Discussion
of Issues
Issue 1:
Should OPC’s Request for Oral Argument on its Motion
for Reconsideration be granted?
Recommendation:
No. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion for
Reconsideration. However, if the Commission wants to exercise its discretion to
hear oral argument, staff recommends five minutes per side as sufficient.
(Sparks, Marquez, Harper)
Staff Analysis:
Law
Rule 25-22.0022(1), F.A.C., allows a party to request oral
argument before the Commission for any dispositive motion before the Commission
by filing a separate written pleading filed concurrently with the motion on
which argument is requested and stating with particularity why oral argument
would aid the Commission. Granting or denying oral argument is within the sole
discretion of the Commission under Rule 25-22.0022(3), F.A.C.
OPC’s Position
OPC requested the opportunity to provide 10 minutes of
oral argument on its Motion to further elaborate on the arguments made within as
well as to aid the Commissioners in understanding and evaluating the issues raised
and to answer any questions. OPC also states that certain of its arguments
relate to matters that arose only after the record closed, after deliberations
took place, and after the final order in this matter was issued.
TECO’s Position
In its Response, TECO argues that OPC’s Motion and TECO’s own
response are sufficiently detailed and clear such as to enable the Commission
to make a decision without oral argument.
Staff’s Analysis and Recommendation
Granting or denying oral argument is within the sole
discretion of the Commission. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends five minutes per side as sufficient.
Issue 2:
Should OPC’s Motion for Reconsideration be granted?
Recommendation:
Yes, in part. Staff recommends that OPC’s Motion for
Reconsideration should be denied regarding the AOM, SCRM, and ROE
determinations; however, the Motion should be granted to correct the identified
errors in the calculation of the revenue requirement. The resulting $1.1
million increase in revenue requirement should be recovered for 2025 through
the Energy Conservation Cost Recovery Clause and then in 2026 going forward when
implementing Subsequent Year Adjustment rates. (Sparks, Marquez, Harper, P. Buys,
O. Wooten, Ellis, D. Buys, Norris, Draper)
Staff Analysis:
Law
The appropriate standard of review for reconsideration of
a Commission order is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. It
is not appropriate to reargue matters that have already been considered.
Furthermore, a motion for reconsideration should not be granted “based upon an
arbitrary feeling that a mistake may have been made, but should be based upon
specific factual matters set forth in the record and susceptible to review.”
Overview of Contested Aspects of Final Order
In this case, TECO petitioned for two mechanisms to be
approved—the SCRM and the AOM. The SCRM establishes a process by which TECO may
seek approval for a monetary surcharge and timing framework through which it recovers
storm costs incurred to restore power to customers after damage caused by tropical
systems, including the replenishment of the preexisting target storm reserve
balance. Any restoration costs TECO incurs in expeditiously repairing the
energy grid and restoring power to customers is subject to later Commission
review under a prudency standard. In this way, customers are protected from
TECO misusing the fund while at the same time ensuring TECO has the wherewithal
to remedy the damage inflicted by tropical systems.
The AOM is a shareholder incentive program designed to
encourage TECO to engage in additional activities with ratepayer-supported
assets in order to generate additional net benefits that produce customer
savings in the form of reductions to fuel costs. TECO shareholders benefit as
the customer savings increase, encouraging the Company to maximize the benefits
it can extract from its existing assets. AOM activities can include efforts such
as the release of contracted gas storage space during non-critical demand
seasons, the sale of fuel using existing transportation capacity to non-TECO
customers in Florida, and the sale of gas in the gas-production areas.
While the two mechanisms were initially described by reference to a prior settlement
agreement, TECO did not rest on a precedential value argument when asking that
a new SCRM and new AOM be authorized to commence on January 1, 2025. To the
contrary, TECO supported its requests for the two mechanisms with sufficient evidence
and testimony regarding the benefits to customers and the functioning of the
mechanisms. TECO even requested that the Commission approve the Company’s sale
of renewable energy credits (RECs) and the release of natural gas pipeline
capacity as qualifying asset optimization activities, despite not being
included in the 2021 Settlement Agreement. The Commission similarly gave no
precedential value to the old mechanisms when rendering its ultimate decision because
the fact of the mechanisms’ prior approvals did not make the Commission more or
less likely to approve the new SCRM and new AOM. The Commission considered the
independent evidence and factual developments since the approvals of the old
mechanisms in determining which aspects of the proposed new mechanisms should
be granted and which should be denied.
Based on the record in this case, the Commission approved
a SCRM and an AOM that includes those activities that were beneficial to
customers at numeric thresholds premised on the independent evidence presented corresponding
to the achievement of those benefits.
However, TECO also proposed asset optimization activities such as REC sales and
natural gas pipeline capacity release sales, which the Commission denied.
Additionally, in this case TECO requested a Return on
Equity (ROE) midpoint of 11.50 percent, an increase from the 10.20 percent it
had been previously operating under. The ROE is the cost of common equity
included in a company’s calculation of its weighted average overall cost of
capital used to establish a revenue requirement.
