Discussion
of Issues
Issue 1:
Should the incremental cost and capitalization
approach (ICCA) found in Rule 25-6.0143, Florida Administrative Code, (F.A.C.),
be used to determine the reasonable and prudent amounts to be included in the
restoration costs?
Recommendation:
Yes, the ICCA approach in Rule 25-6.0143, F.A.C.,
should be used to determine the reasonable and prudent amounts included in the
storm restoration costs. (Ford-Green)
Staff Analysis:
Rule 25-6.0143, F.A.C., requires the ICCA
methodology be used in determining the costs to be charged to cover storm-related
damages. Therefore, the ICCA approach should be used to determine the
reasonable and prudent amounts included in the storm restoration costs.
(Ford-Green)
Issue 2:
What is the reasonable and prudent amount of regular
payroll expense to be included in the total storm restoration costs?
Recommendation:
The reasonable and prudent amount of payroll expense
to be included in the total storm restoration costs is $9.436 million.
(Ford-Green)
Staff Analysis:
DEF witness New testified that regular payroll
represents regular labor costs incurred by DEF employees or employees of DEF
affiliates for time spent on storm restoration activities. Pursuant to Rule
25-6.0143(1)(e)8., F.A.C., payroll and payroll related costs may be charged to
the storm reserve under the ICCA methodology. Witness New explained that DEF
calculated the non-incremental payroll amount by comparing actual base payroll
for the months in which restoration work occurred with a three-year historical
average of base payroll for the corresponding months.
Witness New testified that to ensure the reasonableness
and prudence of the costs, DEF utilized separate project codes for
transmission, distribution, generation, and customer service to properly
account for all costs directly incurred by storm restoration activities.
Witness New continued that all storm restoration costs are initially recorded
in FERC Account 186 and then reviewed to determine whether they should be
recorded to the storm reserve, operations and maintenance expense, or capital
accounts. The reasonable and prudent amount of payroll expense for each storm
are listed below.
Table 2-1
Regular Payroll Expense
|
Storm
|
Amount (Million)
|
|
Debby
|
$1.580
|
|
Helene
|
2.914
|
|
Milton
|
4.942
|
|
Total
|
$9.436
|
Source:
Exhibits JN-2, JN-3, and JN-4
The Commission’s auditing staff reviewed Deloitte’s work
papers and found that the scope, procedures, and conclusion were reasonable.
The Company confirmed that costs and invoices for Hurricanes Debby and Helene
were handled in the same manner as Hurricane Milton, which was the subject of
the Deloitte audit. Therefore, staff recommends the regular payroll expense for
all three hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of regular payroll
expense to be included in the total storm restoration costs is $9.436 million.
Issue 3:
What is the reasonable and prudent amount of
overtime payroll expense to be included in the total storm restoration costs?
Recommendation:
The reasonable and prudent amount of overtime
payroll expense to be included in the total storm restoration costs is $29.485
million. (Ford-Green)
Staff Analysis:
As discussed in Issue 2, payroll and payroll related
costs may be charged to the storm reserve pursuant to Rule 25-6.0143(1)(e)8.,
F.A.C. and are subject to the same calculation of non-incremental cost under
the ICCA methodology. Furthermore, the Company utilized separate project codes
that were subsequently reviewed for reasonableness and prudence of each cost
associated with the Storms. The reasonable and prudent overtime payroll
expenses for each storm are listed below.
Table 3-1
Overtime Payroll Expense
|
Storm
|
Amount (Million)
|
|
Debby
|
$4.493
|
|
Helene
|
9.641
|
|
Milton
|
15.351
|
|
Total
|
$29.485
|
Source:
Exhibits JN-2, JN-3, and JN-4
The Commission’s auditing staff reviewed Deloitte’s work
papers and found that the scope, procedures, and conclusion were reasonable.
