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DATE:

November 13, 2014

TO:

Office of Commission Clerk (Stauffer)

FROM:

Division of Economics (Ollila)

Office of the General Counsel (Young)

RE:

Docket No. 140166-GU Ė Joint petition for approval of Gas Reliability Infrastructure Program (GRIP) by Florida Public Utilities Company and the Florida Division of Chesapeake Utilities Corporation.

AGENDA:

11/25/14 Ė Regular Agenda Ė Tariff Filing Ė Interested Persons May Participate

COMMISSIONERS ASSIGNED:

All Commissioners

PREHEARING OFFICER:

Administrative

CRITICAL DATES:

04/27/15 (8-Month Effective Date)

SPECIAL INSTRUCTIONS:

None

 

Case Background

On August 28, 2014, Florida Public Utilities Company (FPUC) and the Florida Division of Chesapeake Utilities Corporation (Chesapeake), collectively the Company, filed a petition seeking approval of 2015 Gas Reliability Infrastructure Program (GRIP) surcharges for their cast iron and bare steel pipe replacement programs.† The GRIP program was approved in Order No. PSC-12-0490-TRF-GU[1] (2012 order) to recover the cost of accelerated replacement of cast iron and bare steel distribution mains and services through a surcharge on customersí bills.† The Companyís currently effective surcharges were approved in Order No. PSC-13-0601-GU.[2]

The 2012 order addressed the reliability and safety rationale for pipeline replacement, the scope of the program, similar actions in other states, and the procedure for annually setting the GRIP surcharge to recover the costs of the program.† The procedure requires an annual filing with three components:

1.      A final true-up showing the actual replacement costs, actual surcharge revenues, and over- or under-recovery amount for the 12-month historical period from January 1 through December 31 of the year prior to FPUCís/Chesapeakeís annual GRIP petition.

2.      An actual/estimated true-up showing seven months of actual and five months of projected replacement costs, surcharge revenues, and over- or under-recovery amount.

3.      A revenue requirement projection showing 12 months of projected GRIP revenue requirement for the period beginning January 1 following FPUCís/Chesapeake/s annual GRIP petition filing.

The Commission concluded the 2012 order by stating:

Replacement of bare steel pipelines is in the public interest to improve the safety of Floridaís natural gas infrastructure, thereby reducing the risk to life and property.† Given the length of time these pipelines have been installed and the leak history due to corrosion, we find that it is appropriate to approve the proposed replacement program.† Without the GRIP surcharge, it is reasonable to expect that FPUC/Chesapeake will have to file for more frequent base rate proceedings to recover the expenses of an accelerated replacement program.† The annual filings will provide us with the oversight to ensure that projected expenses are trued-up and only actual costs are recovered.† FPUCís/Chesapeakeís GRIP and its associated surcharges will terminate when all replacements have been made and the revenue requirement rolled into rate base.[3]

On October 15, 2014, the Company filed its responses to Staffís First Data Request.† On October 17, 2014, the Company filed an amended response to Staffís First Data Request, No. 5.† On October 21, 2014, the Company filed its responses to the Office of Public Counselís First Set of Interrogatories and First Request for Production of Documents.† The Commission has jurisdiction over this matter pursuant to Sections 366.03, 366.04, 366.05, and 366.06, Florida Statutes (F.S.).

 


Discussion of Issues

Issue 1

 Should the Commission approve FPUC's and Chesapeake's proposed GRIP surcharge factors for 2015?

Recommendation

 Yes.† FPUCís and Chesapeakeís calculations of the GRIP surcharge factors are reasonable and accurate.† (Ollila)

Staff Analysis

 The GRIP surcharges have been in effect since January 2013.† In response to staffís data request, the Company explained that it is accelerating its infrastructure replacement.† FPUCís original projection was to replace 34 percent of the eligible infrastructure in the first two years.† By the end of 2015 (the third year), FPUC forecasts that it will have completed 50 percent of the mains and 63 percent of the services.† Similarly, Chesapeakeís original projection was to replace 20 percent of the infrastructure in the first two years; however, by the end of 2015, Chesapeake forecasts that it will have replaced 39 percent of the mains and 46 percent of the services.† Attachments 1 and 2 show the progress for the 10-year main and service replacement programs for FPUC and Chesapeake, respectively.

