Discussion
of Issues
Issue 1:
Should the Commission modify DEF’s currently authorized
fuel cost recovery factors for the purpose of incorporating its projected 2024
fuel cost reduction?
Recommendation:
Yes. Staff recommends the Commission authorize
adjustments to DEF’s fuel cost recovery factors for the purpose of
incorporating the Company’s currently projected 2024 fuel cost reduction.
Accordingly, DEF’s 2024 fuel cost recovery factors should be reduced by $233,496,431.
(G. Kelley, Zaslow, Higgins)
Staff Analysis:
DEF participated in the Commission’s most-recent
fuel hearing which took place on November 1, 2023. The fuel order stemming from
this proceeding set forth the Company’s fuel and capacity cost recovery factors
effective with the first billing cycle of January 2024. Following
the issuance of the fuel order, the Company has subsequently updated its 2024
fuel cost projection. DEF now projects its 2024 fuel-related costs to be
approximately $233 million (net) lower than estimated in September 2023.[4] This
reduction is primarily due to lower assumed prices for natural gas. The main
factors influencing the decline in actual and projected natural gas prices in
2024 are elevated quantities of natural gas in storage and milder weather
compared to previous years.[5]
DEF Fuel and Purchased Power
Mid-Course Correction
DEF filed
for a mid-course correction of its fuel charges on April 8, 2024.
The Company’s MCC Petition and supporting documentation satisfies the filing
requirements of Rule 25-6.0424(1)(b), F.A.C.
The
Company developed its proposed mid-course correction factors using twelve
months of forecasted sales data, or from June 2024 through May 2025. The
factors proposed in this proceeding are currently contemplated to be charged for
seven months in 2024. As is typical procedure, later this year newly developed
12-month-applicable factors will be proposed for authorization to begin with
the first billing cycle of January 2025.
Actual Period-Ending 2023 Fuel Cost
Recovery Position
Through
its February 27, 2023, amended mid-course correction filing, DEF initially
projected a period-specific 2023 over-recovery of fuel costs in the amount of
$710,224,788. By its
revised actual/estimated filing and in compliance with Order No.
PSC-2023-0112-PCO-EI, the projected period-specific 2023 over-recovery of fuel
costs was amended by $119,078,499. This resulted in a projected period-specific
2023 over-recovery of $829,303,287 and a total true-up under-recovery of
($554,889,752). However,
the Company under-recovered (i.e., “less period over-recovery”) this amount by
($19,202,150) as its actual fuel cost recovery position at the end of 2023 is
an under-recovery of ($574,091,902).
This approximate ($19.2) million difference is proposed for inclusion in rates
through the instant proceeding.
Decreased
pricing for natural gas is the primary driver of the approximate $829 million
period over-recovery of 2023 fuel costs discussed above. More specifically, the
Company estimated an annual delivered natural gas cost of $8.07 per million
British thermal unit (MMBtu) in its first fuel cost projection of 2023.
However, as indicated in the Company’s December 2023 A-Schedule, DEF’s average
2023 cost of natural gas was $4.16 per MMBtu, representing a difference of 48.5
percent. Natural
gas-fired generation comprised approximately 85.5 percent of DEF’s generation
mix in 2023.
Projected 2024 Fuel Cost Recovery
Position
DEF’s 2024
fuel-related revenue requirement has decreased substantially since the filing
of its last cost projection in September 2023.
More specifically, the results of this updated estimate are a reduction in DEF’s
estimated 2024 fuel-related costs in the amount of $252,698,582. As mentioned
above, the 2023 remaining period-specific under-recovery of ($19,202,150) is proposed
for collection through new 2024 rates. Thus, the proposed net or decremental
amount for inclusion into 2024 rates is $233,496,431.
The
primary factor driving the change in projected 2024 fuel costs is lower assumed
pricing for natural gas. More specifically, the underlying market-based natural
gas price data used for the 2024 fuel cost projection was sourced on August 11,
2023.
This underlying data was used to produce an estimated average delivered 2024
natural gas cost of approximately $5.19 per MMBtu.
However, indicated in its MCC Petition, DEF now estimates its average cost of
natural gas in 2024 will be $3.99 per MMBtu, representing a decrease of 23.1
percent. The
updated cost estimate was based on natural gas futures/prices sourced on March
12, 2024, or roughly seven months later than the previous estimate used to set
current rates. Natural
gas-fired generation is projected to comprise approximately 81.3 percent of DEF’s
generation mix in 2024.
