaining the currently-approved 5 percent NS. Using these
parameters with the S3 curve, an ARL of 17.7 years is calculated. This ARL is
then used to produce a remaining life depreciation rate of 2.9 percent for this
account.
Account 373 – Street Lighting & Signal
Systems
The Street Lighting & Signals account has an average
age of 13.5 years. Staff proposes increasing the currently-approved ASL of 22
years to 30 years, instead of 37 years, while retaining the currently-approved (10)
percent NS. Applying these parameters with the R3 curve, an ARL of 17.4 years
is calculated. This ARL is then used to produce a remaining life depreciation
rate of 29 percent for this account.
General Plant
Account 390 – Structures & Improvements
This account has an average age of 15.6 years for this
account. The Company proposes increasing the currently-approved ASL of 50 years
to 60 years, while retaining the currently-approved 0 percent NS. Using these
parameters with the R4 curve, an ARL of 44.0 years is calculated. This ARL is
then used to produce a remaining life depreciation rate of 1.6 percent for this
account.
Account 391.4 – Software
FPUC proposes to increase the currently-approved 5 year
amortization period to 10 years for this account. Further, staff believes the
Company’s proposal to transfer certain assets from this account to Account
303.1 – Miscellaneous Intangible Plant – 15 Years is appropriate.
Account 392.1 – Transportation – Cars
This
account has an average age of 0 years due to there being no current investments
in this account. The Company proposes retaining the currently-approved ASL of
11 years and 15 percent NS. Using these parameters with the S2 curve, an ARL of
11.0 years is calculated. This ARL is then used to produce a remaining life
depreciation rate of 7.7 percent for this account.
This account currently has no plant balance, yet there is
a $10,373 balance in the reserve. As such, staff believes a reserve transfer to
eliminate this reserve balance is appropriate.
Account 392.2 – Transportation – Light Trucks
& Vans
The
Transportation – Light Trucks & Vans account has an average age of 8.4
years. The Company proposes retaining the currently-approved ASL of 11 years
and 12 percent NS. Applying these parameters with the S4 curve, an ARL of 2.9
years is calculated. This ARL is then used to produce a remaining life
depreciation rate of 8.0 percent for this account.
This account has a theoretical deficit of $135,661. Staff
is in agreement with FPUC that this deficit should be offset with the reserve
surplus in Account 392.3 – Transportation – Heavy Trucks.
Account 392.3 – Transportation – Heavy Trucks
This account has an average age of 7.9 years for this
account. The Company proposes increasing the currently-approved ASL of 15 years
to 20 years, and retaining the currently-approved 10 percent NS. Using these
parameters with the S3 curve, an ARL of 12.2 years is calculated. This ARL is
then used to produce a remaining life depreciation rate of 3.3 percent for this
account.
As discussed above, this account has a reserve surplus.
Staff is in agreement with FPUC’s proposal to transfer a portion of this
surplus to Account 392.2 – Transportation – Light Truck & Vans.
Account 392.4 – Transportation – Trailers
The Transportation Equipment – Trailers account has an
average age of 19.9 years. The Company proposes retaining the
currently-approved ASL of 25 years and 5 percent NS. Applying these parameters
with the R4 curve, an ARL of 6.8 years is calculated. This ARL is then used to
produce a remaining life depreciation rate of 3.0 percent for this account.
Account 396 – Power Operated Equipment
This account has an average age of 12.6 years for this
account. The Company proposes retaining the currently-approved ASL of 25 years
and 0 percent NS. Using these parameters with the S6 curve, an ARL of 12.4
years is calculated. This ARL is then used to produce a remaining life
depreciation rate of 4.1 percent for this account.
There were a number of amortizable accounts with no
proposed change to the current amortization period. Staff agrees with the
current amortization period for these accounts and concurs that no change is
necessary. Table 3-2 below lists those accounts and the corresponding amortization
period.
