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DATE: |
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TO: |
Office of Commission Clerk (Cole) |
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FROM: |
Division of Economic Regulation (Slemkewicz, Baxter, Bulecza-Banks, Colson, Dickens, Draper, Gardner, Kaproth, Kummer, Kyle, Lee, Marsh, Maurey, Springer, Stallcup) Office of the General Counsel (Brown, Fleming, Young) |
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RE: |
Docket No. 070300-EI – Review of 2007 Electric Infrastructure Storm Hardening Plan filed pursuant to Rule 25-6.0342, F.A.C., submitted by Florida Public Utilities Company.
Docket No. 070304-EI – Petition for rate increase by Florida Public Utilities Company. |
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AGENDA: |
04/22/08 – Regular Agenda – Post Hearing Decision – Participation is Limited to Commissioners and Staff |
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COMMISSIONERS ASSIGNED: |
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PREHEARING OFFICER: |
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SPECIAL INSTRUCTIONS: |
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FILE NAME AND LOCATION: |
S:\PSC\ECR\WP\070300-070304 .RCM.DOC |
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Issue Description Page
STORM HARDENING AND RULE 25-6.0342, F.A.C.
10 Electric infrastructure improvements (Colson)
11 Reducing storm restoration costs and customer outages (Fisher, Vinson)
13 Enhancing reliability and reducing restoration costs (Colson)
10 POINT STORM PREPAREDNESS INITIATIVES
15 10 Point initiatives (Colson)
COSTS FOR STORM HARDENING AND 10 POINT INITIATIVES
19 Maintenance of Overhead Lines (Colson)
20 Maintenance of Overhead Lines and Distribution Maps (Colson)
22 Contractor Expense (Colson)
26 Increased travel and PURC costs (Colson)
27 Rate Base - Storm Hardening Rule and 10 Point Initiatives (Colson)
28 Operating Expenses - Storm Hardening Rule and 10 Point Initiatives (Colson)
33 Transformer recovery (Marsh)
38 Level of Plant in Service (Marsh)
42 Adjustments to reserve resulting from Depreciation Study (Marsh)
43 Requested level of Accumulated Depreciation for Plant in Service (Marsh)
46 Projection of cash balance (Gardner)
48 Accounts Receivable (Gardner)
54 Temporary Services (Gardner)
55 Over and under recoveries - fuel and conservation costs (Gardner)
57 Accrued Interest on Customer Deposits (Gardner)
58 Deferred Debit Rate Case Expense (Gardner)
59 Storm Damage Reserve (Gardner, Slemkewicz)
62 Return on Common Equity (Maurey)
63 Capital Structure (Springer)
65 Projected Cost Rate - Short-term Debt (Springer)
67 Amount of Accumulated Deferred Taxes (Kyle)
68 Cost Rate - Unamortized Investment Tax Credits (Kyle)
69 Weighted Average Cost of Capital (Springer)
70 Additional Expense - Inspect and Test Substation Equipment (Kaproth)
71 Forfeited Discounts (Kaproth)
74 Miscellaneous Service Revenue (Kaproth)
75 Projected Level of Total Operating Revenues (Slemkewicz)
76 Escalation Factors and Trend Rates (Kaproth)
77 Compliance Accountant (Kaproth)
78 Customer Relations Analyst/Coordinator (Kaproth)
88 Corporate Services Administrator (Kaproth)
89 Increase for Travel Expense (Kaproth)
91 Travel Expense for Employee's Spouse (Kaproth)
97 Customer Information Expense (Kaproth)
98 Salaries and Employee Benefits (Kaproth)
99 Salary Adjustment (Kaproth)
101 Annual Storm Expense Accrual (Kaproth)
104 Economic Development Donations (Kaproth)
107 Rate Case Expense (Kaproth)
109 Uncollectible Accounts (Kaproth)
111 Tree replacement costs (Kaproth)
114 Adjustment to Expense resulting from Depreciation Study (Marsh)
115 Appropriate Amount of Depreciation Expense (Marsh)
116 Taxes Other than Income Taxes (Kaproth)
118 Projected Net Operating Income (Slemkewicz)
119 Net Operating Income Multipler (Kaproth)
120 Operating Revenue Increase (Slemkewicz)
COST OF SERVICE AND RATE DESIGN
129 Street and Outdoor Lighting Rates (Baxter)
134 Interim Rate Increase (Slemkewicz)
The hurricanes of 2004 and 2005 that made landfall in Florida resulted in extensive storm restoration costs and long-term electric service interruptions for millions of electric investor-owned utility (IOU) customers. On January 23, 2006, the Commission conducted a workshop to discuss the damage to electric utility facilities resulting from the recent hurricanes and to explore ways of minimizing future storm damages and customer outages. State and local government officials, independent technical experts, and Florida’s electric utilities participated in the workshop.