The Company confirmed that costs and invoices for Hurricanes Debby and Helene
were handled in the same manner as Hurricane Milton, which was the subject of
the Deloitte audit. Therefore, staff recommends the overtime payroll expense
for all three hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of overtime payroll
expense to be included in the total storm restoration costs is $29.485 million.
Issue 4:
What is the reasonable and prudent amount of
contractor costs, including vegetation and line clearing, to be included in the
total storm restoration costs?
Recommendation:
The reasonable and prudent amount of contractor
costs to be included in total storm restoration costs is $832.366 million.
(Davis)
Staff Analysis:
According
to DEF witness New, contractor costs consist of third-party time and equipment
costs incurred for storm restoration activities. Pursuant to Rule
25-6.0143(1)(e)1., F.A.C., contractor costs may be charged to the storm reserve
under the Incremental Cost and Capitalization Approach (ICCA) methodology. DEF witness New explained that DEF determined the
amount of non-incremental contractor costs by calculating the prior three-year
average for the months in which storm restoration activities were incurred, and
compared it to the actual contractor costs incurred in the month in which storm
restoration work was performed.
When asked why the contractor
costs were updated from the petition to witness New’s testimony, DEF stated
that the variance is attributable to the use of preliminary storm cost
estimates developed in November 2024. Subsequent adjustments were based on
completed storm restoration activities, vendor invoices, and prudency reviews
that allowed costs to be further validated and finalized. DEF is requesting
storm recovery of incremental costs incurred in responding to Hurricanes Debby,
Helene, and Milton as defined under the ICCA methodology required under Rule
25-6.0143, F.A.C. The reasonable and prudent total contractor costs for each
storm are listed below.
Table 4-1
Contractor Costs
|
Storm
|
Amount ($ Million)
|
|
Debby
|
$31.633
|
|
Helene
|
200.678
|
|
Milton
|
600.055
|
|
Total
|
$832.366
|
Source: Exhibits JN-2, JN-3,
and JN-4
In response to a staff data
request, DEF stated that it identified an overpayment to a vendor. DEF
contacted the vendor, which acknowledged the error and committed to fully
repaying the overpayment to DEF. The overpayment resulted in contractor costs
reported in DEF’s original testimony filing being overstated by $510,514. In
its response, DEF proposes to apply this amount to a future storm regulatory
filing. Staff disagrees with this treatment, as it would create an unnecessary
delay in the recognition of the adjustment. Instead, staff recommends that the
adjustment to reduce contractor expense by $510,514 be made in this proceeding.
The Commission’s auditing staff
reviewed Deloitte’s work papers and found that the scope, procedures, and
conclusion were reasonable. The Company confirmed that costs and invoices for
Hurricanes Debby and Helene were handled in the same manner as Hurricane
Milton. Therefore, staff recommends the contractor costs for all three
hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of contractor costs to be
included in total storm restoration costs is $832.366 million.
Issue 5:
What is the reasonable and prudent amount of internal
fleet costs to be included in the total storm related restoration costs?
Recommendation:
The reasonable and prudent amount of internal fleet
costs to be included in total storm restoration costs is $0.882 million.
(Davis)
Staff Analysis:
According to DEF witness New, internal fleet costs for storm
restoration consist of fuel and maintenance costs for DEF fleet vehicles. Pursuant to Rule 25-6.0143(1)(e)9., F.A.C., internal
fleet costs may be charged to the storm reserve under the ICCA methodology. DEF
witness New explained that DEF determined the amount of non-incremental internal
fleet costs by calculating the prior three-year average for the months in which
storm restoration activities were incurred, and compared it to the actual internal
fleet costs incurred in the month in which storm restoration work was
performed.
When asked why the internal fleet
costs were updated from the petition to witness New’s testimony, DEF stated
that the variance is attributable to the use of preliminary storm cost
estimates developed in November 2024. Subsequent adjustments were based on
completed storm restoration activities, vendor invoices, and prudency reviews
that allowed costs to be further validated and finalized. DEF is requesting storm recovery of incremental costs
incurred in responding to Hurricanes Debby, Helene, and Milton as defined under
the ICCA methodology required under Rule 25-6.0143, F.A.C. The reasonable and prudent total internal fleet costs
for each storm are listed below.
