FILED AUG 26, 2016 DOCUMENT NO. 07018-16 FPSC - COMMISSION CLERK 1 1607 BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION 2 In the Matter of: 3 DOCKET NO. 160021-EI 4 5 PETITION FOR RATE INCREASE BY FLORIDA POWER & LIGHT COMPANY. ________________________________/ DOCKET NO. 160061-EI 6 7 PETITION FOR APPROVAL OF 2016-2018 STORM HARDENING PLAN BY FLORIDA POWER & LIGHT COMPANY ________________________________/ 8 9 10 DOCKET NO. 160062-EI 2016 DEPRECIATION AND DISMANTLEMENT STUDY BY, FLORIDA POWER & LIGHT COMPANY. ________________________________/ DOCKET NO. 160088-EI 11 13 PETITION FOR LIMITED PROCEEDING TO MODIFY AND CONTINUE INCENTIVE MECHANISM, BY FLORIDA POWER & LIGHT COMPANY. ________________________________/ 14 PROCEEDINGS: HEARING 15 COMMISSIONERS PARTICIPATING: CHAIRMAN JULIE I. BROWN COMMISSIONER LISA POLAK EDGAR COMMISSIONER ART GRAHAM COMMISSIONER RONALD A. BRISÉ COMMISSIONER JIMMY PATRONIS 18 DATE: Wednesday, August 24, 2016 19 TIME: Commenced at 7:30 p.m. Concluded at 9:43 p.m. PLACE: Betty Easley Conference Center Room 148 4075 Esplanade Way Tallahassee, Florida REPORTED BY: ANDREA KOMARIDIS Court Reporter APPEARANCES: (As heretofore noted.) 12 16 17 VOLUME 14 PAGES 1607 -1756 20 21 22 23 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1608 1 I N D E X 2 WITNESSES 3 NAME: 4 ROBERT E. BARRETT, JR. 5 Continued Examination by Mr. Coffman Examination by Mr. Skop Examination by Ms. Janjic , Examination by Ms. Harper Redirect Examination by Mr. Butler 6 7 PAGE NO. (fjfJ \(DIO 1613: 1616 1637 1645 1650 8 KIM OUSDAHL 9 10 11 12 13 14 Direct Examination by Mr. Butler Prefiled direct testimony Examination by Ms. Brownless Continued Examination by Mr. Butler Examination by Mr. Moyle Examination by Mr. Wiseman Examination by Mr. Wright Examination by Mr. Coffman Examination by Mr. Skop Redirect Examination by Mr. Butler 1658 1660 1693 1696 1699 1724 1734 1738 1746 1751 15 16 17 18 19 20 21 22 23 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL (850) 894-0828 32303 Reported by: Andrea Komarid is premier-reporting.com 1609 1 EXHIBITS 2 NUMBER: 3 79-92 (as identified on Comprehensive Exhibit List) 1655 5 93-106(as identified on Comprehensive Exhibit List) 1752 6 636 - (as identified in a previous volume) 1656 7 637 - (as identified in a previous volume) 1656 8 638 - (as identified in a previous volume) 1656 9 639 - (as identified in a previous volume) 1656 ID ADMITTED 4 10 640 - FPL response to OPC's second set of interrogatories, No. 105 1637 1657 11 1657 12 641 - Late-filed Deposition Exhibit 1, Okeechobee Plant ROE comparison to CTs 13 642 - FPL's discovery responses 1695 1753 14 643 - The affiliate transactions, wind companies 1709 1753 1709 1753 16 644 - The executive pay allocation with subsidiaries 17 645 - Pension costs 1709 1753 18 646 - Excerpts from Florida Power & Light Company's rate of returns balance reports from January of 2015 through May 2016 1723 1753 647 - Investor presentation, Encore acquisition 1737 1754 15 19 20 21 22 23 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1610 1 P R O C E E D I N G S 2 (Transcript follows in sequence from Volume 3 13.) 4 CHAIRMAN BROWN: Good evening. 5 for being back so promptly. 6 you had a nice little break. 7 COMMISSIONER EDGAR: 8 CHAIRMAN BROWN: 9 (Laughter.) 10 Thank you all I appreciate it. Hope Little. Little. My apologies, but we have a lot to get 11 through. 12 parties and give them the latitude of the questions 13 that they need to ask. 14 run a little bit longer than any of us probably 15 want. 16 considerate of others. And I want to be fair to all of the So, with that, we have to So, thank you for all being patient and 17 So, with that, we are still on AARP. 18 MR. COFFMAN: 19 CHAIRMAN BROWN: 20 21 22 Thank you. Shall I continue? Yes. CONTINUED EXAMINATION BY MR. COFFMAN: Q Okay. Mr. Barrett, when we last left off, we 23 were trying to understand the two numbers that you were 24 comparing to say that residential consumer -- customer 25 bills would grow roughly in line with inflation through Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1611 1 2 3 2020? And -- A Can you -- can you point me back to the testimony? I closed my book. I apologize. 4 Q It's Page 12 of your direct testimony. 5 A Okay. 6 Q And the -- so, the inflation number that you 7 I got it. gave me roughly 2.5 percent or 2.58 percent -- 8 A Correct. 9 Q -- per year. 10 Thank you. So, is that -- that's over 10 percent maybe over four years? 11 A Yeah. 12 Q Okay. 13 A Maybe 11, yeah. 14 Q And in making the statement, you were 15 comparing that number to an overall total residential 16 customer bill number. Do you know what that number is? 17 A As of April of '16, 9173. 18 Q Well -- 19 A Is it -- 20 Q What I was asking was: 21 What were you -- you're -- 22 A I'm sorry. 23 Q You're predicting that, under FPL's proposed I didn't get your -- 24 four-year plan, residential rates will grow roughly in 25 line with inflation. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1612 1 A Correct. 2 Q And so, are you -- so, are you saying that you 3 would expect overall total residential bills to only go 4 up over 10 percent over that four-year period? 5 A Compound annual growth of 2.8 percent, which 6 is on Exhibit TCC-2 in Ms. Cohen's testimony. 7 comparing 2.8 to the 2.6 roughly, same as roughly in -- 8 Q Per year? 9 A Average per year. 10 Q Average per year. 11 12 So, I'm Okay. And that is conditioned -- your statement is conditioned based on current fuel curves? 13 A Yes. 14 Q And I believe I heard yesterday that Witness 15 Morley said that the projection for natural gas prices 16 has actually been modified for 2017; is that right? 17 A I did not hear her say that. 18 Q Okay. Well, maybe I heard her wrong, but I 19 thought that maybe that had been -- that projection was 20 going up or increasing. 21 A But you're not aware? I think I've heard that 17 is maybe a little 22 bit higher than what was contained in the filing, but I 23 think beyond that, the longer part of the curve is 24 roughly where it has been. 25 Q Okay. So, you don't think that that changes Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1613 1 your statement in any way? 2 A No. 3 Q But the only way that you're able to say this 4 is taking into the account the historically-low natural 5 gas rates that have been experienced and that you're 6 expecting to continue for the next four years. 7 A It's based on our current forecast of fuel 8 prices, which we -- we do routinely -- excuse me -- and 9 which is based on the forward places for the next two 10 years. 11 based on that forecast of fuel. 12 13 Q And it blends to some forecasts, but yeah, it's But -- but this particular rate case that we're hearing today is about base rates? 14 A Yes. 15 Q And you can't say that, under your proposal, 16 base rates would stay in line with inflation for 17 residential customers, would you? 18 A No, that's not my testimony. 19 Q And that would be somewhere in excess of 20 17 percent on your proposal; is that right? 21 A I -- I think that's the case. 22 Q Yeah, I think Mr. Moyle showed you on the -- 23 one of your schedules, that that was the -- 24 A Yes. 25 Q That was your proposal. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1614 1 A Yes. 2 Q And earlier we -- I believe you said that, as 3 far as projections go, some things are more certain than 4 others, as far as projecting? 5 A That's fair. 6 Q And so, I assume some things -- like if you 7 had a contract for particular cost, you would have a lot 8 of certainty about that, right? 9 A Yes. 10 Q And would you agree with me that financial 11 information is a little bit tougher to predict? 12 A What type of financial information? 13 Q Well, can you tell me what -- can you make a 14 good projection as to what ten-year treasury bond yields 15 will be next month? 16 A No. 17 Q Well, could you -- but you have -- you could 18 I wouldn't be sitting here if I could. guess, though, right? You could make a projection. 19 A We could project. 20 Q You could make an educated -- 21 A We would probably look at what the market is 22 23 saying about treasury rates. Q Right. Right. And you could also make a 24 guess as to what ten-year treasury bonds would yield in 25 2017, right? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1615 1 A Again, we would look at what the market is 2 telling us that the collective market thinks rates are 3 going to be. 4 Q And wouldn't you agree with me that you would 5 have greater certainty in your guess about what that 6 number would be in 2016 than 2017? 7 A I don't know. I think that the market is 8 making trades every day based on the value that they 9 expect for treasury bonds, for instance. And so, they 10 are placing a lot of money at risk for '17 bonds, '16 11 bonds and -- 12 Q But -- but if you were making a bet on, say, 13 treasury -- ten-year treasury bond yields in 2020 and 14 ten-year treasury bond yields in 2017, which is the 15 safer bet? 16 17 18 A I wouldn't bet on that. So, I -- I don't I don't know what's a safer bet. Q Now, you wouldn't tell me that you -- that you 19 have just as much -- you could make -- have just as much 20 competency in a prediction about ten-year treasury bonds 21 in 2020 as you would -- and what they would be in 2017, 22 do you? 23 A That's fair. 24 Q Okay. 25 So, the further you go out, the harder it is to predict, right? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 The less certain you can be (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1616 1 2 about your projections. A 3 4 Generally speaking. MR. COFFMAN: Okay. That's all I have. 5 CHAIRMAN BROWN: 6 All right. 7 MR. SKOP: 8 CHAIRMAN BROWN: 9 10 Thank you. Thank you, Mr. Coffman. We are moving on to Mr. Skop. Thank you, Madam Chairman. Sure. EXAMINATION BY MR. SKOP: 11 Q Good evening, Mr. Barnett. 12 A Barrett. 13 Q Barrett. 14 A Good evening. 15 Q I'm Nathan Skop, representing the Larsons. Sorry. Excuse me. I 16 just have a couple of lines of questions for you. 17 response to a line of questions from OPC, you were 18 somewhat critical of the Commission decision in the 2009 19 rate case, correct? 20 A I don't recall. 21 Q Okay. 22 But you did mention, in the wake of the 2009 rate case, that projects were delayed and your -- 23 A Yes. 24 Q Okay. 25 In All right. So, it's fair to say that you were somewhat critical of the outcome of the Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1617 1 decision, right? 2 A Yes. 3 Q Okay. 4 Thank you. And also, in response to a line of questions 5 from OPC, you spoke favorably about the value of past 6 settlement agreements, correct? 7 A Correct. 8 Q But we don't have a settlement in this rate 9 case, correct? 10 A Correct. 11 Q Not yet. 12 A Not yet. 13 Q Okay. So, in an election year, doesn't that 14 put the Commission in the difficult position of being 15 asked to approve one of the largest electric rate 16 increases in Florida's history? 17 18 19 A with it. Q 20 21 I don't know what an election year has to do All right. Fair enough. The 2009 FPL rate-case decision required FPL to amortize surplus depreciation, correct? 22 A Correct. 23 Q Okay. And at the time, FPL was critical of 24 the Commission's 2009 rate-case decision to require FPL 25 to amortize surplus depreciation, correct? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1618 1 2 3 A I don't recall if we were critical. I think we preferred a remaining-life method. Q 4 Okay. All right. Thank you. The ability to amortize surplus depreciation 5 was part of the 2010 settlement that the firm -- the 6 2009 rate-case decision, correct? 7 A Yes, with an explanation. I mean, the 8 Commission had ordered the reduction in rates for the 9 flowback of the reserve surplus. 10 The settlement gave us the flexibility -- 11 Q Yeah. 12 A -- to do what the Commission had already 13 14 ordered us to do. Q Right. 15 clarification. 16 point. 17 Fair enough. And thank you for that That was going to be my next -- my next Also, the ability to amortize surplus 18 depreciation was part of the 2012 settlement, correct, 19 subject to the clarification that you just provided? 20 A Yes, with an expansion on the 2012 settlement 21 agreement. 22 something called a reserve amount, and it had two 23 components. 24 depreciation that had not been amortized from the 2010 25 order, combined with an amount of fossil dismantlement It was codified in that agreement as Whatever was leftover from the surplus Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1619 1 reserve to -- together make up $400 million. 2 Q 3 Thank you. So, you would agree that FPL has embraced the 4 ability to amortize surplus depreciation as an effective 5 means to manage ROE at the upper end of the approved 6 range, correct? 7 A I would agree that FPL sees the value in this 8 reserve mechanism to allow it to take the ups and downs 9 in the business and to keep its earnings within the 10 range that's authorized by the Commission. 11 Q Okay. So, with respect to the use of surplus 12 depreciation, the 2009 Commission got it correct -- got 13 it right, correct? 14 that. 15 I'm sorry. All right. Let me -- let me restate So, with respect to the use of 16 surplus depreciation, the 2009 Commission got it right, 17 correct? 18 A I would respectfully just give you a 19 clarification on that. 20 in what happened in the 2009 case versus what was 21 approved in the 2012 settlement. 22 rates were reduced for the amount of the flowback of 23 surplus. 24 agreement to flexibly use that annual amount. 25 There is a very big difference In the 2009 case, And then, we were allowed in the settlement In the 2012, rates were not reduced, we were Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1620 1 allowed that flexibility to keep our earnings within our 2 allowed range. 3 flowback and a reduction in rates. 4 lemonade out of lemons, if you will, in the 2010 5 settlement. 6 Q Very big difference. In 2009, it was a So, we kind of made And so, let me -- let me ask that just in a 7 slightly different way, then, with the addition of the 8 flexibility for FPL to manage versus a mandate from the 9 Commission, it's -- it's more amenable to FPL to use 10 that to manage ROE in the upper end of the range, 11 correct? 12 A I would say, it's -- yes and no. It's 13 amenable to FPL, but it's also good for customers in 14 that it allows us the flexibility to stay out of rate 15 cases. 16 Q 17 Correct. So, that -- that was my point going back to the 2009 and the settlements. 18 All right. Thank you. So, with respect to the line of 19 questions from OPC, you mentioned the delay of projects 20 after the 2009 rate-case decision. 21 that was the Canaveral and Riviera projects, correct? 22 A Expanding on that, There were a number of projects that were -- 23 that were put on hold, if you will. 24 release. 25 you're referring to, but we also indicated that there We put out a press Those were the modernization projects that Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1621 1 were infrastructure projects that we were going to put 2 on hold while we kind of weighed the outcome and 3 determined whether we could proceed at that level of -- 4 of ROE. 5 Q Okay. And then just a few follow-up questions 6 on that. 7 Canaveral and Riviera modernization programs -- and that 8 was announced via press release -- FPL was already 9 accruing AFUDC on these projects, correct, at the time 10 11 12 13 So, with respect to the suspension of the of suspension? A Yes. I don't recall on Riviera how far along we were, but we certainly were underway on Canaveral. Q Okay. So, I guess the question I have -- 14 well, let me ask it this way: 15 something against the financial self-interest of its 16 shareholder by suspending projects that it was earning a 17 return on? 18 A Why would a company do We had to take a pause and evaluate whether 19 our investors wanted us to invest money at 10 percent, 20 which was the ROE that we were awarded, which, at that 21 time, was the lowest in the -- in the state, I think the 22 lowest in the southeast. 23 investors were okay with that. 24 CHAIRMAN BROWN: 25 MR. SKOP: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And we wanted to be sure that Mr. Skop? Yes. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1622 1 CHAIRMAN BROWN: 2 MR. SKOP: 3 CHAIRMAN BROWN: May I stop you for a moment? Yes. I just want to make sure that 4 you stick to the prefiled direct testimony on this 5 cross examination. 6 MR. SKOP: Yes, Madam Chair. I'm -- I'm 7 exploring his responses to a line of cross from 8 Public Counsel. 9 on. So, I'm trying to stick directly 10 CHAIRMAN BROWN: 11 MR. SKOP: 12 13 Okay. Okay. Thank you. BY MR. SKOP: Q All right. And just as a point of 14 clarification, Mr. Barnett -- or Barrett. 15 Sorry. 16 A It's happened throughout my life. 17 Q So, the mid-point ROE awarded by the Barrett. It's late. 18 Commission in 2009, as affirmed in the 2010 settlement 19 and is currently in place, was 10.5 percent, is that 20 correct? I think you said -- 21 A No, that's not correct. 22 Q It was ten? 23 A It was 10 percent. 24 Q Subject to -- all right. 25 Thank you. So, the Commission has always allowed timely Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1623 1 cost recovery for prudently-incurred costs associated 2 with new plants placed in service, correct? 3 4 A I guess the answer to that is yes depending on your definition of timely. 5 Q Okay. 6 A GBRA was an artifact of the settlement 7 agreements. 8 Q I understand, but -- 9 A The Commission denied that in the 2009 case. 10 Q I understand that, but in the settlement, it 11 GBRA -- was granted, correct? 12 A Correct. 13 Q All right. So, moving along, in the interest 14 of time, I believe you've -- you've also testified in 15 your direct testimony, and also in response to Public 16 Counsel, that FPL needs a higher ROE to continue to make 17 investments, correct? 18 A I'm sorry. 19 Q Yes. Could you repeat that? In your direct testimony, and also in 20 response to a line of questions from Public Counsel, I 21 think you indicated that FPL needs a higher ROE to 22 continue to make investments, correct? 23 24 25 A Can you point me in my testimony where I say that? CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Please. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1624 1 MR. SKOP: 2 Bear with me. 3 (Examining document.) 4 CHAIRMAN BROWN: 5 MR. SKOP: 6 speak, Madam Chair. I can. What page? I am -- I am looking for it as we 7 But I will move on. 8 I can come back to that. 9 CHAIRMAN BROWN: 10 11 12 13 MR. SKOP: Q Okay. of your testimony, please -- or direct testimony. I'm there. 15 Q Okay. You state at Line 12 that -- 16 MR. BUTLER: 17 MR. SKOP: very late. 19 21 Okay. If I could ask you to turn to Page 12, Line 7 A 20 I have other questions. BY MR. SKOP: 14 18 Yes. I'm sorry. No, I'm sorry. Line 12? Excuse me. It is Page 12, Lines 6 and 7. MR. BUTLER: Okay. BY MR. SKOP: Q Okay. And in that, you state: It's likely to 22 keep FPL's customers' bill among the lowest in the 23 state, correct? 24 A Yes. 25 Q Okay. All right. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And that assumes that (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1625 1 natural gas prices remain at current levels, correct? 2 MR. BUTLER: Objection. Asked and answered. 3 This is pretty much the exact same line that AARP's 4 counsel was pursuing with Mr. -- Mr. Barrett. 5 MR. SKOP: 6 CHAIRMAN BROWN: 7 MR. SKOP: 8 CHAIRMAN BROWN: 9 MR. SKOP: 10 11 12 question. Okay. Mr. -- Mr. Skop. I'll move -- I'll move along -Thanks. -- on a similar line within that Bear with me for one second. BY MR. SKOP: Q As part of its rate-case justification, FPL is 13 citing low customer bills, correct? 14 the lowest bills in the state and some -- 15 16 17 18 A That it has low -- Yeah, generally speaking, I would say that's part of the value proposition that we testified to. Q Okay. Is FPL aware of the competitive retail electric market in Texas? 19 A Is FPL aware or am I aware? 20 Q Are you -- I'm sorry. 21 22 23 24 25 Are you aware of it? I'm sorry. A I'm aware that it's competitive, and that's about it. Q Okay. Subject to check, would you agree that Reliant Energy and the Encore Electric delivery service Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1626 1 area offers retail electricity to its customers at $64 2 per 1000 kWh? 3 CHAIRMAN BROWN: Mr. -- Mr. Skop, I hate to 4 stop you. 5 prefiled testimony and where that is relevant to 6 this witness. I'm just trying to follow that along the 7 MR. SKOP: 8 CHAIRMAN BROWN: 9 MR. SKOP: Madam Chair, may I explain? Okay. Sure. So, FPL has contended 10 superior service, low bills, lowest in the state, 11 and it should be rewarded appropriately. 12 The point I'm trying to make is that if, in 13 the competitive market in Dallas, Texas, you can 14 get the same unit of electricity, thousand kWh for 15 $64 -- 16 CHAIRMAN BROWN: 17 MR. SKOP: 18 CHAIRMAN BROWN: 19 MR. BUTLER: FPL -- And so -- Yes. Any response? I think that that is 20 completely irrelevant to Mr. Barrett's testimony. 21 He's also assuming facts not in evidence that I 22 doubt will be put into evidence. 23 object to it. 24 25 CHAIRMAN BROWN: So, I would Mr. Skop, can you proceed with further questions outside -- Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1627 1 MR. SKOP: 2 CHAIRMAN BROWN: 3 MR. SKOP: 4 All right. Thank you. -- that line? All right. BY MR. SKOP: 5 Q On Page 35, Lines 19 through 21, please. 