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State of Florida
Public Service
Commission
Capital Circle Office Center 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
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DATE: |
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TO: |
Director, Division of the Commission Clerk & Administrative Services (Bayó) |
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FROM: |
Division of Economic Regulation (Merchant, Edwards, Greene, Willis) Office of the General Counsel (C. Keating) |
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RE: |
Docket No. 030443-WS – Application for rate increase in Pasco County by Labrador Utilities, Inc. County(ies): Pasco County |
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AGENDA: |
07/06/04 – Regular Agenda – Decision on Motion to Intervene, Motion for Reconsideration of Interim Rate Order, and Request for Emergency Rate Relief - Oral Argument Requested |
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SPECIAL INSTRUCTIONS: |
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FILE NAME AND LOCATION: |
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Case Background
By Order No. PSC-04-0200-PCO-WS, issued February 24, 2004, in Docket No. 030443-WS, In re: Application for rate increase in Pasco County by Labrador Utilities, Inc., (“interim rate order”) the Commission established interim rates for Labrador Utilities, Inc. (“Labrador”). In its interim rate order, the Commission recognized the unique nature of this proceeding in that Labrador filed a request for interim rate relief on October 30, 2003, prior to filing its MFRs for permanent rate relief, which are due to be filed June 30, 2004. The Commission found this procedure permissible under Chapter 367, Florida Statutes, as a means of establishing fair interim rates for Labrador (based on an interim test year ended June 30, 2003) until such time as Labrador could prepare and file MFRs for a test year that would be representative for prospective rate setting (a final test year ended December 30, 2003). In its interim rate order, the Commission approved interim rates designed to allow the utility the opportunity to generate increased annual operating revenues of $141,177 for water service and $146,292 for wastewater service. The approved interim rates reflected an across-the-board increase in Labrador’s existing flat rates.
On March 9, 2004, Forest Lake Estates Co-Op, Inc. (“Forest Lake”) filed a motion to intervene and motion for reconsideration of the interim rate order, as well as a request for emergency rate relief. On the same date, Forest Lake filed a request for oral argument on these pleadings. On March 19, 2004, Labrador filed a response in opposition to Forest Lakes’ pleadings.
The Commission has jurisdiction over this matter pursuant to Chapter 367, Florida Statutes, including Section 367.082, Florida Statutes.
Discussion of Issues
Rule 25-22.0376, Florida Administrative Code, provides that the Commission, at its discretion, may grant a request for oral argument on a motion for reconsideration of a non-final order, such as the interim rate order at issue. Likewise, the Commission, at its discretion, may allow oral argument on a motion to intervene. The Commission has traditionally granted oral argument upon a finding that oral argument would aid the Commission in its understanding and disposition of the underlying motion.
Staff believes that Forest Lake’s motion to intervene and motion for reconsideration are relatively straightforward and do not require oral argument to aid the Commission in its understanding and disposition of the issues. Further, oral argument on Forest Lake’s motion for reconsideration would circumvent the Commission’s typical procedure of limiting participation on interim rate requests to Commissioners and staff. While Forest Lake’s request for emergency rate relief is also relatively straightforward, interested persons typically are permitted to participate in discussions on such initial requests for relief. For these reasons, staff recommends that the Commission grant Forest Lake’s request for oral argument with respect to its request for emergency rate relief (Issue 4) and deny Forest Lake’s request for oral argument with respect to its motion to intervene and motion for reconsideration (Issues 2 and 3).
In its response, Labrador contends that Forest Lake’s motion to intervene is premature and should therefore be denied. Labrador notes that it requested that its application for a rate increase be processed using the Commission’s proposed agency action (“PAA”) procedure, as permitted by Section 367.081, Florida Statutes. Labrador argues that Rule 25-22.029, Florida Administrative Code, expressly provides that the point of entry in a proposed agency action proceeding is after the PAA order is entered.
Staff recommends that Forest Lake’s motion to intervene be granted. As a customer of Labrador, Forest Lake’s substantial interests will be affected by this proceeding to address Labrador’s application for a rate increase. Further, Labrador’s reliance on Rule 25-22.029 as establishing the sole point of entry is misplaced. Rule 25-22.029 provides that persons whose substantial interests may or will be affected by the Commission’s PAA order may file a petition for an administrative hearing on the matter pursuant to Section 120.569 or 120.57, Florida Statutes. The rule does not preclude persons whose substantial interests may be affected by the PAA proceeding from intervening prior to issuance of a PAA order. Further, Rule 25-22.039, Florida Administrative Code, which solely addresses intervention in Commission proceedings, makes no distinction between intervention in PAA proceedings and formal proceedings set for an administrative hearing. Indeed, the Commission has granted requests to intervene in PAA proceedings where the person seeking intervention made the necessary showing of standing. See, e.g., Order No. 04-0269-PCO-GU, issued March 9, 2004, in Docket No. 030954-GU, In re: Petition for Rate Increase by Indiantown Gas Company (granting intervention in PAA rate proceeding).
