Discussion
of Issues
Issue 1:
Should the Commission authorize TECO to implement an
interim storm restoration recovery charge?
Recommendation:
Yes. The Commission should authorize TECO to
implement an interim storm restoration recovery charge, subject to refund. Once
the total actual storm costs are known, TECO should be required to file
documentation of the total actual storm costs for Commission review and true-up
of any excess or shortfall. (Gatlin)
Staff Analysis:
As stated in the Case Background, TECO filed a
petition to seek recovery of $463.6 million in incremental storm restoration
costs and interest related to Hurricanes Idalia, Debby, Helene, and Milton, as
well as the replenishment of its storm reserve. In its petition, TECO requested
to replenish the storm reserve to $55.8 million.
The petition was filed pursuant to the provisions of the
2021 Settlement. Pursuant to paragraph 8(a) of the 2021 Settlement, TECO is
authorized to begin recovery of storm costs, on an interim basis, 60 days
following the filing of a petition for recovery.
In its petition, TECO asserted that it incurred
approximate recoverable costs in the amounts of $34.3 million for Hurricane
Idalia; $4.0 million for Hurricane Debby; $52.0 million for Hurricane Helene;
$358.9 million for Hurricane Milton. The remaining $14.4 million is for the interest
accrued and projected interest on the unrecovered balance related to the
Storms. The Company further asserted that all amounts were calculated in
accordance with the Incremental Cost and Capitalization Approach methodology
prescribed in Rule 25-6.0143, Florida Administrative Code.
The approval of an interim storm restoration recovery
charge is preliminary in nature and is subject to refund pending further review
once the total actual storm restoration costs are known. After the actual costs
are reviewed for prudence and reasonableness, and are compared to the actual
amount recovered through the interim storm restoration recovery charge, a
determination will be made whether any over/under recovery has occurred. The
disposition of any over or under recovery, and associated interest, will be
considered by the Commission at a later date.
Based on a review of the information provided by TECO in
its petition, staff recommends that the Commission authorize the Company to
implement an interim storm restoration recovery charge subject to refund. Once
the total actual storm costs are known, TECO should be required to file
documentation of the storm costs for Commission review and true-up of any
excess or shortfall.
Issue 2:
What is the appropriate security to guarantee the
amount collected subject to refund through the interim storm restoration
recovery charge?
Recommendation:
The appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking. (Quigley, D. Buys)
Staff Analysis:
Staff
recommends that all funds collected subject to refund be secured by a corporate
undertaking. The criteria for a corporate undertaking include sufficient
liquidity, equity ownership, profitability, and interest coverage to guarantee
any potential refund. TECO requested a 12-month collection period beginning
with the first billing cycle in March 2025 through February 2026 for Interim
Storm Recovery Charges of $464 million related to the Storms. Staff reviewed
DEF’s three most recent annual reports filed with the Commission (2021, 2022,
and 2023) to determine if the Company can support a corporate undertaking to
guarantee the funds collected for incremental storm restoration costs related
to the subject weather events. TECO’s financial information indicates the
Company’s financial position to support a corporate undertaking of $464 million
is marginal, but satisfactory. TECO’s average net income over the last three
years is $431 million, which is less than the requested interim amount. The
Company’s net income in 2023 was $466 million which is slightly more than the
requested storm cost recovery interim amount. TECO’s profitability, equity
ownership, current ratio, and interest coverage for 2023 is sufficient to
support a potential refund up to $233 million. Staff’s corporate undertaking
guidelines indicate that the maximum that should be allowed for a corporate
undertaking is one-half of TECO’s 2023 net income, or $233 million. However, it
is improbable TECO will be required to refund the entire requested amount of
approximately $464 million. Historically, TECO has supported its requested
interim storm cost recovery amounts through a hearing process and the
Commission has approved those cost amounts with only minor adjustments.
Further, the storm cost recovery mechanism is a surcharge for the sole purpose
of recovering the costs incurred for storm restoration and any potential refund
would be applied to the funds already collected and effectuated by reduced
charges on future customer bills.
Accordingly, staff believes TECO has adequate resources to
support a corporate undertaking in the amount requested. Based on this
analysis, staff recommends that a corporate undertaking of $464 million is
acceptable. This brief financial analysis is only appropriate for deciding if
TECO can support a corporate undertaking in the amount requested and should not
be considered a finding regarding staff’s position on other issues in this
proceeding.
Issue 3:
Should the Commission approve TECO's proposed
interim storm restoration recovery charge tariff as shown in Attachment A to
the recommendation?
Recommendation:
Yes, the Commission should approve TECO’s proposal
to revise the interim storm restoration recovery tariff and associated
surcharges, as shown in Attachment A to this recommendation. The tariff should
become effective the first billing cycle of March 2025. The interim storm
restoration surcharges should be subject to final true-up once the total actual
storm costs are known. (McClelland)
Staff Analysis:
TECO calculated the interim storm surcharge for the 12-month
period of March 1, 2025, through February 28, 2026, subject to true-up once the
final total recoverable storm amount is known and determined. In paragraph 12
of the petition, TECO states that the proposed surcharges are developed using
the cost-of-service methodology approved in TECO’s 2024 rate case at the
December 3, 2024 Commission Conference.
Staff has reviewed the allocation to rate classes and believes that the
allocations provided in Exhibit 5, page 2 to the petition are consistent with
those approved in TECO’s most recent rate case. Furthermore, staff has reviewed
the derivation of the surcharges provided in Exhibit 5 to the petition. Staff
agrees that the surcharges have been calculated correctly, using projected
kilowatt hour (kWh) sales for March 2025 through February 2026.
The proposed interim storm restoration surcharges are
shown on Third Revised Tariff Sheet No. 6.024, provided in Exhibit 6 to the
petition. For residential customers, the proposed surcharge would be 3.004
cents per kWh, which equates to a total surcharge of $30.04 for a 1,000 kWh
monthly bill. The storm cost recovery surcharge would be included in the
non-fuel energy charge on customer bills.
In response to staff’s first data request, TECO stated
that it had considered alternative recovery periods and its corresponding
expected bill impacts. The Company decided that the 12-month recovery period
reasonably balanced the length of the recovery period, customer bill impacts,
and timeliness of recovery. A longer period would incur greater total cost due
to additional interest charges. If a 22-month billing period were adopted, the
recovery period would extend through December 2026 and would result in a bill
impact of $16.33 per 1,000 kWh on a monthly residential bill.
Paragraph 12(b) of the 2021 Settlement states that TECO
may petition to the Commission for recovery of storm costs at a rate beyond
$4.00 on a 1,000 kWh residential bill if TECO incurs in excess of $100 million
of storm recovery costs, and it does not specify a recovery period.
Staff recommends that the Commission approve TECO’s
proposed interim storm restoration recovery tariff and associated surcharges,
as shown in Attachment A to this recommendation. The tariff should become
effective the first billing cycle of March 2025. The interim storm restoration
surcharges should be subject to final true-up once the total actual storm costs
are known.
Issue 4:
Should this docket be closed?
Recommendation:
No. This docket should remain open pending final
reconciliation of actual recoverable storm costs with the amount collected
pursuant to the interim storm restoration recovery charge and the calculation
of a refund or additional charge if warranted. (Thompson)
Staff Analysis:
No, this docket should remain open pending final
reconciliation of actual recoverable storm costs with the amount collected
pursuant to the interim storm restoration recovery charge and the calculation
of a refund or additional charge if warranted.