6 A Okay. 7 Q Okay. And on Page 39, beginning at Line 19, 8 you discuss the increase and the weighted average cost 9 of capital indicated that it is driven by the required 10 increase in ROE. 11 ratio? 12 A Which page are you referring to now -- 13 Q Page -- 14 A -- that you pointed to? 15 Q I said -- yeah, Page 35 -- 16 A Yep. 17 Q -- Lines 19 through 21? 18 A Okay. 19 thought. Is it not also driven by the equity Then you've put me over to 39, I Okay. 20 Q I'm sorry. 21 A No, it's not at all driven by the -- by the 22 23 Maybe I wasn't clear in my -- equity ratio in the context of the statement. Q Okay. So, the question -- again, you 24 testified that the increase in the weighted average cost 25 of capital is driven by the required increase in ROE. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1628 1 Is the increase in the weighted average cost of capital 2 not also a function of the equity ratio? 3 A It is. 4 Q Okay. 5 A And in this case, the equity ratio is going 6 down. 7 8 Q Okay. And can I ask you to turn to Page 47 at Lines 7 through 9, please. 9 A 10 Okay. CHAIRMAN BROWN: 11 Did you say seven? 12 MR. SKOP: 13 CHAIRMAN BROWN: 14 MR. SKOP: 15 CHAIRMAN BROWN: 16 MR. SKOP: 17 What -- I'm sorry? Yes, I'm -- I'm sorry. Page 37 -- Uh-huh. -- Lines 7 through 9. Thank you. Okay. BY MR. SKOP: 18 Q And Mr. Barrett, in that portion of your 19 testimony, you talked about project momentum and the 20 main catalyst that's contributed to a tremendous success 21 in lowering operating costs since the last base-rate 22 case. 23 24 25 Can you be more specific as to which base-rate case you're talking about? A The whole context of this part of my testimony Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1629 1 2 is since the 2013 test year. Q Okay. And isn't project momentum what a 3 prudently-managed utility should be doing to begin with 4 to be more efficient and tighten -- tighten its belt or 5 lower its cost? 6 A I don't know that I would agree with that. 7 think what we've done is gone beyond what a prudent 8 utility would do. 9 everybody else in the industry is not prudent since 10 11 I mean, otherwise, kind of de facto, we're the best in the industry. Q 12 13 All right. Fair enough. And now, if I could ask you to turn to Page 45, please. I just have a few more questions. 14 A Okay. 15 Q On Lines 19 through 22, on Page 45, you 16 I discuss the proposed transfer of the lateral -- 17 A Yes. 18 Q -- into a FERC-regulated affiliate. 19 And if this transfer is approved, the transfer 20 to the FERC-regulated affiliate will result in higher 21 ROE on that asset placed into service, correct? 22 A I don't think so, no. 23 Q So -- so, as a general practice, you would -- 24 25 let me reframe this. So, is it your -- would you -- it's late. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1630 1 You would agree that the FERC ROE on 2 transmission-related assets is higher than that awarded 3 by the Florida Public Service Commission, correct? 4 A I don't know. 5 Q Okay. 6 A I should add that this would be a negotiated 7 rate below a recourse rate. 8 know how to determine what their ROE is. So, I don't -- I wouldn't It's -- 9 Q Okay. 10 A It's Florida Southeast Connection. 11 Q All right. With respect to Line 22, when it's 12 contemplated to be in service of May 1st, 2017, what 13 happens if that's delayed? 14 15 16 17 18 A Well, then the transfer wouldn't take place until it went into service. Q What would happen to -- how would FPL meet its gas requirements if the -- if the pipeline is delayed? A 19 question. 20 testimony. You should probably ask Mr. Forrest that 21 Q 22 23 That's not really the scope of this All right. Fair enough. Thank you. If I could ask you to turn to Page 46 of your testimony, please. 24 A Okay. 25 Q Lines 10 through 14. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1631 1 A Yes. 2 Q Okay. And you suggest preliminary estimates, 3 cumulative present value revenue-requirement savings of 4 $3 million over the life of the contemplated contract. 5 Question is: 6 FERC jurisdiction if the transfer was approved? 7 A Did the CPVRR assume a higher ROE under I -- I don't know what was assumed. What I do 8 know is that this analysis looked at current cost of 9 ownership, which was FPL's ROE, and a set of tariff 10 rates that we got from FSC to compare to that. 11 compare those two, it had a lower CPVRR. 12 Q All right. When you So, with respect to the projected 13 savings, is FPL willing to guaranty these savings to 14 customers? 15 A No. I mean, we're willing to come back to the 16 Commission in January and show an updated analysis, 17 which is our projection of the savings. 18 a tariff rate. 19 over the life of the contract, I would presume that 20 that's pretty much a guaranty. 21 22 Q So, to that extent, if it's a fixed rate If I could ask you, now, to turn to Page 47 of your testimony, Lines 11 through 14. 23 A Okay. 24 Q And same general question: 25 But it will be To the extent that, simultaneously, you're going to lower base rates Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1632 1 through a pipeline base-rate reduction and increased 2 Fuel Clause factors to cover the transportation costs, 3 are those transportation costs generally going to be 4 higher than they -- they currently are? 5 A No. 6 Q Okay. 7 So, they are expected to be lower, correct? 8 A Yes. 9 Q Okay. So, if we looked, for example, in 2006, 10 the cost of generation and in cents per kilowatt hour, 11 including transportation costs, and compared it to the 12 introduction of this pipeline in 2017, do we expect that 13 the generation costs in cents per kilowatt hour would be 14 higher or lower, including transportation? 15 A I -- I got lost in the question. 16 Q Okay. 17 A You said 2006? 18 Q 2006. 19 A Okay. 20 Q Okay. 21 A -- anything about 2006. 22 23 24 25 I don't know -- MR. SKOP: All right. Fair enough. We'll just move on. I may have a few more questions on the pipeline. Give me one second, please. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1633 1 2 CHAIRMAN BROWN: BY MR. SKOP: 3 Q Okay. 4 storm reserve. 5 this rate case? 6 7 A Let me ask a question with respect to Is FPL requesting a storm reserve in We're not in- -- we're not requesting any increase to the storm reserve. 8 9 Okay. Q Okay. You're asking it to remain funded to current level? 10 A Yes. 11 Q Okay. Has the Commission always allowed the 12 timely cost recovery for storm restoration via the storm 13 charge? 14 A I think that that's -- that's fair to say; 15 that there has been various mechanisms that the 16 Commission has used throughout its giving us decisions 17 on storm recovery. 18 Q And it's been timely. All right. So, if the Commission decided not 19 to fund the storm reserve in order to reduce revenue 20 requirement of what is a pretty large request, there is 21 no -- 22 CHAIRMAN BROWN: Mr. Skop -- I'm sorry. I 23 don't -- I don't believe this is the right witness 24 for the storm reserve -- or for the storm. 25 MR. BUTLER: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 That would be Mr. Dewhurst. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1634 1 MR. SKOP: Mr. Dewhurst? All right. Fair 2 enough. 3 generally in his testimony about the elements that 4 make up the request, so that -- 5 6 I mean, again, the witness is speaking CHAIRMAN BROWN: I appreciate that, but -- but I think there may be -- 7 MR. SKOP: 8 So, one or two more questions. 9 10 11 Q And if I could refer you back to what's been marked for identification as Exhibit 639, please. A Okay. 13 Q All right. A Yes. 16 Q Okay. Let me have one moment to get to it myself in this voluminous packet of papers. 18 19 And in REB-9 -- and I'll give you a second to refer to that. 15 17 Fair enough. BY MR. SKOP: 12 14 All right. So, in REB-9, does the cost comparison assume the gas turbines will retire in a particular year? 20 A This year. 21 Q This year? 22 A (Nodding head affirmatively.) 23 Q Okay. 24 25 All right. Fair enough. Then, also, within Exhibit 639 -- and I guess the other one was in reference to your testimony. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 So, I Reported by: Andrea Komaridis premier-reporting.com 1635 1 think I got my tongue twisted. 2 So, I apologize there. With respect to what's been marked as 3 Exhibit 639, can I ask you to turn to the last page -- 4 or second -- third page of that exhibit. 5 A Which page is the -- 6 Q It's marked -- 7 A The one that says two of three on the bottom 8 right? 9 Q Yes, sir. 10 A Okay. 11 Q And this exhibit quotes, I believe, the CEO of 12 NextEra Energy, I believe Mr. Robo. 13 there, according to Mr. Robo, is: 14 never be another peaker built in the United States. 15 Very likely, you'll just be building energy storage 16 instead. 17 18 19 Post-2020, there may Do you have any reason to doubt that Mr. Robo made that statement? A No, I believe he made that statement. 20 MR. SKOP: 21 No further questions. 22 And the quote Okay. All right. Thank you. Thank you, Mr. Barnett -- 23 CHAIRMAN BROWN: 24 MR. SKOP: 25 CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Thank you, Mr. Skop. Barrett. Okay. (850) 894-0828 Staff. Reported by: Andrea Komaridis premier-reporting.com 1636 1 MS. JANJIC: 2 CHAIRMAN BROWN: 3 Good evening, Mr. Barrett. Could you please put the mic closer to you so the court reporter -- 4 MS. JANJIC: 5 Good evening, Mr. Barrett. Okay. Before we begin, 6 we will have several exhibits that we will be 7 passing out. 8 THE WITNESS: 9 CHAIRMAN BROWN: 10 11 Okay. Staff, we will be marking the first one at 640. MS. JANJIC: Okay. And that will actually be 12 the FPL response to OPC's second set of 13 interrogatories, No. 105 that was amended and we 14 authenticated at the beginning. 15 moving that after the cross into the record. 16 will be done at the end of the hearing. 17 18 CHAIRMAN BROWN: So, we will not be Thank you for that clarification. 19 You want to just wait a sec while we -- 20 MS. JANJIC: 21 CHAIRMAN BROWN: 22 23 That Yeah. 640. So, that would -- the first one you wanted to label -MS. JANJIC: Yes, and the remainder will be 24 marked by a second attorney that will be asking 25 questions after me of Mr. Barrett. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1637 1 CHAIRMAN BROWN: 2 (Whereupon, Exhibit No. 640 was marked for 3 identification.) 4 5 Okay. EXAMINATION BY MS. JANJIC: 6 Q Good evening, Mr. Barrett. 7 A Good evening. 8 Q I know it may seem like it was forever ago, 9 but do you recall your earlier discussion with South 10 Florida Hospital regarding the emissions savings for the 11 large-scale solar projects? 12 A Yes. 13 Q Would you agree that the emissions savings 14 include CO2? 15 A Yes. 16 Q Thank you. 17 Let's see. Does FPL include the cost of CO2 18 emissions in its negotiated purchase power agreements 19 with renewable facilities? 20 21 22 23 A I don't know. I believe we do. I think we include it in everything. Q Is there someone else that would be better able to answer that question? 24 A Mr. Forrest might be able to answer that. 25 Q Forrest. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Okay. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1638 1 And does FPL include the cost of CO2 emissions 2 in its standard offer contract that is -- that it files 3 annually with the Commission? 4 A I don't know. 5 Q Mr. Forrest, again? 6 A I think he would be able to. 7 8 9 He's going to love me. Q Next, I'm going to move on and ask questions regarding the construction work in progress. 10 A Okay. 11 Q I provided you a copy of the ECRs and MFRs 12 that are marked as Exhibit No. 556 on the comprehensive 13 exhibit list, for everybody else's reference. 14 A Did you hand that out to me? 15 Q Yes, sir. 16 pages. It was also used -- 17 18 It should be there, a packet, 14 MR. BUTLER: Q We don't have it. -- in your depositions. 19 CHAIRMAN BROWN: 20 MS. JANJIC: 21 CHAIRMAN BROWN: 22 556? 556 on the -FPL, do you have a copy of that? 23 MR. BUTLER: 24 CHAIRMAN BROWN: 25 with a copy of that? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 No. Can you please provide FPL (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1639 1 THE WITNESS: 2 response to 105? 3 MS. JANJIC: 4 exhibit list. 5 Exhibit No. 3. 6 7 Is this the one that's in No, it's 556 in the comprehensive It's the late-filed deposition It's 556 on our list. THE WITNESS: Okay. But it wasn't just handed to me. 8 MS. JANJIC: 9 CHAIRMAN BROWN: It should have been. All right. Staff, can you 10 just make sure that you hand the witness a copy of 11 that because he -- 12 THE WITNESS: 13 MS. JANJIC: 14 THE WITNESS: 15 Oh, I'm sorry. It was -- Yes, you have that. It was clipped to something else. 16 MS. JANJIC: 17 CHAIRMAN BROWN: 18 THE WITNESS: 19 It's this, right (indicating)? 20 CHAIRMAN BROWN: 21 Staff? 22 MS. JANJIC: 23 CHAIRMAN BROWN: 24 MR. BUTLER: 25 I'm sorry? So, you have it, Mr. Barrett? I do believe I have it. Thank you. Okay. Thank you. FPL, you have a copy? I'm sorry. We're still trying to find it here. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1640 1 CHAIRMAN BROWN: 2 MR. BUTLER: It's this, right? 3 MS. JANJIC: That was just for the witness. Just a sec. 4 It's a courtesy copy for him. 5 on your CDs, 556 on the comprehensive exhibit list. Rest of it should be 6 (Discussion off the record.) 7 THE WITNESS: 8 MS. JANJIC: 9 THE WITNESS: 10 It's the --- late-filed --- MFR -- MFR-B1, the CWIP balances? 11 MS. JANJIC: 12 THE WITNESS: 13 CHAIRMAN BROWN: 14 Yes. Yes. MS. JANJIC: 16 CHAIRMAN BROWN: 18 Everyone has a copy? 15 17 All right. May I proceed? Yes. Please do. BY MS. JANJIC: Q Mr. Barrett, can you refer to MFR Schedule B-1 19 in Docket No. 080677-EI, which is Page 5 of 14 of your 20 Deposition Exhibit 3, which you have in front of you. 21 This reflects the 13-month adjusted rate base for the 22 prior year ended in 2009. 23 Column 5 reflects the CWIP balances. In that 24 column, the jurisdictional adjusted utility amount is 25 542,817,000, correct? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1641 1 A Yes. 2 Q Please refer to the ECR Schedule 2, Page 6 of 3 14 of your Deposition Exhibit 3 for 2009, which gives 4 the actual 13-month adjusted rate base for the year 5 2009. 6 7 The FPSC jurisdictional adjusted CWIP balance is in the amount of 462,843,628, correct? 8 A Yes. 9 Q And would you agree that the variance between 10 those two numbers is approximately 79,973,372 or 11 14.73 percent? 12 13 14 A 17 That's more than approximately. Q 15 16 I would say, yes. Exactly, I guess. And can you explain why this variance occurred, Mr. Barrett? A Well, this was in 2009. And this MFR was put 18 together in -- in 2008, before that rate-case filing. 19 And we were just at the beginning of understanding what 20 was going on with the -- with the turndown in the 21 economy. 22 And so, we, as a result of the deepening 23 recession, we changed the timing of some projects. 24 pulled back on some projects. 25 earlier about cancellations and -- and deferrals of some Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 We We had some discussion Reported by: Andrea Komaridis premier-reporting.com 1642 1 projects. 2 variance in 2009. 3 Q So, that's -- that's what caused this 4 Thank you. Please refer to the MFR Schedule B-1 in Docket 5 080677-EI. 6 Exhibit 3, which reflects the 13-month adjusted rate 7 base for the projected test year ended in 2010. 8 9 10 This is on Page 7 of 14 of your Deposition Column 5, again, reflects the CWIP balances. In that column, the jurisdictional adjusted utility amount is 707,530,000, correct? 11 A Yes. 12 Q And please refer to the ESR Schedule 2, which 13 is on Page 8 of 14 of your deposition exhibit for 2010, 14 which gives the average rate base for the year 2010. 15 16 The FPSC jurisdictional adjusted CWIP balance is in the amount of 379,521,621, correct? 17 A Correct. 18 Q And would you agree that the variance between 19 these two numbers is, again, approximately, 328,008,379 20 or 46.36 percent? 21 A Yes. 22 Q And can you explain this variance for us? 23 A Yes. As I explained about 2009, this was as 24 the recession was really starting to -- to take root. 25 And these -- and these forecasts were put together, Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1643 1 again, before the recession was -- was even really 2 acknowledged. 3 And so, this was impacted by the timing of 4 some projects having to pull back, growth was coming 5 down. 6 to get to 2011, in a minute, I assume -- And also, specifically, 2010 -- and we're going 7 Q That's right. 8 A -- was impacted as well by the -- our 9 reflection of the rate-case outcome that we got in 10 January of 2010 and, subsequently, decided that we 11 needed to put on hold some projects and -- and defer 12 some projects. 13 Q Refer to your MFR Schedule B1 in Docket 14 0807 -- I'm sorry -- 080677-EI, Page 9 of 14 of your 15 Deposition Exhibit 3, which reflects the 13-month 16 average adjusted rate base for the projected subsequent 17 test year ended in 2011. 18 Column 5 reflects the CWIP balances. 19 jurisdictional adjusted utility amount is the 20 772,484,000, correct? The 21 A Correct. 22 Q And refer to the ESR Schedule 2 -- this is on 23 Page 10 of 14 -- for 2011, which gives the average rate 24 base for the year 2011. 25 The FPSC jurisdictional adjusted CWIP balance Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1644 1 in the amount 359,029,953; is that correct? 2 A That's correct. 3 Q And the variance between these two numbers is 4 413,454,047 or 53.52 percent? Do you agree? 5 A Yes. 6 Q And can you explain this variance for us, 7 8 9 Mr. Barrett? A It's much of the same that we just talked about in terms of the slow-down of our construction 10 program. 11 in service, contrary to CWIP being down, net plan in 12 service was actually up. 13 However, I would note, in 2011, our net plan So, we were beginning to catch back up on 14 getting some projects done. 15 base was actually higher than what we had projected for 16 2011 and our MFR filing. 17 with the timing of the projects. And so, an overall rate So, a lot of this has to do 18 Q Two more. 19 A Yeah. 20 Q Please refer to the MFR Schedule B1 in Docket Bear with me. I'm almost done. 21 120015-EI. 22 13-month average adjusted rate base for the prior test 23 year ended in 2012. 24 25 This is Page 11 of 14, which reflects the Column 5 reflects the CWIP balances. The jurisdictional adjusted utility amount is 596,059,000, Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1645 1 correct? 2 A Yes. 3 Q And please refer to the ESR Schedule 2 -- this 4 is on Page 12 of 14 -- for 2012, which gives the average 5 rate base for the year 2012. 6 7 The FPSC jurisdictional adjusted CWIP balance is in the amount of 438,262,399; is that correct? 8 A Yes. 9 Q And would you agree that the variance between 10 these two numbers is 157,796,601 or 26.47 percent? 11 A Yes. 12 Q And can you explain why this variance 13 14 occurred? A This was primarily just timing. 15 of service was actually up 292 million. 16 base was within .5 percent. 17 closings from CWIP to plant. 18 MS. JANJIC: the last question. 20 asking. 21 22 25 I guess I'll save you I will not be answering -- or The remainder of the questions will be asked by Adria Harper. 23 24 And total rate So, it was just timing of Thank you. 19 The net plan EXAMINATION BY MS. HARPER: Q Good evening, Mr. Barrett. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1646 1 A Good evening. 2 Q I have a few questions on a couple of topics, 3 different topics that you covered in your prefiled 4 testimony and exhibits. 5 Exhibit REB-14, which is No. 92 on our comprehensive 6 exhibit list. First, I want to refer to your 7 A Okay. 8 Q And I just wanted to ask, what overall cost of 9 10 capital was used in calculated -- calculating the avoided capital costs of the 208 million? 11 A It was the cost of capital reflected in the 12 27 -- 2017 test year. 13 the 59.6 equity ratio and all the other capital costs 14 that are reflected in D1A. So, it reflected the 11.5 ROE and 15 Q Okay. 16 A Or I should say on an incremental basis. 17 Okay. So, it's just debt and equity. 18 Q Okay. Now, I'm going to ask you some 19 questions about the D1A, actually. 20 specifically the 2017 MFR Schedule D1A and the 2018 21 Schedule D4A. And that's 22 A Do I have those? 23 Q They are No. 28 and 29 on the comprehensive 24 exhibit list. 25 copy. Did you pass them out to me? I'm not -- you might have a courtesy If not, I could provide one. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1647 1 2 CHAIRMAN BROWN: can you please provide him one? 3 MS. HARPER: 4 THE WITNESS: 5 6 For ease of accessibility, Yeah. Thank you. Okay. BY MS. HARPER: Q Okay. These questions are directed to that. 7 But first I want to ask you about your direct testimony 8 on this issue. 9 10 On Page 42 of your direct testimony, specifically Lines 14 through 21 -- 11 A Okay. 12 Q Here, you testify that the 2018 weighted 13 average cost of capital is point-1 -- excuse me, .10 or 14 .10 percent higher than the 2017 weighted cost of 15 capital; is that correct? 16 A Yes. 17 Q And is that primarily because of an increase 18 in the cost of long-term debt? 19 A Yes. 20 Q Those cost rates are included on this MFR 21 Schedule D1A for the respective test years, correct? 22 A Yes. 23 Q You are a co-sponsor of the MFR Schedules D1A, 24 25 correct? A I am. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1648 1 Q Okay. In your testimony, you state that the 2 increase in the weighted average cost of capital is 3 projected to increase the 2018 revenue requirements by 4 31 million; is that correct? 