customer bill that increases roughly in line with inflation through 2020 while remaining among the lowest in the state and below the current national average. In fact, FPL expects that, even with the requested increase, its typical residential and commercial/industrial customer bills through 2020 will be even lower than they were in 2006. The four-year period of certainty also will allow FPL management and employees to focus on continuing to improve the Company’s service delivery and realizing further operational efficiencies, rather than devoting significant resources to more frequent base rate cases. 2017 Test Year The main drivers of FPL’s need for an increase in 2017 are: 1. Capital investment initiatives that support storm hardening, increased reliability, and system growth, which provide long-term economic benefits to customers, and ensure regulatory compliance $829 million 2. Impact of FPL’s 2016 depreciation study $187 million 3. Discontinuation of the reserve amortization as of January 1, 2017 $175 million 4. Inflation and customer growth $145 million 5. Change in the weighted average cost of capital $36 million 6. Revenue growth that partially offsets the growth in base revenue requirements ($217 million) 7. Productivity gains that partially offset the growth in base revenue requirements ($175 million) 8. Growth in FPL’s wholesale business, which reduces the amount of revenues needed from retail customers ($126 million) 9. Other $12 million FPL plans to undertake capital projects representative of its philosophy of continuous improvement. As an example, the Company plans to invest in three universal solar projects totaling 224 MW (nameplate) of zero-emissions generation that will advance FPL’s clean energy goals, while producing significant fuel savings to help keep customer bills low. The Company also will invest in innovative technology that will be implemented on FPL’s existing smart grid to prevent outages and reduce restoration time, thereby improving reliability and increasing customer satisfaction. More of these smart investments are discussed in FPL’s prepared testimony.
Based on FPL’s investments in capital improvements and the other drivers listed above and accounting for the adjustments identified by FPL (see Exhibit KO-20), the total resulting base revenue deficiency in 2017 is $826 million. Absent rate relief, the resulting adjusted jurisdictional rate of return on average rate base is projected to be 8.05%. 2018 Subsequent Year Adjustment FPL’s retail rate base is projected to increase by approximately $1.3 billion from 2017 to 2018. Even if the Commission grants FPL’s 2017 Base Rate Increase in full, FPL’s 2018 ROE is expected to drop more than 100 basis points absent the 2018 SYA, putting it below the bottom of the authorized ROE range. FPL’s proposed 2018 SYA reflects the increase in revenue requirements from 2017 to 2018. The primary drivers of this increase are: 1. Continued investments in infrastructure that provide long-term economic benefits to customers, and ensure regulatory compliance $223 million 2. Inflation and customer growth $47 million 3. Change in the weighted average cost of capital $31 million 4. Revenue growth that partially offsets the growth in base revenue requirements; ($39 million) Accounting for the adjustments identified in Exhibit KO-20, FPL’s resulting base revenue deficiency for 2018 is $270 million. Without an increase in revenue requirements in 2018, FPL’s earned ROE is projected to fall by approximately 100 bps (compared with 2017), to below the bottom of the authorized ROE range. With no rate increase in 2017 or 2018, FPL’s ROE in 2018 is projected to be 7.11%, substantially below an appropriate return. Okeechobee Limited Scope Adjustment FPL requests approval of its 2019 Okeechobee LSA in the amount of $209 million for the revenue requirements associated with the first twelve months of the Okeechobee Unit’s commercial operation, which adjustment would be effective on the commercial in-service date. FPL will synchronize revenues and savings by requesting that its fuel cost recovery factors be reduced at the same time as the base rate increase to reflect the fuel savings resulting from the facility’s efficient technology. Return on Equity and Capital Structure One important aspect of FPL’s strategy is the maintenance of strong financial policies to support the execution of its capital programs, to manage its liquidity
AARP: No position. FEA: No position. FIPUG: No. FPL must meet its burden of proof on this issue. FRF: No position. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No position. Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE the Company’s Plan address the extent to which the placement of new and replacement distribution facilities facilitate safe and efficient access for installation and maintenance as required by Rule 25-6.0342(3)(d), F.A.C.? FPL: Yes. FPL’s Distribution Guidelines, set forth in its Plan, address the appropriate placement/location of new and replacement overhead and underground distribution facilities (e.g., in private easements or as close to the front edge of property (right of way line), overhead lines should be placed in front or accessible locations where feasible, and concrete poles are not to be placed in inaccessible locations or locations that could potentially become inaccessible) which facilitates safe and efficient access for installation and maintenance. (Miranda) OPC: No position. AARP: No position. FEA: No position. FIPUG: No. FPL must meet its burden of proof on this issue. FRF: No position. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No position. Sierra Club: No position. Walmart: Walmart takes no position.