In addition, accepting Labrador’s argument would create a situation whereby interested persons who have standing to protest the Commission’s PAA order would not be allowed significant input into the process leading to that order until the date of the Commission’s vote on the matter. Such a result could create inefficiencies. Staff believes that granting Forest Lake party status at this point in the proceeding will allow Forest Lake and Labrador the opportunity to address potential areas of dispute early in the ratemaking process and potentially avoid the need for a hearing later.
In its motion for reconsideration, Forest Lake notes that the interim rate order states, in part, that “[t]he utility provides service to . . . 274 lots in Forest Lakes R.V. Resort.” Forest Lake further notes that the interim rate order establishes interim water and wastewater rates for the R.V. Resort on a per lot basis. Forest Lakes argues that the Commission erred because it failed to consider that the R.V. Resort, rather than the individual lot owners in the R.V. Resort, pays one monthly bill for all water and wastewater service provided to the lots within the R.V. Resort and, in turn, collects utilities charges from the R.V. Resort tenants based upon either an annual lease or a shorter term lease. Forest Lakes states that only 11 of the 274 lots in the R.V. Resort are occupied by tenants who live there year-round pursuant to an annual lease. Forest Lake asserts that it will not be able to adjust the amount included for utilities in these annual leases until the leases are renewed on November 1, 2004. Forest Lake states that the remaining 263 lots are primarily occupied only from late November into late December through late March into late April, leaving the R.V. Resort at an occupancy rate of 3-5% from April through November and without an adequate revenue stream to pay the increased interim rates. Based on this understanding of the facts, Forest Lake requests that the Commission reconsider its interim rate order and modify the interim rates to the R.V. Resort such that the rates are not effective until December 1, 2004, at which time the R.V. Resort will be able to structure leases to account for the changed rates and collect additional revenues through the increased occupancy at that time.
In its response, Labrador contends that the issue raised by Forest Lake is essentially a contractual issue between the R.V. Resort and its tenants. Labrador asserts that the relevant terms of the leases between the R.V. Resort and its tenants are solely within the control of the R.V. Resort. Labrador states that these circumstances arise in virtually every rate proceeding, noting that apartment complexes face the same circumstances: absent a lease provision allowing the lessor to pass on increased utility costs in the rent, the lessor must wait until the lease comes up for renewal to raise the rent. Further, Labrador argues that the billing structure contained in the R.V. Resort’s leases is irrelevant to the Commission’s decision approving interim rates applicable to any time period. Labrador also asserts that the seasonality of the R.V. Resort’s occupancy is completely outside the control of Labrador or the Commission. Labrador notes that it is required to provide service at a cost year-round, regardless of fluctuations in occupancy. Labrador asserts that the customers who receive the benefit of the assurance of year-round service should bear the cost of providing such service.
For the following reasons, staff recommends that the Commission deny Forest Lake’s motion for reconsideration. While Forest Lake clarifies that as owner of the R.V. Resort it receives one monthly bill for all lots in the R.V. Resort, the rates applied to the R.V. Resort were established on a per-lot basis and billed monthly to the R.V. Resort even before the interim rate order. Thus, the interim rate order did not change the manner in which the R.V. Resort was billed or Labrador’s rate structure, but changed only the prior per-lot rates that were charged to the R.V. Resort. The Commission’s interim rate order simply applied an across-the-board percentage increase to the flat, per-lot rates previously in effect. Because the Commission did not change the manner in which the R.V. Resort was billed or Labrador’s rate structure, the Commission should not grant reconsideration of the interim rate order based on an alleged mistake of fact concerning the manner in which the R.V. Resort is billed.
