Case Background
On August 30,
2024, Peoples Gas System, Inc. (Peoples or utility) filed a petition for
approval of its final 2023 true-up, projected 2024 true-up, and 2025 revenue
requirement and surcharges associated with the cast iron/bare steel replacement
rider (CI/BSR Rider or rider). The rider was originally approved by Order No.
PSC-12-0476-TRF-GU (2012 Order) to recover the cost of accelerating the
replacement of cast iron and bare steel pipes through a surcharge on customers’
bills. In the 2012 Order, the Commission found
that, “replacement of these types of pipelines is in the public interest to
improve the safety of Florida’s natural gas infrastructure, and reduce the
possibility of loss of life and destruction of property should an incident
occur.” Peoples’ current surcharges were approved by Order No.
PSC-2023-0363-TRF-GU.
In Order No.
PSC-17-0066-AS-GU, the Commission approved a comprehensive settlement agreement
between Peoples and the Office of Public Counsel.[3] The settlement agreement, in part, added
problematic plastic pipe (PPP) installed in the company's distribution system
to eligible replacements under the rider beginning in 2017 and continuing
through 2028. PPP was manufactured before 1983 and has significant safety
concerns. In certain areas, the PPP is interspersed with, or connected to, the
cast iron/bare steel pipe that is being replaced under the rider. As provided
for in the settlement agreement, PPP replacements are included in the
calculation of the 2024 rider surcharges.
In December
2023, the Commission approved Peoples’ petition for rate increase, which
contained two provisions that would impact the CI/BSR Rider. First, Peoples moved its CI/BSR
investments as of December 31, 2023, into rate base, as required by the 2012 Order
approving the rider. This provision had the effect of resetting
the CI/BSR Rider rates to zero.
Second, the
Commission approved Peoples’ request for the Long Term Debt Cost Rate (LTDR)
true-up mechanism. The LTDR true-up mechanism allowed Peoples to make a
one-time adjustment to the estimated cost of long-term debt for the projected
test year ending December 31, 2024. The purpose of the LTDR true-up mechanism
was to reflect the actual embedded costs of the utility’s inaugural long-term
debt issuance in its revenue requirement and rates. This provision was a result of Peoples being
spun off from Tampa Electric Company, because Peoples no longer obtains
long-term debt capital from Tampa Electric Company and instead issues its own
debt as a separate entity.
The Commission
further ordered that if the impact to the incremental revenue requirement was
greater than $500,000 for the period between the implementation of the base
rate increase and the implementation of the LTDR true-up mechanism, then the
incremental revenue requirement would be recovered through the CI/BSR rider for
2025. The Commission approved the incremental
revenue requirement of $874,085 associated with the LTDR true-up mechanism in May
2024. The total amount associated with the LTDR
true-up mechanism to be recovered through the 2025 CI/BSR rider is $476,034, as
shown in Exhibit B to the petition, page 2 of 4, line No. 9a.
Currently,
Peoples has an active petition for an expansion of the CI/BSR rider in Docket
No. 20240107-GU. Peoples has proposed to rename the CI/BSR
rider to the Safety of Facilities and Infrastructure Replacement Rider (SAFIR)
and expand the categories of eligible replacements under the rider. If the
SAFIR program is approved, projected capital expenditures would increase for
2025. In paragraph 16 of the instant petition, Peoples stated that if the SAFIR
petition remains pending on November 30, 2024, the utility would not seek
approval of the revenue requirement and surcharge for the SAFIR modifications
in the subject docket. Staff is still in the process of reviewing the SAFIR
petition; therefore, the SAFIR modifications were not considered as part of
this recommendation.
During the
evaluation of the petition, staff issued a data request to the utility, for which
responses were received on October 7 and October 9, 2024. By Order No. PSC-2024-0453-PCO-GU,
issued October 17, 2024, the petition was suspended to allow staff a sufficient
opportunity to gather and evaluate all pertinent information related to the tariff
proposals in order to present the Commission with an informed recommendation.
Attachment A to this recommendation contains Table
1, which consolidates actual and projected CI/BSR and PPP miles, replaced
investment, and revenue requirements for each year of the replacement program. Additionally, Peoples provided tables that
display the replacement progress and forecasts for the CI/BSR Rider (Table 2)
and for PPP (Table 3). Attachment B contains the proposed tariff.
The Commission has jurisdiction over this matter pursuant to Section 366.03,
366.04, 366.05, and 366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Peoples' proposed
CI/BSR Rider surcharges for the period January through December 2025?
Recommendation:
Yes, the Commission should approve Peoples’ proposed
CI/BSR Rider surcharges to be effective for the first billing cycle of January
through the last billing cycle of December 2025. Staff has reviewed Peoples’
filings and supporting documentation and believes that the calculations are
consistent with the methodology approved in the 2012 Order and are reasonable
and accurate. (Ward)
Staff Analysis:
The CI/BSR Rider charges have been in effect since
January 2013 and were projected to be in effect for 10 years with replacement
projects completed by the end of 2022. In response to staff’s first data
request, Peoples stated that the COVID-19 pandemic environment greatly
contributed to replacement efforts going beyond the 10-year period.