TECO’s common equity is not publicly traded, therefore there were multiple variations of three financial
models put forth by the Company and the parties that were considered by the
Commission. The models used proxy groups of publicly-traded electric companies
similar to TECO to arrive at an estimated range of appropriate ROEs. While
there was no dispute about the use of the models or underlying ROE
methodologies, the parties offered different inputs and adjustments to the ROE
range. The Commission considered testimony from various experts for
certain adjustments such as flotation costs associated with the sale and
issuances of common stock, company-specific business risks, expected customer
growth and requisite capital investment, and financial risks created by the
introduction of debt into the capital structure. Ultimately, an ROE of 10.50
percent was authorized by the Commission, based on an average of the cost of
equity models, including some modifications, with an additional adjustment
based on TECO’s specific business and weather risks as well as its flotation
costs.
Finally, certain errors were alleged to have been made in
the calculations for the revenue requirement used in the Final Order.
Specifically, OPC alleges these errors are the result of inconsistencies in the
underlying calculations that reveal revenue requirement errors in Attachments A
and C of the Commission’s Final Order.
Three of these items address issues with rounded adjustment amounts,
while the other three were due to inadvertent errors in the underlying
calculations for determining TECO’s revenue requirement.
OPC’s
Motion for Reconsideration
In its
request for reconsideration, OPC argues that (1) the Commission overlooked the
rule of law regarding administrative finality when it approved the SCRM and the
AOM; (2) the Commission overlooked the burden of proof when it approved the
SCRM and the AOM; (3) the Commission overlooked and failed to consider that
increasing the midpoint ROE to 10.50 percent was unsupported by substantial and
competent evidence and unnecessary; and (4) certain errors were made in the
calculations for the revenue requirement used in the Final Order. Each of these
claims is discussed below, along with TECO’s response and staff’s analysis and
recommendation.
1. Administrative Finality and the SCRM and the
AOM
OPC alleges that the “Commission overlooked the application
of the doctrine of administrative finality in its decision.” Specifically, OPC
alleges that “[i]mporting specific provisions from the 2021 [Settlement]
Agreement” violates the Commission’s Order approving that settlement agreement
which “approved the language that no term would have any precedential value.”
OPC claims that “by allowing TECO to seek and obtain adoption of the SCRM and the
AOM in direct contravention of the approved 2021 Agreement prohibition
language, the Commission is effectively vacating the 2021 Agreement Order three
years later which would violate the doctrine of administrative finality.”
TECO’s Response
TECO argues that the Commission did not overlook the rule
of law regarding administrative finality when approving the SCRM and the AOM,
and that OPC failed to raise this argument at the evidentiary hearing held in
this case as well as in its post-hearing brief and has therefore waived this
argument. “[I]t
is not an abuse of discretion to deny a motion for reconsideration which raises
an issue that could have been, but was not, raised” prior to filing the motion
for reconsideration.
Furthermore, TECO argues that the Commission relied on the
uncontroverted evidence presented by the Company rather than relying on its own
approval of the 2021 Settlement Agreement as the basis for approving the SCRM
and the AOM. TECO points out OPC does not cite to any pleading where TECO
asserted any precedent, and the Company explicitly disclaimed doing so at the
hearing. Furthermore, TECO asserts its proposal in this case was different than
the mechanism contained in the 2021 Settlement Agreement, undercutting any
argument that the Commission simply approved the current AOM based only on its
prior approval.
Staff’s Analysis and
Recommendation
It is staff’s position that the Commission did not
overlook the doctrine of administrative finality in disposing of OPC’s
precedential value argument when the Commission approved the SCRM and the AOM.
As an initial matter, staff agrees with TECO that this issue
could have been raised prior to the Motion, and was not, which alone justifies
denying the Motion in this regard.
“A trial court does not abuse its discretion in denying a motion for
reconsideration or rehearing which raises an issue that could have, but [was
not], raised in the initial motion or at the initial hearing.”
In Kovic v. Kovic, the Fourth
District Court of Appeal stated that arguments raised for the first time in a motion
for reconsideration or rehearing of an order on appeal, instead of during the
hearing, are not preserved for appellate review.
Nonetheless, staff also submits that OPC’s arguments
conflate precedential principles with the administrative finality doctrine and
ignore the bases upon which the Commission rendered its decisions. Precedential
value pertains to the influence of a
decision on future cases with similar facts or legal issues. The
doctrine of administrative finality focuses on the conclusiveness of
administrative decisions. Administrative finality simply means “that there must
be a ‘terminal point in every proceeding . . . at which the parties and the
public may rely on the decision as being final and dispositive of the rights
and issues involved therein.’” Nothing
in the Final Order operates to undo any part of the 2021 Settlement Agreement. Administrative
finality upholds the Commission’s prior determinations based on the facts in
those prior cases. Administrative finality does not prohibit a utility from
seeking, or the Commission from approving, something in a subsequent rate case
just because the Commission approved it as part of a prior settlement.
Pursuant to the 2021 Settlement Agreement, the old SCRM
and the old AOM terminated on December 31, 2024. In
this case, TECO petitioned for two mechanisms to be approved—the SCRM and the
AOM. While the two mechanisms were initially described in a previous settlement agreement, TECO’s request was
for the Commission to approve new versions of these mechanisms based on the
evidence it offered in this case, not based on any precedential weight of the
2021 Settlement Agreement.
Furthermore, TECO’s newly proposed AOM included the additional activities of REC
sales and natural gas pipeline capacity release sales, which were not
authorized in the prior settlement agreement.