FPL: No adjustments should be made to rate base for costs associated with Rule F.A.C., and the Commission’s 10 point initiatives requirements. (Miranda) OPC: No position. AARP: No position. FEA: No position. FIPUG: Adopt position of OPC. FRF: No position. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No position. Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. TEST PERIOD AND FORECASTING ISSUE FPL’s projected test period of the 12 months ending December 31, 2017, appropriate? FPL: Yes. The Company is currently operating under the 2012 Stipulation and Settlement approved in Docket No. 120015-EI (2012 Rate Settlement) that expires December 31, 2016. The Company’s petition requests an increase in base rates at the expiration of the 2012 Rate Settlement, effective January 1, 2017. Accordingly, 2017 is the most appropriate year to evaluate the Company’s projected revenue requirements to afford the appropriate match between revenues and revenue requirements for 2017. (Barrett) OPC: Yes, with appropriate adjustments. (Smith) AARP: No position. FEA: Adopt position of OPC. FIPUG: Adopt position of OPC. FRF: Yes, with appropriate adjustments. Larsons: Yes; with appropriate adjustments recommended by OPC.
Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE the Commission accepts FPL’s depreciation study for purposes of establishing its proposed depreciation rates and related expense, what adjustments, if any, are necessary? FPL: The Commission should accept the changes and depreciation rates as reflected on the supplemental 2016 Depreciation Study as presented in FPL’s Second Notice of Adjustments filed on June 16, 2016. (Ferguson) OPC: See OPC’s positions in Issues 40 to 46 for OPC’s recommended adjustments to the depreciation rates. Adjustments to accumulated depreciation are addressed in Issues 58 and 60, and depreciation expense in Issue 114. (Pous, Smith) AARP: No position. FEA: FEA has recommended explicit adjustments, which are detailed in Issue 45 and result in a 2017 depreciation expense reduction of $22.5 million. (Andrews) Adjustments stemming from FEA’s adoption of OPC’s position on Issues 40, 41, 42, 43 and 46 are addressed in those issues. FIPUG: Adopt position of OPC. FRF: The appropriate depreciation parameters, depreciation rates, and adjustments to FPL’s study, to the extent applicable, to be used in determining FPL’s revenue requirements and rates are those set forth in the testimony and exhibits of OPC Witness Jacob Pous. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: If the Commission accepts FPL’s depreciation study date of December 31, 2017, the Commission should make several adjustments to FPL’s depreciation rate proposal. First, the Commission should extend the service lives of each plant account by one year to mitigate the arbitrary impacts of shortening the remaining service lives of plant accounts as is done under FPL’s study. Second, the Commission should reject the Company’s proposal to separate certain accounts into multiple accounts, thereby increasing depreciation rates (see Issue 43). Lastly, the Commission should use service lives for Scherer 4 and St. John’s River Power Project that are consistent with the operators’ projected service lives for those facilities, as discussed in reference to Issue 44. Sierra Club: No position.
Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE adjustments are made to FPL’s proposed depreciation and dismantling expenses, what is the impact on rate base A. For the 2017 projected test year? FPL: Other than the adjustments listed on FPL witness Ousdahl’s Exhibit KO-20, no other adjustments are appropriate. (Ferguson) OPC: To reflect OPC witness Pous’ adjustment to depreciation and dismantlement expenses, rate base should be increased (accumulated depreciation decreased) by $146.314 million ($130.489 million jurisdictional) for depreciation expense, and $115.391 million ($102.910 million jurisdictional) for the depreciation reserve excess. An additional adjustment to increase rate base should also be made to reflect OPC witness Schultz’s adjustment of $.428 million (total and jurisdictional) for the 2017 storm hardening plant. (Smith, Pous, Schultz) AARP: No position. FEA: FEA adopts the position of OPC. FIPUG: Adopt position of OPC. FRF: Agree with OPC. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: Reducing accumulated depreciation to reflect depreciation expense reductions would increase its rate base impact by $97.249 million. Reflecting extended amortization of capital recovery costs would increase rate base by $11.272 million. Reducing accumulated fossil dismantling to reflect dismantling expense reductions would increase rate base by $2.666 million. Sierra Club: Sierra Club adopts OPC’s position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. B. If applicable, for the 2018 subsequent projected test year? FPL: Other than the adjustments listed on FPL witness Ousdahl’s Exhibit KO-20, no other adjustments are appropriate. (Ferguson)
jurisdictional) for the 2018 depreciation reserve excess half-year impact. An additional adjustment to increase rate base should also be made to reflect OPC witness Schultz’s adjustment of $.615 million ($.615 million jurisdictional) for the 2018 storm hardening plant. (Smith, Pous, Schultz) AARP: No position. FEA: FEA adopts the position of OPC. FIPUG: Adopt position of OPC. FRF: Agree with OPC. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: FPL’s proposed Accumulated Depreciation for the 2018 test year should be reduced by $294.247 million, consistent with SFHHA witness Kollen’s recommendations, as set forth in his testimony and Exhibit LK-27. SFHHA also supports additional reductions to FPL’s proposed Accumulated Depreciation as recommended by OPC. Sierra Club: Sierra Club adopts OPC’s position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE FPL’s proposed adjustments to move certain CWIP projects from base rates to the Environmental Cost Recovery Clause appropriate? FPL: Yes, FPL’s proposed adjustments to move CWIP balances associated with Commission approved ECRC projects from rate base to clause is appropriate. The adjustment removes these projects from CWIP in rate base and reflects them in ECRC throughout its lifecycle. (Ousdahl) OPC: No. FPL’s proposed adjustments to move certain CWIP projects from base rates to the ECRC should be denied. As a general matter, and absent any countervailing consideration that would be to the detriment of customers, OPC favors placing capital items in rate base rather than in cost recovery clauses. AARP: No position. FEA: No position. FIPUG: CWIP should be removed from rate base because it is not used and useful, and it is not needed to preserve FPL’s financial integrity. Further, pursuant to Rule F.A.C. it should be removed from rate base to prevent rate shock.