Table
5-1
Internal Fleet Costs
|
Storm
|
Amount (Million)
|
|
Debby
|
$0.283
|
|
Helene
|
0.213
|
|
Milton
|
0.386
|
|
Total
|
$0.882
|
Source: Exhibits JN-2, JN-3,
and JN-4
The Commission’s auditing staff
reviewed Deloitte’s work papers and found that the scope, procedures, and
conclusion were reasonable. The Company confirmed that costs and invoices for
Hurricanes Debby and Helene were handled in the same manner as Hurricane
Milton. Therefore, staff recommends the internal fleet costs for all three
hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of internal fleet costs
to be included in total storm restoration costs is $0.882 million.
Issue 6:
What is the reasonable and prudent amount of
employee expenses to be included in the total storm restoration costs?
Recommendation:
The reasonable and prudent amount of employee
expenses to be included in the total storm restoration costs is $51.537
million. (Ford-Green)
Staff Analysis:
Witness New testified that employee expenses included
lodging costs for employees and contractor crews, as well as meals and mileage
reimbursements for employees using their personal vehicles during storm
restoration. Pursuant to Rule 25-6.0143(1)(e)2., F.A.C., logistics costs of
providing meals, lodging, and linens for tents and other staging areas may be
charged to the storm reserve under the ICCA methodology. Additionally, witness
New testified that DEF excluded any amounts from this request that were
non-incremental or capitalizable pursuant to Rule 25-6.0143(1)(d), and(1)(e),
F.A.C.
As discussed in Issue 2, the
Company utilized separate project codes that were subsequently reviewed for
reasonableness and prudence of each cost associated with the Storms. The
reasonable and prudent amount of employee expenses for each storm are listed
below.
Table 6-1
Employee Expenses
|
Storm
|
Amount (Million)
|
|
Debby
|
$1.946
|
|
Helene
|
9.582
|
|
Milton
|
40.009
|
|
Total
|
$51.537
|
Source:
Exhibits JN-2, JN-3, and JN-4
The Commission’s auditing staff reviewed Deloitte’s work
papers and found that the scope, procedures, and conclusion were reasonable.
The Company confirmed that costs and invoices for Hurricanes Debby and Helene
were handled in the same manner as Hurricane Milton, which was the subject of
the Deloitte audit. Therefore, staff recommends the employee expenses for all
three hurricanes be considered reasonable and prudent.
The reasonable and
prudent amount of employee expenses to be included in the total storm
restoration costs is $51.537 million.
Issue 7:
What is the reasonable and prudent amount of
materials and supplies expense to be included in the total storm restoration
costs?
Recommendation:
The reasonable and prudent amount of materials and
supplies expense to be included in total storm restoration costs is $43.616
million. (Davis)
Staff Analysis:
According to DEF witness
New, material and supplies costs consist of items used to repair and restore
service and facilities to pre-storm condition and exclude any materials and
supplies used in restoration activities that are included in capitalized cost. Pursuant to Rule 25-6.0143(1)(e)7., F.A.C., materials
and supplies costs may be charged to the storm reserve under the ICCA
methodology. DEF witness New explained that DEF determined the amount of
non-incremental materials and supplies costs by calculating the prior
three-year average for the months in which storm restoration activities were
incurred and compared it to the actual materials and supplies costs incurred in
the month in which storm restoration work was performed.
When asked why the costs of
materials and supplies were updated from the petition to witness New’s testimony,
DEF stated that the variance is attributable to the use of preliminary storm
cost estimates developed in November 2024. Subsequent adjustments were based on
completed storm restoration activities, vendor invoices, and prudency reviews
that allowed costs to be further validated and finalized. DEF is requesting
storm recovery of incremental costs incurred in responding to Hurricanes Debby,
Helene, and Milton as defined under the ICCA methodology required under Rule
25-6.0143, F.A.C. The reasonable and prudent total materials and supplies costs
for each storm are listed below.