As OPC points out, the 2021 Settlement Agreement requires
that “[n]o Party will assert in any
proceeding before the Commission . . . that . . . any of the terms in the 2021
Agreement . . . have any precedential value,”
and in this case no party did.
OPC argues it was “entitled to rely on that order and the settlement agreement
as being final and dispositive of the rights and issues involved therein,”
and it was allowed to do so. It is staff’s position that the Commission did not
overlook the doctrine of administrative finality in disposing of OPC’s
precedential value argument because the Commission did not give any
precedential value to the 2021 Settlement Agreement. TECO presented evidence
demonstrating the actual efficacy of the proposed mechanisms at specific
numerical values. To simply compare the end results discounts the Commission’s
reasoned analysis, review of the record, and the weight it assigned to the
evidence and testimony before it.
Additionally, the new SCRM approved by the Commission does
not contain all of the same terms that were included in the prior SCRM that was
approved in the 2021 Settlement Agreement. OPC’s attempt at drawing parallels
between TECO’s old and new mechanisms is a red herring as it improperly implies
that the Commission reached its decision in the present case simply because of
the 2021 Settlement Agreement. However, the Commission’s decision was based on
the independent evidence introduced in this case. Moreover, references in this
record to how the old mechanisms functioned since being approved were made to
allow the Commission to assess how the newly proposed mechanisms would be
beneficial to customers going forward. Thus the Commission was provided with a
basis to determine whether the mechanisms should be approved now. Record
testimony with comparisons to any “old” vs. “new” versions of the mechanisms
show that the Commission’s decision was not somehow based on the purported
precedential value of the prior settlement, but rather, that the Commission grappled
with what TECO was now petitioning for. Because the Commission did not approve
the SCRM or the AOM on the basis that it was bound by precedent, but rather,
held that the proposed mechanisms were supported by evidence in the record, the
doctrine of administrative finality was not violated.
Moreover, OPC’s argument reads language into the 2021
Settlement Agreement that does not exist: that TECO was prohibited from ever
requesting that the Commission authorize a similar, same, or different SCRM or
AOM in a period beginning on or after January 1, 2025. TECO did not assert in
its Petition or testimony that there was any precedential value to the fact
that a SCRM or an AOM had previously been approved through the 2021 Settlement
Agreement. TECO even disclaimed doing so at the hearing:
[TECO] is not asserting that the Commission should
approve this AOM because it’s in an existing settlement agreement. We are
asking you to approve it because of the facts and evidence in this case. We are
in no way suggesting that because it was in the settlement agreement, it should
have any more dignity or less dignity before the Commission right now.
TECO’s reference to the components of the two mechanisms
in the 2021 Settlement Agreement, in an effort to describe the new SCRM and AOM
it was requesting, is not the same as TECO arguing that precedent entitled it
to a SCRM and an AOM. As evidenced by the Final Order, Order No.
PSC-2025-0038-FOF-EI, the Commission did not approve the SCRM or AOM because
precedent necessitated that result.
Nor did the Commission indicate it was more inclined to approve these
mechanisms because they had been authorized previously. What the Commission did
was rely upon the evidence and testimony presented during the hearing regarding
the functioning, structure, operation, and performance of the mechanisms as the
basis for authorizing a SCRM and an AOM to commence on January 1, 2025.
OPC’s argument illogically suggests that if the Commission approves a certain
mechanism in a prior rate case, it is precluded from including such mechanism
in a subsequent rate case when the facts and circumstances at issue support
doing so.
Staff recommends that the Commission reject OPC’s
attempts to use the administrative finality doctrine as a vehicle to resurrect
the precedential value arguments OPC already raised in the post-hearing brief.
OPC’s attempt to reframe its argument for another bite at the apple is not an
appropriate basis for a motion for reconsideration. The Commission already
considered essentially the same argument when issuing its decision and did not
give precedential value to the 2021 Settlement Agreement and thus did not violate
the doctrine of administrative finality.
2. TECO’s Burden of Proof and the SCRM and the AOM
OPC alleges that “the Final Order impermissibly shifts the
burden of proof to the intervenors when it states ‘[f]urthermore, none of the
intervenors argued to change specific aspects of the Provision or put forth
evidence supporting which aspects should be revised.’” OPC argues this was made
even more egregious as “OPC was entitled to rely on the Commission’s approval
of the expiration” of the AOM and SCRM on December 31, 2024, as dictated by the
language of the 2021 Agreement Order.
Furthermore, OPC states that the Final Order acknowledges
that “[n]o party provided testimony regarding this Issue” and that “TECO did
not offer any independent evidence outside of the 2021 Agreement language
itself to support its request.” Finally, OPC states “[j]ust because the
Commission has the statutory authority to approve certain provisions does not
mean it can do so absent evidence independent of the prohibitive use of the 2021
Agreement provisions, nor does the Commission’s inherent statutory authority to
allow an activity absolve a utility of its burden to prove all elements of the
rate increase request.”