Clearly, Forest Lake’s real concern is with the level of the interim rate increase and the R.V. Resort’s slow revenue stream over the next several months. Section 367.082(5)(a), Florida Statutes, provides that “[i]n setting interim rates or setting revenues subject to refund, the commission shall determine the revenue deficiency or excess by calculating the difference between the achieved rate of return of a utility or regulated company and its required rate of return applied to an average investment rate base or an end-of-period investment rate base.” Subsection (5)(b) of the statute goes on to define how achieved and required rates of return are defined and calculated. Subsection (2)(a) provides that “the commission shall authorize . . . the collection of rates sufficient to earn the minimum of the range of rate of return calculated in accordance with subparagraph (5)(b)2.” The Commission’s interim rate order simply applies the provisions of this statute to establish an appropriate interim revenue increase for Labrador and applies the percent revenue increase across the board to the flat rates previously in effect. Forest Lake does not argue that the Commission overlooked or failed to consider any point of fact or law in performing this largely mechanical function. Further, the statute does not provide for consideration of a customer’s seasonal revenue stream in setting interim rates. As Labrador states, it is required to assure the availability of service year-round at a cost, regardless of fluctuations in its customers’ revenues.
Finally, although not the basis for its motion for reconsideration, Forest Lake notes that Labrador’s customers were not provided notice of the interim rate proceeding prior to the Commission’s decision to approve interim rates. Forest Lake argues that this lack of notice and associated lack of customer involvement in the interim rate process contributed to the rates established for the R.V. Resort to which Forest Lake objects. As set forth above, however, staff believes that the mistake of fact alleged by Forest Lakes (a mistake which Forest Lake suggests would not have been made with the benefit of notice and customer involvement) was simply not material to the Commission’s determination of interim rates for Labrador. Further, it would be unusual for the Commission to invite input in performing the largely mechanical function of setting interim rates as set forth in Section 367.082, Florida Statutes.
In its response, Labrador asserts that it complied with all noticing requirements of the Commission’s rules and its interim rate order. Further, Labrador argues that the rate paid by customers are flat rates and, thus, any delay in receiving notice of such rates could not affect the ability of any customer to reduce their bill by adjusting consumption.
The Commission’s interim rate order provides, in pertinent part:
These interim rates shall be implemented for service rendered on or after the stamped approval date on the tariff sheets, pursuant to Rule 25-30.475(1), Florida Administrative Code, provided customers have received notice. The revised tariff sheets may be approved administratively upon our staff’s verification that the tariffs are consistent with this decision, that the proposed notice to the customers is adequate, and that the required security has been filed.
(Emphasis supplied.) This language tracks the language set forth in Rule 25-30.475(1)(a), Florida Administrative Code, and appears to require receipt of notice by the customers prior to implementation of the interim rates.
In contrast, Rule 25-22.0407(10), Florida Administrative Code, states:
After the Commission issues an order granting or denying a rate change, the utility shall notify its customers of the order and any revised rates. The customer notification shall be approved by Commission staff and be distributed no later than with the first bill containing any revised rates.
Arising from this apparent inconsistency is the question of how the Commission’s rules should be interpreted and applied in this instance. For the reasons discussed below, staff believes that the better interpretation of these rules is to give effect to the language in Rule 25-22.0407(10) which indicates that customer notification is sufficient when provided along with the first bill containing the interim rates.
Interpreting the Commission’s rules to require receipt of notice by customers prior to implementation of the interim rates would make it nearly impossible to establish a uniform, fixed effective date for those rates. Neither the utility nor the Commission can determine when each individual customer will actually receive notice or when all customers have actually received notice. Indeed, individual customers will likely receive notice by mail on different dates. Under Forest Lake’s interpretation, the effective date of the interim rates either would vary by customer depending on the day notice was received by each customer or would be established for all customers based on the date that the last customer actually received notice. Labrador could not be expected to accurately bill its customers if the effective date of its interim rates was an unidentifiable target, as it would be under Forest Lake’s interpretation. Further, the Commission staff, in reviewing a proposed customer notice, could not determine whether the effective date set forth in the proposed notice would be the true effective date for the interim rates. Giving effect to the requirements of Rule 25-22.0407(10) in this instance allows a fixed, uniform effective date to be set and communicated to customers in a notice approved by the Commission staff and would avoid the untenable results associated with Forest Lake’s literal interpretation of the language in the interim rate order and Rule 25-30.475(1).
Under this interpretation of the Commission’s rules and interim rate order, staff recommends that the Commission find Labrador’s interim rates effective as of the stamped approval date (February 10, 2004) on the tariff sheets reflecting those rates. Further, staff recommends that the Commission find the customer notice provided by Labrador complied with the Commission’s rules because it was distributed no later than with the first bill to each customer reflecting the interim rates.