Case Background
On April 11,
2024, Florida Public Utilities Company (FPUC or Company) filed a Petition for approval to establish new regulatory
subaccounts, amortization rates, and reclassification of associated investment and
reserve balances (Petition). The Company’s request is in accordance with
Rules 25-7.045(2)(a), Florida Administrative Code (F.A.C.), which provides that
“[n]o utility shall change any existing depreciation rate or initiate any new
depreciation rate without prior Commission approval;” and Rule 25-7.045(3)(b),
F.A.C., which requires that: “[u]pon establishing a new account or subaccount
classification, each utility shall request Commission approval of a
depreciation rate for the new plant category.”
Pursuant to Rule
25-7.045(3)(a), F.A.C., gas utilities are required to maintain depreciation
rates and accumulated depreciation reserves in accounts or subaccounts in
accordance with the Uniform System of Accounts (USOA) for Public Utilities and
Licensees, as found in the Code of Federal Regulations, which is incorporated by reference in Rule
25-7.014(1), F.A.C.
All of FPUC’s
capitalized software is currently recorded in amortizable Account 3914 −
Computer Software with a 10-year amortization period, which is a subaccount of
Account 391 − Office Furniture and Equipment. FPUC states that Account
3914 includes both general purpose and customized application software. After a
review of its various software, the Company determined that the more appropriate
classification of certain customized software investments that are currently recorded
in Account 3914 is a classification as intangible plant. With this
determination, FPUC filed the instant Petition for approval to establish a new Account
3031 − Miscellaneous Intangible Plant - 15 Years, as a subaccount for FERC
Account 3030 − Miscellaneous Intangibles and, as implied in the account
name, proposes using a 15-year amortization period for the new account.
The Company
requests that the January 1, 2024 investment and reserve balances associated
with the existing software customized for the sole use of FPUC’s operations be reclassified
from Account 3914 to Account 3031, and the associated net plant balance be amortized
over 15 years. FPUC has proposed an effective date of January 1, 2024, for
commencement of the new subaccount, amortization periods, and transfers of
investment and reserve from Accounts 3914 to 3031. Further, FPUC petitioned to
establish a new Account 3032 − Miscellaneous Intangible Plant with a
20-year amortization period, also as a subaccount of FERC Account 3030, for
recording the Company’s new software applications, including the Customer
Information and Billing System and the Enterprise Resource Planning system.
FPUC has also requested a January 1, 2024 effective date for the new Account
3032.
The Commission has jurisdiction over this
matter pursuant to Sections 366.04, 366.05, and 366.06, Florida Statutes
(F.S.).
Discussion
of Issues
Issue 1:
Should FPUC’s request to establish new subaccounts
with applicable amortization rates for certain existing customized software and
for specified new customer billing and business management software be
approved, and if so, what are the appropriate account classifications and the respective
associated amortization rates?
Recommendation:
Yes. Staff recommends approval of FPUC’s petition to
establish two subaccounts: Account 3031
− Miscellaneous Intangible Plant - 15 Years, with an annual amortization
rate of 6.7 percent resulting from the 15-year amortization, for reclassifying certain
existing customized software, and Account
3032 − Miscellaneous Intangible Plant – 20 Years, with an annual
amortization rate of 5.0 percent resulting from the 20-year amortization period,
for recording specified new customer billing and business management software. (Wu)
Staff Analysis:
Currently, FPUC records its capitalized software in the
amortizable Account 3914 − Computer
Software, which is a subaccount of Account 391 − Office Furniture and Equipment, with an approved 10-year amortization
period (resulting in an annual amortization rate of 10.0 percent). This
subaccount includes both general purpose and customized application software.
After a review of its various types of software systems/platforms, FPUC
determined that it would be more appropriate to reclassify certain highly
customized software systems/platforms as intangible plant and record them in a
new subaccount for FERC Account 3030 - Miscellaneous Intangibles.
Hence, FPUC has petitioned the Commission for approval to establish a new
Account 3031 −
Miscellaneous Intangible Plant - 15 Years and to change the existing 10-year
amortization period to a 15-year amortization period (or an annual amortization
rate of 6.7 percent) for the reclassified customized software systems/platforms.