TECO’s Response
TECO argues the Commission did not shift the burden of
proof when approving the SCRM and the AOM. TECO further argues that OPC’s claim
“falsely presumes that the Commission’s approval of the SCRM and the AOM was
based solely on the precedential value of the 2021 Agreement” and that it
“ignores the ‘independent evidence’ that [TECO] presented to support the SCR
[sic] and the AOM, namely testimony regarding the benefits of those
mechanisms.” TECO
argues that OPC “conflates its own failure to offer evidence in opposition to [TECO’s]
evidence with burden-shifting.” Additionally, TECO argues the Commission cannot
simply disregard evidence that has been presented. “Where the testimony on the
pivotal issues of fact is not contradicted or impeached in any respect, and no
conflicting evidence is introduced, these statements of fact cannot be wholly
disregarded or arbitrarily rejected.”
Staff’s Analysis and
Recommendation
It is staff’s position that the Commission did not
overlook the burden of proof when approving the SCRM and the AOM. TECO
supported its requests for the SCRM and the AOM with sufficient evidence and
testimony regarding the benefits to customers and the functioning of the
mechanisms. As
mentioned previously, the SCRM establishes a process by which TECO may seek
approval for a monetary surcharge and timing framework through which TECO
recovers storm costs incurred to restore power to customers after damage caused
by tropical systems, including the replenishment of the preexisting target storm
reserve balance. The Commission has previously stated that its approval of interim
storm cost recovery charges,
[I]s preliminary in nature and is subject to true-up
pending further review once the total actual storm restoration costs are known.
After actual costs are reviewed for prudence and reasonableness, and are
compared to the actual amount recovered through the interim [charge], a
determination will be made whether any over/under recovery has occurred and the
appropriate steps to be taken for a refund or additional charge.
Meanwhile, the AOM is a shareholder incentive program
designed to encourage TECO to engage in additional activities with
ratepayer-supported assets in order to generate additional net benefits and
thereby produce customer savings in the form of reductions to fuel costs. TECO
shareholders benefit as the customer savings increase, encouraging the Company
to maximize the benefits it can extract from its existing assets. AOM
activities can include efforts such as the release of contracted gas storage
space during non-critical demand seasons, the sale of fuel using existing
transportation capacity to non-TECO customers in Florida, and the sale of gas
in the gas-production areas. The Commission considered the admitted evidence
when determining what would and would not comprise both of the newly approved
mechanisms.
The thrust of OPC’s argument here is that the references
in the Final Order to the fact that, on many issues, only TECO presented
evidence indicates the Commission shifted the burden of proof to the intervenors.
That is not the case. Rather, as the finder of fact, the Commission is tasked
with weighing evidence presented and ensuring that there is enough substantial,
competent evidence to support its findings.
If there is no competing evidence to weigh, the evidence that exists must still
be substantial and competent to support the Commission’s findings. Here, no one
disputes that the burden of proof rested with TECO.
Staff submits that the Commission’s decisions in this case are based on whether
or not there was substantial and competent evidence to support TECO’s requests.
OPC’s argument refuses to acknowledge the independent evidence that TECO
presented to support the SCRM and the AOM. Two witnesses offered testimony
regarding the benefits and functioning of those mechanisms, witnesses
Chronister and Heisey, both on behalf of TECO. OPC cross-examined these
witnesses and had the opportunity to object to any irrelevant or immaterial
evidence those witnesses sought to introduce.
The evidence presented by TECO was substantial and
competent. TECO witness Chronister described how the SCRM will operate,
including compliance with the Commission’s storm cost recovery rules, avoidance
of double collecting, the charges to replenish the target reserve liability,
and describing how any over-collection would be refunded to ratepayers through
a clause proceeding to avoid separate docket expense.
He testified that the SCRM has “served the company and its customers well by
providing an efficient regulatory mechanism for review and recovery of prudent
storm damage restoration and recovery costs.”
The cross-examination of TECO witness Chronister did not diminish the probative
value of his testimony and supporting evidence. Thus, TECO met its burden of
proof by a preponderance of evidence that the proposed SCRM should be
authorized to commence on January 1, 2025.
TECO witness Heisey testified that “[t]he [AOM] was
designed to create additional value for [TECO’s] customers while incenting the
company to maximize gains on power transactions and optimization activities.”
The witness described the activities that TECO requested be eligible for
inclusion in the AOM.
Under the proposed AOM,
[G]ains on eligible activities up to $4.5 million are
retained by customers. Gains between $4.5 million and $8 million are split,
with 60 percent of gains allocated to the company’s shareholders and 40 percent
allocated to customers. Gains above $8 million are also split, with 50 percent
of gains allocated to shareholders and 50 percent of gains allocated to
customers.
