Case Background
Sunshine Water
Services Company’s (SWS or Company), formerly known as Utilities, Inc. of
Florida (UIF), current Allowance for Funds Used During Construction (AFUDC)
rate of 6.43 percent was approved by Order No. PSC-2021-0318-PAA-WS. Subsequently, the Company’s capital
structure adjustments and return on equity (ROE) for the period effective June
1, 2025, were approved by the Commission during SWS’s most recent rate case, as
set forth in an order issued June 6, 2025 (2025 Order). A revised AFUDC rate was not requested by
the Company in its 2024 rate case. Instead, on September 30, 2025, SWS filed a
petition requesting to establish an AFUDC rate of 7.90 percent, effective
January 1, 2025. Upon staff’s review and interaction with
SWS, the Company provided an amended petition on October 29, 2025, requesting a
change in its AFUDC rate of 6.43 percent to 7.56 percent, effective January 1,
2025, through May 31, 2025. Secondly, SWS requested to change its AFUDC rate of
7.56 percent, if approved, to 8.03 percent, effective June 1, 2025.
The amended
petition requests two consecutive AFUDC rates for different periods based on
two separate rate case orders that approved different capital structure
adjustments and ROE. The capital structure adjustments and ROE approved in the
2025 Order cannot be used to calculate the AFUDC rate prior to the Commission’s
vote on May 6, 2025. SWS requested to change its AFUDC rate with an effective
date of January 1, 2025. Therefore, the AFUDC rate for the period January 1,
2025, through May 31, 2025, is based on the capital structure adjustments and
ROE approved by Order No. PSC-2021-0206-FOF-WS, from the Company’s 2020 rate
case. The updated AFUDC rate of 7.56 percent
reflects SWS’s authorized cost of capital for the first five months of 2025.
The AFUDC rate of 8.03 percent, effective June 1, 2025, will be used until the
Commission approves a new AFUDC rate in the future.
As required by Rule
25-30.116(5), Florida Administrative Code (F.A.C.), SWS filed with its amended petition
Schedules A-1, B-1, and C-1 identifying the capital structure, capital
structure adjustments, and the methodology used to calculate the AFUDC rate
effective January 1, 2025, through May 31, 2025. Additionally, the Company
filed Schedules A-2, B-2, and C-2 identifying the capital structure, capital
structure adjustments, and the methodology used to calculate the AFUDC rate
effective June 1, 2025.
The Commission
has jurisdiction over this matter pursuant to Chapter 366, Florida Statutes
(F.S.), including Sections 366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve SWS’s request to
increase its AFUDC rate from 6.43 percent to 7.56 percent, effective for the
period January 1, 2025, through May 31, 2025?
Recommendation:
Yes. The appropriate AFUDC rate for SWS is 7.56
percent based on a 12-month average capital structure for the period ended December
31, 2024. (McGowan)
Staff Analysis:
For the period January 1, 2025, through May 31,
2025, SWS requested an increase in its AFUDC rate from 6.43 percent to 7.56
percent. Rule 25-30.116(3), F.A.C., Allowance for Funds Used During
Construction, provides the following guidance:
(3) The applicable AFUDC rate
will be determined as follows:
(a) The most recent 12-month average embedded cost of
capital, except as noted below, must be derived using all sources of capital
and adjusted using adjustments consistent with those used by the Commission in
the Company’s last rate case.
(b) The cost rates for the components in the capital
structure will be the midpoint of the last allowed return on common equity, the
most recent 12-month average cost of short term debt and customer deposits and
a zero cost rate for deferred taxes and all investment tax credits. The cost of
long term debt and preferred stock will be based on end of period cost. The
annual percentage rate must be calculated to two decimal places.
In support of its requested AFUDC rate of 7.56 percent,
SWS provided its calculations and capital structure in Schedules A-1 and B-1
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-30.116(3), F.A.C. As
reflected on Schedule A-1, SWS properly included in its calculations the
allowed midpoint ROE of 9.75 percent and capital structure adjustments approved
by Order No. PSC-2021-0206-FOF-WS.
SWS’s cost of capital as of December 31, 2024, supports the requested AFUDC
rate of 7.56 percent. The AFUDC rate calculation and supporting capital
structure are presented in Attachment 1.
Based on its review, staff believes the requested increase
in the AFUDC rate from 6.43 percent to 7.56 percent for the period January 1,
2025, through May 31, 2025, is appropriate, consistent with Rule 25-30.116,
F.A.C., and recommends it be approved.
Issue 2:
What is the appropriate monthly compounding rate to
achieve SWS’s requested annual AFUDC rate of 7.56 percent for the period
January 1, 2025, through May 31, 2025?
Recommendation:
The appropriate compounding rate to achieve an
annual AFUDC rate of 7.56 percent is 0.609170 percent. (McGowan)
Staff Analysis:
SWS requested a monthly compounding rate of 0.609170
percent to achieve an annual AFUDC rate of 7.56 percent. In support of the
requested monthly compounding rate of 0.609170 percent, the Company provided
its calculations in Schedule C-1 attached to its request. Rule 25-30.116(4),
F.A.C., provides the following formula for discounting the annual AFUDC rate to
reflect monthly compounding:
M = [((1 + A/100)1/12)
− 1] × 100
Where: M = Discounted monthly
AFUDC rate.