According to the Company costs have increased in recent years.† The weighted average cost per mile of main for FPUC and Chesapeake used in calculating the 2015 GRIP surcharge is $193,796.† The 2009-2011 replacement cost per mile was $174,258.† Similarly, the cost to replace a service has increased.† According to the Company, factors that contribute to increased costs include the type of replacement project, inflation, cost of outside contractors, requirements of city and county officials, and population density.

The 2012 Order required FPUC and Chesapeake to report any depreciation and operations and maintenance expense savings in their annual petitions for recovery of the GRIP surcharge, beginning with the second annual petition.† FPUCís and Chesapeakeís 2013 depreciation expenses were reduced by $29,944 and $13,262, respectively, due to savings from the GRIP program.†† FPUC and Chesapeake have not yet determined whether there are fewer leak surveys; thus, no operations and maintenance savings have been included in this filing.†

FPUCíS GRIP SURCHARGE FACTORS FOR 2015

FPUC has had a bare steel replacement and recovery program in place since 2005.† In FPUCís 2008 rate case, the Commission approved an annual expense of $747,727 associated with the program to be included in base rates.† The amount included in base rates is excluded from the GRIP surcharge calculation.† FPUCís calculations for the 2015 revenue requirement and surcharges include a final true-up amount for 2013, an actual/estimated true-up for 2014, and projected costs for 2015.

Final True-up for 2013.† The final true-up for 2013 includes 2012ís over-recovery of $243,238.[4]† To calculate the 2013 true-up, FPUC calculated the difference between the revenue requirement in base rates, $747,727, and the 2013 actual revenue requirement, $811,114, producing a net revenue requirement of $63,387.† The revenue requirement includes the return on investment, depreciation expense, customer notification, and ad valorem taxes associated with the investment.† FPUC reported actual 2013 GRIP revenues of $258,936.† When the revenue requirement is subtracted from 2013 revenues, there is an over-recovery of $195,550.† Adding the 2012 over-recovery of $243,238, and interest of $418, results in a final true-up (over-recovery) of $439,206, as shown in Table 1-1.

Table 1-1

Final True-up for 2013

Annual Revenue Requirement in Base Rates

$747,727

2013 GRIP Revenue Requirement

$811,114

Net Revenue Requirement

$63,387

2013 GRIP Revenues

$258,936

2013 True-up (Over-recovery)

$195,550

2012 True-up (Over-recovery)

$243,238

Interest

$418

Final True-up for 2013 (Over-recovery)

$439,206

 

Actual/Estimated 2014 true-up.††† To calculate the 2014 true-up, FPUC calculated the difference between the revenue requirement in base rates, $747,727, and the 2014 actual (January through July) and estimated (August through December) revenue requirement, $2,850,582, producing a deficit of $2,102,855. FPUC reported actual/estimated revenues for 2014 of $690,391.† When the 2014 estimated revenues are subtracted from the revenue requirement, the 2014 under-recovery including interest is $1,412,567.† The final 2013 over-recovery serves as a partial offset, resulting in an under-recovery for 2014 of $973,361 as shown in Table 1-2.

Table 1-2

Actual/Estimated 2014 True-up

Annual Revenue Requirement in Base Rates

$747,727

2014 GRIP Revenue Requirement

$2,850,582

Net Revenue Requirement

$2,102,855

2014 GRIP Revenues

$690,391

Under-Recovery

$1,412,464

Interest Provision

$103

True-up for 2014 (Under-Recovery)

$1,412,567

Final True-up for 2013 (Over-Recovery)

$439,206

Total 2013 and 2014 Under-Recovery

$973,361

 

Projected 2015 Costs.† FPUC projects to spend† $6,139,178 for the replacement of cast iron/bare steel infrastructure in 2015.† The return on investment, depreciation, customer notification, and ad valorem tax expenses associated with that investment are $3,924,377.