On February 27, 2006, the Commission issued Order No. PSC-06-0144-PAA-EI (Pole Inspection Order), requiring the IOUs to begin implementing an eight-year inspection cycle of their respective wooden poles.[1]
Thereafter, on April 25, 2006, the Commission issued Order No. PSC-06-0351-PAA-EI (Ten Initiatives Order), requiring the investor-owned electric utilities to file plans and estimated implementation costs for ten ongoing storm preparedness initiatives (Ten Initiatives) on or before June 1, 2006.[2]
In addition to the Ten Initiatives Order, the Commission pursued rulemaking to address distribution construction standards that are more stringent than the minimum safety requirements of the National Electrical Safety Code (NESC) and the identification of areas and circumstances where distribution facilities should be required to be constructed underground.[3] Rule 25-6.0342, Florida Administrative Code (F.A.C.), was adopted as a result of these rulemaking efforts.[4] That rule requires each IOU to file an Electric Infrastructure Storm Hardening Plan (Plan) for review and approval by the Commission. The rule also requires the Plan to contain a description of construction standards, policies, practices, and procedures to enhance the reliability of overhead and underground electrical transmission and distribution facilities.
On May 31, 2006, Florida Public Utilities Company (FPUC or Company) filed its response to the Ten Initiatives Order, which provided details on how it planned to address each of the ten storm preparedness initiatives and the estimated implementation costs associated with each. In its response, FPUC stated that the incremental cost of each initiative would have a substantial financial impact on the Company. FPUC proposed that the Commission provide the Company with rate relief to reduce the financial hardship. Docket No 060638-EI was opened to address FPUC’s surcharge request. The Office of Public Counsel (OPC) intervened in the case, and the Commission conducted customer service hearings in Marianna and Fernandina Beach to receive customer testimony and information on the surcharge request.
The Commission was scheduled to address FPUC’s request at its June 5, 2007, Agenda Conference, but deferred consideration of the matter pending further discussions between OPC and FPUC to resolve their differences over the amount and timing of the request. OPC and FPUC agreed that FPUC would request Commission approval to modify its vegetation management plan, and, if the Commission approved the modification, FPUC would withdraw its request for a surcharge and seek cost recovery in its next rate case. FPUC filed its petition to modify its vegetation management plan on October 10, 2007.
During this time, Docket No. 070304-EI was established to address FPUC’s petition for a permanent rate increase (Rate Case Docket). Also, Docket No. 070300-EI was established to consider whether FPUC’s storm hardening plan was in compliance with the Commission’s newly enacted storm hardening rule, Rule 25-6.0345, F.A.C. FPUC’s new storm hardening plan included the modification to its vegetation management plan and other storm preparedness initiatives, and FPUC’s rate case included requests to recover the costs associated with the storm hardening plan and the Ten Initiatives. The two dockets were consolidated for this hearing and FPUC subsequently withdrew its request to recover a surcharge.
In the Rate Case Docket, FPUC requested an increase in its retail rates and charges to generate $5,249,895 in additional gross annual revenues. This increase would allow FPUC to earn an overall rate of return of 8.07 percent or a 11.50 percent return on equity (range 10.50 percent to 12.50 percent). The Company based its request on a projected test year ending December 31, 2008. FPUC stated in its petition that this test year is the appropriate period to be utilized because it represents the conditions to be faced by the Company, and is representative of the actual revenues, expenses, and investments to be realized under the new rates.
