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ORDER NO. PSC -2017 -0283 -TRF -EI DOCKET NO. 20170069 -El • PAGE 3 Labor and material costs decreased from 2014 to 2017. Duke explained that material costs have fluctuated marginally, i.e., plus or minus five percent; thus, the decrease in labor cost is the primary driver in cost reduction. Overhead construction continues to be performed by Duke employees and underground construction continues to be performed by contractors. Labor rates for Duke employees have remained relatively flat; the decrease is due to a decrease in Duke's other (i.e., non -pension) post -employment benefit plan. Other post -employment benefits do not include pension, but may include healthcare or life insurance premiums. In response to Commission staffs data request, Duke explained that its predecessor company's (Progress Energy Florida, Inc.) benefit plan was harmonized, i.e., blended, with Duke's plan, resulting in a plan amendment which reduced benefits for a four-year period beginning in the fourth quarter of 2014. Contractor labor costs decreased due to the move from hourly pricing to unit -based pricing. Duke explained that hourly pricing compensates contractors for the duration to complete the work, including, for example, any unforeseen delays. Under unit -based pricing, contractors are compensated based on fixed prices for specific work; therefore, contractors absorb the cost of any unforeseen delays. Loading factors decreased from 2014 to 2017. The Design and Project Management loading factor decreased from 17.90 to 13.90 percent of labor. The Management and Supervision loading factor decreased from 35.67 to 28.86 percent of labor. Both factors decreased because • the investment in distribution costs increased at a greater rate than the actual management and supervision costs. Table 2 below compares total 2014 and 2017 labor and material costs for the three subdivisions. As Table 2 shows, the total labor and material cost differentials decreased for all three model subdivisions because the cost of underground construction decreased at a greater rate than the cost of overhead construction. Table 2 Labor and Material Costs per Lot Source: 2014 Order and 2017 Petition • 2014 Costs 2017 Costs Difference Low Density Underground Labor/material Costs $1,654 $1,477 ($177) Overhead Labor/material Costs $1,168 $1,069 $99 Per lot Differential $486 $408 ($78 High Density Underground Labor/material Costs $1,309 $1,181 $128) Overhead Labor/material Costs $946 $865 $81 Per lot Differential $363 $316 $47 Ganged Meter Underground Labor/material Costs $753 $686 ($67 Overhead Labor/material Costs $627 $609 $18 Per lot Differential $126 $77 ($49) Source: 2014 Order and 2017 Petition •