Contributing factors include construction contractor labor shortages,
consulting firm availability, supply chain challenges, and extensive permitting
challenges. Peoples stated that it expects to have 8.11 miles of CI/BSR
replacement remaining entering 2025.
In 2024, Peoples’ cast iron/bare steel and PPP replacement
activity focused in the areas of Miami, Tampa, St. Pete, Orlando, Eustis,
Jacksonville, Lakeland, Daytona, Avon Park, and Ocala. In 2025, Peoples states
it will focus on replacement projects in Miami, Tampa, St. Pete, Orlando,
Eustis, Jacksonville, Lakeland, Daytona, Jupiter, Panama City, and Ocala. A
detailed description of the projects, including their address, has been
provided in response to staff’s first data request.
True-ups by Year
Peoples’ calculation for the 2025 revenue requirement and
surcharges includes a final true-up for 2023, an actual/estimated true-up for
2024, and projected costs for 2025. Pursuant to the 2012 Order, the capital
expenditures for 2024 and 2025 exclude the first $1 million of facility
replacements each year because that amount is included in rate base. Peoples
has included depreciation expense savings as discussed in the 2012 Order;
however, the utility has not identified any operations and maintenance savings.
Final True-up for 2023
Exhibit A of the petition shows that the revenues
collected for 2023 were $8,215,491 compared to a revenue requirement of
$7,531,346, resulting in an over-recovery of $684,145. The final 2022
under-recovery of $787,888, 2023 over-recovery of $684,145, and interest
associated with any over- and under-recoveries, results in a final 2023 under-recovery
of $102,499.
Actual/Estimated 2024 True-up
In Exhibit B of the petition, Peoples provided actual
revenues for January through July and forecast revenues for August through
December of 2024, totaling $883,056, compared to an actual/estimated revenue
requirement of $576,693, resulting in an over-recovery of $306,363. The final
2023 under-recovery of $102,499, 2024 over-recovery of $306,363, 2024 LTDR
true-up mechanism adjustment of $476,034, and interest associated with any
over- and under- recoveries, results in a total 2024 under-recovery of
$276,028.
Projected 2025 Costs
Exhibit C, page 2 of 4, of the petition shows Peoples’
project investments of $32,120,344 for the replacement of cast iron/bare steel
infrastructure and PPP in 2025, excluding the $1 million adjustment to rate
base. The return on investment, depreciation expense (less savings), and
property tax expense associated with that investment are $3,402,010. After
adding the total 2024 under-recovery of $276,028, the total 2025 revenue requirement
is $3,678,038. Table 1-1 displays the 2025 revenue requirement calculation. In
response to staff’s first data request, Peoples provided updated investment and
revenue requirement projections for CI/BSR and PPP which is contained in Table
1 of Attachment A.
Table 1-1
2025 CI/BSR Rider Revenue
Requirement
|
2025 Projected Expenditures
|
$32,120,344
|
|
Return on Investment
|
$2,767,833
|
|
Depreciation Expense (less savings)
|
$405,346
|
|
Property Tax Expense
|
$228,830
|
|
2025 Revenue Requirement
|
$3,402,010
|
|
Plus 2024 Under-recovery
|
$276,028
|
|
Total 2025 Revenue Requirement
|
$3,678,038
|
Source: Page 2 of 4 in Exhibit C in petition (Docket No.
20240133-GU).
Proposed Surcharges
As established in the 2012 Order, the total 2025 revenue
requirement is allocated to rate classes using the same methodology that was
used for the allocation of mains and services in the cost of service study used
in Peoples’ most recent approved rate case. After calculating the percentage of
total plant costs attributed to each rate class, the respective percentages
were multiplied by the 2025 revenue requirement resulting in the revenue
requirement by rate class. Dividing each rate class’s revenue requirement by
projected therm sales provides the rider surcharge for each rate class.
If the Commission approves this recommendation, the
proposed 2025 rider surcharge for residential customers would be $0.01391 per
therm (compared to the current surcharge of $0.00322). The 2025 monthly bill
impact would be $0.28 for a residential customer who uses 20 therms.
Conclusion
Staff recommends that the Commission should approve
Peoples’ proposed CI/BSR Rider surcharges to be effective for the first billing
cycle of January through the last billing cycle of December 2025. Staff has
reviewed Peoples’ filings and supporting documentation and believes that the
calculations are consistent with the methodology approved in the 2012 Order and
are reasonable and accurate.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If Issue 1 is approved and a protest is filed
within 21 days of the issuance of the 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. (Sandy)
Staff Analysis:
Yes. If Issue 1 is approved and a protest is filed
within 21 days of the issuance of the 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.