TECO witness Heisey testified, “If you look at the results
of the mechanism for the last six years, compared to a different mechanism for
the previous six years, the benefits are almost four times higher . . . . It
produces, again, a lot of benefits for customers.” Over
the last six years the prior AOMs generated over $45 million in benefits to
customers, which
equals roughly 68 percent of total gains. Specifically,
from 2021 through 2023, AOM activities resulted in over $21 million in benefits
to customers. This reveals
years of successful implementation and customer benefits generated under those
AOM parameters. Furthermore, TECO witness Collins testified that these gains
flow directly through the fuel cost recovery clause each year and help lower
customer bills. Without
the AOM, TECO witness Heisey indicated skepticism about TECO’s capacity to
produce similar benefits for ratepayers because, to effectively implement the
AOM, TECO had to incur additional labor costs to establish processes and manage
the optimization activities.
However, the Commission was not persuaded to include REC
sales and natural gas pipeline capacity release sales as permissible asset
optimization activities for TECO and therefore denied those aspects of the
newly proposed AOM. Overall, the Commission was convinced that approving a
modified version of the new AOM would generate similar benefits for ratepayers.
Thus, the testimony and supporting evidence from TECO witness Heisey was
sufficiently probative to justify by a preponderance of evidence that the new
AOM, as modified by the Commission, should be authorized to commence on January
1, 2025.
Finally, OPC insinuates that the Commission ordered the
establishment of a generic AOM proceeding because no testimony or evidence
shows how to structure TECO’s new AOM. However, that assertion mischaracterizes
the Commission’s ruling. As the Commission explained in its Final Order, the
record before it revealed differences between the various AOMs of each electric
investor-owned utility in terms of the types of asset optimization activities
allowed and the revenue-sharing thresholds established.
The Commission therefore felt it appropriate to have staff investigate the
dissonance and ultimately recommend whether uniformity through rulemaking was
warranted.
TECO met its evidentiary burden to support the approval of
the proposed SCRM and the proposed AOM, as modified by the Commission, based on
what it presented. The Commission did not engage in burden shifting; the lack
of contradictory testimony or evidence from the intervenors did not reduce
TECO’s burden nor did the Commission weigh such absence in TECO’s favor. Once
TECO established by preponderance of reasonable and credible evidence that the
mechanisms should be approved, the Commission could not disregard the evidence
simply because another party disagreed. “Where the testimony on the pivotal
issues of fact is not contradicted or impeached in any respect, and no
conflicting evidence is introduced, these statements of fact cannot be wholly
disregarded or arbitrarily rejected.”
The Commission did not find TECO witness Chronister’s or TECO witness Heisey’s
testimonies
regarding the mechanisms to be inconsistent, discredited, impeached, shaky, not
thorough, or not credible.
Therefore, the Commission’s observations that no intervenor provided testimony
on the mechanisms simply recognizes that there was no conflicting testimony to
weigh and that the evidence presented on these issues supported approving the SCRM
and the AOM. After considering what was presented by TECO, the Commission was
persuaded by the probative value of the evidence and found there was sufficient
basis to approve a new SCRM and new AOM.
3. The Midpoint ROE at 10.50 percent
OPC raises
two concerns in regard to the Commission’s decision on ROE: “(1) there was no
citation during the deliberations or in the Final Order to substantial and competent
record evidence to support a 10.50 percent ROE calculation; and (2) there was
no discussion or consideration during the deliberations or in the Final Order
that was based on those deliberations of how TECO’s size and severe weather
risks are already mitigated through other cost-recovery mechanisms.”
Specifically, OPC states that “[n]o reasonable mind would accept that the
evidence in this case is adequate to support the Commission’s arbitrary
conclusion that a 10.50 percent ROE would mitigate the risks expressed by the
Commission while a 10.30 percent ROE would not.” Moreover, OPC noted that TECO
already has other avenues, such as the Storm Protection Plan Cost Recovery
Clause, to mitigate potential weather risks.
TECO’s Response
TECO argues the Commission’s decision approving an ROE
midpoint of 10.50 percent was supported by substantial and competent evidence,
and states that OPC’s three arguments regarding the Commission’s decision on
ROE have no merit and should be rejected. First, TECO states that “[t]he Final
Order properly notes that the ‘collective range of the witnesses’ cost of
equity model results was 8.85 percent to 11.91 percent.” Therefore, TECO
argues, the Commission’s decision “is well within the range of ROE’s supported
by the expert testimony in the record” and is “well-reasoned, well-explained,
and based on record evidence that includes the intervening parties’ own expert
testimony.” Additionally, TECO claims OPC erroneously asks the Commission to
justify any deviation from staff’s recommendation, a recommendation which is
advice, not evidence, and which the Commission is free to accept or reject.
Finally, TECO argues that OPC “erroneously asserts that the Commission failed
to consider the company’s ability to recover storm restoration costs from
customers as a mitigating factor in assessing the company’s financial risk.”
TECO argues that the Final Order explicitly considers the mitigating impact of
the SCRM when evaluating the appropriate ROE for the company.
Staff’s Analysis and
Recommendation
It is staff’s position that the Commission’s decision to
select 10.50 percent as an ROE midpoint is supported by substantial and
competent evidence. The Commission was confronted with a considerable amount of
competing testimony on this issue, including over 20 variations of financial
models provided by three competing witnesses and further testimony provided by
two additional witnesses. All of this testimony was subject to a lengthy
discovery process and further cross examination in hearing. As argued by TECO
in its Response, the Final Order extensively discusses these models and their
inputs and outputs as well as a comparison of the risks between TECO and the
proxy group used to estimate TECO’s market-based cost of equity. Because
these experts provided a considerable range of differing estimates for the ROE,
which were supported by a reasonable factual basis for TECO, it is within the
Commission’s purview to determine the appropriate weight to accord these
opinions.
