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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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January 24February 3,
2025
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Accounting and Finance (Vogel,
D. Buys, Mason, Norris)
Division of Economics
(Hampson, Hudson, McClelland)
Division of Engineering
(P. Buys, Ramos, Smith II)
Office of the General Counsel
(Dose)
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RE:
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Docket No. 20240173-EI – Petition for
limited proceeding for recovery of incremental storm restoration costs
related to Hurricanes Debby, Helene and Milton, by Duke Energy Florida, LLC.
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AGENDA:
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02/04/25 – Regular Agenda – Interested Persons May Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Clark
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CRITICAL DATES:
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None
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SPECIAL INSTRUCTIONS:
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None
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Case Background
On December 27,
2024, Duke Energy Florida, LLC (DEF or Company) filed a petition for a limited
preceding seeking authority to implement an interim storm restoration recovery
charge to recover $1.09 billion for the incremental restoration costs related
to Hurricanes Debby, Helene, and Milton (collectively, the Storms), as well as
the replenishment of its retail storm reserve. Included in the $1.09 billion is
interest charged on unrecovered costs for Hurricanes Debby, Helene, and Milton.
Pursuant to the 2024 Settlement Agreement (2024 Settlement) approved by the
Commission in Order No. PSC-2024-0472-AS-EI, the recovery of storm costs from
customers will begin, on an interim basis, 60 days after the filing of a cost
recovery petition and tariff with the Commission. DEF requested a 12-month recovery period,
applied to all bills from March 2025 through February 2026.
On January
31, 2025, DEF submitted updated rate calculations for all rate classes
(Appendix A) and revised tariffs (Appendix B), as well as an updated response
to staff’s first data request. The updated calculations reflect revised cost
allocation factors, resulting in minor changes to the storm cost recovery
factors for all customers. Specifically, in the petition, DEF had included a
distribution allocation factor for customers taking service at transmission
level, overstating the allocation of distribution storm costs to
transmission-level customers. The revised rate calculation is consistent with the
calculation of previous storm cost recovery charges approved in Order No. PSC-2024-0377-FOF-EI. The updated rate calculations do not
change the total $1.09 billion incremental storm costs proposed for recovery. The
updated tariff is included as Attachment A to this recommendation.
The Commission has
jurisdiction over this matter pursuant to Sections 366.04, 366.05, 366.06, and
366.076, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission authorize DEF to implement an
interim storm restoration recovery charge?
Recommendation:
Yes. The Commission should authorize DEF to
implement an interim storm restoration recovery charge, subject to refund. Once
the total actual storm costs are known, DEF should be required to file
documentation of the total actual storm costs for Commission review and true-up
of any excess or shortfall. (Mason)
Staff Analysis:
As stated in the Case Background, DEF filed a petition
for a limited proceeding seeking authority to implement an interim storm
restoration charge to recover an estimated total of $1.09 billion for
incremental storm restoration costs for the Storms and to replenish its storm
reserve. In its petition, DEF requested to replenish the storm reserve to
$131.9 million.
The petition was filed pursuant to the provisions of the
2024 Settlement approved by the Commission in Order No. PSC-2024-0472-AS-EI.
Pursuant to the 2024 Settlement, DEF can begin recovery of storm costs 60 days
following the filing of a petition for recovery.
In its petition, DEF asserted that it incurred approximate
recoverable costs in the amounts of $61.0 million for Hurricane Debby, $372.5
million for Hurricane Helene, and $769.7 million for Hurricane Milton. 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 DEF 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, DEF 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. (Ferrer, 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. DEF requested a 12-month collection period beginning with
the first billing cycle in March 2025 through February 2026 for Interim Storm
Recovery Charges of $1.09 billion related to Hurricanes Debby, Helene, and
Milton. 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. DEF’s financial
information indicates the Company’s financial position to support a corporate
undertaking of $1.09 billion is marginal, but satisfactory. DEF’s average net
income over the last three years is $889 million, which is less than the
requested interim amount. The Company’s net income in 2023 was $1.019 billion,
slightly less than the requested storm cost recovery interim amount. DEF’s profitability,
equity ownership, current ratio, and interest coverage for 2022, and 2023 are
sufficient to support a potential refund up to $510 million. Staff’s corporate
undertaking guidelines indicate that the maximum that should be allowed for a
corporate undertaking is one-half DEF’s 2023 net income, or $510 million.
However, DEF participates in Duke Energy Corporation’s (DEF’s parent company)
money pool and has access to additional funds if needed. In addition, it is
improbable DEF will be required to refund the entire requested amount of $1.09
billion. Historically, DEF 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 DEF has adequate resources to support a corporate undertaking in
the amount requested. Based on this analysis, staff recommends that a corporate
undertaking of $1.09 billion is acceptable. This brief financial analysis is
only appropriate for deciding if DEF 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 DEF’s proposed interim storm
restoration recovery charge tariff as shown in Attachment A to the
recommendation?
Recommendation:
Yes, the Commission should
approve DEF’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:
DEF 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
21 of the petition, DEF states that the proposed surcharges are allocated to
the rate classes consistent with the rate design approved in the 2021 and 2024
Settlements. Staff has reviewed the allocation to rate classes provided in
Appendix A to the petition and the derivation of the surcharges provided in
Appendix B to the petition. Staff believes 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 One Hundred and Eighth Revised Tariff Sheet No. 6.105, provided in
Appendix B to the petition.
For residential customers, the proposed surcharge would be 3.1183.240
cents per kWh, which equates to a total surcharge of $31.1832.40
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, DEF stated that
its decision to use a 12-month recovery period (March 2025 – February 2026) is
based upon DEF’s 2021 Settlement approved in Order No. PSC-2021-0202-AS-EI.
Interim recovery of storm costs is governed by Paragraph 30c of the 2021
Settlement, which provides that “recovery from customers for storm damage costs
will begin, subject to Commission approval on an interim basis, sixty (60) days
following the filing of a cost recovery petition with the Commission, and
subject to true-up pursuant to further proceedings before the Commission, and
will be based on a 12-month recovery period.” Similar language is included in
the 2024 Settlement approved in Order No. PSC-2024-047-AS-EI. Staff concurs
with DEF’s intepretation of the settlement with respect to its petition. DEF
further states that even if the 12-month recovery period was not required by
the 2021 and 2024 settlements, extending recovery beyond 12 months has several
negative impacts and risks. In the revised response to staff’s first
data request, DEF stated if a 22-month billing period were adopted, the
recovery period would extend through December 2026 and would result in a bill
impact of $17.7306 per 1,000 kWh on a monthly residential bill.
Staff recommends that the Commission approve DEF’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.