5 A Yes. 6 Q If the weighted average cost of long-term debt 7 for the subsequent test year ended December 31st, 2018, 8 and is lower than 1.44 percent, would the projected 9 31 million increase be reduced? 10 A Yes. 11 Q Okay. Now, I'm going to turn to my last issue 12 that I'm going to cover with you, Mr. Barrett. 13 is the FPL's Okeechobee Energy Center. And that 14 A Okay. 15 Q As a general rule, would you agree that 16 combined-cycle units have higher capital cost, but lower 17 fuel costs than simple-cycle combustion turbine units? 18 A Yes. 19 Q All else being equal, would you agree that the 20 revenue requirement for a given amount of capital 21 increase -- given amount of capital increases as the 22 rate of return increases? 23 A Yes. 24 Q Okay. 25 I've provided everybody with a courtesy copy of Order No. -- PSC Order No. PSC 160032-FOFEI. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1649 1 And I'm going to ask you to turn to Page 24 on that 2 order and look at the third paragraph. 3 A Okay. 4 Q So, your testimony discusses the Okeechobee 5 unit and the determination-of-need proceeding. 6 to check, would you agree that the next best alternative 7 in the Okeechobee need determination was a set of 8 combustion turbines and that the Okeechobee unit was 9 more cost-effective by approximately 72 million? Subject 10 A Yes. 11 Q I'm going to ask you to refer to that order 12 again, the PSC Order 160 -- PSC's 160032-FOFEI, this 13 time, Page 17, second paragraph. 14 A Okay. 15 Q Subject to check, would you agree that in its 16 last need determination for Okeechobee Energy Center, 17 FPL used its current equity ratio, 59.6 percent, in 18 return on equity, 10.5 percent, in its analysis? 19 A Yes. 20 Q Would you agree that FPL's proposals in this 21 rate case for return on equity, equity ratio and 22 performance adder would result in a higher rate of 23 return than the current level? 24 A Yes. 25 Q Okay. Now, I'm going to ask you, please, to Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1650 1 refer to your late-filed deposition exhibit, which I've 2 included in that packet. 3 641, I believe, is the next number. 4 Late-filed Deposition Exhibit 1, Okeechobee Plant ROE 5 comparison to CTs. 6 A I have it. 7 Q Okay. It's going to be marked as Great. And it's titled This is a comparison between 8 what was presented in the Okeechobee need case and what 9 would the calculation -- what the calculation would have 10 been using FPL's proposed ROE from the rate case. 11 Would you agree that Okeechobee Energy Center 12 would have lost two-thirds of its benefits over the 13 next-best unit and only been 24 million more cost- 14 effective using an 11.5 percent return on equity? 15 A Yes, I would agree that it still has 16 $24 million of value. 17 MS. HARPER: 18 THE WITNESS: 19 CHAIRMAN BROWN: 20 Commissioners, any questions? 21 Redirect? 22 MR. BUTLER: 23 24 25 I have no further questions. Thank you. Thank you. Thank you, Madam Chair. REDIRECT EXAMINATION BY MR. BUTLER: Q Mr. Barrett, you were asked a series of Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1651 1 questions by staff concerning what was identified as 2 Exhibit 556, the comparisons of the Schedule B-1 and 3 ESRs for a series of years. 4 A Yes. 5 Q Okay. Do you recall that? Would you consider it more appropriate 6 in evaluating utilities' revenue requirements to look at 7 CWIP balances or total rate-base balances? 8 9 10 A Total rate base is going to drive total revenue requirements. Q You were asked by Mr. Skop a series of 11 questions about the 2009 rate case. 12 FPL's credit ratings were affected by the Commission's 13 decision in the 2009 rate case? Do you know whether 14 A Yes, we were downgraded. 15 Q And if you would, turn, please, to 16 Exhibit 639. 17 Media article. Do you have that? 18 A Let me find it. 19 Q Okay. This is the Greentech (Examining document.) Yes. First of all, on Page 2 of 3, you were 20 asked about a quote in this, what Mr. Robo said. 21 just to clarify, does -- does this article indicate that 22 Mr. Robo says that there certainly will be no other 23 peakers built or that there may not be other peakers 24 built post-2020? 25 A And He said may never be. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1652 1 2 Q Okay. When does FPL -- or when will FPL be placing its current peaking CTs into service? 3 A This year. 4 Q Okay. At today's prices, would battery 5 storage be a cost-effective alternative to replacing the 6 old GTs with these current CTs? 7 A No. 8 Q You were asked by Ms. Csank about whether 9 there was value to keeping more than two of the old GTs 10 per site on -- around having sort of a larger retained 11 fleet of the old GTs. 12 cost-effective alternative to retiring all but two per 13 site? 14 A No. Do you think that that would be a I believe keeping just the two that we 15 need for black star capability or what -- would be the 16 prudent decision. 17 Q She also asked you questions about whether FPL 18 could or should explore procuring solar panels, solar 19 converters, other solar-plant equipment now for solar- 20 generation facilities that FPL might build in the 21 future. 22 a prudent business practice? 23 A Do you have an opinion on whether that would be I do, and that -- it would be a bad idea for 24 two reasons. 25 what's going to be likely a lower cost tomorrow. One is, we would never procure today Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 And Reported by: Andrea Komaridis premier-reporting.com 1653 1 then, you're going to have the cost of carry; that 2 you're going to have to warehouse these panels and carry 3 the capital investment costs until they are placed into 4 service. 5 make. 6 Q So, it would be a more-costly decision to You were asked by Mr. Sundback some questions 7 about REB-14, your Exhibit REB-14. 8 contractual proposal or an indicative proposal as to the 9 costs that would be paid to FSC at this point? Is that a definitive 10 A It's indicative. 11 Q Would you explain why you presented an 12 indicative proposal in your testimony? 13 A Primarily because we wanted to make sure that 14 whatever the outcome of this rate case was was reflected 15 in the economics of making this decision, primarily 16 around things like ROE that the -- so, we would be 17 better able to quantify the cost of holding it in base 18 rates and then to be able to compare that to the 19 alternative. 20 So, that's why we proposed kind of a framework 21 that we would come back after the rate case if we could 22 still provide benefits to customers and petition at that 23 time. 24 25 Q And is it FPL's intention to proceed, regardless of whether the ultimate contractual deal Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1654 1 that's reached would save customers money, or only if it 2 saved customers money? 3 A Only if it saved customers money. 4 Q In response to some questions by Mr. Moyle, 5 you addressed or sort of compared the Okeechobee limited 6 scope or LSA proposal to the GBRAs that FPL has had in 7 effect on -- are there any differences between the 8 approach that would be used for those -- those two 9 mechanisms? 10 MR. SUNDBACK: Objection to the question. The 11 question was answered by the witness, and he said 12 he couldn't think of any at the time. 13 now, be, after the break, suddenly enlightened 14 about what the differences are. 15 question straight away without qualification on the 16 second try, basically, as you will recall. 17 18 He answered that So, we object to that question. CHAIRMAN BROWN: 20 Mr. Butler, please move along. 21 MR. BUTLER: 23 It's asked and answered. 19 22 He can't, Objection sustained. I am. BY MR. BUTLER: Q Okay. Regarding the Okeechobee LSA, you were 24 asked some questions about the support for that 25 proposal. Do you recall those questions? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1655 1 A I believe so, yes. 2 Q What support has FPL included in its filed 3 4 case regarding the Okeechobee LSA? A FPL has filed a complete set of documents 5 regarding the revenue requirements related to the first 6 year of operation for Okeechobee. 7 MR. BUTLER: 8 redirect that I have. 9 CHAIRMAN BROWN: 10 Exhibits. 11 All right. 12 13 14 15 Thank you. That's all the Thank you. We have -- Mr. Butler, we have a few exhibits attached to his prefiled testimony. MR. BUTLER: Yes, I would move into the record, Exhibit 79 through 92. CHAIRMAN BROWN: Are there any objections? 16 Seeing none, we'll move in Exhibits 79 through 17 80 -- I'm sorry, 92. 18 MR. BUTLER: 19 CHAIRMAN BROWN: 20 (Whereupon, Exhibit Nos. 79 through 92 were 21 92. 92. admitted into the record.) 22 CHAIRMAN BROWN: 23 MR. REHWINKEL: 24 Exhibit 636 and 637. 25 CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And then we'll go to OPC. The Public Counsel moves 636 and 637. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1656 1 Seeing -- any objections from FPL? 2 All right. 3 (Whereupon, Exhibit Nos. 636 and 637 were 4 We'll move in 636 through 637. admitted into the record.) 5 CHAIRMAN BROWN: 6 MR. WRIGHT: 7 CHAIRMAN BROWN: 8 MR. BUTLER: 9 CHAIRMAN BROWN: 10 638, please, ma'am. Any -- any objections? No. We'll move 638 into the record. 11 12 Retail Federation? (Whereupon, Exhibit No. 638 was admitted into the record.) 13 CHAIRMAN BROWN: 14 MS. CSANK: 15 CHAIRMAN BROWN: 16 We'll move in 639. 17 (Whereupon, Exhibit No. 639 was admitted into 18 21 22 Yes, please. Any objections? the record.) 19 20 Sierra Club, 639. CHAIRMAN BROWN: Staff, you're not moving in 640? MS. HARPER: 640 and 641, ma'am, please. Thank you. 23 CHAIRMAN BROWN: 24 MR. BUTLER: 25 CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Any objections? No. We'll move in 640 and 641 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1657 1 2 3 4 5 into the record. (Whereupon, Exhibit Nos. 640 and 641 were admitted into the record.) CHAIRMAN BROWN: excused for the evening? 6 MR. BUTLER: 7 CHAIRMAN BROWN: 8 9 10 11 night. Yes, please. Mr. Barrett, have a great Get some sleep. THE WITNESS: I will. CHAIRMAN BROWN: We won't. Just joking. (Laughter.) 13 CHAIRMAN BROWN: FPL, would you like to call your next witness? 15 MR. BUTLER: 16 CHAIRMAN BROWN: 17 (Discussion off the record.) 18 CHAIRMAN BROWN: We would call Ms. Ousdahl. All right. All right. 19 settled in -- not a recess. 20 recess. Ms. Ousdahl. Everyone getting Just FYI, not a Gas on the pedal tonight, guys. 21 (Laughter.) 22 CHAIRMAN BROWN: 23 I'm just joking. 12 14 Would you like this witness All right. Mr. Butler, has Ms. Ousdahl been sworn? 24 MR. BUTLER: 25 CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 I don't believe so. Can you please pronounce her (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1658 1 name for me? 2 MR. BUTLER: 3 CHAIRMAN BROWN: 4 Please raise your right hand. 5 Oz-doll. Oz-doll. Okay. Whereupon, 6 KIM OUSDAHL 7 was called as a witness, having been first duly sworn to 8 speak the truth, the whole truth, and nothing but the 9 truth, was examined and testified as follows: 10 11 CHAIRMAN BROWN: THE WITNESS: 13 MR. BUTLER: 14 16 17 18 19 20 23 24 25 Thank you. Thank you. DIRECT EXAMINATION BY MR. BUTLER: Q Ms. Ousdahl, would you please state your name and business address for the record. A Kim Ousdahl, 700 Universe Boulevard, Juno Beach Florida 33408. Q 21 22 Please be seated. And welcome. 12 15 Thank you. Thank you. By whom are you employed and in what capacity? A I am the vice president, controller, and chief accounting officer of Florida Power & Light Company. Q Have you prepared and caused to be filed 35 pages of direct testimony in this proceeding? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1659 1 A I have. 2 Q Okay. 3 Do you have any changes or revisions to make to your direct testimony? 4 A I do not. 5 Q Okay. Subject to the adjustments addressed in 6 your exhibits KO-19 and KO-20, if I asked you the 7 questions contained in your direct testimony, would your 8 answers about the same? 9 10 A They would. MR. BUTLER: Madam Chair, I would ask that 11 Ms. Ousdahl's prepared direct testimony be inserted 12 into the record as though read. 13 CHAIRMAN BROWN: Ms. Ousdahl's prefiled direct 14 testimony will be inserted into the record as 15 though read. 16 MR. BUTLER: 17 (Prefiled direct testimony inserted into the 18 Thank you. record as though read.) 19 20 21 22 23 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1660 I. INTRODUCTION 1 2 3 Q. Please state your name and business address. 4 A. My name is Kim Ousdahl, and my business address is Florida Power & Light Company, 700 Universe Boulevard, Juno Beach, Florida 33408. 5 6 Q. By whom are you employed, and what is your position? 7 A. I am employed by Florida Power & Light Company ("FPL" or the "Company") as Vice President, Controller and Chief Accounting Officer. 8 9 Q. Please describe your duties and responsibilities in that position. 10 A. I am responsible for financial accounting, as well as internal and external 11 financial reporting for FPL. In these roles, I am responsible for ensuring that 12 the Company's financial reporting complies with requirements of Generally 13 Accepted Accounting Principles ("GAAP") and multi-jurisdictional regulatory 14 accounting requirements. 15 Q. describe your educational background and professional experience. 16 17 Please A. I graduated from Kansas State University in 1979 with a Bachelor of Science 18 Degree in Business Administration, majoring in Accounting. That same year, 19 I was employed by Houston Lighting & Power Company in Houston, 20 Texas. During my tenure there, I held various accounting and regulatory 21 management positions. Prior to joining FPL in June 2004, I was the Vice 22 President and Controller of Reliant Energy. 23 Accountant ("CPA") licensed in the state of Texas and a member of the 3 I am a Certified Public 1661 1 American Institute of CPA's, the Texas Society of CPAs and the Florida 2 Institute of CPAs. 3 Q. Are you sponsoring any exhibits in this case? 4 A. Yes. I am sponsoring the following exhibits: 5 • K0-1 MFRs and Schedules Sponsored and Co-sponsored by Kim Ousdahl 6 7 • K0-2 MFRA-1 for the 2017 Test Year 8 • K0-3 2017 and 2018 ROE Calculation Without Rate Relief 9 • K0-4 MFRA-1 for the 2018 Subsequent Year 10 • K0-5 Nuclear Maintenance Outage Costs Revenue Requirement 11 • K0-6 Fukushima Project Cost by Recovery Mechanism- Company Adjustment 12 13 • K0-7 Clause Recoverable Projects CWIP -Company Adjustment 14 • K0-8 Accumulated Deferred Income Tax Proration Adjustment to Capital Structure for 2017 Test Year and 2018 Subsequent Year 15 16 • K0-9 FPSC Adjustments for Cedar Bay and Woodford Project Costs 17 • K0-10 NextEra Energy, Inc Primary Operating Entities Structure and Affiliate Support Services 18 19 • K0-11 2016 Cost Allocation Manual 20 • K0-12 Direct Charges- Historical and Projected 21 • K0-13 Corporate Services Charges - Historical and Projected Specific 22 Cost Drivers and Massachusetts Formula Ratios 4 1662 1 • K0-14 Historical and Projected Corporate Services Charges- Cost Pools and Costs Billed to Affiliates 2 3 Q. What is the purpose of your testimony? 4 A. The purpose of my testimony is to support the calculation of the rate relief and 5 appropriateness of the ratemaking adjustments FPL proposes in this 6 proceeding. I support accounting and ratemak:ing practices that affect the 7 determination of the appropriate rate base, working capital, rate of return, 8 capital structure and net operating income. Specifically, this includes: 9 10 11 12 1. The calculation of rate relief requested for the 2017 Base Rate Increase; 2. The calculation of the rate relief request for the 2018 Subsequent Year Adjustment ("2018 SYA"); 13 3. The calculation of the 2019 Okeechobee Clean Energy Center 14 ("Okeechobee Unit") Limited Scope Adjustment ("20 19 Okeechobee 15 LSA") that FPL is requesting in order to recover the non-fuel revenue 16 requirements of the Okeechobee Unit, which is scheduled to go into 17 commercial operation on June 1, 20 19; 18 4. Commission and Company adjustments that FPL proposes to rate base, 19 net operating income and capital structure in order to properly 20 represent the 2017 Test Year and .2018 Subsequent Year results for 21 ratemak:ing purposes; 22 23 5. The treatment of West County Energy Center Unit 3 ("WCEC3") revenues in the 2017 Test Year and 2018 Subsequent Year; and 5 1663 1 6. The reasonableness of the methods employed by the Company for 2 allocating corporate service costs to affiliates and compliance with the 3 Florida Public Service Commission ("FPSC" or "Commission") and 4 the Federal Energy Regulatory Commission ("FERC") requirements to 5 ensure that no improper subsidization exists between FPL and its 6 affiliates. 7 Q. Please summarize your testimony. 8 A. FPL has prepared its request for base rate relief in this filing in accordance 9 with the rules and requirements of the FPSC. The Commission has a number 10 of long standing practices for the determination of proper retail base rates, and 11 FPL has consistently applied those practices in this filing. Those practices 12 include items such as the use of forecasted test periods, proper 13 synchronization of retail rate base and capital structure, specified rules 14 directing assumptions for Construction Work in Progress ("CWIP") earning 15 Allowance for Funds Used During Construction ("AFUDC"), and the use of 16 capital recovery schedules for assets retired but not fully recovered. 17 18 FPL is also proposing some new practices for Commission consideration. For 19 example, FPL proposes to recover nuclear maintenance costs on a deferred 20 basis versus recovering those costs in advance of outages. My testimony will 21 provide information to support that adjustment, which lowers FPL's base rate 22 request in this proceeding. 23 movement of certain project costs from base rates to clause recovery, 6 Other adjustments that I support include 1664 1 including the Cedar Bay costs as prescribed by the settlement order approved 2 by this Commission as well as return on investment for clause related 3 construction projects that FPL has historically recovered as part of base rates. 4 5 I will address FPL's practices for providing shared corporate services to the 6 N extEra Energy, Inc. ("NEE") enterprise, including regulated and unregulated 7 affiliates. 8 Commission and by the FERC are providing corporate services at lower costs 9 to FPL's customers while ensuring no subsidization of affiliate activities. 10 Those practices are unchanged and remain fully consistent with Commission 11 requirements. The long-standing cost charging methods approved by this 12 13 Finally, I sponsor and co-sponsor many Minimum Filing Requirements 14 ("MFRs") and provide the calculation of net operating income, working 15 capital, rate base and revenue requirements for the 2017 Test Year, the 2018 16 Subsequent Year and the 2019 Okeechobee LSA. 17 II. SPONSORSHIP OF MINIMUM FILING REQUIREMENTS 18 19 20 Q. Are you sponsoring or co-sponsoring any MFRs in this case? 21 A. Yes. Exhibit K0-11ists the MFRs and Schedules I sponsor and co-sponsor for 22 the 2017 Test Year and 2018 Subsequent Year. 23 7 1665 1 Q. Are you sponsoring or co-sponsoring any Schedules in support of FPL's 2 request for the 2019 Okeechobee LSA in order to address the additional 3 revenue requirements associated with that project? 4 A. sponsor and co-sponsor. 5 6 Q. Please explain the time periods, including test years, reflected in the MFRs and Schedules FPL has filed in this proceeding. 7 8 Yes. Exhibit K0-1 also reflects the 2019 Okeechobee LSA Schedules that I A. 9 FPL is filing MFRs that include actual costs incurred through 2015 and forecasted costs for the 2017 Test Year as the basis for its jurisdictional 10 revenue requirement calculation for 2017. 11 Historic Period, 2016 Prior Year and 2017 Test Year. Additionally, FPL has 12 prepared a complete set of MFRs for the 2018 SYA using forecasted 2018 13 costs. Lastly, FPL has prepared certain Schedules reflecting the first year 14 incremental annual revenue requirement for the 2019 Okeechobee LSA. The 15 2019 Okeechobee LSA is projected to be effective June 1, 2019, coinciding 16 with the projected in-service date of the power plant, and will cover the 12 17 months ended May 31, 2020, which represents the first full year of operation. 18 Q. Please describe the 2019 Okeechobee LSA Schedules that you are sponsoring or co-sponsoring in this proceeding. 19 20 FPL's MFRs include a 2015 A. These Schedules include the incremental revenue requirement calculation 21 based on the net operating income and rate base impacts commencing with 22 commercial operation of the Okeechobee Unit. Due to the implementation of 23 this project, FPL is requesting an additional base rate increase to be effective 8 1666 1 from the date the facility goes into commercial operation. FPL witness 2 Kennedy discusses the Okeechobee Unit in further detail; FPL witness Barrett 3 provides the basis for the 2019 Okeechobee LSA; and FPL witness Cohen 4 provides a summary of proposed tariff changes and the true up process related 5 to this requested increase in base rates. 6 III. 2017 TEST YEAR REVENUE REQIDREMENT 7 8 9 Q. Test Year? 10 11 A. Q. Which MFRs directly support the 2017 Test Year revenue increase calculation? 14 15 As shown on Exhibit K0-2, MFRA-1 for 2017 Test Year, the amount ofFPL's requested base revenue increase for 2017 is $866 million. 