Additionally, TECO established through expert testimony
that TECO faces unique risks due to its lack of geographic diversity, specifically
having a highly concentrated service territory located in an area prone to
potentially devastating hurricanes which may cause considerable damage to a
high percentage of TECO’s territory.
Despite his analysis indicating a specific size adjustment was not necessary,
TECO witness D’Ascendis noted the “company’s lack of geographic diversity due
to its small size is cause for concern.” He also noted that TECO’s risk
associated with extreme weather events is relatively high as compared to the
utility proxy group.
Having established this risk, and with the various experts offering reasonable
methods to interpret and account for the risk, the Commission was justified in
accepting or reasonably modifying those methods.
Considering the unique aspects of TECO’s business, determining the fair and
proper rate of return is particularly “a matter of opinion which necessarily
had to be infused by policy considerations for which the PSC has special
responsibility.”
Furthermore, the Commission enjoys considerable discretion when adjusting rates
within a fair rate of return range, including making adjustments to a rate
within a given range.
Finally, staff believes OPC’s second point, its assertion
that there was no discussion that TECO’s size and severe weather risks are
already mitigated through other cost-recovery mechanisms, is misguided. As
noted in the Final Order, TECO’s ability to recover storm costs outside of a
rate case does not entirely mitigate its risks.
The Final Order also notes that the increasing frequency of hurricanes and
other large storms will only increase both the costs of storm recovery and the
need to recover those costs.
4. The Revenue Requirement in the Final Order
OPC included an attachment that lists 6 potential errors
found in the calculations for the revenue requirement in the Final Order. OPC
alleges these errors are the result of inconsistencies that reveal revenue
requirement errors in Attachments A and C of the Commission’s Final Order. Item Nos. 1, 4, and 5 address corrections to
rounded adjustment amounts included in the Excel calculation of TECO’s revenue
requirement, while items 2, 3, and 6 were due to inadvertent errors in the
underlying calculations for determining the revenue requirement.
TECO’s Response
In regard to the potential errors identified by OPC, TECO
states that it “cannot determine with precision … whether there were errors
made in the calculation of the 2025 base rate increase.” TECO argues, however,
that the administrative cost and customer confusion associated with
implementing small base rate changes in order to respond to OPC’s alleged
calculation errors, in the middle of a calendar year, should be avoided. If
corrections are necessary, TECO proposes to recover (or return) the incremental
(or decremental) amount of revenue identified through one of the company’s cost
recovery clauses and into any subsequent year adjustments for periods beyond
2025.
Staff’s Analysis and
Recommendation
Included in OPC’s Motion was an
attachment identifying six corrections to the Commission’s revenue requirement
calculation. Staff agrees with all proposed corrections, with one adjustment
for Item 3. Item Nos. 1, 4, and 5 address corrections related to rounded
adjustment amounts. OPC’s suggested corrections are as follows:
·
Item No. 1, associated with the removal of the
Microgrid project, should be corrected, resulting in a reduction of $46,972 to
Plant and $1,635 to Accumulated Depreciation and Depreciation Expense.
·
Item No. 4, associated with the normalization of
Generation O&M Expense, should be corrected, resulting in an increase of
$86,667 to working capital and reduction of $16,667 to O&M Expense.
·
Item No. 5, associated with the Commission’s
reduction of corporate responsibility costs, should be corrected, resulting in
a reduction of $1,027 to O&M Expense.
The remaining corrections OPC
pointed out in its motion were due to inadvertent errors in the underlying
calculations of the revenue requirement. These are as follows:
·
Item No. 2 is a correction to the inclusion of
the common equity component in the ITC rate used to calculate the fallout
interest synchronization, resulting in a decrease of $31,918 to Income Tax
Expense.
·
Item No. 3, associated with the removal of
Customer Digitalization projects, is a correction to the factored adjustment
amount in the calculation, which included an additional “0,” resulting in an
increase of $1,566,000 to O&M Expense to correct the overstated reduction.
In its attachment, OPC calculated the correction’s impact by removing $174 from
the overstated reduction of $1,740,000, instead of $174,000, resulting in an
incorrect reference to the amount of $1,739,826 ($1,740,000 - $174).
·
Item No. 6, associated with the removal of half
of Directors and Officers Liability insurance expense, is a correction to
include a second component of the total expense removed, resulting in a
decrease of $376,500 to O&M Expense.
In sum, OPC’s corrections listed
in Item Nos. 1–6 result in net increases of $41,330 to Rate Base and $1,138,253
to Operating Expenses. In total, including corresponding adjustments to Income
Tax Expense and the corresponding multiplier, OPC’s corrections result in a
revenue requirement increase of $1.1 million, which is an increase of 0.61
percent.