Table 7-1
Materials and Supplies
Expense
|
Storm
|
Amount (Million)
|
|
Debby
|
$3.510
|
|
Helene
|
22.515
|
|
Milton
|
17.591
|
|
Total
|
$43.616
|
Source: Exhibits JN-1, JN-2,
and JN-3
The Commission’s auditing staff
reviewed Deloitte’s work papers and found that the scope, procedures, and
conclusion were reasonable. The Company confirmed that costs and invoices for
Hurricanes Debby and Helene were handled in the same manner as Hurricane
Milton. Therefore, staff recommends the materials and supplies expense for all three
hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of materials and
supplies expense to be included in total storm restoration costs is $43.616
million.
Issue 8:
What is the reasonable and prudent amount of other
costs to be included in the total storm related restoration costs?
Recommendation:
The reasonable and prudent amount of other costs to
be included in the total storm related restoration costs is $25.296 million.
(Ford-Green)
Staff Analysis:
Witness New testified that other expenses include
minor amounts of storm-related costs that are not included in another
storm-cost category. Specifically, Exhibit JN-2 identified $495,000 in other
expenses as the Deloitte audit fee. Exhibit JN-3 identified $39,000 of other
costs which were further explained in DEF’s response to staff’s fourth data
request. This amount was contractor costs that were initially charged to
another project and was categorized as other instead of outside services due to
the coding in the corrected journal entry. Also, included in the other expense category
is labor burdens/incentives, overhead allocations, and insurance deductibles.
Pursuant to Rule 25-6.0143(1)(e)12., F.A.C., other costs or expenses not
specifically identified in Rule 25-6.0143(1)(e)1. through (1)(e)12., F.A.C.,
that are directly attributable to a storm restoration event may be charged to
the storm reserve under the ICCA methodology.
As stated by witness New, “labor burdens and incentives”
included cost for employee bonuses and cost such as medical payroll tax, and
other non-incentive benefits. However, pursuant to Rule 25-6.0143(1)(f)1.,
F.A.C., DEF excluded the bonuses paid to DEF employees for their efforts during
the storm restoration activities. Witness New explained that DEF failed to
remove the bonuses paid prior to Deloitte’s audit and resulted in a slight
discrepancy of approximately $670,000 between the recoverable actual costs and
the amounts reviewed by Deloitte. Furthermore, Witness New explained that DEF
calculated the non-incremental amount by comparing actual amount for the months
in which restoration work occurred with a three-year historical average for the
corresponding months.
Additionally, witness New explained that “overhead
allocation” included costs for employee labor from support organizations and
DEF employees of affiliates that are allocated to the storm project based on
payroll and overtime charges. Furthermore, overhead allocation costs are
non-incremental except when capitalized and those amounts are excluded from the
recovery amount.
As discussed in Issue 2, the Company utilized separate
project codes to review the reasonableness and prudence of each cost associated
with the Storms. The reasonable and prudent other costs for each storm are
listed below.
Table 8-1
Other Costs
|
Storm
|
Amount (Million)
|
|
Debby
|
$3.622
|
|
Helene
|
7.481
|
|
Milton
|
14.193
|
|
Total
|
$25.296
|
Source:
Exhibits JN-2, JN-3, and JN-4
The Commission’s auditing staff reviewed Deloitte’s work
papers and found that the scope, procedures, and conclusion were reasonable.
The Company confirmed that costs and invoices for Hurricanes Debby and Helene
were handled in the same manner as Hurricane Milton, which was the subject of
the Deloitte audit. Therefore, staff recommends the other costs for all three
hurricanes be considered reasonable and prudent.