FPUC also requested an interim rate increase in its retail rates and charges to generate $790,784 in additional gross annual revenues. This increase would allow the Company to earn an overall rate of return of 7.80 percent or a 10.50 percent return on equity, which is the minimum of the currently authorized return on equity range of 10.50 percent to 12.50 percent. The Company based its interim request on a historical test year ended December 31, 2006. By Order No. PSC-07-0897-PCO-EI, issued November 5, 2007, the Commission suspended FPUC’s proposed permanent rate increase and authorized an interim rate increase of $790,784.
The Commission last granted FPUC a $1,820,373 base rate increase by Order No. PSC-04-0369-AS-EI.[5] In that order, the Commission found the Company’s jurisdictional rate base to be $36,379,034 for the projected test year ended December 31, 2004. The allowed rate of return was found to be 7.86 percent for the test year using an 11.50 percent return on equity. In addition, the Northeast (Fernandina Beach) and Northwest (Marianna) Electric Divisions were consolidated into a single Electric Division for ratemaking purposes.
Customer service hearings were held in Marianna, Florida, on December 5, 2007, and in Fernandina Beach, Florida, on December 6, 2007. The purpose of those hearings was to allow the public to present testimony concerning FPUC’s requested permanent rate increase and the quality of service provided by FPUC. A total of 15 customers presented testimony at the hearings, 4 in Marianna and 11 in Fernandina Beach.
The evidentiary hearing in this matter was held in Tallahassee, Florida, on February 27-29, 2008. The parties to this proceeding are the Office of Public Counsel, AT&T Florida, Embarq Florida, Inc., and the Florida Cable Telecommunications Association, Inc.
This recommendation addresses FPUC’s Storm Hardening activities, FPUC’s implementation of Rule 25-6.0342, F.A.C., the Ten Initiatives, and FPUC’s requested permanent rate increase. The Commission has jurisdiction over the subject matter by the provisions of Section 366, F.S.
The issues preceded by the heading “APPROVED STIPULATION” were previously voted on and approved by the Commission at the beginning of the hearings on February 27, 2008. No additional vote is required on these issues.
STORM HARDENING AND RULE 25-6.0342, F.A.C.
At a minimum, the Plan required by Rule 25-6.0342, F.A.C., must address the following:
(a) Compliance with the NESC.
(b) Extreme wind loading (EWL) standards for: (i) new construction, (ii) major planned work, including expansion, rebuild, or relocation of existing facilities, and (iii) critical infrastructure facilities and along major thoroughfares.
(c) Mitigation of damage due to flooding and storm surges.
(d) Placement of facilities to facilitate safe and efficient access for installation and maintenance.
(e) A deployment strategy including: (i) the facilities affected, (ii) technical design specifications, construction standards, and construction methodologies (iii) the communities and areas where the electric infrastructure improvements are to be made, (iv) the impact on joint use facilities on which third-party attachments exist, (v) an estimate of the costs and benefits to the utility of making the electric infrastructure improvements, and (vi) an estimate of the costs and benefits to third-party attachers affected by the electric infrastructure improvements.
(f) The inclusion of Attachment Standards and Procedures for Third-Party Attachers.
APPROVED STIPULATION
Does the Company's Plan address the extent to which, at a minimum, the Plan complies with the NESC (ANSI C-2) that is applicable pursuant to subsection 25-6.0345, F.A.C.? [Rule 25-6.0342(3)(a)]
Position: Yes, the plan complies with NESC requirements, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues.
APPROVED STIPULATION
Does the Company's Plan address the extent to which the EWL standards specified by Figure 250-2(d) of the 2007 edition of the NESC are adopted for new distribution facility construction? [Rule 25-6.0342(3)(b)l]
Position: Yes, the plan complies with NESC requirements, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives (Per p. 6.) issues.