Subtracting the revenue requirement for bare steel replacement investment included in base rates results in a 2015 revenue requirement of $3,176,650.† Finally, the total 2013 and 2014 under-recovery, $973,361, is added to the 2015 revenue requirement to produce a total 2015 revenue requirement of $4,150,011 as shown in Table 1-3.

Table 1-3

Projected 2015 Costs

2015 Projected Expenditures

$6,139,178

Return on Investment

$2,779,059

Depreciation Expense

$631,181

Tax and Customer Notice Expenses

$514,138

Revenue Requirement

3,924,377

Less Revenue Requirement in Base Rates

($747,727)

2015 GRIP Revenue Requirement

3,176,650

4

Plus Prior Period Under-Recovery

$973,361

Projected 2015 GRIP Costs

$4,150,011

 

The calculation of the GRIP surcharges by rate class is shown in Attachment 3 to the recommendation.† As established in the order approving the GRIP, the total 2015 revenue requirement is allocated to the rate classes using the same methodology that was used for the allocation of mains and services in the cost of service study used in FPUCís most recent rate case.† After calculating the percentage of total plant costs attributed to each rate class, the respective percentages were multiplied by the 2015 revenue requirement, resulting in the revenue requirement by rate class.† Dividing each rate classí revenue requirement by projected therm sales provides the GRIP surcharge for each rate class.† The GRIP surcharge for residential customers is $0.10516 per therm.† The monthly bill impact is $2.10 for a residential customer who uses 20 therms.† Attachment 3 displays the rate schedule and Attachment 4 displays the proposed tariff page.

CHESAPEAKEíS GRIP SURCHARGE FACTORS FOR 2015

Chesapeake does not have a replacement recovery amount embedded in base rates and has in the past replaced its infrastructure as conditions warranted.

Final True-up for 2013.† The final true-up for 2013 includes 2012ís under-recovery of† $16,886.† To calculate the 2013 true-up, Chesapeake calculated the difference between the revenue requirement of $446,032 and revenues of $523,677; this resulted in an over-recovery of $77,645.† Adding interest of $55 and subtracting the 2012 under-recovery of $16,886 results in a final 2013 true-up (over-recovery) of $60,814, as shown in Table 1-4.

 

 

 

 

Table 1-4

Final True-up for 2013

2013 GRIP Revenue Requirement

$446,032

2013 GRIP Revenues

$523,677

2013 True-up (Over-recovery)

$77,645

2012 True-up (Under-recovery)

$16,886

Interest

$55

Final True-up for 2013 (Over-recovery)

$60,814

 

Actual/Estimated 2014 true-up.† To calculate the 2014 true-up, Chesapeake reported the actual/estimated revenue requirement of $949,326, actual/estimated revenues of $663,069 and interest of $20.† Using the final 2013 over-recovery to offset 2014ís under-recovery results in a total under-recovery of $225,373 as shown in Table 1-5.

Table 1-5

Actual/Estimated 2014 True-up

2014 GRIP Revenues

$663,069

2014 GRIP Revenue Requirement

$949,236

Under-Recovery

$286,167

Interest Provision

$20

2014 Total Under-Recovery

$286,187

Final 2013 Over-Recovery

$60,814

Total 2013 and 2014 Under-Recovery

$225,373

 

Projected 2015 costs.† Chesapeake projects to spend $2,912,259 in 2015.† The return on that amount plus investment expenses are $1,395,647.† Finally, the total 2013 and 2014 under-recovery, $225,373, is added to provide the total 2015 revenue requirement of $1,621,020 as shown in Table 1-6.

Table 1-6

Projected 2015 Costs

2015 Projected Expenditures

$2,912,259

Return on Investment

$919,980

Depreciation Expense

$301,447

Tax and Customer Notice Expenses

$174,220

2015 Revenue Requirement

$1,395,647

Plus Prior Period Under-Recovery

$225,373

Projected 2015 Costs

$1,621,020

 

The calculation of Chesapeakeís GRIP surcharges by rate class is shown in Attachment 5 to the recommendation.† The GRIP surcharge for residential customers on the FTS-1 rate is $0.05713 per therm.† The monthly bill impact for a residential customer who uses 20 therms is $1.14.† Attachment 5 displays the rate schedule and Attachments 6 and 7 display the proposed tariff pages.