Table 3-2
Unchanged Amortizable
Accounts
|
Account
Number
|
Account
Name
|
Current and Proposed
Amortization Period
|
|
391.0
|
Office Furniture &
Equipment
|
7 Years
|
|
391.1
|
Computers & Peripherals
|
5 Years
|
|
391.2
|
Computer Equipment
|
5 Years
|
|
391.3
|
Furniture & Fixtures
|
7 Years
|
|
393
|
Stores Equipment
|
7 Years
|
|
394
|
Tools/Shop Equipment
|
7 Years
|
|
395
|
Communications Equipment
|
7 Years
|
|
397
|
Communications Equipment
|
5 Years
|
|
398
|
Miscellaneous Equipment
|
7 Years
|
|
399
|
Misc. Tangible Assets
|
5 Years
|
Source: FPUC’s 2023 Depreciation Study
Conclusion
In conclusion staff recommends the Commission approve the
lives, reserve percentages, net salvage percentages, and resulting remaining
life depreciation rates for FPUC that
are shown on Attachments A and C. As shown on Attachment B, the corresponding
depreciation and amortization expense effect of staff’s rate recommendations is
a decrease of $868,148 annually, or 18.3 percent, based on December 31, 2022
investments.
Issue 4:
Should the current amortization of investment tax
credits (ITCs) and flow back of excess deferred income taxes (EDITs) be revised
to reflect the approved depreciation rates and amortization schedules?
Recommendation:
Yes. The current amortization of ITCs and any flow
back of EDITs should be revised to match the actual recovery periods for the
related property. The Company should file detailed calculations of the revised
ITC amortization and flow back of EDITs at the same time it files its earnings
surveillance report covering the period ended December 31, 2023, as specified
in Rule 25-6.1352, F.A.C. (D. Buys)
Staff Analysis:
In Issue 3, staff has
recommended approval of revised depreciation rates for the Company, which
reflect changes to most accounts’ remaining lives to be effective January 1,
2023. Revising a utility’s book depreciation lives generally results in a
change in its rate of ITC amortization and flow back of EDITs in order to
comply with the normalization requirements of the Internal Revenue Code (IRC or
Code) set forth in Federal Tax Regulations under the Code sections,[6] Sections
168(f)(2) and (i)(9),[7] former IRC
Sections 167(l), and 46(f),[8] and
Section 203(e) of the Tax Reform Act of 1986 (the Act).[9]
Staff, the Internal Revenue
Service (IRS), and independent outside auditors look at a company's books and
records, and the orders and rules of the jurisdictional regulatory authorities
to determine if the books and records are maintained in the appropriate manner.
The books are also reviewed to determine if they are in compliance with the
regulatory guidelines in regard to normalization.
Former IRC Section 46(f)(6) of the Code indicated that the amortization of ITC should
be determined by the period of time actually used in computing depreciation
expense for ratemaking purposes and on the regulated books of the utility.[10] While
Section 46(f)(6) was repealed, under IRC Section 50(d)(2), the terms of former
IRC Section 46(f)(6) remain applicable to public utility property for which a
regulated utility previously claimed ITCs. Because staff is recommending
changes to the Company’s remaining lives, it is also important to change the
amortization of ITCs and EDITs to avoid violation of the provisions of IRC
Section 50(d)(2) for ITCs, and IRC Section 168(i)(9), former section 167(l),
and section 13001(d) of the Tax Change and Jobs Act for EDITs, and their
underlying Treasury Regulations. The consequence of an ITC or EDIT normalization
violation is a repayment of unamortized ITC balances to the IRS and inability
to utilize accelerated depreciation. Therefore, staff recommends the current
amortization of ITCs and any flow back of EDITs be revised to match the actual
recovery periods for the related property. The Company should file detailed
calculations of the revised ITC amortization and flow back of EDITs at the same
time it files its earnings surveillance report covering the period ended
December 31, 2023, as specified in Rule 25-6.1352, F.A.C.
Issue 5:
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.
(Stiller)
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.
