Case Background
Peoples Gas
System, Inc. (PGS or Company) is a wholly-owned subsidiary of TECO Gas
Operations, Inc., which is a subsidiary of TECO Energy, Inc., which is a
wholly-owned subsidiary of Emera United States Holdings, Inc., which is a
wholly-owned subsidiary of Emera Incorporated. PGS owns and operates natural
gas distribution facilities in Florida and provides service to 470,000
customers in 39 of Florida’s 67 counties. On January 1, 2023, PGS ceased to be
a division of Tampa Electric Company and was spun-off into its own entity. As a
new entity, PGS ceased obtaining long-term debt capital from its affiliate,
Tampa Electric Company, and issued its own debt on December 19, 2023. The
Company’s current rates were approved by Order No. PSC-2023-0388-FOF-GU, issued
December 27, 2023 (2023 Rate Case Order), which included approval of the
Long-Term Debt Cost Rate True-Up Mechanism (LTDR True-Up Mechanism).
On February 2,
2024, PGS filed its petition to implement the aforementioned LTDR True-Up
Mechanism. The LTDR True-Up Mechanism allows the Company to make a one-time
adjustment to its estimated cost of long-term debt for the projected test year
ending December 31, 2024, to reflect the actual embedded cost of PGS’s
inaugural long-term debt issuance in its revenue requirement and rates.
In its petition,
PGS is seeking approval of an increase of the long-term debt cost rate from
5.54 percent to 5.64 percent, which would increase the weighted average cost of
capital from 7.02 percent to 7.05 percent, and thereby increase the incremental
base rate revenue increase approved in the 2023 Rate Case Order by $874,085.
The Company also requested Commission approval of the updated base rates and
charges and associated tariffs, effective for the first billing cycle of June
2024. PGS also requested the Commission specify the amount of incremental
revenue requirement from January 1, 2024, to the effective date of the
Company’s updated 2024 tariffs to be deferred by the Company for recovery
through the Cast Iron/Bare Steel Replacement Rider for 2025 as approved in the
2023 Rate Case Order.
During the
review process, staff issued two data requests to PGS. The first data request
was issued on February 13, 2024, and the Company’s response was received on
February 23, 2024.
The second data request was issued on February 29, 2024, and a response
was received on March 11, 2024. In Order No. PSC-2024-0090-PCO-GU, the
Commission suspended the proposed tariffs. The Commission has jurisdiction over this
matter pursuant to Sections 366.03, 366.04, 366.05, 366.06, and 366.076,
Florida Statutes (F.S.)
Discussion
of Issues
Issue 1:
Should the Commission approve PGS's request to
increase the cost rate for long-term debt from 5.54 percent to 5.64 percent for
the test year ending December 31, 2024?
Recommendation:
Yes. The Commission should approve an increase in
the cost rate for long-term debt from 5.54 percent to 5.64 percent for the test
year ending December 31, 2024. (Souchik)
Staff Analysis:
The LTDR True-Up Mechanism was approved by the
Commission in the 2023 Rate Case Order and allows PGS to make a one-time adjustment
to the Company’s forecasted long-term debt cost rate after its inaugural
long-term debt issuance. In
the 2023 Rate Case Order, the Commission approved a long-term debt cost rate of
5.54 percent. PGS
completed its inaugural long-term debt issuance on December 19, 2023, by
issuing a total of $925 million of long-term debt in the following amounts and
maturities: $350 million at five years, $350 million at ten years, and $225
million at thirty years. The embedded cost rate of the three debt issuances,
including debt issuing expense, is 5.64 percent.
Staff reviewed the Company’s calculation of 5.64 percent for the embedded cost
of long-term debt in Exhibit One attached to its petition and verified its
accuracy. PGS used the same methodology to calculate the actual long-term debt
cost rate of 5.64 percent that was approved by the Commission in the 2023 Rate
Case Order.
In early 2023, PGS forecasted to issue approximately $825
million of long-term debt on September 30, 2023, and expected approximately
$910 million of intercompany debt to be outstanding at the time the
intercompany loan with Tampa Electric Company was paid off.
Ultimately, PGS issued $100 million more than forecasted based on the amount of
intercompany debt outstanding at the time of the Company’s inaugural long-term
debt issuance (December 19, 2023). In response to staffs second data request,
PGS explained that the purpose for the additional $100 million was to satisfy
the combined intercompany long-term and short-term debt outstanding of $956
million. After
staff’s review of PGS’s implementation of the LTDR True-Up Mechanism, staff
believes the Company complied with the Commission’s 2023 Rate Case Order, and therefore,
staff recommends the Commission approve PGS’s request to increase its cost rate
for long-term debt from 5.54 percent to 5.64 percent for the test year ending
December 31, 2024.
Issue 2:
Should the Commission approve PGS's request to
increase the weighted average cost of capital from 7.02 percent to 7.05 percent
for the test year ending December 31, 2024?
Recommendation:
Yes. The Commission should approve an increase in
the weighted average cost of capital from 7.02 percent to 7.05 percent for the
test year ending December 31, 2024. (Souchik)
Staff Analysis:
By updating the forecasted long-term debt cost rate
of 5.54 percent with the actual cost rate of 5.64 percent, and making no other
changes to PGS’s capital structure approved by the Commission in the 2023 Rate
Case Order, the weighted average cost of capital increased from 7.02 percent to
7.05 percent. The balance of long-term debt in the updated capital structure is
unchanged from the balance of $830,722,209 approved by the Commission in the
2023 Rate Case Order. Staff reviewed the Company’s revised capital structure in
Exhibit Two attached to its petition and verified it’s calculated correctly
pursuant to the 2023 Rate Case Order.