APPROVED STIPULATION
Does the Company's Plan address the extent to which the extreme wind loading standards specified by Figure 250-2(d) of the 2007 edition of the NESC are adopted for major planned work on the distribution system, including expansion, rebuild, or relocation of existing facilities, assigned on or after the effective date of this rule distribution facility construction? [Rule 25-6.0342(3)(b)2]
Position: Yes, the plan addresses EWL standards, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues.
APPROVED STIPULATION
Does the Company's Plan reasonably address the extent to which the EWL standards specified by Figure 250-2(d) of the 2007 edition of the NESC are adopted for distribution facilities serving critical infrastructure facilities and along major thoroughfares taking into account political and geographical boundaries and other applicable operational considerations? [Rule 256.0342(3)(b)3]
Position: Yes, the plan includes projects for upgrading distribution facilities to critical infrastructure and major thoroughfares, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues.
APPROVED STIPULATION
Does the Company's Plan address the extent to which its distribution facilities are designed to mitigate damage to underground and supporting overhead transmission and distribution facilities due to flooding and storm surges? [Rule 25-6.0342(3)(c)]
Position: Yes, the plan addresses mitigation of damage to underground and supporting overhead facilities due to flooding and storm surge, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues.
APPROVED STIPULATION
Does 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 pursuant to Rule 25- 6.0341, F.A.C? [Rule 25-6.0342(3)(d)]
Position: Yes, the plan addresses the placement or replacement of distribution facilities, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues.
APPROVED STIPULATION
Does the Company's Plan provide a detailed description of its deployment strategy including a description of the facilities affected; including technical design specifications, construction standards, and construction methodologies employed? [Rule 25-6.0342(4)(a)]
Position: Yes, the plan addresses the deployment strategy, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues and subject to the approval and implementation of the Process to Engage Third Party Attachers. There are some additional more detailed design specifications, construction standards and construction methodologies that will be completed when the approval of Dockets are completed. These will be shared with third party attachers in accordance with the Process to Engage Third Party Attachers.
APPROVED STIPULATION
Does the Company's Plan provide a detailed description of the communities and areas within the utility's service area where the electric infrastructure improvements, including facilities identified by the utility as critical infrastructure and along major thoroughfares pursuant to subparagraph (3)(b)3. are to be made? [Rule 25-6.0342(4)(b)]
Position: Yes, the Plan addresses the areas affected by infrastructure improvements, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues and subject to the approval and implementation of the Process to Engage Third Party Attachers.
APPROVED STIPULATION
Does the Company's Plan provide a detailed description of the extent to which the electric infrastructure improvements involve joint use facilities on which third-party attachments exist? [Rule 25-6.0342(4)(c)]
Position: Yes, subject to the appropriate modifications, if necessary, resulting from the resolution of the cost recovery for storm hardening and Ten Initiatives issues and subject to the approval and implementation of the Process to Engage Third Party Attachers. Additional details have been provided to third parties that were not included in the filed Storm Hardening Plan.
Does the Company's Plan provide a reasonable estimate of the costs and benefits to the utility of making the electric infrastructure improvements, including the effect on reducing storm restoration costs and customer outages? [Rule 25-6.0342(4)(d)]
Recommendation:
Yes, FPUC has provided detailed cost estimates related to the storm hardening initiatives, and has provided support for its projections by using expert estimates and bids to support those estimates. (Colson)
Position of the Parties
OPC: No. FPUC’s Storm Hardening Plan has not complied with the cost benefit requirement of Order No. PSC-06-0781-PAA set forth in OPC’s positions on costs for storm hardening and 10 point initiatives.
ATT: No position.
Embarq: Embarq takes no position on this issue.
FCTA: No position.