Conclusion

Staff believes the calculation of FPUCís and Chesapeakeís GRIP revenue requirement and surcharges for each rate class is reasonable and accurate.† Staff therefore recommends approval of FPUCís and Chesapeakeís proposed GRIP surcharges for 2015.


Issue 2

 Should this docket be closed?

Recommendation

 Yes.† If Issue 1 is approved, the tariffs should become effective on January 1, 2015.† If a protest is filed within 21 days of the issuance of the order, the tariffs should remain in effect, with any revenues held subject to refund, pending resolution of the protest.† If no timely protest is filed, this docket should be closed upon the issuance of a consummating order.† (Young)

Staff Analysis

 If Issue 1 is approved, the tariffs should become effective on January 1, 2015.† If a protest is filed within 21 days of the issuance of the order, the tariffs should remain in effect, with any revenues held subject to refund, pending resolution of the protest.† If no timely protest is filed, this docket should be closed upon the issuance of a consummating order.

 


FLORIDA PUBLIC UTILITIES COMPANY

Mains (Miles)

Year

Replaced Cast Iron

Replaced Bare Steel

Remaining Cast Iron at Year-End

Remaining Bare Steel at Year-End

Total Remaining

Jul-12

0.9

197.10

198.00

2012

6.00

0.9

191.10

192.00

2013

0.6

26.40

0.3

164.70

165.00

2014

36.40

0.3

128.30

128.60

2015

25.00

0.3

103.30

103.60

2016

19.60

0.3

83.70

84.00

2017

0.3

13.70

0

70.00

70.00

2018

14.00

0

56.00

56.00

2019

14.00

0

42.00

42.00

2020

14.00

0

28.00

28.00

2021

14.00

0

14.00

14.00

2022

14.00

0

0.00

0.00

 

 

 

Number of Services

Year

Replaced Cast Iron

Replaced Bare Steel

Remaining Cast Iron at Year-End

Remaining Bare Steel at Year-End

Total Remaining

Jul-12

7980

7980

2012

91

0

7889

7889

2013

2071

0

5818

5818

2014

2111

0

3707

3707

2015

741

0

2966

2966

2016

424

0

2542

2542

2017

424

0

2118

2118

2018

424

0

1694

1694

2019

424

0

1270

1270

2020

424

0

846

846

2021

424

0

422

422

2022

422

0

0

0


 

FLORIDA DIVISION OF CHESAPEAKE UTILITIES CORPORATION

Mains (Miles)

Year

Replaced Cast Iron

Replaced Bare Steel

Remaining Cast Iron at Year-End

Remaining Bare Steel at Year-End

Total Remaining

Jul-12

152

152

2012

5

0

147

147

2013

3

0

144

144

2014

33

0

111

111

2015

14

0

97

97

2016

14

0

83

83

2017

14

0

69

69

2018

14

0

55

55

2019

14

0

41

41

2020

14

0

27

27

2021

14

0

13

13

2022

13

0

0

0

Number of Services

Year

Replaced Cast Iron

Replaced Bare Steel

Remaining Cast Iron at Year-End

Remaining Bare Steel at Year-End

Total Remaining

Jul-12

762

762

2012

34

0

728

728

2013

139

0

589

589

2014

97

0

492

492

2015

82

0

410

410

2016

59

0

351

351

2017

59

0

292

292

2018

59

0

233

233

2019

59

0

174

174

2020

58

0

116

116

2021

58

0

58

58

2022

58

0

0

0


 

 

 



 





[1] Order No. PSC-12-0490-TRF-GU, issued September 24, 2012, in Docket No. 120036-GU, In re: Joint petition for approval of Gas Reliability Infrastructure Program (GRIP) by Florida Public Utilities Company and the Florida Division of Chesapeake Utilities Corporation.

[2] Order No. PSC-13-0601-TRF-GU, issued November 13, 2013, in Docket No. 120036-GU.

[3] 2012 order, page 19.

[4] The 2012 order allowed the Company to include a final true-up for pipeline replacement costs incurred for the period August 14, 2012, through December 31, 2012.