Because the corrections result in
a rate increase to the customers, staff recommends the Energy Conservation Cost
Recovery Clause (ECCR) be utilized to recover the 2025 impacts of the
correction to TECO’s revenue requirements to minimize the impact to the
customers. The ECCR mimics the rate design used to establish base rates, and
ECCR factors for residential and small commercial are on an energy basis
(cents/kWh) and ECCR factors for demand billed customers are on a demand basis
($/kW).
Conclusion
Staff believes that TECO met its burden for both the SCRM
and the AOM, as modified by the Commission, by presenting sufficient independent
evidence and testimony regarding the benefits to customers and the functioning
of the mechanisms. The Commission appropriately weighed the evidence before it
when approving the new SCRM and new AOM. Additionally, staff recommends that the
Commission reject OPC’s interpretation of the administrative finality doctrine
as the Commission already considered substantially the same argument when
issuing its Final Order and the Commission neither violated the doctrine nor
gave precedential value to the 2021 Settlement Agreement in reaching its
decision.
Staff believes the Commission’s
decision to select 10.50 percent as an ROE midpoint is supported by substantial
and competent evidence and was reasonable given the unique aspects of TECO’s
business. The Commission was confronted with a considerable amount of competing
testimony including over 20 variations of financial models provided by three
competing witnesses and further testimony provided by two additional witnesses.
Additionally, TECO established that it faces unique risks due to its geography,
namely having a highly concentrated service territory located in an area prone
to potentially devastating hurricanes which may cause considerable damage to a
high percentage of TECO’s territory.
Ultimately, staff recommends that
OPC’s Motion for Reconsideration should be denied regarding the AOM, SCRM, and
ROE determinations, however, the Motion should be granted to correct the
identified errors in the calculation of the revenue requirement. The resulting $1.1
million increase in revenue requirement should be recovered for 2025 through
the Energy Conservation Cost Recovery Clause and then in 2026 going forward
when implementing SYA rates.
Issue 3:
Should OPC’s request for clarification be granted?
Recommendation:
Yes, in part. Staff recommends that the Commission
deny the part of OPC’s Motion for Clarification related to requested numerical
values and evidentiary support. The Commission’s Final Order, together with the
above discussion in Issue 2 regarding burden of proof, is sufficiently clear on
those matters. However, staff recommends that the Commission grant the part of
OPC’s Motion for Clarification seeking clarity regarding a description of what
comprises the SCRM and the AOM and that the Final Order be revised to include
clarification language as outlined below. (Sparks, Marquez, Harper, P. Buys, O.
Wooten)
Staff Analysis:
Law
Neither the Uniform Rules of Procedure nor Commission
rules specifically allow for a motion for clarification. However, the
Commission has typically applied the Diamond
Cab Co. of Miami v. King standard in evaluating a request for clarification
when the motion actually sought reconsideration of some part of the substance
of an order. “In
cases where the motion sought only explanation or clarification of a Commission
order, [the Commission has] typically considered whether the order requires
further explanation or clarification to fully make clear its intent.”
OPC’s Motion
OPC seeks clarification regarding the SCRM and the AOM on
both the specifics of these mechanisms as well as their evidentiary support.
Specifically, OPC requests the Commission clarify whether provision 8(c) of the
2021 Settlement Agreement was adopted in the Final Order and, if so, whether
the Commission intended to deny the rights of substantially affected parties
from litigating earnings and cost savings offsets in future proceedings involving
TECO’s efforts to recover future storm costs. OPC also “seeks clarification
regarding which numerical values and other terms and conditions the Commission
is approving from the 2021 Agreement” in regard to the SCRM provision. Finally,
OPC seeks clarification regarding the AOM provision as well as an
identification of the numerical values and evidentiary support for the values,
terms, and conditions approved.
TECO’s Response
In response to OPC’s Motion for Clarification, the company
offered the following thoughts “for the Commission’s consideration.” The Final
Order clearly reflects that the Commission approved TECO’s request that the
SCRM and the AOM be approved in their entirety but did not approve the
company’s proposed modifications to the AOM. TECO alleges that OPC’s assertion
that the inclusion of certain language, specifically Paragraph 8(c), from the
2021 Agreement impairs the rights of potential future litigants in storm cost
recovery proceedings is misguided, and TECO asserts the Commission has always
had the authority to determine the scope of the issues to be addressed in a
proceeding.
Staff’s Analysis and Recommendation
As a preliminary matter, the Final Order and the
discussion above regarding burden of proof are sufficiently clear about what
testimony and evidence the Commission relied upon in approving the SCRM and the
AOM.
No further explanation is needed regarding the numerical values in, or evidentiary
support for, the two newly approved mechanisms.
However, there appears to be some confusion amongst the parties
regarding what comprises the approved SCRM and AOM, which staff will address in
more detail below. Specifically, OPC raises concerns about whether Paragraph
8(c), from the 2021 Settlement Agreement, was incorporated into the new SCRM. That
provision stated:
The Parties expressly agree that any proceeding to
recover costs associated with any storm shall not be a vehicle for a “rate case”
type inquiry concerning the expenses, investment, or financial results of
operations of [TECO] and shall not apply any form of earnings test or measure
or consider previous or current base rate earnings. Such issues may be fully
addressed in any subsequent [TECO] base rate case.