12 13 What is the amount of FPL's requested base rate increase for the 2017 A. Exhibit K0-2 lists the MFRs that directly support the overall 2017 Test Year 16 jurisdictional revenue requirement increase of $866 million requested by FPL. 17 Those MFRs include schedules that support jurisdictional adjusted rate base of 18 $32.5 billion, jurisdictional adjusted net operating income of $1.6 billion and 19 the calculation of the jurisdictional revenue expansion factor of 1.63024 used 20 to 21 Additionally, I sponsor the jurisdictional adjusted capital structure and the 22 overall rate of return ("ROR") of 6.61 %, which reflects FPL's requested return -23 on equity ("ROE") of 11.5% (including a 50 basis point ROE performance derive the requested overall jurisdictional revenue 9 requirement. 1667 1 adder) that is further discussed in the testimony of FPL witnesses Revert and 2 Dewhurst. The related Commission and Company adjustments applicable to 3 the above schedules are also included in the MFRs filed in this case. 4 Q. requested rate relief? 5 6 What would be the resulting ROE for the 2017 Test Year absent the A. Exhibit K0-3 shows that absent the requested rate relief, the 2017 Test Year 7 jurisdictional adjusted ROE is projected to be 7.88% which is well below the 8 bottom end of the current authorized range for ROE and the proposed ROE 9 supported by FPL witnesses Revert and Dewhurst. 10 11 IV. 2018 SUBSEQUENT YEAR REVENUE REQUIREMENT 12 13 Q. 14 15 Subsequent Year? A. 16 17 As shown on Exhibit K0-4, MFR A-1 for the 2018 Subsequent Year, the amount ofFPL's requested base revenue increase for 2018 is $262 million. Q. 18 19 What is the amount of FPL's requested base rate increase for the 2018 Are all of the Company adjustments requested for the 2017 Test Year also applicable to the 2018 Subsequent Year? A. Yes. We have consistently applied the proposed Company adjustments 20 reflected on MFRs B-2 and C-3 for the 2017 Test Year to the 2018 Subsequent 21 Year and reflected the amount of those adjustments applicable for the 2018 22 Subsequent Year. 23 10 1668 1 Q. Which MFRs directly support the 2018 SYA calculation? 2 A. Exhibit K0-4 lists the MFRs that directly support the 2018 SYAjurisdictional 3 revenue requirement of $262 million. Those MFRs include schedules that 4 support FPL's jurisdictional adjusted rate base of $33.9 billion, jurisdictional 5 adjusted net operating income of $1.6 billion and the calculation of the 6 jurisdictional revenue expansion factor of 1.63024 to arrive at the requested 7 overall jurisdictional revenue requirement. 8 jurisdictional adjusted capital structure that reflects FPL's requested ROE of 9 11.5% and an overall ROR of 6. 71%. 10 Q. What would be the impact on ROE for the 2018 Subsequent Year absent the requested rate relief? 11 12 Additionally, I present the A. Exhibit K0-3 shows that, absent both the 2017 Test Year and 2018 13 Subsequent Year requested base rate relief, the 2018 jurisdictional adjusted 14 ROE is projected to be only 6.95%. The exhibit also shows that, with FPL's 15 requested base relief for 201 7 but absent the requested rate relief for 20 18, the 16 2018 jurisdictional adjusted ROE is projected to be 105 basis points below the 17 requested ROE and below the bottom end of the required cost of equity range 18 supported by FPL witnesses Revert and Dewhurst. 19 20 21 22 23 11 1669 V. 2019 OKEECHOBEE LIMITED SCOPE ADJUSTMENT 1 2 3 Q. Okeechobee LSA? 4 5 What is the amount of FPL's requested base rate increase for the 2019 A. As shown on Schedule A-1 for the 2019 Okeechobee LSA, the amount of 6 FPL's requested base revenue increase for the first 12 months of operation is 7 $209 million. 8 Q. the 2019 Okeechobee LSA? 9 10 What is the basis for the revenue requirement calculation associated with A. The Commission approved the determination of need for the Okeechobee Unit 11 on January 19, 2016 in Docket No. 150196-EI, Order No. PSC-16-0032-FOF- 12 EI. The revenue requirement computation is based on the estimated capital 13 expenditures and operating costs for the facility presented in that docket, and 14 it reflects the impact of the recently approved bonus depreciation on the 15 calculation of income taxes, proposed composite depreciation rate for FPL's 16 newest and most comparable combined cycle plant based on the 2016 17 Depreciation Study, and incremental cost of capital reflected in FPL's 2018 18 Subsequent Year. 19 additional support for the 2019 Okeechobee LSA. FPL witnesses Kennedy, Barrett and Cohen provide 20 12 1670 1 VI. ADJUSTMENTS TO 2017 TEST YEAR AND 2018 2 SUBSEQUENT YEAR 3 4 Q. Has FPL presented Commission and Company adjustments to rate base 5 and net operating income necessary in order to properly reflect the 2017 6 Test Year and 2018 Subsequent Year for ratemaking purposes? 7 .A. Yes. These adjustments are detailed in MFRs B-2 and C-3 for their respective 8 periods. The Commission adjustments are consistent with those currently 9 reflected in FPL's monthly Earnings Surveillance Report ("ESR"). 10 Q. Would you please describe the Company adjustments FPL is proposing? 11 A. Yes. FPL is providing support for a number of appropriate ratemaking 12 adjustments. First, I will demonstrate the reasonableness of newly offered 13 Company adjustments that provide customer benefits and ensure consistent 14 ratemaking for project costs recovered in either base or clause, but not both. 15 Second, I will present the Company adjustment to accumulated deferred 16 income taxes ("ADIT") required under the Internal Revenue Code ("IRC") 17 when a projected test year is used in setting rates. Lastly, I will provide 18 support for certain Commission adjustments that are required by FPSC rules, 19 practice and/or precedent. 20 21 22 23 13 1671 Nuclear Maintenance Costs 1 2 Q. maintenance outage costs. 3 4 Please describe the ratemaking adjustment you propose for nuclear A. FPL has historically recovered the estimated costs to conduct nuclear facility 5 outages ratably over the 18 month period in advance of the outage in 6 accordance with Order No. PSC-96-1421-FOF-EI, issued November 21, 1996. 7 FPL has determined that it would be beneficial to instead defer the costs at the 8 time of the outage and amortize those deferred costs over the subsequent 9 period prior to the next outage. This approach is consistent with GAAP; 10 however, for regulatory accounting purposes, the proposed change can only be 11 appropriately made in the context of a base rate proceeding 12 13 Beginning in 2013, FPL incorporated into the budget process a step that is 14 specifically focused on generating and evaluating productivity and efficiency 15 improvement ideas - an initiative known internally as Project Momentum. 16 Since then, through the Project Momentum initiative, outage durations are 17 being reduced and outage cost increases, which would normally be expected 18 over time, have been moderated as well. These improvements are now fairly 19 stable, so introducing this change in methodology for base rate recovery in the 20 instant proceeding is timely. 21 requirements under FERC's Uniform System of Accounts ("USOA"), and 22 FPL' s strong balance sheet can support financing the deferral of these 23 transition costs and prospective amortization over a three-year period. The 14 This change does not violate accounting 1672 1 effect of this change reduces FPL's 2017 and 2018 revenue requirement by 2 $36 million and $39 million, respectively. 3 impact on revenue requirements of deferral and subsequent amortization of 4 the transition liability created by this proposed Company adjustment over a 5 three-year period. Exhibit K0-5 summarizes the 6 Consolidating Clause-Recoverable Projects for Clause Recovery 7 8 Q. costs related to clause-recoverable projects currently recovered in both 9 base and clause, to solely clause recovery. 10 11 Please describe the proposed Company adjustment that moves certain A. It is preferable to identify projects as either wholly base or clause recoverable 12 at the outset in order to avoid having to bifurcate the recovery of a given 13 project into two recovery mechanisms. 14 identify costs in accordance with prior orders for base and clause recovery, 15 and this bifurcation exercise becomes even more challenging when plant is in- 16 service and being depreciated. During the planning phase for this rate case, 17 FPL carefully reviewed the forecast in light of its business and operational 18 plans in order to identify all projects that are eligible for clause recovery for 19 the entire project lifecycle, and we have excluded those project costs in their 20 entirety from this base rate request. FPL accountants must manually 21 22 Consistent with this approach, FPL is proposing an adjustment to transfer the 23 portion of the Incremental Nuclear Regulatory Commission ("NRC") 15 1673 1 Fukushima-related Compliance Costs ("Fukushima Project") currently 2 recovered in FPL's base rates to FPL's Capacity Cost Recovery Clause 3 ("CCRC"). During FPL's previous base rate filing, Docket No. 120015-EI, 4 the Company included a preliminary level of capital expenditures of $10 5 million and approximately $144,000 of O&M in its 2013 Test Year for the 6 Fukushima Project, which represented its best estimate of compliance costs at 7 that time. Since that original estimate, the scope of work necessary to be 8 compliant with NRC requirements has been clarified, and the incremental 9 project costs have grown substantially. During 2013, FPL petitioned the 10 Commission for recovery of the incremental costs through the CCRC (i.e., 11 above and beyond the original $10 million of capital and $144,000 of O&M) 12 which was approved by the Commission in Order No. PSC-13-0665-FOF-EI. 13 14 Consistent with Order No. PSC-13-0665-FOF-EI, FPL is currently recovering 15 both incremental capital and O&M associated with the Fukushima Project 16 through the CCRC, which amounts are reviewed annually by the FPSC. 17 Exhibit K0-6 reflects the breakdown as of December 31, 20 16 of the 18 Fukushima capital costs delineated between base and clause recoverable. The 19 Company adjustment FPL is proposing in this proceeding will ensure that all 20 costs related to the Fukushima Project will be reflected and recovered solely 21 through the CCRC, reducing complexity in accounting and ratemaking. The 22 reductions in base rate revenue requirement associated with this adjustment 16 1674 1 for the 2017 Test Year and 2018 Subsequent Year are $1.6 million and $1.5 2 million, respectively. 3 Q. Please describe the Company adjustment for capital projects identified as 4 clause recoverable CWIP and the proposed movement of those projects 5 from base to the proper clause. 6 A. Presently, a handful of small, approved Environmental Cost Recovery Clause 7 ("ECRC") and Energy Conservation Cost Recovery ("ECCR") projects 8 remain in base rates and do not earn a clause return at FPL' s weighted average 9 cost of capital ("WACC") while classified as in-construction or CWIP. 10 Instead, these projects earn a return as part of CWIP in base rates, while all 11 other clause in-service and some CWIP associated with large projects earn a 12 return at FPL's midpoint WACC in their respective cost recovery clauses. 13 This distinction is not required by FPSC rule or precedent; clause recovery of 14 return on investment associated with these projects while in construction was 15 simply not proactively requested by the Company at the time original petitions 16 were filed for recovery of these specific projects. Historically, in petitioning 17 for approval of new, higher cost clause projects, the Company requested the 18 project be reflected in clause for recovery of a return on construction costs 19 through its entire life cycle; however, the Company did not make such a 20 request for the smaller, capital clause projects and instead started clause 21 recovery when those projects entered into service. 22 consistency in recovery vehicle for the entire project lifecycle is appropriate; 17 FPL believes that 1675 1 therefore, we request consolidation of all clause-recoverable CWIP into the 2 clauses. 3 Q. What clause capital ~nvestment projects and amounts has FPL removed 4 from CWIP in rate base in this proceeding in order to move their 5 recovery to clause? 6 A. FPL has identified all clause recoverable CWIP and has removed each item 7 from this base rate filing as either a FPSC or a Company adjustment. The 8 CWIP balance for each clause project that was removed from rate base will 9 earn a return while in CWIP in its respective clause at the midpoint WACC as 10 reflected in the May ESR, consistent with Order No. PSC-12-0425-PAA-EU. 11 The revenue requirement reduction in the 2017 Test Year and 2018 12 Subsequent Year is $825,000 and $493,000, respectively. 13 reflects a list of the projects and amounts comprising the basis for the FPSC 14 and the Company adjustment. Additionally, for the FPSC adjustments, it 15 contains the orders approving this treatment in the respective clauses. Exhibit K0-7 16 17 18 Normalization Adjustment to ADIT Q. Please explain why FPL has presented a Company adjustment to 19 decrease the amount of ADIT included in capital structure in the 2017 20 Test Year and 2018 Subsequent Year. 21 A. In light of recent Internal Revenue Service ("IRS") Private Letter Rulings 22 ("PLRs") and in order to comply with the IRC set forth under Treasury 23 Regulations §1.167(1)-1(h)(6), ADIT that is treated as zero cost capital, or a 18 1676 1 component of rate base, in determining a utility's cost of service must be 2 determined by reference to the same period as is used in determining the 3 income tax expense utilized for ratemaking purposes. The IRC goes on to 4 state that a utility may use either historical data or projected data in 5 calculating these two amounts, but it must be consistent. If the amounts are 6 computed using projected data, in whole or in part, and the rates go into effect 7 during the projected period, then the utility must use the formula provided in 8 Treasury Regulations §1.167(1)-l(h)(6)(ii) to calculate the amount of ADIT to 9 be included for ratemaking purposes. Because FPL is presenting a change in 10 base rates at the beginning of both the projected 2017 Test Year and 2018 . 11 Subsequent Year, the Company is required to comply with Treasury 12 Regulations §1.167(1)-l(h)(6) in this proceeding. 13 Q. the 2017 Test Year and 2018 Subsequent Year. 14 15 Please describe the required formula FPL must follow to adjust ADIT in A. Treasury Regulations § 1.167(1 )-1 (h)(6)(ii) contain a prectse formula 16 ("Proration Requirement") for computing the amount of depreciation-related 17 ADIT to be treated as zero cost capital when a future test period is used. The 18 Proration Requirement is as follows: 19 The pro rata portion of any increase to be credited or decrease 20 to be charged during a future period .... shall be determined by 21 multiplying any such increase or decrease by a fraction, the 22 numerator of which is the number of days remaining in the 23 period at the time such increase or decrease is to be accrued, 19 1677 1 and the denominator of which is the total number of days in the 2 period. 3 Q. Please explain the calculation of the Proration Requirement and its 4 impact to FPL's capital structure for the 2017 Test Year and 2018 5 Subsequent Year. 6 A. As reflected on Exhibit K0-8, the calculations of the Proration Requirement 7 for ADIT for the 2017 Test and 2018 Subsequent Year results begin with 13- 8 month average balances of $8.3 billion and $8.5 billion, respectively. FPL 9 then compared the balances using the Proration Requirement totals for 201 7 10 of $8.2 billion and 2018 of $8.5 billion to the per-book 13-month average 11 ADIT balance. The difference results in the Company adjustment of $58 12 million for the 2017 Test Year and $43 million for the 2018 Subsequent Year. 13 This Company adjustment is reflected as a specific adjustment to decrease 14 ADITon MFR D-la. 15 Q. filings? 16 17 Why has FPL not introduced this adjustment in previous base rate A. Prior to the issuance of the recent PLRs, the Company interpreted the IRC 18 consistency requirements as potentially being compromised if this adjustment 19 were singularly made. The recent PLRs issued by the IRS during 2015 make 20 it clear that to ignore this adjustment in a forecasted test year base rate setting 21 will violate normalization requirements. 22 20 1678 1 Q. the 2019 Okeechobee LSA? 2 3 Has FPL also reflected the Proration Requirement in the calculation of A. Yes. FPL has included the impact of the Proration Requirement related to the 4 projected first year of operations for the 2019 Okeechobee LSA in the 5 calculation of ADIT, which is a component of rate base. 6 Rate Case Expenses 7 8 Q. What adjustment is FPL requesting for rate case expenses? 9 A. FPL is requesting a four-year amortization period for estimated, incremental 10 rate case expenses associated with this case totaling $4.9 million. In addition, 11 FPL is requesting that the unamortized balance be included in rate base in the 12 2017 Test Year and 2018 Subsequent Year in order to avoid an implicit 13 disallowance of reasonable and necessary costs. 14 requesting a 2018 SYA and the 2019 Okeechobee LSA as part of one 15 proceeding reduces the amount of rate case expenses we would otherwise 16 incur for multiple back-to-hack rate cases. Full recovery of necessary rate 17 case expenses is appropriate but will not occur unless FPL is afforded the 18 opportunity to earn a return on the unamortized balance of those expenses. 19 20 21 22 23 21 The fact that FPL is 1679 1 2 Commission Adjustments for Woodford and Cedar Bay Projects Q. Please describe the Commission adjustments you are making consistent 3 with Orders in Docket No. 150001-EI- Gas Reserves Woodford Project 4 and Docket No. 150075-EI- Cedar Bay Transaction. 5 As a result of recent transactions approved by this Commission, certain items A. 6 must be removed from base rates in a different fashion from typical 7 Commission adjustments. The Company is highlighting these items for ease 8 of review. Exhibit K0-9 shows the components of each transaction by PERC 9 account and its removal from rate base, net operating income, and capital structure, as applicable. 10 11 • Gas Reserves Investment- Woodford Project- Pursuant to Order No. PSC- 12 15-0038-FOF-EI, Docket No. 150001-EI, FPL recovers the revenue 13 requirements associated with the Woodford Project through its fuel recovery 14 clause. 15 depreciation expense, O&M, and working capital associated with the gas 16 reserves investment as an FPSC adjustment in its monthly ESRs and is 17 doing the same for base rate setting purposes. A listing of each component 18 of the gas reserves investment removed from the filing is reflected on 19 Exhibit K0-9. 20 • As such, FPL removes the net plant-in-service, depletion and Cedar Bay Transaction - Pursuant to the settlement agreement approved by 21 the Commission in Order No. PSC-15-0401-AS-EI, Docket No. 150075-EI, 22 FPL was authorized to recover the $520.5 million purchase price for the 23 stock purchase of CBAS Power, Inc and $326.9 million income tax gross up 22 1680 1 associated with the loss on the termination of the power purchase 2 agreement. Recovery of these costs under the settlement was apportioned 3 between FPL's CCRC and base rates as follows: $85 million of the purchase 4 price and its associated income tax gross up of $53 million initially to be 5 recovered through base rates and the balance to be recovered through the 6 CCRC. This treatment was to be in place only until FPL's next Test Year 7 for a general base rate proceeding; therefore, the remaining unamortized 8 portion of the $85 million and related income tax gross up at the beginning 9 of the 2017 Test Year would be removed from rate base and recovered 10 through FPL's CCRC. The unamortized amount to be reclassified to the 11 CCRC as of December 31, 2016 is $73 million for the purchase price and 12 $46 million for its associated income tax gross up. 13 demonstrates the removal of all Cedar Bay amounts from FPL's base rate 14 filing. Exhibit K0-9 15 VII. TREATMENT OF WCEC3 IN 2017 TEST YEAR AND 2018 16 SUBSEQUENT YEAR 17 18 19 Q. 20 21 How are the revenues associated with WCEC3 currently treated in FPL's monthly ESR? A. Consistent with the 2012 Rate Settlement approved in Order No. PSC-13- 22 0023-S-EI, the revenue requirements associated with WCEC3 are currently 23 collected through FPL's CCRC. Because the O&M expenses and return on 23 1681 1 investment for WCEC3 are base rate components, the WCEC3 revenues 2 collected through CCRC are in turn reclassified on FPL's books and records 3 from CCRC revenues to base revenues. Therefore, the amounts reported in 4 FPL's monthly ESR already reflect revenues associated with WCEC3 as base 5 revenues. 6 Q. Year and 2018 Subsequent Year? 7 8 A. 9 WCEC3 are forecasted and reflected as base revenues. Q. A. 14 15 Is FPL requesting to recover WCEC3 revenue requirements in base rates as part of this filing? 12 13 Consistent with the 2012 Rate Settlement and with the treatment described above for monthly surveillance reporting, the revenues associated with 10 11 How is the revenue associated with WCEC3 reflected in the 2017 Test Yes. Pursuant to the 2012 Rate Settlement, the Company is reflecting revenue requirements associated with WCEC3 in base rates. Q. If the Commission approves FPL's proposal to recover WCEC3 revenue 16 requirements costs through base rates, will FPL discontinue recovery of 17 those revenue requirements through the CCRC? 18 A. Yes. If the Commission agrees to allow FPL to move the recovery of WCEC3 19 revenue requirements from the CCRC to base rates in the 2017 Test Year, 20 then the revenue requirements associated with WCEC3 will not be included in 21 FPL's CCRC billing factors beginning January 1, 2017. FPL witness Cohen 22 outlines the rate effect of this request. 