Discussion
of Issues
Issue 1:
Should the Commission approve PGS's request to change its AFUDC rate from 6.00 percent to
7.08 percent?
Recommendation:
Yes. The appropriate AFUDC rate for PGS is 7.08
percent based on a 13-month average capital structure for the period ended
December 31, 2023. (Ferrer)
Staff Analysis:
PGS requested an increase in its AFUDC rate from
6.00 percent to 7.08 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, must be derived using all sources of capital
and adjusted using adjustments consistent with those used by the Commission in
the Company’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 will be calculated to two decimal places.
In support of its requested AFUDC rate of 6.00 percent,
PGS 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. The
requested increase in the AFUDC rate is due to an increase of 27 basis points
in the weighted cost of long-term debt, an increase of 57 basis points in the
weighted cost of short-term debt, and an increase of 26 basis points in the
weighted cost of common equity, offset by a 2 basis point decrease in the
weighted cost of customer deposits. PGS’s cost rate for short-term debt
increased from 1.16 percent in 2020 to 5.84 percent in 2023. Over the same
period, PGS’s cost rate for long-term debt increased from 4.69 percent to 5.68
percent. The debt cost rate increases were primarily due to market conditions
and the Federal Open Market Committee raising interest rates. In its
calculation, the Company appropriately used the mid-point return on equity of
10.15 percent, which was approved by Order No. PSC-2023-0388-FOF-GU.
Based on its review, staff believes that the requested
increase in the AFUDC rate from 6.00 percent to 7.08 percent is appropriate,
consistent with Rule 25-7.0141, F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve PGS's requested annual AFUDC of 7.08 percent?
Recommendation:
The appropriate compounding rate to achieve an
annual AFUDC rate of 7.08 percent is 0.005717. (Ferrer)
Staff Analysis:
PGS requested a monthly compounding rate of 0.005717
to achieve an annual AFUDC rate of 7.08 percent. In support of the requested
monthly compounding rate of 0.005717, the Company provided its calculations in
Schedule C attached to 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 0.005717 be approved.
Issue 3:
Should the Commission approve PGS's requested effective
date of January 1, 2024, for implementing the AFUDC rate?
Recommendation:
Yes. The AFUDC rate should be effective January 1, 2024,
for all purposes. (Ferrer)
Staff Analysis:
PGS’s requested AFUDC rate was calculated using the
most recent 13-month average capital structure for the period ended December
31, 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 January 1, 2024,
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:
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. (M. Thompson)
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.