Because this prohibition was not discussed in the
Commission’s Final Order, it was clear that the Commission did not intend to
include it in the new SCRM. Instead, staff submits that the applicable rule and
statute would guide the relevancy and scope of any future storm cost recovery
proceeding.
As stated above, the Commission approved a new SCRM and
new AOM to commence on January 1, 2025. To clarify what the two mechanisms are
comprised of, staff summarizes below the SCRM and the AOM approved in the Final
Order.
1. Storm Cost Recovery Mechanism
The recovery of storm costs from customers will begin on
an interim basis (subject to refund following a hearing or a full opportunity
for a formal proceeding) sixty days following TECO’s filing of a cost recovery
petition and tariff.
The petition will be based on a 12-month recovery period if the storm costs do
not exceed $4.00/1,000 kWh on monthly residential customer bills. In the event
TECO’s reasonable and prudent storm costs exceed that level, any additional
costs in excess of $4.00/1,000 kWh per month will be recovered in a subsequent
year or years as determined by this Commission. All storm-related costs must be
calculated and disposed of pursuant to Rule 25-6.0143, F.A.C., and will be limited
to (1) costs resulting from such tropical system named by the National
Hurricane Center or its successor, (2) the estimate of incremental storm
restoration costs above the level of storm reserve prior to the storm, and (3)
the replenishment of the storm reserve to $55,860,642.
The monthly $4.00/1,000 kWh cap will apply in the
aggregate for a calendar year; however, TECO may petition the Commission to
increase the initial 12-month recovery period to rates greater than $4.00/1,000
kWh or for a period longer than 12 months if TECO incurs over $100 million of qualifying
storm recovery costs in a given calendar year, inclusive of the amount needed
to replenish the storm reserve.
2. Asset Optimization Mechanism
TECO’s Asset Optimization Activities include efforts such
as:
(1)
Gas storage utilization. TECO may release contracted
storage space or sell stored gas during non-critical demand seasons.
(2)
Delivered gas sales using existing transport. TECO may
sell gas to Florida customers, using TECO’s existing gas transportation
capacity during periods when it is not needed to serve TECO’s native electric
load.
(3)
Production (upstream) area sales. TECO may sell gas in
the gas-production areas, using TECO’s existing gas transportation capacity
during periods when it is not needed to serve TECO’s native electric load.
(4)
Asset Management Agreement. TECO may outsource
optimization functions to a third party through assignment of power,
transportation, and/or storage rights in exchange for a premium to be paid to
TECO.
In carrying out Asset Optimization Activities, TECO will
not require any native load customer to be interrupted in order to initiate or
maintain an economy sale.
Each year, TECO customers will receive 100 percent of the
gains from Asset Optimization Activities up to a threshold of $4.5 million. Incremental
gains above the $4.5 million will be shared between TECO and customers as
follows: TECO will retain 60 percent and customers will receive 40 percent of
incremental gains realized above $4.5 million up to $8 million; and TECO will
retain 50 percent and customers will receive 50 percent of all incremental
gains in excess of $8 million.
Each year, as part of its fuel cost recovery clause (Fuel
Clause) final true-up filing, TECO will file a schedule showing its gains in
the prior calendar year on short-term wholesale sales, short-term wholesale
purchases, and all forms of asset optimization that it undertook in that year
(the Total Gains Schedule). TECO’s final true-up filing will include a
description of each asset optimization activity for which gains are included on
the Total Gains Schedule for the prior year, and such measures will be subject
to review by this Commission to confirm that they are eligible for inclusion in
the AOM. The customers' portion of total gains will be shown as a reduction to
the fuel costs that are recovered through the Fuel Clause factors. TECO will
recover its portion of total gains through adjustments to its Fuel Clause
factors that are made in the normal course of calculating those factors and
that flow through to all rate classes in the same manner as other costs
recovered through the factors. However, TECO may not recover through the Fuel
Clause any incremental costs incurred to add personnel, software, or associated
hardware needed to manage the expanded short-term and wholesale purchases,
sales programs, or asset optimization activities. TECO’s final true-up filing
will separately state and describe the incremental optimization costs it
incurred in the prior year, and such costs will be subject to review and
approval by us.
Several activities are excluded from TECO’s Asset
Optimization Activities, including the release of natural gas pipeline capacity
by TECO directly or indirectly (e.g., via affiliate arrangements),
retirement/release of railcars, and the sale of renewable energy credits.
Conclusion
Staff recommends that the Commission deny the part of
OPC’s Motion for Clarification related to requested numerical values and
evidentiary support. The Commission’s Final Order, together with the above
discussion in Issue 2 regarding burden of proof, is sufficiently clear on those
matters. However, staff recommends that the Commission grant the part of OPC’s
Motion for Clarification seeking clarity regarding a description of what comprises
the SCRM and the AOM and that the Final Order be revised to include
clarification language as outlined above.
Issue 4:
Should these dockets be closed?
Recommendation:
No. These dockets should remain open while the
appeals filed by OPC and FL Rising/LULAC are processed by the Florida Supreme
Court. (Sparks, Marquez, Harper)