24 1682 1 Q. If the Commission does not approve recovery of WCEC3 revenue 2 requirements through base rates in this proceeding, should FPL be 3 permitted to continue recovery through the CCRC? 4 A. Yes. The Commission made an affirmative determination of need for 5 WCEC3 in Order No. PSC-08-0591-FOF-EI, finding it to be a cost-effective 6 addition to FPL's generating system that meets the customer's demand and 7 energy requirements with clean, fuel-efficient combined cycle generation. 8 FPL must be permitted the opportunity to fully recover the WCEC3 revenue 9 requirements either as a component of base rates or as a component of the 10 CCRC. 11 VIII. CORPORATE SERVICES AND AFFILIATE TRANSACTIONS 12 13 14 Q. model, FPL's role in that model, and its benefits. 15 16 Please describe the NEE corporate and fleet services organizational A. In the years both before and since the formation ofNEE, FPL has consistently 17 performed the required corporate center activities for all entities. Over the last 18 twenty years, FPL's sister operating affiliate, NextEra Energy Resources 19 ("NEER"), has expanded its unregulated renewables business to become the 20 largest renewables generator in the U.S. In addition to the remarkable growth 21 ofNEER, NEE has developed a number of new operating entities that are also 22 served by FPL, albeit much smaller in size and scale, including an affiliate 23 engaged in FERC competitive transmission development. / 25 The simplified 1683 1 organizational chart on Exhibit K0-1 0 reflects the primary operating entities, 2 both regulated and unregulated, receiving services from FPL today. Despite 3 the growth of its affiliates, FPL remains the primary NEE subsidiary by nearly 4 any metric. 5 6 As the functioning corporate center for NEE, FPL incurs costs in order to 7 perform all necessary shared fleet operating and corporate support functions, 8 with the ultimate goal to efficiently and cost effectively lever talent and 9 resources across the enterprise, which is beneficial to FPL and its customers. 10 Exhibit K0-1 0 lists both the traditional corporate center functions and the 11 fleet services activities provided by FPL across the broader NEE operating 12 businesses. 13 14 While the shared corporate service activities embedded in FPL today continue 15 to be necessary to support the provision of electric service to FPL' s retail 16 customers, charging a portion of these support services to its affiliates has 17 allowed FPL to reduce its share of these necessary fixed costs for the benefit 18 of its retail customers. This structure has proven over the years to be efficient 19 and effective from an operating perspective. The special skills and talents of 20 FPL's employees and contractor resources are consistently leveraged over the 21 largest organizational reach. 22 26 1684 1 Q. 2 3 Have there been any material changes in affiliate transaction processes or controls since FPL's last base rate filing in Docket No. 120015-EI? A. No. FPL's current processes and billing practices continue to ensure that 4 affiliate transactions comply with all applicable regulatory rules and 5 regulations. 6 Q. Are FPL's affiliate billing practices codified? 7 A. Yes. FPL uses an integrated structure of billings and allocations that are 8 codified in the Company's Cost Allocation Manual ("CAM"). Maintaining 9 the CAM is a requirement under Rule No. 25-6.1351, Cost Allocations and 10 Affiliate Transactions, F.A.C. ("Affiliate Rule"). In addition, FPL's CAM 11 largely follows the published guidelines recommended by the National 12 Association of Regulatory Utility Commissioners ("NARUC"). FPL's 2016 13 CAM is included as Exhibit K0-11. 14 Q. 15 16 Please describe the three major categories of shared support provided by FPL to its affiliates. A. The first category is strategic and governance related support traditionally 17 performed by the corporate center executive team. Strategic and governance 18 support includes activities such as those associated with the Board of 19 Directors, Legal Compliance, Investor Relations, Internal Audit and the Office 20 of the General Counsel. 21 22 The second category is the fleet construction and operations support, provided 23 by the Power Generation Division, Nuclear Division, Transmission, 27 1685 1 Engineering and Construction, Integrated Supply Chain, and Environmental 2 departments. FPL has leveraged its commercial and technical practices and 3 knowledge regarding fleet construction, compliance and operating capabilities 4 in order to optimize results for its customers and the broader enterprise. The 5 larger scale of the enterprise fleet has facilitated sharing expertise in complex 6 commercial and technical operating skills, which has lowered FPL's share of 7 costs. 8 9 The third category of shared activities is comprised of traditional corporate 10 support services. This includes, but is not limited to, Human Resources 11 compliance, benefits administration and payroll processing, Information 12 Management, Treasury and Cash Management, Corporate Communications, 13 Corporate Tax, and SEC reporting. 14 Q. What specific methods are utilized by FPL to charge costs to its affiliates? 15 A. There are three methods FPL utilizes to charge costs of shared activities to its 16 affiliates. These methods are commonly employed by other utilities and are 17 recommended by the FERC and NARUC: 18 1. Direct Charges - Costs of resources used exclusively to provide 19 services for the benefit of one company and are directly charged to that 20 entity. Exhibit K0-12 recaps the direct charges for the 2013 and 2014 21 Actual Years, 2015 Historical Year, 2016 Prior Year, 2017 Test Year, 22 and 2018 Subsequent Year. As has been demonstrated historically, 23 these charges are largely project-specific and do not only represent the 28 1686 1 use of embedded FPL resources. In many cases, the costs actually 2 incurred and billed to affiliates result from contractor or other third 3 party services engaged by FPL for a specific enterprise wide project. 4 FPL fully loads all internal direct charges and uses this methodology 5 whenever possible and practical. In 2015, approximately 45% of the 6 support provided to affiliates was charged using the direct charge 7 method. 2. 8 Operations Support Charges1 - Operations Support Charges are 9 utilized by FPL to allocate support costs for NEE's Nuclear fleet 10 support operations, which provide services to both FPL and NEER's 11 fleet of nuclear units. 12 actual costs for the enterprise support activity. In 2015, approximately 13 11% of affiliate support was charged via the Nuclear Operations 14 Support Charges, which are described in more detail below: These charges are billed monthly based on 15 a. Nuclear - Services include nuclear operations and security, 16 fuels support, nuclear business management, engineering, and 17 assurance support. Costs are fully loaded and allocated based 18 on the percentage of nuclear generating units across the 19 enterprise; and 20 b. Nuclear Information Management - Services include nuclear 21 procurement and work management system application 22 support, Information Management Business Unit management 23 team support, data services, and infrastructure support to 1 FPL has formerly referred to the Operations Support Charges as Service Fees. 29 1687 1 NextEra Energy Resources' nuclear plants. 2 loaded and allocated based on the percentage of nuclear 3 generating' units across the enterprise. 4 3. Costs are fully Corporate Services Charges ("CSC")~ - A significant portion of the 5 governance costs and general corporate support services that benefit 6 both FPL and its affiliates are billed through the CSC, which is further 7 defined by two distinct allocation methods: 8 a. Specific Driver - The allocation of costs of ongoing services 9 shared jointly to support utility and affiliate operations that 10 have distinct cost drivers. 11 direct relationship to the causation of the expense and the effect 12 this activity has on the operations of the benefiting entity. 13 Examples of the cost pools that are allocated using specific 14 drivers 15 applications, support for computer mainframe operations, 16 payroll processing, benefit programs and corporate security. 17 The drivers to allocate these costs are carefully selected in 18 order to properly allocate between FPL and its affiliates, 19 ensunng that FPL customers are not subsidizing affiliate 20 activities. Drivers for the 2013 and 2014 Actual Years, 2015 21 Historical Year, 2016 Prior Year, 2017 Test Year, and 2018 22 Subsequent Year are shown on Exhibit K0-13. 23 include corporate These drivers or factors have a systems capital costs and b. Massachusetts Formula - The costs of corporate governance 2 FPL has formerly referred to the CSC as the Affiliate Management Fee or AMF. 30 1688 1 and strategic activities shared jointly to support utility and 2 affiliate operations that do not have distinct cost drivers are 3 allocated using the Massachusetts Formula, a methodology 4 widely accepted by utility regulators as a fair and reasonable 5 way to allocate common costs among affiliates. 6 Massachusetts Formula has three components: (1) property, 7 plant and equipment, (2) revenue, and (3) payroll. The annual 8 amounts forecasted for each of these components are used as 9 the basis in calculating the percentage to be charged to each The 10 affiliate. Averaging the percentages for property, plant and 11 equipment, revenues and payroll has proven to be a reasonable 12 means of allocating corporate governance and general support 13 services. Exhibit K0-13 depicts the Massachusetts Formula 14 ratios that were used in forecasting the allocation of corporate 15 governance and strategic activities for the 2013 and 2014 16 Actual Years, 2015 Historical Year, 2016 Prior Year, 2017 17 Test Year, and 2018 Subsequent Year. 18 As shown on Exhibit K0-14, despite the significant growth in FPL by all 19 measures, FPL customers receive a steadily declining percentage of these 20 shared governance and corporate services costs. 21 enterprise provides benefits directly to FPL customers as a result of the 22 sourcing of corporate services from FPL. 23 31 The success of the NEE 1689 1 Q. allocated using activity-specific drivers? 2 3 Are most of the costs included in the Corporate Services Charges A. Yes. For the 2015 Historical Year, 57% of the cost pool was allocated using 4 specific drivers and 43% was allocated using the Massachusetts Formula. 5 FPL makes a significant effort to identify causal relationships between costs 6 and the activities that drive them in order to achieve a more precise 7 distribution of shared costs among FPL and its affiliates. The percentage of 8 costs allocated using specific drivers is expected to increase through the 20 18 9 Subsequent Year. 10 Q. affiliates? 11 12 Does FPL use any other allocation methods to charge shared costs to A. Yes. For significant Information Management ("IM") projects, the business 13 case developed in support of the project will identify expected future benefits 14 to each of the entities that will be utilizing the system or application. This 15 benefit analysis is then used to determine the appropriate sharing of 16 implementation costs between FPL and its benefiting affiliates. Examples of 17 projects utilized by both FPL and NEER that are allocated using this 18 methodology are SAP, which is NEE's Enterprisy Resource Planning ("ERP") 19 system, and Maximo, which is the Power Generation Division's new work 20 management system. 21 32 1690 1 Q. Please describe the integrated controls that FPL designs, maintains and 2 relies on to ensure that FPL retail customers do not subsidize the 3 operation of an affiliate. 4 A. The Cost Measurement and Allocations ("CMA") department within FPL 5 accounting is responsible for ensuring compliance with affiliate rules and 6 regulations. This group, in collaboration with the legal and compliance teams, 7 is the primary control and oversight organization, whose mission is to ensure 8 that FPL complies with affiliate transaction requirements. They monitor the 9 affiliate billing process and work with all business units to ensure that each 10 has an understanding of the affiliate rules and properly charges or allocate 11 costs as required. 12 13 In addition, FPL has codified the required practices and procedures that each 14 employee must adhere to in the conduct of corporate shared services and 15 appropriate billings in the CAM, following the guidelines recommended by 16 the NARUC. The CAM is updated annually by the CMA group and can be 17 readily accessed by each and every employee by accessing the internal NEE 18 corporate website. 19 20 The Company's Sarbanes-Oxley processes document FPL's required affiliate 21 transaction controls. In addition, other processes ensure proper control over 22 affiliate allocation. 23 employee's supervisor are conducted to ensure that any payroll incurred in For example, bi-weekly payroll reviews by each 33 1691 1 support of an affiliate is appropriately charged to that affiliate, and asset 2 transfer requirements detail market testing procedures for sales between FPL 3 and affiliates to ensure affiliate rule compliance. 4 Q. Does the Company perform any internal reviews of its affiliate processes? 5 A. Yes. During 2013 and 2014, the Internal Audit department performed a 6 review of the processes and procedures employed by CMA related to CSC, 7 Operations Support Charges, and direct charges. The audit report contained 8 no findings of non-compliance with affiliate rules. The controls in place were 9 determined to be effective and the policies and procedures around affiliate transactions were consistently applied throughout the Company. 10 11 Q. affiliate transactions? 12 13 Is FPL subject to reporting requirements by the FPSC with respect to its A. Yes. FPL complies with affiliate accounting and reporting requirements 14 mandated by this Commission. That reporting includes the required annual 15 filing of the Diversification Report, which includes details of transactions with 16 affiliates and changes in affiliate commercial contracts with FPL. 17 Q. How has the potential merger with the Hawaiian Electric Companies 18 impacted the allocation of costs that is reflected in the calculation of rate 19 relief requested in this proceeding? 20 A. The proposed merger with the Hawaiian Electric Companies has not yet been 21 approved by the Hawai'i Public Utility Commission. Unless and until the 22 merger is approved, FPL cannot assume an outcome. 23 approved during this rate proceeding, FPL will propose an adjustment as part 34 If the merger is 1692 1 of rebuttal testimony that would reduce FPL's overall revenue requirement by 2 the estimated amount of corporate services costs to be provided to Hawaiian 3 Electric companies. 4 Q. Are affiliate costs subsidized by FPL customers? 5 A. No. To the contrary, FPL will continue to accomplish two important 6 objectives for its customers with respect to corporate support and affiliate 7 charges. 8 requirements and that FPL customers do not subsidize affiliates. Second, it 9 will continue to lever the robust, highly specialized, commercial and technical 10 talents of the broader business teams that it has amassed in performing these 11 corporate and fleet services, which enable far greater benefits than it could 12 ever deliver to customers as a standalone business. It will continue to insure that it complies with all regulatory 13 Q. Does this conclude your direct testimony? 14 A. Yes. 35 1693 1 2 BY MR. BUTLER: Q Ms. Ousdahl, do you have exhibits that were 3 identified as KO-1 through KO-14 attached to your 4 prepared direct testimony? 5 A I do. 6 Q Were these prepared under your direction and 7 8 supervision? A 9 10 Yes, they were. MR. BUTLER: I would note that these were identified as 93 through 106 in the -- 11 CHAIRMAN BROWN: 12 MR. BUTLER: 13 CHAIRMAN BROWN: 14 MR. BUTLER: 15 CHAIRMAN BROWN: 16 MS. BROWNLESS: 17 18 Thank you. Noted. Thank you. Staff -- Staff? Can you please proceed. Yes, ma'am. EXAMINATION BY MS. BROWNLESS: 19 Q Good evening, Ms. Ousdahl. 20 A Hello. 21 Q Have you had an opportunity to review 22 Exhibit No. 579 and the documents listed there under 23 your name? 24 A Yes. 25 Q And are they true and correct, to the best of Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1694 1 your knowledge and belief? 2 A Yes, they are. 3 Q And if you were asked the same questions today 4 as in these interrogatories, would your responses with 5 the same? 6 A Yes, they would. 7 Q In addition, you've been handed a package that 8 has FP&L's response to staff's first set of 9 interrogatories, No. 36; FPL's response to OPC's second 10 set of interrogatories, No. 103; and attachment to 11 Interrogatory No. 155 of FPL's response to OPC's fourth 12 set of interrogatories. 13 Can you review those quickly, please. 14 A Yes. 15 Q And did you prepare these responses or were 16 they prepared under your direct supervision? 17 A Yes, they were. 18 Q Are they true and correct, to the best of your 19 knowledge and belief? 20 A Yes. 21 Q If you were to ask -- be asked these same 22 23 questions today, would your answers be the same? A 24 Yes. 25 MS. BROWNLESS: Thank you. That's all we have. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1695 1 CHAIRMAN BROWN: 2 Mr. Butler? 3 MS. BROWNLESS: 4 MR. BUTLER: 6 MR. MOYLE: Yes, do you want to mark it? Can I -- can I ask you clarity on -- on this? 8 CHAIRMAN BROWN: 9 MR. MOYLE: 10 Oh, and we need to mark these -- 5 7 Thank you. Absolutely. Was this on the exhibit list that you all had previously provided with the handout? 11 CHAIRMAN BROWN: 12 MS. BROWNLESS: Ms. Brownless? Yes, sir. And in it -- it was 13 inadvertently omitted from the CD, which is why 14 we're handing it out now. 15 CHAIRMAN BROWN: 16 as an exhibit? 17 MS. BROWNLESS: 18 CHAIRMAN BROWN: 19 Yes, ma'am. Okay. So, we're going to be at 642. 20 MS. BROWNLESS: 21 CHAIRMAN BROWN: 22 So, this needs to be marked Yes, ma'am. How would you like to title it? 23 MS. BROWNLESS: 24 CHAIRMAN BROWN: 25 (Whereupon, Exhibit No. 642 was marked for Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 FPL's discovery responses. Okay. (850) 894-0828 We will do that. Reported by: Andrea Komaridis premier-reporting.com 1696 1 identification.) 2 CHAIRMAN BROWN: 3 All right. 4 5 Thank you. CONTINUED EXAMINATION BY MR. BUTLER: 6 7 Mr. Butler. Q Ms. Ousdahl, would you please summarize your direct testimony. 8 A 9 Yes. Thank you. Good evening, Commissioners. I'm Kim Ousdahl, 10 vice president, controller, and chief accounting officer 11 of FPL. 12 My direct testimony provides the calculation 13 of our requested increase in revenue requirements 14 totaling 866 -- 866 million in 2017 and 262 million in 15 2018. 16 209-million limited-scope adjustment for the Okeechobee 17 Clean Energy Center, which coincides with its commercial 18 operation in 2019. 19 It also includes the proper calculation of the I demonstrate that the methods that we have 20 used to allocate support services to affiliates are 21 reasonable and that the charges to affiliates provide 22 benefits to customers through lower rates. 23 Finally, I provide the adjustments to capital 24 structure necessary to reconcile classes of capital to 25 rate base, which result in overall rates of return of Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1697 1 6.61 percent in 2017, and 6.71 percent in '18. 2 The revenue requirements that I calculate 3 reflect proposed company adjustments to proposed 4 forecasted results, which I show are reasonable and 5 appropriate. 6 I'm presenting the proposed change in 7 accounting method to record and recover nuclear 8 maintenance outage costs, which provides a reduction to 9 customer rates of over 35 million per year for the 10 requested multi-year rate period. 11 I also support the calculation of the 12 proration adjustment to deferred income taxes and 13 capital structure, which is required to ensure 14 compliance with the IRS normalization requirements. 15 I'll demonstrate that every accounting 16 adjustment to rate base, working capital, rate of 17 return, capital structure, and net operating income is 18 appropriately reflected based on this Commission's 19 rules, practice, prior orders, and/or sound regulatory 20 policy. 21 Regarding affiliate transactions, I described 22 the methods that we've used consistently over many years 23 to charge these shared activities to affiliates, and the 24 controls we have in place to ensure that our customers 25 do not subsidize those affiliates. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1698 1 Our shared service and fleet operating model 2 continues to provide benefits to customers through 3 improved capabilities at lower cost. 4 benefit of this services model has shifted what are 5 primarily fixed costs from FPL to its affiliates 6 totaling nearly $86 million in 2017 alone. 7 The financial In summary, we've properly reflected the 8 relevant regulatory directives, practices, and policies 9 in our calculation of the required revenue requirements 10 for 2017, 2018, and the limited-scope adjustment in '19. 