Staff Analysis:
Witness Cutshaw stated that FPUC attempted to address all aspects of the storm hardening and pole inspection requirements in its Plan. He noted, however, that the Plan includes the cost of the projects but does not include the cost effectiveness analysis due to a lack of data needed to support the assumptions. (TR 89) He stated that FPUC’s management experience indicates that the objective of the Plan is to enhance reliability and reduce costs in a practical, prudent, and cost effective manner. (TR 97) According to witness Cutshaw, FPUC has not experienced a severe storm condition in its service territory in many years. Should one occur, additional data would then be available to support the cost benefit analysis for all initiatives. (TR 98)
Since the cost estimates were filed in June, 2007, several have changed and the revised estimates were included in FPUC’s rebuttal testimony. (TR 681; EXH 60) Some of FPUC’s storm hardening cost estimates have further been adjusted during the course of these proceedings by stipulations on Issues 1 through 9, and Issues 12, 14, 16, 17, 18, 21, and 25. (EXH 91) Witness Cutshaw stated that FPUC has used expert estimates and bids to support its cost estimates. (TR 681)
The chart below is a summary of FPUC’s estimation of the original costs and the appropriate modifications that FPUC believes will result from implementing the storm hardening rule and the Ten Initiatives in 2008. Staff agrees that the implementation of FPUC’s Plan will result in additional costs. FPUC’s service area is divided into the Northwest and Northeast Florida Division with a total of approximately 28,000 customers. Staff estimates that the stipulated and adjusted costs to implement the Plan for 2008 are $332,513. This represent an estimated Plan cost per customer of approximately $12 each year.
|
Issues |
Projects |
Projection Costs Rate Filing MFR |
Projection Costs With Stipulations and FPUC Adjustments |
|
19 (EXH 60) |
Wood Pole Inspections |
$219,833 |
$219,833 |
|
18* (TR 17) |
Vegetation Management |
$352,260 |
$0 |
|
20 (EXH 60) |
Joint Use Attach. Audit |
$20,909 |
$20,909 |
|
22 (EXH 60) |
Transmission Inspection |
$18,540 |
$18,540 |
|
16* 17* (TR 17) |
Trans. Storm Hardening |
$354,600 |
$20,000 |
|
(EXH 60) |
GIS |
$38,000 |
$38,000 |
|
21* (TR 17) |
Post Storm Forensics |
$27,000 |
$0 |
|
(EXH 60) |
OH/UG Data |
$0 |
$0 |
|
25* (TR 17) |
Utility Coordination |
$19,991 |
$0 |
|
26 (EXH 60) |
Collaborative Research |
$25,750 |
$870 |
|
(EXH 60) |
Disaster Preparedness |
$0 |
$0 |
|
(EXH 60) |
Depreciation - GIS |
$38,000 |
$38,000 |
|
(EXH 60) |
Return on Capital |
$12,297 |
$12,297 |
|
**(EXH 60) |
Extreme Wind Loading |
$0 |
$0 |
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Total |
$1,093,180 |
$332,513 |
* Project Costs that have been Stipulated.
** Costs not included in the Rate Filing MFR.
In the chart above, FPUC has identified eight projects that will require incremental cost increases in order to implement the Plan. Of these eight projects, four were stipulated to by the parties (see Issues 16, 17,18, 21 and 25), which resulted in smaller or no incremental cost increase to FPUC’s ratepayers. The storm hardening projects in the chart above that have zero cost ($0) means that FPUC can implement the storm hardening projects without increasing its existing authorized expense. For example, the chart above shows that FPUC initially requested $352,260 for increased Vegetation Management. This requested storm hardening expense was additional to FPUC’s current annual budget of $527,507 for Vegetation Management. (EXH 3, p. 232) FPUC has modified Vegetation Management in the Plan from a four year tree trimming cycle to a three year feeder and six year lateral (three/six year) tree trimming cycle. By modifying its Vegetation Management plan to a three/six year tree trimming cycle, FPUC eliminated the need for additional crews and expenses for Vegetation Management. This issue was stipulated by the parties. (See Issue 18) The chart also reflects staff’s recommendation that FPUC’s Collaborative Research budget be reduced. FPUC stated that the $870 that they had budgeted in 2008 to pay PURC to share research on storm preparedness should be included in the storm hardening cost. FPUC is not planning on doing any additional research. (See Issue 26)