Therefore, staff recommends the Commission approve PGS’s request to increase
the weighted average cost of capital from 7.02 percent to 7.05 percent for the
test year ending December 31, 2024.
Issue 3:
Should the Commission approve PGS's request to
increase the incremental base rate revenue requirement approved in the 2023
Rate Case Order from $117,839,527 to $118,713,612 for the test year ending
December 31, 2024?
Recommendation:
Yes. The Commission should approve an increase in
the incremental base rate revenue requirement approved in the 2023 Rate Case
Order from $117,839,527 to $118,713,612 for the test year ending December 31,
2024. (Andrews, Souchik)
Staff Analysis:
In the 2023 Rate Case Order, the Commission approved
PGS’s incremental base rate revenue requirement of $117,839,527 based on an overall
rate of return of 7.02 percent.
Updating the 7.02 percent overall rate of return to 7.05 percent, the
incremental revenue requirement increased to $118,713,612. This
equates to an increase of $874,085 or 0.74 percent. Staff reviewed PGS’s
updated incremental base rate revenue increase calculations in Exhibit Three
attached to its petition and verified it was calculated correctly pursuant to
the 2023 Rate Case Order.
Therefore, staff recommends the Commission approve an increase in the amount of
the incremental base rate revenue requirement from $117,839,527 to $118,713,612
for the test year ending December 31, 2024.
Issue 4:
Should the Commission approve PGS’s request to
update its base rates, charges, and tariffs reflected in Attachment A attached
to this recommendation, with an effective date of July 1, 2024?
Recommendation:
Yes. If the Commission approves Issue 3, PGS’s request
to update its base rates, charges, and tariffs reflected in Attachment A to
this recommendation, should go into effect with the first billing cycle in July
1, 2024. (Guffey)
Staff Analysis:
As discussed in Issue 3, PGS requested to increase
the incremental base rate revenue increase from $117,839,527 to $118,713,612
for the test year ending December 31, 2024, which results in an increase of
$874,085. PGS allocated this amount to the monthly customer charge and
distribution charge in all its rate classes as shown in Exhibit Four of the
petition. A residential customer in the RS-2 rate schedule, using 14 therms per
month would see a bill increase of $0.06, from $29.27 to $29.33, excluding
clause factors and taxes.
In response to staff’s second data request, PGS stated
that it intends to notify its customers of the rate changes at least 30 days
prior to their effective date, via bill inserts, email notification for
electronic bill customers and the PGS website.
Staff has reviewed the proposed customer notice, which was provided in response
to staff’s second data request.
PGS requested that
the proposed tariffs be effective with the first billing cycle in June 2024 or
soon thereafter. Staff has reviewed the proposed tariffs, calculations of the
revised base rate charges and PGS’s responses to data requests and recommends
that they be approved and be effective with the first billing cycle in July
2024.
Issue 5:
Should the Commission approve PGS’s request to defer
recovery of the incremental revenue requirement for the six-month period from
January 1, 2024, through June 30, 2024, through the Cast Iron/Bare Steel
Replacement Rider for 2025?
Recommendation:
Yes. Pursuant to the 2023 Rate Case Order, the
Commission should approve PGS’s request to defer recovery of the incremental
revenue increase for the six-month period from January 1, 2024, through June 30,
2024, to the Cast Iron/Bare Steel Replacement Rider for 2025. The Company should include the actual
incremental amount for recovery in the 2024 Cast Iron/Bare Steel Replacement
Rider docket. (Souchik)
Staff Analysis:
In the 2023
Rate Case Order, the Commission approved PGS’s proposal that for the time
period between when the new approved base rates went into effect (January 1,
2024) and the implementation date of the LTDR True-Up Mechanism adjusted base
rates (first billing cycle of July 2024), the Company will defer the rate
impact of the LTDR True-Up Mechanism to its balance sheet for refund or
collection through the Cast Iron/Bare Steel Replacement (CI/BSR) Rider in the
subsequent year if the amount of the LTDR True-Up Mechanism is greater than
$500,000. As discussed in Issue 3, the impact of the LTDR True-Up Mechanism on
the incremental revenue increase is $874,085. Therefore, the recovery of the
incremental revenue requirement for the six-month period from January 1, 2024,
through June 30, 2024, should be recovered through the CI/BSR Rider for 2025.
Therefore, staff recommends the Commission approve PGS’s request to defer
recovery of the incremental revenue increase for the six-month period from
January 1, 2024, through June 30, 2024, to the CI/BSR Rider for 2025. The
Company should include the actual incremental amount for recovery in the 2024 CI/BSR
Rider docket.
Issue 6:
Should this docket be closed?
Recommendation:
Yes. If Issues 1 through 5 are approved and a
protest is filed within 21 days of the issuance order, the tariff 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. (M.
Thompson)
Staff Analysis:
Yes. If Issues 1 through 5 are approved and a
protest is filed within 21 days of the issuance order, the tariff 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.