The reasonable and prudent amount of other costs to be
included in the total storm restoration costs is $25.296 million.
Issue 9:
What is the reasonable and prudent total amount of
costs to be included in the total storm related restoration costs?
Recommendation:
The reasonable and prudent total amount of costs to
be included in the total storm related restoration costs is $992.618 million.
(Ford-Green)
Staff Analysis:
Based on staff’s recommendation in Issues 2 through
8, the reasonable and prudent amounts of incurred storm restoration costs for
each storm are listed below.
Table 9-1
Total Storm Related Restoration
Costs
|
Storm
|
Amount (Million)
|
|
Debby
|
$47.067
|
|
Helene
|
253.023
|
|
Milton
|
692.528
|
|
Total
|
$992.618
|
Source:
Exhibits JN-2, JN-3, and JN-4
The reasonable and prudent amount of costs to be included
in the total storm related restoration costs is $992.618 million.
Issue 10:
What is the reasonable and prudent amount of
storm-related costs that should be capitalized?
Recommendation:
The reasonable and prudent amount of storm-related
costs that should be capitalized is $61.180 million. (Davis)
Staff Analysis:
Pursuant to Rule 25-6.0143(1)(d), F.A.C., under the
ICCA methodology, capital expenditures for storm-related facility damage must
exclude the normal cost of removal, retirement, and replacement of those
facilities in the absence of a storm. DEF witness New testified that DEF has a
process to ensure all units of property installed during storm restoration are
capitalized at reasonable amounts to ensure a storm cost recovery request that
is incremental under the ICCA methodology.
When asked about the variance in total capitalizable costs from the
petition to witness New’s testimony, DEF stated that the variance is
attributable to finalization of materials utilized within the ICCA
calculations. DEF is requesting storm recovery of incremental costs incurred in
responding to Hurricanes Debby, Helene, and Milton as defined under the ICCA
methodology required under Rule 25-6.0143, F.A.C. The reasonable and prudent
total costs that should be capitalized for each storm are listed below.
Table 10.1
Total Capitalizable Costs
|
Storm
|
Amount (Million)
|
|
Debby
|
$5.202
|
|
Helene
|
27.305
|
|
Milton
|
28.672
|
|
Total
|
$61.180
|
Source: Exhibits JN-1, JN-2, and JN-3
The Commission’s auditing staff
reviewed Deloitte’s work papers and found that the scope, procedures, and
conclusion were reasonable. The Company confirmed that costs and invoices for
Hurricanes Debby and Helene were handled in the same manner as Hurricane
Milton.
Therefore, staff recommends the costs that were
capitalized for all the hurricanes are reasonable and prudent and the
appropriate amount to capitalize is $61.180 million.
Issue 11:
What is the reasonable and prudent amount of
storm-related costs that should be ICCA non-incremental O&M adjustments?
Recommendation:
The reasonable and prudent amount of storm-related
costs that should be ICCA non-incremental O&M adjustments is $15.729
million. (Ford-Green)
Staff Analysis:
Rule 25-6.0143(1)(d), F.A.C., requires the ICCA be
used when determining the costs charged to cover storm-related damages. Under
the ICCA methodology, storm costs must exclude costs that normally would have
been charged to non-cost recovery clause operating expenses in the absence of a
storm.
As discussed in Issues 2 through 8, the method for
determining non-incremental adjustments is pursuant to Rule 25-6.0143(1)(d),
F.A.C. The reasonable and prudent storm related costs that should be ICCA
non-incremental O&M adjustments are listed below.