There are four types of customized software
systems/platforms that FPUC intends to reclassify as intangible plant and include
in Account 3031:
(1)
The ArcGIS Enterprise Geographic Information System
(“GIS”), which is a spatial system that manages and maps Florida’s natural gas
assets (i.e., pipeline, valves, stations, etc.) along with all relative data.
It also organizes and shares GIS data within the Company. This system has been
in-service for about 10 years.
(2)
The Convergence Gas Tracking System (“GTS”), which is a
customized cloud-based software application used to manage the Company’s
natural gas transportation and customer choice programs. Placed in-service in
2020, this system provides enhanced tracking, accounting, and billing features
for natural gas transportation and customer choice programs and streamlines
business processes with improved operational communications.
(3)
PowerPlan, which is a cloud-based fixed asset solution
placed in service in 2020. It houses FPUC’s Capital Project Management that
includes capital month end closing, Asset Depreciation, Lease Asset Management,
Property Tax, and Tax Provisions.
(4)
Utilities International (“UI”), which is the budgeting
and forecasting solution that was implemented in 2016 and is still in service.
FPUC explained that these software systems/platforms were
purchased, then significantly modified by its parent company, Chesapeake
Utilities Corporation (CUC), for the sole use of CUC’s business entities to
conduct and streamline utility operations. Each business unit is allocated a
share of the total software costs. Staff
agrees with the Company that, given the amount of internal development involved
with these software systems/platforms and their intended CUC-specific applications,
it is appropriate to reclassify them as intangible assets and record them in a new
Account 3031 −
Miscellaneous Intangible Plant.
As of December 31, 2023, FPUC’s respective amount of plant
investment and amortization reserve of the Account 3914 was $7,029,521 and
$3,347,879. Of these
amounts, FPUC’s total plant and reserve balance associated with the aforementioned
four types of customized software systems/platforms was $2,657,582 and $745,627,
respectively. FPUC requests
the reclassification of these customized software-related plant and reserve
amounts from Account 3914 to Account 3031 and amortization of the unrecovered
balance over 15 years, effective January 1, 2024, should the establishment of the
new account be approved.
FPUC explained that it proposed a 15-year amortization period
(or an annual amortization rate of 6.7
percent) based on the age and/or years in service of the existing
software that will be recorded in Account 3031.
The Company also pointed out that the life span of these software-related investments
has normally exceeded the existing 10-year amortization period established for Account
3914 - Software. Staff concurs with FPUC that using a 15-year amortization
period will better align the investments with their expected benefit period,
given the current age of this software and how long the previously installed
software was in service. Staff notices that FPUC’s proposed amortization
period/rate is in line with the Commission’s prior orders which authorize a
15-year amortization period for miscellaneous intangible plant accounts.
In its Petition, FPUC further claimed that using a 15-year,
instead of a 10-year, amortization period for these software systems/platforms will
provide the benefit of decreasing the revenue requirement when the Company’s
base rates are next set.[8] The
associated annual amortization expenses for these investments will decrease by
almost $88,000, as reflected in Table 1 below:
In its Petition, FPUC acknowledged that its parent company,
CUC, is in the process of consolidating the various customer billing and
management system platforms of its divisions in Florida, Delaware, and Maryland
into one platform. Initially,
FPUC indicated that the Customer Information and Billing System (CIS) and
Enterprise Resource Planning system (ERP) are expected to be operational in
2025 and 2026, respectively. However, the Company updated staff that CIS is now
scheduled to go live in 2024.
FPUC explained the potential functions and advantages of
the CIS and ERP, including the fact that both of them are cloud-based and will
continuously be updated and maintained:
CIS will be capable of providing enhanced accounting
tools, cross-functional communication, data tracking and analyses, and other
business processes in the areas of customer service, billing and information,
financial performance, supply chain/inventory, human resources, and asset
management. Additionally, it will provide a more flexible platform for
enhancing the customer experience with a new set of customer service and
communication tools.