11 And we're continuing to ensure that our customers see 12 benefits from the conduct of our enterprise wide-shared 13 serviced. 14 This concludes my summary. 15 MR. BUTLER: 16 I tender her for cross examination. 17 CHAIRMAN BROWN: 18 Thank you, Ms. Ousdahl. THE WITNESS: 20 CHAIRMAN BROWN: 22 And good evening, Ms. Ousdahl. 19 21 Thank you. Good evening. Office of Public Counsel, Ms. Christensen. MS. CHRISTENSEN: Yes. In my effort to move 23 this along tonight, I have no cross for -- on her 24 direct. 25 CHAIRMAN BROWN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Wow. (850) 894-0828 Thank you. Reported by: Andrea Komaridis premier-reporting.com 1699 1 MR. MOYLE: 2 CHAIRMAN BROWN: 3 I know. He thought he had about 30 minutes, at least. 4 (Laughter.) 5 Mr. Moyle. 6 7 Puts a lot of pressure to me. EXAMINATION BY MR. MOYLE: 8 Q Good evening, Ms. Ousdahl. 9 A Hi. 10 Q I have just a -- want to follow up. Good evening. The 11 document that was just handed out to you that's been 12 marked 642 -- it has one of the documents that appears 13 to relate to plant held for future use that's 14 Interrogatory No. 103, Page 1 of 1; is that right? 15 A Yes. 16 Q Are -- are you conversant on plant held for 17 18 19 20 future use if I ask you some questions about it? A Generally. I'm a co-sponsor on this. Obviously, I know the accounting for these properties. Q Okay. And I can -- I can get it to you if 21 need be. 22 marked at 640 with the prior witness. 23 number of plants held in future use. 24 that there was one that was acquired for water rights. 25 Are you familiar with that? But in the -- there was an exhibit that was Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And it had a And I -- I noted Mc- -- (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1700 1 A I don't have it -- I'm sorry. 2 Q McDaniel first water parcel. 3 4 640. A I don't -CHAIRMAN BROWN: Mr. Moyle, she just said she didn't have it. 7 8 THE WITNESS: Somebody will have to help me find it. 9 CHAIRMAN BROWN: Will you -- 10 MR. MOYLE: 11 THE WITNESS: 12 (Discussion off the record.) 13 THE WITNESS: 14 19 -- prior witness' exhibit. Okay. CHAIRMAN BROWN: I do have a copy of what Mr. Moyle, could you repeat it, the question? 17 18 Oh, I'm sorry. was marked as 640. 15 16 It -- it was on It's on Page -- 5 6 I don't see -- MR. MOYLE: she needed help. Sure. I'm sorry. I didn't hear My apologies. BY MR. MOYLE: 20 Q 21 before you? 22 A Yes. 23 Q Okay. So, do you have, now, what's marked as 640 And so, if you count the cover page, 24 would you go to the third -- the third page. 25 Page 1 of 6 of a schedule. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 It's Do you see that? (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1701 1 A I do. 2 Q Okay. And if you go down six lines, there is 3 a property named called McDaniel first water parcel. 4 you see that? 5 A I do. 6 Q And this was -- this was land that was 7 acquired for benefit of an existing consumptive-use 8 permit; is that right? 9 A Do Well, what it says here is that we acquired 10 land associated with the future combined-cycle site. 11 This is the exercise of the first of three options for 12 land for the benefit of existing consumptive water 13 permits that are valuable to the acquisition of 14 necessary permits for future plant. 15 16 Q Okay. You're aware in Florida that water can't be sold, right? 17 A I am -- I'm not. 18 Q You're not? So, you don't understand -- have 19 an understanding about the Water Management District's 20 issuing consumptive-use permits based on showing a need? 21 A I don't have any knowledge of that, no. 22 Q Okay. 23 And in -- and in the amount paid for this was 34,436,000 -- 436; is that right? 24 A Yes, that's what it says here. 25 Q Okay. And then, I guess above it, there's a Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1702 1 McDaniel site that was -- 40 million was paid for that? 2 A Yes. 3 Q Do you know what that site is going to be used 5 A Future combined-cycle plant. 6 Q And -- and do you know when -- that's coming 4 for? 7 in in December of 2000 -- December of '19 -- is that the 8 expected in-service date? 9 A That's what it says in this document, yes. 10 Q Do you know how long it typically takes to 11 construct a combined-cycle plant? 12 A A few years. 13 Q And there's a permitting process? 14 A I don't know specifically. 15 Q Okay. 16 I haven't heard much about it. I just -- do you know if this is still on track? 17 A I'm not the resource-planning witness. 18 Q Okay. And then let me just understand, if I 19 can, about how plant held for future uses is treated 20 from a regulatory standpoint. 21 correct? 22 23 24 25 A It's put into rate base, Yes, Account 105 is typically held in rate base. Q And when you say 105, that's a FERC account number; is that right? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1703 1 A That is. 2 Q Okay. And -- and so, are you -- when I say 3 "you," I mean FPL -- FPL, you're able to earn on plant 4 held for future use the same way you could earn on 5 capital invested in a nuclear power plant, correct? 6 7 8 9 10 A That's correct. It's an investment we're making on behalf of customers for future use. Q Is there any adjustment made given maybe the relative risk of running a nuclear power plant compared to holding vacant land? 11 A I don't understand the question. 12 Q If you have a parcel that you bought for 13 future use that has -- I was looking for the acreage, 14 but -- 15 A 3400? 16 Q Okay. 17 A 3200, I'm sorry. 18 Q I'm sorry? 3400 acres of unimproved -- 30 -- 3200 acres; is that right? 19 If you have 32 [sic] acres in Hendry County -- 20 CHAIRMAN BROWN: 21 second -- thank you. 22 MR. MOYLE: 23 Mr. -- Mr. Moyle, just a Okay. BY MR. MOYLE: 24 Q If -- Hendry County is pretty rural, right? 25 A I've -- I've never been there. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 I imagine it Reported by: Andrea Komaridis premier-reporting.com 1704 1 2 is. Q All right. And -- and if it's 3200 acres of 3 unimproved pastureland that has a fence around it, as 4 long as people aren't trespassing and you have liability 5 associated with that, there's not much that's involved 6 in owning 3200 acres other than keeping -- keeping it 7 fenced and paying taxes on it, right? 8 9 MR. BUTLER: of questions. I'm going to object to this line The exhibit that Mr. Moyle is 10 referring to was identified with Mr. Barrett, the 11 immediately-prior witness. 12 Ms. Ousdahl has indicated she's only familiar 13 with the accounting for the property held for 14 future use. 15 have been more-appropriately addressed to 16 Mr. Barrett. And I think that these questions would 17 CHAIRMAN BROWN: 18 MR. MOYLE: Mr. Moyle? Well, I had asked her -- I wasn't 19 needing to get into all of that, but she -- I asked 20 her whether there was any distinction between 21 plants held -- some that may have had more risk 22 associated with them, like a nuclear plant 23 compelled -- compared to unimproved land. 24 25 So, that was the pending question. And I needed her to sort of describe the unimproved land. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1705 1 CHAIRMAN BROWN: 2 MR. MOYLE: 3 CHAIRMAN BROWN: 4 MR. MOYLE: 5 CHAIRMAN BROWN: 6 MR. MOYLE: 7 8 9 Are you -- She just answered the question. Are you moving along? Yes. Okay. Thanks. BY MR. MOYLE: Q Is there any distinction made between differing items that are in rate base with respect to 10 capital, like raw land, compared to a nuclear power 11 plant? 12 earning on them? 13 14 15 Or are they all treated the same with respect to A We earn the same return on every dollar of investment in rate base. Q 16 Okay. Thank you. And Mr. Silagy suggested that I ask some 17 questions of you yesterday when I asked him a couple of 18 questions. 19 (Laughter.) 20 MR. MOYLE: 21 MR. BUTLER: 22 MR. MOYLE: 23 24 25 What -That pins it down. I missed it. I'm afraid to ask. BY MR. MOYLE: Q All right. So -- so, I believe -- I believe Witness Kennedy said FPL has a policy that they do not Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1706 1 pay for lobbying expenses with ratepayer money. 2 aware of that? 3 A It's not a policy; it's a requirement. 4 Q It's a requirement. 5 A Yes. 6 Q Okay. 7 A FERC and this Commission. 8 Are you And who make makes that requirement? Every Commission, that I'm aware of, has that same requirement. 9 Q Okay. And I assume that that applies -- there 10 is a saying -- you're familiar with the saying, you 11 can't do -- do indirectly what you're prohibited from 12 doing directly? 13 A Okay. 14 Q So, are you familiar with Associated 15 Industries? 16 A No, I'm not. 17 Q Do you know whether -- do you know whether the 18 dues that are paid to Associated Industries are part of 19 what's being recovered from ratepayers in this rate 20 case? 21 A No, but here is what I do know. Typically, in 22 industry-association dues, they are required to separate 23 out lobbying cost from the dues themselves so that we 24 can separate those out for accounting purposes; above 25 the line for dues that do not include lobbying, and Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1707 1 2 below the line for those that do. Q Okay. So, if there was an association that 3 was devoted exclusively to lobbying, none of those 4 association fees or dues should be being paid by 5 ratepayers? 6 A That's correct. The requirement is lobbying 7 expenses must be charged below the line. 8 paid for by customers. 9 Q 10 Okay. It cannot be Thank you for that. There was also -- I asked Mr. Silagy some 11 aircraft questions. 12 employees are still making use of -- of aircraft, jets 13 and helicopters. 14 whether ratepayers are paying for that or not. 15 was an interrogatory that said they were not, but he 16 suggested that I explore that with you. 17 And he said that -- that FPL But I don't know that he was sure There Does FPL -- is FPL asking -- well, does FPL 18 pay for jets or helicopters or pilots or maintenance of 19 aircraft? 20 A No, FPL does not. 21 Q So, you don't have any -- any expenses 22 associated with aircraft in any way, shape, or form that 23 are FPL expenses? 24 25 A No. The cost of the operation for aviation at our company is held by the parent. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 FPL employees, on a Reported by: Andrea Komaridis premier-reporting.com 1708 1 very limited basis -- I think we reimbursed at the coach 2 fare, at civil rate, a hundred thousand dollars or a 3 $150,000 last year. 4 So, in the event an employee is -- it is 5 necessary to fly on that aircraft, we pay a coach fare. 6 So, it's no different than if we were, you know, taking 7 a trip on Southwest Airlines. 8 9 10 Q Okay. So -- and that payment goes to NextEra; is that right? A It goes -- reimburses the parent -- well, it 11 doesn't reimburse them for the cost, but reimburses at a 12 coach fare. 13 Q Okay. And that's -- that's not governed by 14 any regulation or anything. 15 policy you all have; is that right? 16 17 18 A That -- like, that's just a That's correct. MR. MOYLE: And I have a couple of exhibits, if I could have those handed out. 19 CHAIRMAN BROWN: 20 Mr. Moyle, we're at 643. 21 MR. MOYLE: 22 CHAIRMAN BROWN: Sure. Staff will help you. Okay. Mr. Moyle, would you like to 23 label them at this time or would you just like to 24 just wait? 25 MR. MOYLE: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 We can go ahead and do it now. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1709 1 2 CHAIRMAN BROWN: MR. MOYLE: 4 CHAIRMAN BROWN: MR. MOYLE: Okay. That will be labeled as 643. (Whereupon, Exhibit No. 643 was marked for identification.) 12 13 The affiliate transactions, wind CHAIRMAN BROWN: 10 11 And I'll repeat it for companies. 8 9 The -- everybody. 6 7 So, which one would you like labeled as 643? 3 5 Okay. MR. MOYLE: The executive pay allocation with subsidiaries. 14 CHAIRMAN BROWN: 15 The executive pay -- that will be labeled as 16 17 18 Hold on one second, please. 644. (Whereupon, Exhibit No. 644 was marked for identification.) 19 MR. MOYLE: 20 CHAIRMAN BROWN: 21 MR. MOYLE: 22 (Whereupon, Exhibit No. 645 was marked for 23 24 25 Right. And then 645 will be -- -- the pension costs. -- the pension cost. identification.) CHAIRMAN BROWN: everybody. Okay. Let me just repeat for 643 will be the affiliate transactions, Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1710 1 wind companies; 644 will be executive pay 2 allocation with subsidiaries; 645 is pension costs. 3 Ms. Ousdahl, do you have everything? 4 THE WITNESS: 5 CHAIRMAN BROWN: 6 Please proceed. 7 MR. MOYLE: 8 9 Yes, I do. Okay. Okay. Thank you. Thank you. BY MR. MOYLE: Q Ms. Ousdahl, I'm going to ask you about these 10 exhibits. 11 didn't have familiarity with, but there was an exhibit 12 that came in that showed an aviation asset transfer from 13 FPL to NextEra. One question that I -- Mr. Silagy said he Do you have familiarity with that? 14 A Yes. 15 Q Did that result in ratepayers receiving a 16 credit or a gain from the transfer of aircraft? 17 A Yes. 18 Q Okay. 19 20 And -- and what happened with that transaction? A I believe we were ordered by the Commission in 21 2000 -- in the 2009 case -- it may have been an indirect 22 order, but we made the determination that we needed to 23 transfer the aircraft out of the utility. 24 25 Q Those indirect orders are -- are interesting, aren't they? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1711 1 A It was quite interesting. 2 Q All right. Let's go to 643. And -- and you 3 have a -- a lot of services being provided by FPL to all 4 of these wind companies. 5 to what services FPL is providing to all -- all these 6 wind companies, if you knew. 7 A And I was curious as to -- as This is a 2011 diversification report. 8 doesn't describe exactly what was done. 9 small dollars, but it doesn't look like an asset 10 It It's also very transfer. 11 It could have been any number of things. We 12 have a -- fleet services for our engineering and 13 construction group. 14 activity and -- and perhaps there was an FPL employee in 15 that team that was called upon to do some sort of work 16 for -- for wind. 17 So, if they were involved in some It could have been some sort of combined 18 central maintenance operation. 19 things, an ISC -- I'm sorry -- an integrated-supply- 20 chain activity, any number of things. 21 Q Okay. There is any number of Next document, 644 -- do you have it? 22 It's entitled "executive pay allocation with 23 subsidiaries." 24 25 A Are you there? I'm -- I'm looking at it. months end -- oh, okay. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 It's also 2011, six I -- I think I've got this one. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1712 1 Q This was one you sponsored, right? 2 A Yeah. 3 4 Yes. It's just a number of years ago. So, I'm just trying to orient myself. Q Right. Yes. So -- so, the question is: When you 5 have the category, affiliate driver -- I assume that 6 represents the percent by which the executive 7 compensation is allocated; is that right? 8 A Well, first -- yes. 9 Q Why don't -- 10 A This is not just executive comp, but yes. 11 Q Okay. 12 A It looks like it is. 13 Q I'm sorry. 14 I thought there was one line that said "executive comp." 15 A Okay. 16 Q How do you do the 33 percent? 17 determined? 18 A How is that Well, there are different drivers. This 19 includes a number of different drivers. 20 charges going a hundred percent to affiliates here. 21 has some charged out at 33.6, which looks like, back in 22 2011, it probably represented something related to the 23 Massachusetts formula. 24 25 It has some It And then it's got a 50/50 driver, the same driver we use today for nuclear. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 You heard that Reported by: Andrea Komaridis premier-reporting.com 1713 1 testimony from Witness Goldstein. 2 appropriate driver for the payroll in these groups. 3 It's got each And it's a true-up calculation because, back 4 in 2011, we were just implementing SAP. 5 have actual charges being billed each month the way we 6 do today. 7 8 So, we didn't Q We had to true-up at the end of the year. So, for the top line where -- the 2011, it says "executive ongoing activities." 9 A Right. 10 Q There's a $9.8 million payroll number? 11 A Right. 12 Q And then the affiliate driver is 33 percent. 13 With respect to how you allocate executive 14 compensation amongst FPL and the subsidiaries, do you 15 use the Massachusetts model? 16 A Well, as I just explained, it depends on the 17 executive. 18 that's in an enterprise role, which would include the 19 vast majority of the C-Suite officers, they would be 20 allocated on a Massachusetts-formula basis, which, 21 today, is allocating a greater percent to affiliates 22 because of the growth in a smaller pool, by the way. So, for a number of the executive team 23 Q So -- 24 A But the nuclear officers are 50/50. 25 And PGD is based on -- power generation officers are based on Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1714 1 the relative amounts of generation, megawatt hours of 2 generation. 3 Q 4 5 What's the current allocation of executive compensation with respect to the Massachusetts formula? A Well, again, it depends on the executive. 6 want just the Massachusetts formula percent? 7 my testimony. 8 9 Q That's in Well, you had said you had knowledge of it because you said, today, it allocates more to the 10 affiliates and less to the regulated company. 11 just wondering if you knew those percentages. 12 You A I was The Massachusetts formula drivers are in my 13 testimony on Exhibit KO-13. 14 FPL will retain 60 percent, and the affiliates will be 15 billed 40 percent on a -- just at the Massachusetts 16 formula. 17 that basis; 40 percent of the amounts will go to the 18 affiliates. 19 Q And for the 2017 test year, So, for those executives, they are billed on Okay. And some of your executives have a lot 20 of different positions with a lot of different 21 subsidiaries, rights? 22 A We have an enterprise, an integrated 23 enterprise-wide model. 24 over the years, how that serves us well both from an 25 affiliate and an FPL perspective. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And we've talked a lot about, (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1715 1 So, yes, there are a lot of folks at the 2 higher levels of the company that service the entire 3 organization. 4 Q Okay. I -- I noted -- I don't know if I'll be 5 able to point you right to it, but I noted that, with 6 respect to -- it looked like state taxes and federal 7 taxes, that NextEra paid those, and FPL paid them back; 8 is that right? 9 A FPL files -- prepares and makes available our 10 pro forma stand-alone taxes for both state and federal. 11 The taxpayer of the enterprise is the parent. 12 13 14 Q So, you have to do those transfers between the parent and FPL? A We don't have a transfer, no. We pay taxes to 15 our parent just as though we would be paying them to the 16 third-party entity. 17 Q So -- so, FPL does not write a check to the 18 state of Florida or the Federal Government. 19 a check to NextEra and NextEra writes a check to state 20 of Florida or the Federal Government? They write 21 A That's correct. 22 Q And I asked Mr. Barrett a question with 23 respect to whether he was aware of FP&L taking advantage 24 of a state renewable-energy tax credit. 25 so or didn't know. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 He didn't think Do you have any information on that? (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1716 1 2 3 4 5 6 7 8 9 10 A The state of Florida did have a very limited production tax credit. Q It expired in June of this year. And did FPL take advantage of it when it was in place? A I believe there might have been some minimal benefit provided for the prior solar. Q It's more than a million dollars, wasn't it? Do you know? A You must have a better memory than I. I don't recall. 11 Q 12 costs. 13 A Yes. 14 Q Okay. All right. Let's go to 645, the pension You sponsored this? And the question is: Describe the 15 response FPL uses to determine the appropriateness of 16 its pension cost. 17 parties to manage the pension. 18 regularly and discuss things such as discount rates, 19 long-term asset return, mortality rates, retirement 20 rates, et cetera; is that right? 21 A And the answer suggests you use third And you meet with them Pension accounting is -- yes, pension 22 accounting is highly complex. 23 develop the estimates for the obligation for the return 24 on assets and for all -- from the mortality -- for all 25 of the inputs into that calculation. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 We have actuaries that Reported by: Andrea Komaridis premier-reporting.com 1717 1 Our meetings with them and the determination 2 is highly controlled also because it's an important 3 input from an accounting and financial-reporting 4 standpoint. 5 Q I know Ms. Slattery has some -- has some 6 testimony on pensions and -- and I wanted to ask you 7 your understanding with respect to how the pension fund 8 is presently funded. 9 I read -- I have some information that 10 suggests it's over-funded. 11 that somehow inures to the benefit of the ratepayers. 12 Did I not get that right? 13 A Yes. And there is a credit of FPL does not -- first of all, it's not 14 FPL's pension plan. 15 sponsored by our parent. 16 plan along with all of the affiliates. 17 The non-contributory plan is So, FPL participates in the To answer your -- your first question, it is 18 in a very advantageous funding position, which allows us 19 to pass through a credit to customers. 