FPUC believes that specific electric infrastructure improvements will have to be made in order to assess future storm hardening benefits, due to the lack of verifiable data necessary to prepare a cost-effectiveness analysis. (EXH 91, p. 14) Also, as storm hardening projects are performed for new distribution facilities, or for major planned expansions, rebuilds, or relocations of distribution and critical infrastructure and along major thoroughfares, the EWL Criteria contained in the 2007 NESC will be included in the construction specifications. (EXH 3, p. 253) FPUC has purchased the Pole Foreman software that complies with the 2007 NESC requirements and will be used in conjunction with pole inspections, construction specifications, and the addition of third party attachments, to ensure compliance. The Pole Foreman software will be used in the design of EWL projects to ensure compliance without unnecessarily overbuilding to meet these requirements. This will ensure compliance without excessive expenditures. (EXH 3, p. 253) Based upon previous storm damage and winds experienced during storms, it appears that the Grade B construction standards, which provide for effective wind protection in excess of 115 mph, have performed adequately. (EXH 3, p. 258) However, completion of specific storm hardening projects as included in the Plan will allow a comparison to current Grade B construction standards. (EXH 3, p. 258)
OPC argues that FPUC has not provided the cost-benefit analysis required by Commission Order No. PSC-06-0781-PAA-EI. (OPC BR at 4) OPC believes that the portion of FPUC’s Plan that addresses the distribution pole inspection program, the request for an additional joint use position, the transmission inspection contract, and the PURC costs and travel, are not cost beneficial as proposed. (OPC BR at 4) OPC argues that FPUC has failed to provide reasonable estimates for these proposed costs, which are discussed in detail under the specific issues (Issues 19, 20, 22, and 26). (OPC BR at 4-5) Once OPC’s recommended adjustments are made, OPC believes that FPUC’s plan will then be in compliance with the requirements of the storm hardening rules. (OPC BR at 5) Numerous issues in FPUC’s Plan have been resolved through agreement of the parties. In particular, the proposed wood pole replacement program and the tree trimming program are stipulated. (OPC BR at 5) OPC believes that FPUC’s Plan for these stipulated issues now provides a reasonable estimate of the costs and benefits to the Company of making the electric infrastructure improvements. (OPC BR at 4)
Staff disagrees with OPC’s position because, as stated above, FPUC has not experienced a severe storm condition in its service territory in many years and therefore data to support cost estimates is simply not available. If a storm should occur additional data would be available to provide the cost benefit analysis for all initiatives. (TR 98) As the Commission stated when it approved FPUC’s initial plan to implement the Ten Initiatives Order, the Plans “are living documents, and subject to constant revision as new lessons are learned.”[6] The Plans will be reviewed and updated annually with lessons learned from storms and forensic data that is collected and analyzed. Also, as the Commission noted at page 2 of its Ten Initiatives Order, utility-specific information such as timelines for implementing the Ten Initiatives, program methodology, costs, and rate impacts, were substantially unknown at the time the initiatives were adopted.[7] Each utility was expected to evaluate existing programs, expansion of existing programs, and if necessary, develop entirely new programs to address the Ten Initiatives included in the Order. Since filing its Plan, FPUC has provided updates and modifications to the Plan that have reduced the costs of many of the projects in the Plan as shown in the previous chart. (TR 81-82)
Conclusion
The information available to FPUC at this time shows that the implementation of FPUC’s Plan will result in additional costs. FPUC’s service area is divided into the Northwest and Northeast Florida Divisions with a total of approximately 28,000 customers. Staff calculated that the stipulated and adjusted costs to implement the Plan for 2008 is $332,513. This represents an estimated Plan cost per customer of $12 a year. Thus, throughout this proceeding FPUC has significantly reduced its estimated cost of compliance with Rule 25-6.0342, F.A.C. and the Ten Initiatives Order.
Therefore, staff recommends that FPUC’s Plan contains an estimate of the costs and benefits to the utility of making electric infrastructure improvements that meets the requirements of Rule 25-6.0342(4)(d), F.A.C.
Issue 11<