ERP is a type of business management software that
includes procurement, cash management, and the general ledger in an integrated
system. [Its benefits] include improved reporting; increased productivity,
efficiency, and integration of information; faster responses to inquiries and
better customer satisfaction; standardization and centralization of data that
is secure and reliable; reduced processing time; better decision making and
higher return on investment; and better communication and increased sharing of
information across different departments.
The estimate of FPUC’s portion of the costs associated
with these two new software systems is approximately $20 million. The
allocations of the CIS and ERP-related costs will be based on the number of
customers and a multi-factors Distrigas allocation method, respectively.
To record the plant investment associated with the CIS and
ERP, FPUC has requested to establish a new subaccount of FERC Account 3030 − Miscellaneous Intangibles, Account
3032 − Miscellaneous
Intangibles; and proposed a 20-year amortization period resulting in an annual
amortization rate of 5.0 percent. FPUC’s existing software systems being
replaced by the CIS and ERP have been in service for more than 20 years, which indicates
that these types of software investments are likely to have a much longer
useful period of service.
Staffs believes that FPUC’s proposed Account 3032 with a 20-year amortization period (amortization
rate of 5.0 percent) is reasonable. This plant asset classification and the
associated amortization rate are consistent with the Commission’s prior orders.
Conclusion
For the reasons outlined in this analysis, staff
recommends approval of FPUC’s petition for establishing two new subaccounts for FERC Account 3030 − Miscellaneous
Intangibles: Account 3031 − Miscellaneous Intangible Plant - 15 Years, with
a 15-year amortization period (annual amortization rate of 6.7 percent), and
Account 3032 − Miscellaneous Intangible Plant - 20 Years, with a 20-year
amortization period (annual amortization rate of 0.5 percent). Further, staff
recommends approval of FPUC’s request to reclassify its customized software
systems/platforms-related plant and reserve, in the amounts of $2,657,582 and
$745,627, respectively, from Account 3914 to the new Account 3031.
Issue 2:
If the Commission approves staff’s recommendation in
Issue 1, what is the appropriate respective implementation date for the new Accounts
3031 and 3032, as well as the reclassification of FPUC’s customized software
from Account 3941 to Account 3031?
Recommendation:
Staff recommends January 1, 2024, as the effective
date for the new Accounts 3031 and 3032, as well as the reclassification of the
customized software from Account 3914 to new Account 3031. (Wu)
Staff Analysis:
Depreciation and/or Amortization is the recovery of
invested capital representing equipment that is providing service to the
public. This recovery is designed to take place over the related period of
service to the public, which begins with the equipment’s in-service date.
If approved in Issue 1, FPUC’s customized software systems/platforms that are currently booked in
Account 3914, a subaccount of Account 391 − Office Furniture and Equipment,
would be reclassified to new Account 3031
− Miscellaneous Intangible, with a 15-year amortization period. Also, based on such approval, the unrecovered
balance of these systems/platforms would take place in Account 3031. FPUC
proposed January 1, 2024 as the
effective date for the new Account 3031 and the reclassification of the
customized software from Account 3941 to Account 3031. Staff believes that the Company’s proposal is appropriate as it is in
line with the purpose of the amortization.
If approved in
Issue 1, FPUC’s new software systems CIS and ERP would be recorded in new
Account 3032 − Miscellaneous Intangible, with a 20-year amortization
period. FPUC indicated that CIS and ERP will be placed in-service in 2024 and
2026, respectively.
The Company also stated that it had incurred $7.8 Million in costs related to
the CIS project, which are currently reflected on CUC’s Account 1070 - Construction
Work in Progress, and no costs have been incurred for ERP to date.
To promote a smooth and efficient accounting process, staff recommends January
1, 2024, as the effective date for the new Account 3032, so that the CIS and
ERP software-related plant can be appropriately recorded and amortized after
these plant items are placed in-service.
Issue 3:
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. (Brownless)
Staff Analysis:
At the conclusion of the protest period, if no
protest is filed, this docket should be closed upon the issuance of a
consummating order.