Table 11-1
ICCA Non-Incremental O&M
Adjustments
|
ICCA Adjustments
|
Debby
|
Helene
|
Milton
|
|
Regular Payroll
|
$712,000
|
$1,719,000
|
$612,000
|
|
Overtime Payroll
|
253,000
|
168,000
|
171,000
|
|
Labor Burdens/Incentives
|
1,362,000
|
3,021,000
|
2,900,000
|
|
Overhead Allocations
|
207,000
|
240,000
|
497,000
|
|
Employee Expenses
|
20,000
|
208,000
|
56,000
|
|
Contractor Costs
|
1,221,000
|
1,404,000
|
466,000
|
|
Material & Supplies
|
49,000
|
127,000
|
211,000
|
|
Internal Fleet Costs
|
74,000
|
6,000
|
27,000
|
|
Other
|
0
|
0
|
0
|
|
Total
|
$3,898,000
|
$6,892,000
|
$4,939,000
|
Source:
Exhibits JN-2, JN-3, and JN-4
The Commission’s auditing staff reviewed Deloitte’s work
papers and found that the scope, procedures, and conclusion were reasonable.
The Company confirmed that costs and invoices for Hurricanes Debby and Helene
were handled in the same manner as Hurricane Milton, which was the subject of
the Deloitte audit. Therefore, staff believes the adjustments for
non-incremental costs are reasonable and prudent.
The reasonable and prudent amount of storm-related costs
that should be ICCA non-incremental O&M adjustments is $15.729 million.
Issue 12:
What is the reasonable and prudent amount of retail
recoverable storm costs?
Recommendation:
The reasonable and prudent amount of retail
recoverable storm costs is $914.795 million. (Ford-Green)
Staff Analysis:
Based upon the previously stated storm restoration
costs categories and adjustments, the reasonable and prudent retail recoverable
storm costs are listed below.
Table 12-1
Retail Recoverable Storm
Costs
|
Storm
|
Amount (Million)
|
|
Debby
|
$37.110
|
|
Helene
|
215.944
|
|
Milton
|
649.904
|
|
Storm Reserve Replenishment and Interest
|
11.837
|
|
Total
|
$914.795
|
Source:
Exhibit JN-1, JN-2, JN-3, and JN-4
The reasonable and prudent amount of retail recoverable
storm costs is $914.795 million.
Issue 13:
What is the amount that was recovered thorough the
storm cost recovery surcharge?
Recommendation:
The amount recovered through the storm cost recovery
surcharge is $1.006 billion. (Ford-Green)
Staff Analysis:
Based on DEF’s witness New’s testimony, DEF
collected $1.006 billion through the storm restoration recovery surcharge,
during the recovery period of March 2025 through January 2026.
Issue 14:
If applicable, how should any under-recovery or
over-recovery be handled?
Recommendation:
Any final under-recovery or over-recovery should be
collected from or refunded to customers through the fuel clause, with interest
applied at the 30-day commercial paper rate. (Ford-Green)
Staff Analysis:
Witness New stated that the requested total retail
recoverable storm cost is $915.308 million. However, due to staff’s adjustments,
the recommended amount of total retail recoverable storm costs is $914.795
million. Based upon witness New’s Exhibit JN-5, the amount recovered through
the storm costs recovery surcharge was $1.006 billion. Therefore, the recovery
of the storm costs resulted in an over-recovery of approximately $91 million,
plus interest.
DEF requested that any under- or over-recovery should be
collected or refunded through the fuel clause as previously ordered in Order
No. PSC-2024-0377-FOF-EI, issued August 27, 2024. Additionally, interest should be applied to
any excess or shortfalls at the 30-day commercial paper rate, consistent with
Rule 25-6.109, F.A.C.
Based on witness Menendez's testimony, staff recommends
that any final over- or under-recovery be refunded or collected from customers
through the fuel clause and any interest should be applied to the final true-up
amount at the 30-day commercial paper rate.
Issue 15:
Should this docket be closed?
Recommendation:
If no timely protest is received to the proposed
agency action, a Consummating Order should be issued upon the expiration of the
protest period, and this docket should be closed. (Brownless)
Staff Analysis:
If no timely protest is received to the proposed
agency action, a Consummating Order should be issued upon the expiration of the
protest period, and this docket should be closed.