Recovery Period and Interest Premium
As
proposed, the accounting period for the 2024-applicable portion of the
over-recovery is seven months, or beginning June 2024 and ending December 2024.[20] Jurisdictional
sales from June 2024 through May 2025 in the amount of 40,548,317 (meter)
megawatt-hours were used to develop the mid-course correction factors proposed
for approval in this proceeding.
DEF
utilized the 30-day AA Financial Commercial Paper Rate published by the U.S.
Federal Reserve to determine its actual 2023 and 2024 (January and February)
interest amounts.
The projected 2024 monthly interest rate was assumed for all forward months by using/holding
constant the actual February 2024 interest rate of 0.442 percent (monthly).
Mid-Course Correction Percentage
Following
the methodology prescribed in Rule 25-6.0424(1)(a), F.A.C., the mid-course
percentage is equal to the estimated end-of-period total net true-up, including
interest, divided by the current period’s total actual and estimated
jurisdictional fuel revenue applicable to period, or $233,496,431 / $1,509,155,533.
This calculation results in a mid-course correction level of approximately 15.5
percent at December 31, 2024.
Fuel Factor
DEF’s
currently-approved annual levelized fuel factor beginning with the first
January 2024 billing cycle is 5.239 cents per kilowatt-hour (kWh).
The Company is requesting to decrease its currently approved 2024 annual
levelized fuel factor beginning June 2024 to 4.663 cents per kWh, a decrease of
approximately 11.0 percent.
Bill Impacts
In Table
1-1 below, the bill impact of the mid-course correction on a residential
customer using 1,000 kWh of electricity a month is shown. Following Table 1-1,
staff discusses the impacts of the mid-course correction on non-residential
customers.
|
Table 1-1
Duke Energy Florida,
LLC
|
|
Monthly Residential
Billing Detail for the First 1,000 kWh
|
|
Invoice Component
|
Currently Approved Charges
May 2024
($)
|
Proposed
Charges
Beginning
June 2024
($)
|
Difference
($)
|
Difference
(%)
|
|
Base Charge
|
$81.19
|
$81.19
|
$0.00
|
0.0%
|
|
Fuel Charge
|
49.47
|
43.72
|
(5.75)
|
(11.6%)
|
|
Capacity Charge
|
9.46
|
9.46
|
0.00
|
0.0%
|
|
Conservation
Charge
|
3.30
|
3.30
|
0.00
|
0.0%
|
|
Environmental
Charge
|
0.46
|
0.46
|
0.00
|
0.0%
|
|
Storm
Protection Plan Charge
|
5.10
|
5.10
|
0.00
|
0.0%
|
|
Storm
Restoration Surcharge
|
5.09
|
5.09
|
0.00
|
0.0%
|
|
Asset
Securitization Charge
|
2.36
|
2.36
|
0.00
|
0.0%
|
|
Gross Receipts
Tax
|
4.15
|
4.00
|
(0.15)
|
(3.6%)
|
|
Total
|
$160.58
|
$154.68
|
($5.90)
|
(3.7%)
|
Source: Document No.
01668-2024.
DEF’s
currently approved total residential charge for the first 1,000 kWh of usage
for May 2024 is $160.58. If the Company’s mid-course correction is approved,
then the current total residential charge for the first 1,000 kWh of usage beginning
in June will be $154.68, a decrease of 3.7 percent. For non-residential
customers, DEF reported that bill decreases based on average levels of usage
for small-size commercial customers would be 3.6 percent, 4.5 percent for
medium-size commercial customers, 4.8 percent for large-size commercial
customers, and 7.0 percent for industrial customers.
Optional Period
Staff
investigated the effect on monthly bills of shortening the period proposed for
developing rates from 12 to 7 months. For rate-setting purposes, the total base
over-recovery is the same under the 7-month and 12-month scenarios; however,
the impact of the 7-month scenario can be characterized as a greater reduction
in the monthly fuel charge over a shorter period of time.