20 credits bear no pension expense for its 8,000 employees. 21 We bear -- FPL's We actually have a $60-million credit that we 22 forecasted in 2017. 23 as the employees that do capital labor -- that portion 24 of their pension would be capitalized. 25 through as a reduction to our O & M. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Part of that is capitalized. (850) 894-0828 Just The rest flows Reported by: Andrea Komaridis premier-reporting.com 1718 1 2 3 Q And with respect to a $60-million credit per year, that's unusual for a pension, isn't it? A We're pretty proud of our financial discipline 4 at the company and the record we have of managing 5 through some very difficult years, yes. 6 Q And my understanding is that not many people 7 are offering pension these days. 8 that do offer pensions, governmental entities -- they 9 are under-funded. 10 11 And a lot of people Is that consistent with your understanding? A Yeah. I'm not an expert in what others do, 12 but I think our position -- I do read others' 10Ks. 13 it's -- it's -- it's nice to be able to have a fully- 14 funded -- more than fully-funded pension plan that 15 provides the benefits to customers, too. 16 Q Okay. And And that's not necessarily the result 17 of getting huge returns, is it, in terms of -- I mean, 18 you're not earning 30, 40 percent on the investment. 19 A I think it's the result of good fiscal 20 discipline, which we've got a good track record for at 21 our company. 22 Q Has the Commission -- I mean, I guess the 23 question is: 24 cases, the pension been over-funded, and the 25 over-funding is contributing to the surplus? Has this maybe been over-funded in rate Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1719 1 2 A We have not funded the pension plan for decades. 3 Q And you say "we," you mean FPL? 4 A The company. 5 Q Right. But -- but -- but the company is 6 asking for ratepayers to pay for pension costs; are they 7 not? 8 9 10 A No. We're giving the customer a $60-million reduction in O & M. Q Okay. It's the opposite. And let me ask you this: I -- with 11 respect to the pensions, my understanding is that, if 12 you're a pension -- and you're a beneficiary of the 13 pension, you put it in there -- I thought it was kind of 14 like a lockbox. 15 if it's devoted to someone and credited back to somebody 16 else; is that wrong? 17 A You can't take money out of a pension No, the -- the beneficiaries of the trust 18 assets are our employees; they are not -- it's not cash 19 available to FPL or to its parent. 20 Q Okay. 21 A Strictly controlled. 22 Q On the response here, you talk about the long- 23 term asset return. 24 with these people and say, what -- what's our projected 25 return on the pension; is that right? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And I guess that is when you meet (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1720 1 A That's correct. 2 Q Do you know what the -- what the long-term 3 asset return is projected to be or what you're trying to 4 seek in the market, the goal, the objective? 5 A Well, I -- again, it's a very long-term view. 6 And it was 7.75 -- I think it's 7.5 now because we 7 net -- in our compilation of the cost to the pension, we 8 net some investment fees. 9 Q So, it's in the 7, 7.5 range. Is there any ability to take the pension 10 assets and to use it as equity and invest in FP&L and 11 earn 11 percent or 10.5 percent return on equity or 12 whatever the earning is of the regulated utility? 13 that prohibited? 14 15 A 18 As I just stated, the employees are the beneficiaries of the pension trust. 16 17 Or is Q Right. And I -- I didn't ask my question well. MR. BUTLER: I'm going to object to this line 19 of questioning. 20 far afield of both Ms. Ousdahl's testimony and 21 relevance to the determination of revenue 22 requirements in this proceeding. 23 I think it's really gone pretty CHAIRMAN BROWN: I'm going to overrule it 24 based on this -- based on some of the answers that 25 she's provided, and as long as Mr. Moyle keeps it Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1721 1 within the scope of her direct. 2 3 MR. MOYLE: Thank you. BY MR. MOYLE: 4 Q I was -- I was simply trying to understand, 5 sometimes companies have provisions that you can't, in a 6 retirement plan, invest in the company that you work 7 for. Are you familiar with that? 8 A 9 law, ERISA. 10 The pension plans are controlled by federal We have no access to the funds in the pension trust. 11 Q So, you don't -- 12 A I mean -- it's controlled. I shouldn't say we 13 have no access. 14 benefits to our employees through the pension, but it's 15 strictly controlled. We obviously access those funds to pay 16 Q Is there a third-party administrator or -- 17 A Yes. 18 Q Okay. And I think on the next page -- that 19 was the question I had with respect to the funding 20 amount. 21 accumulated pension plan over-funding. 22 was the 60 million you were referencing; is that right? 23 A You said -- the question relates to an Is that -- that The -- the excess in the trust over the 24 pension obligation is the $1.2 billion referenced to 25 this response. The cumulation of the credits we've Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1722 1 given customers over the many years is represented by 2 the deferred-pension asset of 1.2 billion on FPL's 3 books. 4 Q 5 6 7 8 9 Okay. So, I'm sorry -- so, the over-funding amount is 1.2 billion? A Yes, the cash greater than the projected benefit obligation, trust assets in excess of. Q Okay. And then the last page -- that represents the annual pension credit? 10 A Yes. 11 Q The highlighted -- you said it ranges from 12 13 41 million to 63 million? A 14 15 Yes. MR. MOYLE: Okay. That's all I have. Thank you. 16 CHAIRMAN BROWN: 17 Moving on to Mr. Wiseman. 18 MR. WISEMAN: 19 I have an exhibit, a large exhibit to be 20 21 22 Thank you, Mr. Moyle. Thank you, Madam Chair. marked, please. CHAIRMAN BROWN: exhibit. Okay. Staff, a large I don't know what that means. 23 (Laughter.) 24 You mean it's heavy? 25 MR. WISEMAN: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 It's weighty. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1723 1 CHAIRMAN BROWN: 2 Is it just one? 3 MR. WISEMAN: 4 Weighty. I actually thought about making it 18, but it is just one. 5 (Laughter.) 6 CHAIRMAN BROWN: 7 We're at 646. 8 9 10 Okay. All right. Good. So, while it's being distributed, I'm going to label it 646. And title? MR. WISEMAN: It is titled "excerpts from 11 Florida Power & Light Company's rate of returns 12 balance reports from January of 2015 through 13 May 2016." 14 CHAIRMAN BROWN: 15 MR. WISEMAN: 16 (Whereupon, Exhibit No. 646 was marked for 17 We will title it that. Great. identification.) 18 MR. WISEMAN: 19 CHAIRMAN BROWN: 20 Okay. May I proceed? Ms. Ousdahl, do you have a copy of it in front of you? 21 THE WITNESS: 22 CHAIRMAN BROWN: 23 MR. WISEMAN: 24 CHAIRMAN BROWN: 25 Please proceed. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 I do. It's very voluminous. Weighty. Weighty. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1724 1 MR. WISEMAN: 2 3 4 Thank you. EXAMINATION BY MR. WISEMAN: Q Ms. Ousdahl, do you recognize the documents 5 that are contained in Exhibit No. 646? 6 from FPL's surveillance reports filed with the 7 Commission. 8 A Yes. 9 Q And the surveillance reports are filed under 10 It's excerpts your signature; is that correct? 11 A Yes. 12 Q To try to move through this quickly, let me 13 represent to you that these are the surveillance reports 14 for the period of January 2015 through May 2016. 15 A Yes. 16 Q Okay. Okay? And if you need to check a few of these 17 documents, you know, please feel free to do so, but if 18 you know off the top of your head on Schedule -- well, 19 it's the first page with data. 20 Schedule 1, Page 1 of 1. I don't -- it's 21 There is a figure on Line G, FP -- FPSC 22 adjusted return on common equity of 11.5 percent. 23 you see that? Do 24 A Yes. 25 Q So, without checking, if you know off the top Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1725 1 of your head, would you agree that from January -- 2 excuse me -- 2015 through May 2016, each one of these 3 reports would report return on common equity in Line G 4 of 11.5 percent? 5 A 11.5, yes. 6 Q Yes? 7 A Uh-huh. 8 Q Okay. 9 And if you could, turn to the third -- just the -- we'll use January 2015 as an example. If 10 you could, turn to the third page, which is Schedule 2, 11 Page 2 of 3. Do you have that? 12 A Yes. 13 Q Okay. And if you go over, there is a column 14 that says "depreciation and amortization." 15 that? 16 A Yes. 17 Q Okay. Do you see Now, at the bottom, there is a -- well, 18 it's about midway down the page, FPSC adjusted. 19 one, there is a figure of $1,181,000,000, approximately; 20 is that correct? 21 A Are you in January of '15? 22 Q January 2015. 23 A Okay. 24 25 you. I'm sorry. Oh, yes, FPSC. In this I'm with One billion. Q $1,181,000,000, correct? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1726 1 A Yes. 2 Q Why don't you explain what that figure 3 represents? 4 A Well, the ESR, the Earnings Surveillance 5 Report, is intended to take our consolidated books and 6 records and make adjustments to those to reflect what is 7 represented by the company's base-rate-related revenues 8 investment and expenses. 9 10 So, it mirrors what we do in ratemaking, what we're doing in our filing today. This column -- 11 Q Well -- 12 A This column represents the adjusted on a 13 14 retail basis for a depreciation and amortization. Q 15 Thank you for that. What I was actually trying to get at is the -- 16 the figure -- let's just call it approximately 1.2 17 billion. Is that okay? 18 A Okay. 19 Q All right. That approximate $1.2-billion 20 figure -- is that a running 12-month accumulation of 21 depreciation and amortization? 22 A Yes. 23 Q Okay. Would you agree that, if we went 24 through these reports, January 2015 through May 2016, 25 that that figure is going to be approximately Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1727 1 $1.2 billion in each of those reports? 2 little more, sometimes a less. Sometimes a 3 A No, I mean, I would have to -- 4 Q What -- 5 A I could accept it subject -- subject to check. 6 Q Okay. 7 Now, you've testified about the Okeechobee limited-scope adjustment, correct? 8 A Yes. 9 Q Okay. Now, as part of that adjustment, FPL is 10 going to propose to increase its rate base by the 11 capital investment in the Okeechobee plant; is that 12 right? 13 A That's correct. 14 Q Okay. Is FPL also proposing to reflect the 15 approximate 18 months of depreciation that would 16 accumulate between January 2018 and, roughly, June 2019, 17 when the Okeechobee plant is expected to go in service? 18 19 A No. It -- the plant will not begin book depreciation until it begins commercial operation. 20 Q I -- 21 A Perhaps I misunderstood you. 22 Q Yeah. I'm sorry. Maybe I wasn't clear enough 23 about it. 24 with the Okeechobee plant. 25 depreciation of FPL -- of the remaining -- the existing I'm not talking about depreciation associated Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 I'm talking about the (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1728 1 part of FPL's rate base. 2 My question is: When you increase rate 3 base -- when you're -- if your proposal -- well, under 4 your proposal, you've proposed the increase rate base by 5 the capital investment in the Okeechobee plant. 6 My question is: Are you going to offset rate 7 base with all of the depreciation that's accumulated 8 from January 2018 forward? 9 A No, and nor are we going to increase the 10 investment for all of the other investments we would 11 make that are not reflected in that same period. 12 13 Q All right. Let's go to another subject. If you could, turn to Page 30 of your testimony, please. 14 A Yes. 15 Q Okay. On Line 4, you -- there is a 16 description there beginning with corporate service -- 17 services charges, correct? 18 A Yes. 19 Q And what that -- those charges relate to is, 20 for lack of a better phrase, you call it, Line 5, 21 government -- governance costs and general corporate 22 support services that benefit FPL and its affiliates, 23 correct? 24 A Correct. 25 Q And so, if I understand, you've split that up Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1729 1 into some components. 2 driver on Line 8 on Page 30. 3 sorts of governance costs or corporate overhead -- those 4 are -- is that essentially direct-assigned costs? 5 A The first one is labeled specific Is that category of those Those -- yes, essentially, they represent 6 costs that still need to be allocated. 7 directly charge them, but we use a much more 8 specifically-designed and identified allocation method. 9 Q Okay. We can't And that's -- that's distinct from the 10 costs that are allocated based upon the Massachusetts 11 formula, correct? 12 A Which is a more-general allocator, yes. 13 Q Right. And there, under the Massachusetts 14 formula, essentially what you're doing is you're 15 allocating corporate overhead costs that really can't be 16 assigned directly to one affiliate or another; is that 17 fair? 18 19 20 A That's fair. There is no clear cost causation. Q Now, if you turn to Page 34 of your testimony, 21 starting at Line 17, you talk about the -- well, what -- 22 what, at that time, was the potential merger was 23 Hawaiian Electric Companies, correct? 24 A That's correct. 25 Q And your proposal was that, if that Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1730 1 proposal -- if that proposed merger had been approved by 2 the Hawaii Public Utility Commission, that you were 3 going to make an adjustment to corporate overheads to -- 4 the allocation of corporate overheads as a result of the 5 acquisition -- of the merger with Hawaiian Electric, 6 right? 7 A We were. 8 Q Okay. Uh-huh. Now, we know that the Hawaiian 9 Commission rejected the proposed merger and, at least 10 from what I understand from what's been in the public 11 press, that both Hawaiian Electric Utilities and F- -- 12 and NextEra, excuse me -- have just called off the deal. 13 And they're not -- that's not going forward at all, 14 correct? 15 A That's correct. 16 Q Would it be correct, though, that the premise 17 of the adjustment is that, all else equal, if you're 18 allocating the costs over -- these corporate overheads 19 under the Massachusetts formula, over a larger number, a 20 broader number of affiliates, each of the shares of the 21 existing affiliates of that allocation are -- they're 22 going to be somewhat less, correct? 23 A Yes, I agree, all else equal, if the -- if 24 there was a new affiliate or a -- or an increase in an 25 existing affiliate, and they took all of the services or Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1731 1 all of the allocations were deemed appropriate in that 2 cost pool, then the relative cost shared by others 3 would -- would decline. 4 Q Okay. And now, you're aware, no doubt, that 5 NextEra has proposed to -- I'm not sure if it's to 6 acquire or merge with Encore, correct? 7 A Yes. 8 Q And that deal, at least what I've seen 9 10 publicly -- I think it's valued at $18.4 billion, correct? 11 A That's what I understand. 12 Q And that is a -- would you agree Encore is a 13 much-larger organization than Hawaiian Electric 14 Companies? 15 16 A Certainly an investment from a balance-sheet perspective, yes. 17 Q All right. So, if the merger -- is it a 18 merger or an acquisition? 19 know? I -- I'm not sure. Do you 20 A I think it's been described as a merger. 21 Q If the merger with Encore is successful, is 22 FPL going to make the adjustments to its rates to 23 reflect the different allocation of corporate overheads 24 that would result as a result of the Encore merger? 25 A Well, no. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And let's talk about the (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1732 1 differences between where we were with HECO and where we 2 are with Encore. 3 At the time I filed this testimony in March, 4 we had a transaction that we had been working on for 5 over a year and a half. 6 We knew the level of services that were going to be 7 provided. 8 9 We were deep into integration. And there was a very significant difference between the needs of HECO and the benefits that could be 10 provided by some fairly immediate integration with that 11 business, the lift that FPL and NextEra could provide 12 versus Encore. 13 Encore is a very successful, well-operated T 14 and D business. 15 successful -- and that's a very big if -- we don't 16 intend to be working on any sort of very rigorous 17 integration any time soon. 18 We don't intend, if we are So, it's just a completely different situation 19 and the -- you know, the success or failure of that -- 20 of that acquisition is unknown to all of us today. 21 Q Well -- well, assuming that it is successful, 22 you're not testifying that there aren't going to be 23 merger savings, are you? 24 A It's -- it's not a synergies transaction. 25 Q All right. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 So, is your testimony there won't (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1733 1 be any merger savings as a result of that transaction? 2 A No, what I'm -- what I'm testify- -- what I'm 3 trying to explain is that I agree with your premise 4 that, all else equal, if the pool of corporate shared 5 services is reasonable to be allocated to Encore -- and 6 I don't think it would be a hundred percent of the pool, 7 but certainly some of that pool would ultimately be 8 allocated -- then the relative amounts made by FPL and 9 NEER -- the other affiliates would decline. 10 I'm agreeing with that premise. 11 What I'm suggesting to you is that is no more 12 probable than any of the other many changes that could 13 occur between now and 2017, 2018, 2019. 14 15 Q And you're proposing to adjust rates in 2018, correct? 16 A We are. 17 Q And you're proposing to adjust rates in 18 mid-June -- approximately June 2019, correct? 19 A We're not proposing a base-rate adjustment in 20 2019; we're proposing a limited-scope adjustment in 21 2019. 22 23 24 25 Q You're proposing a rate increase in June of 2019. A We're proposing an increase for a limited- scope adjustment. That's correct. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1734 1 2 MR. WISEMAN: Thank you. I have no further questions. 3 CHAIRMAN BROWN: 4 Mr. Wright. 5 MR. WRIGHT: Thank you, Mr. Wiseman. Thank you, Madam Chairman. 6 just have -- I truly believe I have a very few 7 questions. I 8 9 EXAMINATION BY MR. WRIGHT: 10 Q Good evening, Ms. Ousdahl. 11 A Good evening. 12 Q I just want to follow on a question that you 13 just answered for Mr. Wiseman. 14 going to be -- with the increases associated with 15 Okeechobee coming on line, going to be increases in base 16 rates. 17 year adjustment or a limited-scope adjustment? He asked you, were there You, I think, said it would be a subsequent- 18 A That's what we propose for Okeechobee in 2019. 19 Q Isn't it true that -- that the way that will 20 21 be implemented will be increases in base rates? A It's -- it's a $209-million increase in base 22 rates, commensurate with commercial operation, which 23 also gives customers a large decrease in fuel. 24 Q If -- 25 A That's the premise of the adjustment. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1735 1 2 Q I apologize. I didn't -- I didn't mean to interrupt you. 3 Clear -- you said it was a limited-scope 4 adjustment, not base rates. 5 in base rates? But it is actually a change 6 A Oh -- 7 Q Were you meaning to distinguish between a 8 general rate-case base rate -- 9 10 A Yes. I'm sorry. I -- I may have misspoken. I -- it was not a general base-rate increase. 11 Q Okay. 12 A But a change in -- an increase of 209 million 13 in base rates. 14 Q Got it. 15 A Commensurate with the decline in fuel costs, Q Thank you. 16 17 Thank you. yes. 18 It's not -- it's not quite one-for-one, is it? 19 It's, like, 209 million for base rates and negative 140 20 for fuel savings project -- 21 A I'll accept that. 22 Q I've seen that somewhere in y'all's testimony. 23 I'm not certain. I just have a couple of other questions. And 24 I just want -- these were triggered by an answer you 25 gave to Mr. Moyle about income taxes, in which I think Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1736 1 you said, FPL writes a check to the parent for the tax 2 liability? 3 A That's correct, for current tax expense. 4 Q For -- 5 A Current tax expense. 6 Q Yes. So, if I'm looking at -- you don't have 7 to do this, but if I'm looking at MFR-C22, which you 8 sponsored, there are a couple of lines; one is current 9 tax expense and the other is total income-tax provision. 10 The amount that you write the checks -- checks for is 11 the current tax-expense amount, correct? 12 A That's correct. 13 Q Thanks. 14 And then the amount -- the total income-tax 15 provision is the amount that is factored into the 16 revenue requirement, correct? 17 A Well, it's all factored into revenue 18 requirements. 19 the balance sheet. The provision is our obligation that's on 20 Q Okay. 21 A Some of that is paid currently; some of it is 22 23 24 25 deferred. MR. WRIGHT: Thank you very much. That's really all I have. THE WITNESS: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Okay. (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1737 1 MR. WRIGHT: 2 CHAIRMAN BROWN: 3 Mr. Jernigan. 