Table 1
Peoples’ CI/BSR Replacement
Program Progress
|
Year
|
CI/BS Miles
Replaced
|
PPP Miles Replaced
|
CI/BS Investmentͣ
|
PPP Investmentᵇ
|
CI/BS Revenue
Requirement
|
PPP Revenue
Requirement
|
|
2017
|
51
|
-
|
$17,588,366
|
$308,227
|
$6,868,302
|
$74,021
|
|
2018
|
62
|
56
|
$27,035,678
|
$18,113,104
|
$8,510,823
|
$848,201
|
|
2019
|
52
|
42
|
$35,821,371
|
$15,349,847
|
$11,075,229
|
$2,706,161
|
|
2020
|
55
|
43
|
$32,317,184
|
$9,209,668
|
$14,817,804
|
$4,358,010
|
|
2021
|
14
|
38
|
$23,726,642
|
$21,051,938
|
$1,347,321
|
$(160,452)
|
|
2022
|
10.4
|
29
|
$13,079,280
|
$6,109,870
|
$3,154,597
|
$1,921,940
|
|
2023
|
2.3
|
44
|
$5,815,954
|
$26,827,191
|
$3,927,032
|
$3,604,313
|
|
2024*
|
5
|
31
|
$4,698,860
|
$14,646,431
|
$217,946ͤ
|
$366,776ͤ
|
|
2025*
|
5
|
65
|
$2,906,616
|
$29,213,728
|
$760,428
|
$2,721,026
|
|
2026*
|
2
|
75
|
$1,104,945
|
$32,951,727
|
$1,043,083
|
$6,227,488
|
|
2027*
|
1ͨ
|
90
|
$874,752
|
$35,028,300
|
$1,151,720
|
$10,103,281
|
|
2028*
|
1
|
54
|
$1,081,100ͩ
|
$20,139,383ͩ
|
$1,246,217
|
$13,341,632
|
*Projected
ͣ CI/BS Investment includes removal of initial $1M
through 2025.
ᵇ PPP Investment includes removal of initial $1M each
year starting in 2026.
ͨ 5-year construction moratoriums in effect in the City
of Miami preventing completion before 2027.
ͩ 2028 investment includes rollover costs to occur in
2029.
ͤ Revenue requirement based on current year investment
only as investment for prior years rolled into rate base pursuant to the 2023
Rate Case.
Table 2
Peoples’ CI/BSR Replacement
Progress
|
Year
|
Main Replacements
|
Service Line Replacements
|
|
Replaced Cast Iron
(miles)
|
Replaced Bare Steel
(miles)
|
Remaining Cast Iron
at Year End (miles)
|
Remaining Bare
Steel at Year End (miles)
|
Total Miles
Remaining of CI/BS Mains
|
Number of Bare
Steel Service Lines Replaced
|
Number of Remaining
Bare Steel Service Lines
|
|
2012
|
-
|
-
|
100
|
354
|
454
|
-
|
14,978
|
|
2013
|
13
|
38
|
87
|
316
|
403
|
907
|
14,071
|
|
2014
|
2
|
15
|
85
|
298
|
383
|
7,964
|
6,107
|
|
2015
|
26
|
60
|
59
|
238
|
297
|
1,019
|
5,088
|
|
2016
|
15
|
35
|
44
|
203
|
247
|
1,050
|
6,963
|
|
2017
|
15
|
36
|
29
|
178
|
207
|
1,135
|
4,279
|
|
2018
|
10
|
52
|
18
|
126
|
144
|
1,970
|
2,309
|
|
2019
|
8
|
44
|
10
|
83ͣ
|
93
|
649
|
1,660
|
|
2020
|
4
|
51
|
6
|
35ͣ
|
41
|
423
|
1,237
|
|
2021
|
3.5
|
10.5
|
2
|
24
|
26
|
191
|
998
|
|
2022
|
1.3
|
9.1
|
0.9
|
14.6ͣ
|
15.5
|
74
|
941
|
|
2023
|
0.3
|
2.0
|
0.6
|
12.4ͣ
|
12.4
|
40
|
931
|
|
2024*
|
<0
|
5
|
0.5
|
8.6ͣ
|
8.11
|
63
|
799
|
*Projected
ͣ Additional miles of pipe added after reclassification
of pipe type.
Table 3
Peoples’ PPP Replacement
Program Progress
|
Year
|
Replaced PPP
(Miles)
|
Total Remaining PPP
Mains (Miles)
|
Replaced Number of
PPP Service Lines
|
Total Number of
Remaining PPP Service Lines
|
|
2016
|
-
|
551
|
-
|
28,237
|
|
2017
|
-
|
509
|
1,396
|
26,841
|
|
2018
|
56
|
461
|
3,941
|
24,741
|
|
2019
|
42
|
418
|
2,349
|
20,420
|
|
2020
|
43
|
370
|
1,702
|
18,718
|
|
2021
|
38
|
337
|
882
|
17,683
|
|
2022
|
29
|
306
|
837
|
17,229
|
|
2023
|
44
|
281ͣ
|
883
|
16,346ͣ
|
|
2024*
|
31
|
284ͣ
|
500
|
ᵇ
|
|
2025*
|
65
|
219
|
ᵇ
|
ᵇ
|
|
2026*
|
75
|
144
|
ᵇ
|
ᵇ
|
|
2027*
|
90
|
54
|
ᵇ
|
ᵇ
|
|
2028*
|
54
|
-
|
ᵇ
|
ᵇ
|
*Projected
ͣAdditional service lines reclassified during the year.
ᵇThis will be determined during the replacement year.