Table 1-2
below shows the bill impact to a residential customer using 1,000 kWh of electricity
a month associated with this optional period scenario described in this section
of the recommendation.
|
Table 1-2
Duke Energy Florida,
LLC
|
|
Optional Monthly
Residential Billing Detail for the First 1,000 kWh
|
|
Invoice Component
|
Currently Approved Charges
May 2024
($)
|
Optional Charges
Beginning
June 2024
($)
|
Difference
($)
|
Difference
(%)
|
|
Base Charge
|
$81.19
|
$81.19
|
$0.00
|
0.0%
|
|
Fuel Charge
|
49.47
|
39.86
|
(9.61)
|
(19.4%)
|
|
Capacity Charge
|
9.46
|
9.46
|
0.00
|
0.0%
|
|
Conservation
Charge
|
3.30
|
3.30
|
0.00
|
0.0%
|
|
Environmental
Charge
|
0.46
|
0.46
|
0.00
|
0.0%
|
|
Storm
Protection Plan Charge
|
5.10
|
5.10
|
0.00
|
0.0%
|
|
Storm
Restoration Surcharge
|
5.09
|
5.09
|
0.00
|
0.0%
|
|
Asset
Securitization Charge
|
2.36
|
2.36
|
0.00
|
0.0%
|
|
Gross Receipts
Tax
|
4.15
|
3.90
|
(0.25)
|
(6.0%)
|
|
Total
|
$160.58
|
$150.72
|
($9.86)
|
(6.1%)
|
Source: Document No. 01787-2024.
DEF’s
proposed fuel charge decrease results in a residential charge for the first
1,000 kWh of energy sales of 4.372 cents per kWh. This factor produces a
corresponding monthly fuel charge of $43.72. With respect to the optional
period scenario, the associated residential factor would be 3.986 cents per
kWh.
This would result in a fuel charge of $39.86 for the first 1,000 kWh of energy
usage. The estimated decrease in the monthly first-tier residential fuel charge
under this scenario is approximately $9.61 (opposed to the as-filed proposal of
$5.75), or going from $43.72 to $39.86. In percentage terms, the total bill decrease
would be approximately 6.1 percent under the optional period scenario.
For
non-residential customers, based on average levels of usage and specific rate
schedules, DEF reported that bill decreases for small-size commercial customers
would be 5.8 percent, 7.2 percent for medium-size commercial customers, 7.6
percent for large-size commercial customers, and 11.3 percent for industrial
customers.
The
hypothetical tariff associated with this optional period scenario was provided
in response to Staff’s First Data Request (Response No. 10). However,
the tariff was not included as an attachment to this recommendation.
Summary
DEF’s MCC
Petition indicates a need for its fuel cost recovery factors to be revised.
More specifically, the Company’s underlying 2024 projected fuel-related revenue
requirement has been reduced by $252,698,582. Additionally, the Company
proposes to incorporate its 2023 period-specific final under-recovery of ($19,202,150)
into the current period. Thus, DEF’s current fuel cost recovery factors should
be reduced by $233,496,431. Sales from June 2024 through May 2025 should be
used to develop the revised/mid-course correction fuel factors. The revised fuel
cost recovery factors associated with staff’s recommendation are shown on
Appendix A.
Conclusion
Staff recommends the
Commission authorize adjustments to DEF’s fuel cost recovery factors for the
purpose of incorporating the Company’s currently projected 2024 net fuel cost
reduction. Accordingly, DEF’s 2024 fuel cost recovery factors should be reduced
by $233,496,431.
Issue 2:
If approved by the Commission, what is the appropriate
effective date for DEF’s revised fuel cost recovery factors?
Recommendation:
The fuel cost recovery factors, as shown on Appendix
A, should become effective with the first billing cycle of June 2024. (P.
Kelley, Hampson, Brownless, Sandy)
Staff Analysis:
Over
the last 20 years in the Fuel Clause docket, the Commission has considered the
effective date of rates and charges of revised fuel cost factors on a
case-by-case basis. The Commission has approved rate decreases to be effective
less than 30 days after the date of the Commission vote because the rate
decrease was in the customers’ best interest to be implemented as soon as
possible. In its
MCC Petition, DEF proposes to decrease its 2024 fuel factors beginning with the
first billing cycle of June 2024.
In
response to Staff’s First Data Request, DEF indicated that it would provide a
message on June customer bills that will include a link to the Company’s
website explaining the proposed rate decrease. Further,
on April 8, 2024, an email notification was sent to large account customers
explaining the proposal. A press release was also issued by the Company on that
same day informing its customers and general public of the potential
adjustments related to the mid-course correction proposal.
Conclusion
Staff recommends that the fuel cost recovery factors, as
shown on Appendix A, become effective with the first billing cycle of June
2024.
Issue 3:
Should this docket be closed?
Recommendation:
No. The 20240001-EI docket is an on-going proceeding
and should remain open. (Brownless, Sandy)
Staff Analysis:
The fuel docket is an on-going proceeding and should
remain open.