A = Annual AFUDC rate.
The rule also requires that the monthly compounding rate
be calculated to six decimal places.
Staff reviewed the Company’s calculation and determined it
conforms with Rule 25-30.116(4), F.A.C., as presented in Attachment 2.
Therefore, staff recommends that a monthly compounding AFUDC rate of 0.609170
percent for the period January 1, 2025, through May 31, 2025, be approved.
Issue 3:
Should the Commission approve SWS’s requested
effective date of January 1, 2025, through May 31, 2025, for implementing the
AFUDC rate of 7.56 percent?
Recommendation:
Yes. The AFUDC rate of 7.56 percent should be
effective January 1, 2025, through May 31, 2025, for all purposes. (McGowan)
Staff Analysis:
SWS’s
requested AFUDC rate was calculated using a 12-month average capital structure
for the period ended December 31, 2024. Rule 25-30.116(6), F.A.C., provides
that:
No utility may charge or change its AFUDC rate without
prior Commission approval. The new AFUDC rate will be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of January 1, 2025,
through May 31, 2025, complies with the requirement that the effective date
does not precede the period used to calculate the AFUDC rate, and therefore,
should be approved.
Issue 4:
Should the Commission approve SWS’s request to
increase its AFUDC rate from 7.56 percent to 8.03 percent, effective June 1,
2025?
Recommendation:
Yes. The appropriate AFUDC rate for SWS is 8.03
percent based on a 12-month average capital structure for the period ended May
31, 2025. (McGowan)
Staff Analysis:
SWS requested an increase in its AFUDC rate from
7.56 percent to 8.03 percent, effective June 1, 2025. Rule 25-30.116(3),
F.A.C., Allowance for Funds Used During Construction, provides the following
guidance:
(3) The applicable AFUDC rate
will be determined as follows:
(a) The most recent 12-month average embedded cost of
capital, except as noted below, must be derived using all sources of capital
and adjusted using adjustments consistent with those used by the Commission in
the Company’s last rate case.
(b) The cost rates for the components in the capital
structure will be the midpoint of the last allowed return on common equity, the
most recent 12-month average cost of short term debt and customer deposits and
a zero cost rate for deferred taxes and all investment tax credits. The cost of
long term debt and preferred stock will be based on end of period cost. The
annual percentage rate must be calculated to two decimal places.
In support of its requested AFUDC rate of 8.03 percent,
SWS provided its calculations and capital structure in Schedules A-2 and B-2
attached to its request. Staff reviewed the schedules and determined that the
proposed rate was calculated in accordance with Rule 25-30.116(3), F.A.C. As
reflected on Schedule A-2, SWS properly included in its calculations the
allowed midpoint ROE of 10.05 percent and capital structure adjustments
approved by Order No. PSC-2025-0196-FOF-WS.
SWS’s current cost of capital supports the requested AFUDC rate of 8.03 percent,
effective June 1, 2025. The AFUDC rate calculation and supporting capital
structure are presented in Attachment 3.
Based on its review, staff believes the requested increase
in the AFUDC rate from 7.56 percent to 8.03 percent, effective June 1, 2025, is
appropriate, consistent with Rule 25-30.116, F.A.C., and recommends it be
approved.
Issue 5:
What is the appropriate monthly compounding rate to
achieve SWS’s requested annual AFUDC rate of 8.03 percent, effective June 1,
2025?
Recommendation:
The appropriate compounding rate to achieve an
annual AFUDC rate of 8.03 percent is 0.645732 percent. (McGowan)
Staff Analysis:
SWS requested a monthly compounding rate of 0.645732
percent to achieve an annual AFUDC rate of 8.03 percent. In support of the
requested monthly compounding rate of 0.645732 percent, the Company provided
its calculations in Schedule C-2 attached to its request. Rule 25-30.116(4), F.A.C.,
provides the following formula for discounting the annual AFUDC rate to reflect
monthly compounding:
M = [((1 + A/100)1/12)
− 1] × 100
Where: M = Discounted monthly
AFUDC rate.
A = Annual AFUDC rate.
The rule also requires that the monthly compounding rate
be calculated to six decimal places.
Staff reviewed the Company’s calculation and determined it
conforms with Rule 25-30.116(4), F.A.C., as presented in Attachment 4.
Therefore, staff recommends that a monthly compounding AFUDC rate of 0.645732
percent, effective June 1, 2025, be approved.
Issue 6:
Should the Commission approve SWS’s requested
effective date of June 1, 2025, for implementing the AFUDC rate of 8.03
percent?
Recommendation:
Yes. The AFUDC rate of 8.03 percent should be
effective June 1, 2025, for all purposes. (McGowan)
Staff Analysis:
SWS’s requested AFUDC rate was calculated using a
12-month average capital structure for the period ended May 31, 2025. Rule
25-30.116(6), F.A.C., provides that:
No utility may charge or change its AFUDC rate without
prior Commission approval. The new AFUDC rate will be effective the month
following the end of the 12-month period used to establish that rate and may
not be retroactively applied to a previous fiscal year unless authorized by the
Commission.
The Company’s requested effective date of June 1, 2025,
complies with the requirement that the effective date does not precede the
period used to calculate the AFUDC rate, and therefore, should be approved.
Issue 7:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of the
consummating order. (Sandy)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of the
consummating order.