4 MR. JERNIGAN: 5 CHAIRMAN BROWN: 6 Sierra Club. 7 MS. CSANK: 8 CHAIRMAN BROWN: 9 Ms. Roberts? 10 MS. ROBERTS: 11 CHAIRMAN BROWN: 12 Mr. Coffman? 13 MR. COFFMAN: 14 Thanks. Thank you, Mr. Wright. No questions. Thank you. Thank you. No questions, Madam Chair. Thank you. No questions. Thank you. Thank you. Yes, I have a few. And I have an exhibit that could probably be handed out. 15 CHAIRMAN BROWN: 16 We will be at 647. 17 Mr. Coffman, would you like it as presented, 18 Staff. "investor presentation, Encore acquisition?" 19 MR. COFFMAN: 20 CHAIRMAN BROWN: 21 22 23 24 25 Yes, that's fine. We'll do that. And again, it's 647. (Whereupon, Exhibit No. 647 was marked for identification.) MR. COFFMAN: Okay. to be repetitious. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And I -- I will try not Mr. Wiseman stole some of my (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1738 1 thunder, but I -- 2 CHAIRMAN BROWN: 3 4 Don't you hate that. EXAMINATION BY MR. COFFMAN: 5 Q So, good evening, Ms. Ousdahl. 6 A Good evening. 7 Q Hi. 8 9 CHAIRMAN BROWN: 12 13 Could you put the mic a little closer? 10 11 Again, I'm sorry. MR. COFFMAN: I'm sorry, again. keep my mouth close. I need to Okay. BY MR. COFFMAN: Q So, following up on Mr. Wiseman's questions, I 14 had the same line of inquiry, but with respect to the 15 Hawaiian Electric Companies, if that deal had gone 16 through, it would have reduced FPL's corporate services 17 cost, as you mentioned in your testimony, correct? 18 A Uh-huh. 19 Q And how would it have reduced FPL's corporate 20 21 22 Yes. services cost? A We never got to it -- are you asking the amount? 23 Q No. In what way would it have reduced? 24 A Oh. Oh. 25 Well, we were in the process of trying to identify which of our shared corporate Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1739 1 services were going to be appropriately allocated. 2 in large part, in most -- in most transactions such as 3 these, you take careful steps at integration. 4 though we did believe there would ultimately be quite a 5 bit of integration with Hawaii in order to help them 6 along, we thought we had a lot to offer. 7 It was going to move slowly. And And So, as we looked 8 at our 240 -- we have a 240-ish-million-dollar shared 9 cost pool for all corporate costs in that corporate 10 service charge today. 11 of that, largely the executive-officer team and 12 executive oversight, so -- 13 14 Q There was going to be a fraction So, that -- I'm sorry. To paraphrase that, $240 million would be shared over a larger -- 15 A No, what I'm trying to communicate is a 16 fraction of the 240 million would have been shared. 17 There were officers that had -- would have had no 18 interaction, no support with Hawaii such as the nuclear 19 team. 20 providing direct environmental services. 21 You know, they -- we were not going to be So, there were some of the governance 22 activities that simply were not going to be relevant to 23 be allocated. 24 selecting and working with Hawaii on, here are the -- 25 the activities that would be involved. We were going through that pool and Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1740 1 Q And so, with regard to the new merger 2 agreements signed last month, regarding Encore in Texas, 3 is it possible that there will be a fraction of the 4 corporate-services cost ultimately shared with that 5 utility? 6 A Yes, it's possible. 7 Q And I believe you said that if -- this is a 8 different deal because it's not going to happen any time 9 soon. Now, is -- would any time soon be within the next 10 four years? 11 A It -- it could be. 12 Q What is the -- 13 A We hope -- 14 Q Yeah. 15 A -- we can do a deal -- 16 Q Isn't the deal -- 17 A -- eventually. 18 Q -- expected? 19 Don't you hope to have the deal approved in 2017? 20 A Yes, I think we do hope. 21 Q And isn't this deal a much, much bigger deal 22 23 24 25 than the proposed Hawaii Electric Company merger? A As I said, certainly on the basis of assets, it's a larger entity. Q Would it -- it's in the neighborhood of Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1741 1 $18 billion as opposed to -- as compared to 4 million -- 2 or $4 billion for the Hawaiian Electric Companies? 3 A No, $18 billion is the acquisition value. 4 Their balance sheet, I don't believe, is nearly that 5 big. 6 7 Q Could you describe -- could the 18 billion be described as the announced enterprise value for Encore? 8 A Yes. 9 Q Okay. 10 Do you see the Exhibit No. 647 that was handed to you? 11 A Yes. 12 Q Are you familiar with that -- 13 A I haven't -- 14 Q -- presentation? 15 A -- even looked at it, so -- (examining 16 document). I'm familiar with -- 17 Q Are you familiar with the consent? 18 A I've certainly seen portions of this, if not 19 this exact document, so -- 20 Q Could you -- 21 A Generally. 22 Q -- flip through that and see if there is 23 anything in there that you think is inaccurate or -- 24 A 25 inaccurate. Oh, I have no reason to believe it's Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1742 1 2 3 4 5 Q Have you been involved with any part of the proposed Encore acquisition? A I've -- have had some limited time spent, yes, and hours billed, yes. Q Right. So, obviously, the expense forecasts 6 in this rate case proposing, I guess, for the 2017 7 projected test year did not assume that there would be a 8 merger with Encore to reduce the corporate services, 9 correct? 10 A That's correct. We forecast what we believe 11 is probable of occurring. 12 possibilities that don't show up in our forecast. 13 Q So, there are a lot of And it's not assumed for the -- for your 14 proposed 2018 subsequent test year or for the 2019 15 Okeechobee step increase, is it? 16 A That's correct. 17 Q If, in fact, this deal is closed in 2017 and 18 ultimately results in corporate-services expenses being 19 shared or reduced, shouldn't FPL ratepayers benefit from 20 those savings? 21 A I think FPL's ratepayers and the company will 22 benefit from those savings. 23 any differently than -- we've talked about a lot in this 24 proceeding about the momentum exercises and the 25 management actions we've tried to take as a company Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 So, I don't view that as (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1743 1 post-rate-filing, to lower costs. 2 reductions are shared with customers. 3 And ultimately, cost We do have regulatory lag. I understand that 4 question. 5 look at the corporate cost pools declining, that's a 6 result of management action and cost reduction. 7 it's showing up in customers' rates. 8 will benefit customers if we're able to execute that 9 transaction. 10 Q But when you look at my testimony, and you And So, I think it If it would have been fair to make a 11 subsequent adjustment for the Hawaiian Electric Company 12 merger, why wouldn't it be fair to also make that 13 adjustment if the Encore deal is approved? 14 A Well, I think I spent a fair amount of time 15 talking about that; that Hawaii was much further down 16 the path; was, at the time that I filed my testimony, 17 what I thought would be a probable transaction. 18 What I didn't know was the amount of the 19 adjustment to make. 20 were going to litigate this case. 21 rebuttal testimony. 22 estimate of a savings amount. 23 24 25 But I knew we had months that we And I would be filing And we would be able to drop in an That did not transpire. We are nowhere near that kind of knowledge with Encore. Q Couldn't those numbers be sorted out after Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1744 1 this rate-case decision is made and with the subsequent 2 adjustment? 3 A Any -- the Commission could choose to do any 4 number of things. 5 issue. 6 going to be any different than any other unknowns that 7 we deal with at the time we file the case. 8 estimate based on what we know. 9 there will be differences. I filed rebuttal testimony on this I -- I view this as regulatory lag. 10 It's not We file our The following year, This acquisition is being pursued very 11 aggressively by other parties. 12 successful deal yet. 13 something that is important for us to try to factor into 14 the case. 15 Q And we haven't had a So, I just don't view this as I don't know how we would do that. Well, would you agree with me that an 16 $18-billion deal is kind of an important magnitude of 17 cost? 18 A We're not going to have an $18-billion input 19 into our Massachusetts formula. 20 that. 21 22 23 24 25 Q I can guarantee you Well, could you make a wild guess as to the magnitude of what that might be? A Well, sure, but we don't set rates based on wild guesses. Q Well, there are a lot assumptions in these Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1745 1 2 projections. A The assumptions are reasonable. Our 3 assumptions in our forecast are those that we feel are 4 reasonable. 5 possibilities to raise our expected O & M, but we don't 6 do that. 7 Q We -- we could come up with all sorts of But my question is not about whether you could 8 make an agreement to an adjustment now based on an 9 assumption, but rather, whether you could make a 10 subsequent adjustment after the deal was done and you 11 knew with some certainty what the adjustment would be. 12 A It could be done. I would advise against it. 13 I don't think this merits having some sort of special 14 treatment. 15 Okeechobee is very different. We're 16 delivering an investment to customers that's lowering 17 fuel costs. 18 come up with a laundry list of these sorts of items -- This is a one-off item. There -- we could 19 Q Well, this -- 20 A -- that might be interesting to consider. 21 Q Well, this happens to be an offsetting 22 adjustment that would actually benefit ratepayers. 23 A It could. 24 Q If the Commission made an adjustment, right? 25 A If the deal is done. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1746 1 MR. COFFMAN: 2 That's all I have. 3 THE WITNESS: 4 CHAIRMAN BROWN: 5 Mr. Skop? 6 MR. SKOP: 7 8 9 10 Okay. Thank you. You're welcome. Thank you, Mr. Coffman. Thank you, Madam Chair. EXAMINATION BY MR. SKOP: Q Just a few questions. Good evening, Ms. Ousdahl. 11 A Good evening. 12 Q With respect to some of the questions 13 regarding Hawaii and the cost allocation of FPL 14 personnel, thereof, in Hawaii, FPL had a full compliment 15 of regulatory attorneys that were involved on a day-to- 16 day basis in the hearing process; I think, my 17 recollection, Mr. Reuben, Mr. Lichfield, Mr. Anderson. 18 How can my client, the Larsons, be assured 19 that -- that those charges are properly reflected and 20 not billed to FPL customers for the acquisition of 21 something that really has nothing do with FPL? 22 A Well, we have great visibility on that. My 23 testimony is filled with information about the control 24 process we have in place. 25 interrogatories, at least a handful about the charges Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 And I've answered (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1747 1 that were billed. 2 I can tell you we had many, many people from 3 FPL working on that acquisition for a long period of 4 time -- many more than you saw in the hearing room. 5 we had some 50,000 hours of FPL time billed to the 6 parent, out of FPL, away from the customers, into the 7 parent. 8 Q 9 And Thank you. And on Page 30 of your testimony, beginning at 10 Lines 23, continuing down to the bottom of Page 31 at 11 Line 22, I believe you speak about the Massachusetts 12 formula. 13 And also, I believe on KO-13, you gave a 14 percentage breakdown with the allocation between 15 corporate and then parent was -- and I believe you 16 testified that was 60 percent to FPL and 40 percent to 17 the affiliate, generally, under the Massachusetts 18 formula? 19 A For 17, yes. 20 Q Okay. 21 A It has steadily increased the amount billed 22 23 out to affiliates as the cost pool has declined. Q Okay. So, is -- as the unregulated operations 24 continue to grow and employees become somewhat 25 indistinguishable between FPL and the affiliates because Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1748 1 of the many hats they wear, do you expect that that 2 percentage will continue to be adjusted more 3 appropriately to reflect the growth of these unregulated 4 operations? 5 A Yes, it's -- it's arithmetic with a fair 6 amount of annual review to make sure that the -- the 7 math still works, that the allocation methods still 8 work. 9 But because the Massachusetts formula, as we 10 deploy it -- kind of the traditional model is, you know, 11 the gross plant revenue and employees near our largest 12 affiliate has grown dramatically. 13 the costs are shifting to NEER. 14 And more and more, Now, I do want to clarify, though, your 15 statement that we can't tell employees apart. 16 sure exactly how you said that. 17 employee, whether it's FPL or NEER or the parent or 18 another affiliate. 19 where our payroll is charged. 20 working for another, we either direct-charge, if we're 21 doing a specific project, or we are part of -- 22 Q I'm not Each of us have an And it's very clear that that's And if we spend time And just one -- one brief follow-up as to that 23 direct charge. 24 had an FPL engineer and, you know, he supported various 25 regulated functions through FPL as well as unregulated Assuming, for the sake of discussion, we Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1749 1 functions through NEER, and he was a direct-charge 2 employee, does that mean that he would enter his time as 3 hours spent to a NEER project and hours spent to an FPL 4 project, and punch in and out, kind of like you used to 5 do when you build nuclear submarines? 6 that simple or -- 7 A Or I mean, is it It's simple, but I missed the very first part 8 of your question. 9 we were talking about? I apologize. Was it an FPL employee 10 Q Yes. 11 A Okay. 12 Q Yes, ma'am. 13 A Yes. 14 Q Yeah. 15 A That employee's time is default-paid by FPL, An engineer that worked on -- Okay. That's a good example. 16 assuming they are not in a cost pool. 17 they are strictly a hundred-percent FPL employee. 18 then we have a payroll system through SAP. 19 in biweekly or you can do it every day, if you would 20 like. 21 So, let's assume And And you go And you just simply indicate in the payroll 22 system the project -- we use internal orders -- the 23 project you're working on, the number of hours you've 24 worked. 25 charged directly to that affiliate. We do it -- we all do it. Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 And that pay is Reported by: Andrea Komaridis premier-reporting.com 1750 1 Q Okay. So, in some regards, that requires the 2 employee to document and record his time, maybe at the 3 end of the week as opposed to contemporaneously, like 4 a -- like a lawyer would where, if I'm working on a 5 matter and you bill an hour, and you go to a different 6 matter, you bill an hour. 7 So, the employees don't do that 8 contemporaneously when they're working on the project, 9 like a time-clock type of thing. 10 A As I said, they can either do it biannually 11 [sic] before the payroll process closes. 12 automated notice from payroll. 13 have to review each of the payroll forms to make sure 14 the time is properly charged. 15 We all get an And then our supervisors It all is online. But it does require action. You can't be 16 passive and get it right. 17 requires following the rules and the requirements. It requires action. 18 MR. SKOP: 19 Thank you, Madam Chair. 20 CHAIRMAN BROWN: 21 Staff? 22 MS. BROWNLESS: 23 CHAIRMAN BROWN: 24 Redirect? 25 MR. BUTLER: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Thank you. It No further questions. Thank you, Mr. Skop. We have no questions, ma'am. Commissioners? Thank you, Madam Chair. (850) 894-0828 Just a Reported by: Andrea Komaridis premier-reporting.com 1751 1 couple of redirect questions. 2 3 4 REDIRECT EXAMINATION BY MR. BUTLER: Q Ms. Ousdahl, do you have what was handed to 5 you as Exhibit 646, the big package of the surveillance 6 reports? 7 A Yes. 8 Q I'm going to ask you real quickly, if you 9 could go to the first report in this package, and if you 10 will, look to Schedule 2, Page 1 of 3 there for the 11 January 2015. 12 A Yes, I'm there. 13 Q And this shows total rate base -- what is that 14 15 figure on an FPSC adjusted basis? A 25,000,829- -- 25 billion, 829 million, 869 -- 16 I'm having trouble saying the number tonight. 17 sorry. 18 Q 25.8 billion, we'll go with. 19 A Thank you. 20 Q If you will, turn, then, to the corresponding 139 -- Okay? 21 schedule, way at the back of the May 2016 ESR, what is 22 the FPSC adjusted total rate base at that point? 23 A 27.6 billion. 24 Q So, would you agree that's an increase of 25 about an 1.6 billion over that time period? Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1752 1 A Yes. 2 Q And that's net of depreciation through that 3 period; is that right? 4 A Yes. 5 Q Based on what you know at this point about the 6 nature of Encore's operations, do you have an 7 expectation as to the materiality of any allocations of 8 costs to Encore were the merger to materialize? 9 A I -- I -- I don't. I mean, I haven't 10 attempted to hazard a guess. 11 guesses earlier. 12 amount we would end up billing in any early periods as a 13 result of an acquisition of Encore or any other company 14 would be material to this filing. We talked about wild I certainly don't believe that any 15 MR. BUTLER: 16 That's all the redirect that I have. 17 CHAIRMAN BROWN: 18 Let's get to exhibits. 19 Thank you. Thank you. Ms. Ousdahl has FPL Exhibits 93 prefiled -- 20 MR. BUTLER: 21 CHAIRMAN BROWN: 93 through 106, we would move. Okay. Does anybody have any 22 objection to 93, 106? 23 93 through 106 into the record. 24 25 Seeing none, we'll move in (Whereupon, Exhibit Nos. 93 through 106 were admitted into the record.) Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1753 1 2 CHAIRMAN BROWN: All right. staff has 642. 3 MS. BROWNLESS: 4 into the record, please. 5 6 11 12 the record.) CHAIRMAN BROWN: MR. MOYLE: Yes, we would like to move those in, please. 14 MR. BUTLER: 15 CHAIRMAN BROWN: 18 admitted into the record.) MR. WISEMAN: 24 25 Seeing none, (Whereupon, Exhibit Nos. 643 through 645 were 20 23 All right. we'll move 643, 644, 645 into the record. CHAIRMAN BROWN: 22 Any objections, FPL? No. 19 21 FIPUG, you have 643, 644, and 645. CHAIRMAN BROWN: 17 Seeing none, (Whereupon, Exhibit No. 642 was admitted into 13 16 Any objections? we're going to move in 642 into the record. 9 10 We would ask that it be moved CHAIRMAN BROWN: 7 8 Now, we've got -- Mr. Wiseman, hospitals. I would move for the admission of 646, please. CHAIRMAN BROWN: All right. Any objections? We'll move in 646. (Whereupon, Exhibit No. 646 was admitted into the record.) Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1754 1 CHAIRMAN BROWN: 2 MR. COFFMAN: 3 CHAIRMAN BROWN: the record.) CHAIRMAN BROWN: MR. BUTLER: 11 MR. MOYLE: 12 CHAIRMAN BROWN: 13 MR. MOYLE: 640. That would be -Can I -- Did that go in? CHAIRMAN BROWN: 16 Yes. 17 MR. MOYLE: 18 CHAIRMAN BROWN: 19 MS. HELTON: One second. So, 640 is already -Oh, wait a second. It's in. Yes -- According to my notes, it went in. 21 CHAIRMAN BROWN: 22 MR. MOYLE: 23 What? Just one thing, I used, with her, 15 20 Would you like your witness excused for the evening? 10 14 Seeing none, (Whereupon, Exhibit No. 647 was admitted into 8 9 Any objection? we'll move in 647 into the record. 6 7 Yes, I would like to offer into the record Exhibits 647, please. 4 5 And AARP. Yeah. Thank you. I was going to move it if it hadn't, but -- thank you. 24 CHAIRMAN BROWN: 25 MR. BUTLER: Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 Okay. And yes, I would like my witness (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1755 1 to be excused. Thank you. 2 CHAIRMAN BROWN: 3 All right. 4 Have a good night. So, let's see where we are. know you're wondering. 5 I People are wondering. Let's take about a five-minute break before 6 FPL calls its next witness. 7 MR. MOYLE: Mr. Butler and I have discussed -- 8 he said he was going to make a motion about -- 9 about -- what was it -- our first witness -- first 10 witness today. 11 CHAIRMAN BROWN: 12 Oh -- oh, the witness -- the one -- 13 (Simultaneous speakers.) 14 CHAIRMAN BROWN: 15 about five minutes. Let's get him on the stand in Okay? 16 (Brief recess from 9:43 p.m. to 9:45 p.m.) 17 (Transcript continues in sequence in Volume 18 15.) 19 20 21 22 23 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com 1756 1 2 CERTIFICATE OF REPORTER STATE OF FLORIDA ) COUNTY OF LEON ) 3 4 I, ANDREA KOMARIDIS, Court Reporter, do hereby 5 certify that the foregoing proceeding was heard at the 6 time and place herein stated. 7 IT IS FURTHER CERTIFIED that I 8 stenographically reported the said proceedings; that the 9 same has been transcribed under my direct supervision; 10 and that this transcript constitutes a true 11 transcription of my notes of said proceedings. 12 I FURTHER CERTIFY that I am not a relative, 13 employee, attorney or counsel of any of the parties, nor 14 am I a relative or employee of any of the parties' 15 attorney or counsel connected with the action, nor am I 16 financially interested in the action. 17 DATED THIS 25th day of August, 2016. 18 19 20 21 22 23 ____________________________ ANDREA KOMARIDIS NOTARY PUBLIC COMMISSION #EE866180 EXPIRES FEBRUARY 09, 2017 24 25 Premier Reporting 114 W. 5th Avenue, Tallahassee, FL 32303 (850) 894-0828 Reported by: Andrea Komaridis premier-reporting.com