AARP: No position. FEA: No position. FIPUG: Adopt position of OPC. FRF: Agree with OPC. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: See Response for 2017 test year. This will produce an increase to rate base of $7.080 million to be amortized over 4 years. Sierra Club: Sierra Club adopts OPC’s position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE is the appropriate amount of deferred pension debit in working capital for FPL to include in rate base A. For the 2017 projected test year? FPL: Based on the adjustment listed on FPL witness Ousdahl’s Exhibit KO-20, the appropriate amount of deferred pension debit in working capital for FPL to include in rate base is $1,286,690,000 (jurisdictional) for the 2017 projected test year and $1,346,625,000 for the 2018 subsequent projected test year. (Ousdahl) OPC: Agree with SFHHA. FPL has not met the burden of demonstrating that its proposed level deferred pension debit in working capital is reasonable and prudent and that the costs are properly recorded on its books and records and reflected in the MFRs. AARP: No position. FEA: No position. FIPUG: Adopt position of OPC. FRF: Agree with OPC. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: FPL included overstated amounts in rate base case as it acknowledged in response to SFHHA interrogatories. The corrected amount of deferred pension debit
FIPUG: Adopt position of OPC. FRF: Agree with OPC. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No. See Response for 2017 test year. Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE are the appropriate revenue expansion factor and the appropriate net operating income multiplier, including the appropriate elements and rates for FPL A. For the 2017 projected test year? FPL: As reflected on FPL witness Ousdahl’s Exhibit KO-20, the revenue expansion factor and net operating income multiplier for the 2017 projected test year and 2018 subsequent projected test year is 0.61340 and 1.63025, respectively. (Ousdahl) OPC: The appropriate revenue expansion factor is 1.63025 for the 2017 test year. (Smith) AARP: No position. FEA: No position. FIPUG: Adopt position of OPC. FRF: The appropriate revenue expansion factor should be 1.63025 for the 2017 test year. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: The deduction of 9% of taxable income allocable to production. The calculations to support this deduction are set forth in Exhibit No. ___ (LK-33). Sierra Club: Sierra Club adopts OPC’s position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing.
AARP: Yes. However, the residential customer charge should not be increased in order to expand the portion of fixed distribution costs recovered therein. Important public policy reasons dictate no change to fixed monthly customer charges, including maintaining customers’ control over monthly bills, increasing the affordability of services to low-usage customers, encouragement of conservation habits and improved financial payback on energy efficiency investments that are made by FPL’s residential customers. FEA: No position. FIPUG: Adopt position of SFHHA FRF: No, FPL’s proposal to shift $2.00 from energy charges to customer charges is not appropriate and should not be approved. Larsons: No. SFHHA: No position. Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. ISSUE should the change in revenue requirement be allocated to the customer classes? FPL: The increase should be allocated as shown in MFR E-8. FPL followed Commission guidance and limited revenue increases to each class to no more than 150% of the system average in total including clauses. The result is all classes are moved closer to parity to the greatest extent practical. (Cohen) OPC: The revenue requirement approved by the Commission should be applied in accordance with the Commission’s long-standing practice that in designing new rates: (1) to the extent possible, consistent with other parameters, the revenue increase should be allocated so as to bring all rate classes as close to parity as practicable; (2) no class should receive an increase greater than 1.5 times the system average increase in total; and (3) no class should receive a decrease. See, Order No. PSC-09-0283-FOF-EI at pp. 86-87. AARP: AARP supports FPL’s position on this issue. FEA: If the Commission orders an overall revenue increase, FPL’s proposed gradualism constraints of no more than 1.5 times the system average increase and no less than 0.5 times the system average increase is appropriate, but should be calculated on the basis of total class revenue, including all surcharges except for the fuel
(SL-2M) rate schedule charges are those presented in the tariff sheets provided in 2017 Test Year and 2018 Subsequent Year MFR E-14, Attachment 1 of FPL’s filing. (Cohen) OPC: No position. AARP: No position. FEA: No position. FIPUG: Adopt position of SFHHA FRF: No position. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No position. Sierra Club: No position. Walmart: Walmart takes no position. Staff: Staff has no position pending evidence adduced at the hearing. B. Effective January 1, 2018? FPL: Yes. As explained in FPL’s position for Issue 152, replacing the current lighting option with metered rates for traffic signal customers will ensure accuracy of billing and improve service to customers. The appropriate metered Traffic Signal (SL-2M) rate schedule charges are those presented in the tariff sheets provided in 2017 Test Year and 2018 Subsequent Year MFR E-14, Attachment 1 of FPL’s filing. (Cohen) OPC: No position. AARP: No position. FEA: No position. FIPUG: Adopt position of SFHHA FRF: No position. Larsons: The Larsons agree with and adopt OPC’s preliminary position on this issue. SFHHA: No position. Sierra Club: No position.