Case Background
Bayside Utility Services, Inc.
(Bayside or utility) is a class C water and wastewater utility currently
serving approximately 283 residential customers and 4 general service
customers. Bayside is a reseller utility purchasing water and wastewater
service from the City of Panama City Beach. Bayside is a wholly-owned
subsidiary of Utilities, Inc. (UI). The utility completed its filing of an application
for a rate increase on February 17, 2004, and this date was established as the
official date of filing.
By Order No. PSC-04-0414-PCO-WS (Interim
Order), issued April 22, 2004, in this docket, the Commission suspended the
utility’s proposed final rates and approved an interim revenue increase of
$42,547 (or 64.57%) for water and $51,145 (or 55.22%) for wastewater. The
Commission also calculated the amount of security for any potential interim refund.
By Order No. PSC-04-0820-PAA-WS (PAA Order),
issued August 23, 2004, the Commission proposed to approve a $31,517 (or 47.83%) water increase and $39,609 (or 42.77%)
wastewater increase. On September 13, 2004, the Office of Public Counsel (OPC)
filed a protest of the Commission’s PAA Order. According to Section
367.081(8), Florida Statutes (F.S.), the Commission must render a final
decision within 8 months of the date OPC filed its protest. A hearing is
scheduled to be held on January 20-21, 2005, in the utility’s service area.
Bayside has notified
staff that it will maintain its interim rates pending the Commission’s final
decision. Staff’s recommendation addresses the appropriate amount of
guarantee required to secure the increased potential refund of revenues
collected under interim conditions. The Commission has jurisdiction pursuant
to Sections 367.081 and 367.082, F.S.
Discussion of
Issues
Issue 1: Should the security to guarantee the approved
interim rates be increased, and, if so, what is the appropriate guarantee
amount?
Recommendation: Yes. The
corporate undertaking for Bayside should be increased by $55,769 from $46,964
to $102,733. This corporate undertaking is acceptable contingent upon receipt
of the written guarantee of the parent company, Utilities, Inc. (UI), and
written confirmation of UI’s continued attestation that it does not have any
outstanding guarantees on behalf of UI-owned utilities in other states. UI
should be required to file a corporate undertaking on behalf of its
subsidiaries to guarantee any potential refunds of revenues collected under
interim conditions. UI’s total guarantee should be a cumulative amount of $447,240.
Pursuant to Rule 25-30.360(6), Florida Administrative Code (F.A.C.), the
utility should continue to provide a report by the 20th of each month
indicating the monthly and total revenue collected subject to refund. Should a
refund be required, the refund should be with interest and undertaken in
accordance with Rule 25-30.360, F.A.C. (Fletcher, Maurey)
Staff Analysis: By the
Interim Order, the Commission calculated the potential refund of revenues and
interest collected under interim conditions to be $46,964. This amount was
based on an estimated 6-month time period that interim rates would be in
effect. As a result of OPC’s protest, the Commission must render its final
decision by May 13, 2005. Therefore, the interim rates will remain in effect
for seven more months. In accordance with Rule 25-30.360, F.A.C., staff has
recalculated the potential refund of revenues and interest collected under the
revised interim period to be $102,733. This amount is based on an estimated thirteen
months of revenue being collected from the approved interim rates over the
utility’s currently authorized rates.
The utility has requested a corporate
undertaking from UI to secure the collection of interim rates. UI currently
is guaranteeing a total of $391,471 as a corporate undertaking on behalf of its
Florida subsidiaries. This request will bring the total cumulative amount to $447,240.
The criteria for a corporate
undertaking includes sufficient liquidity, ownership equity, profitability, and
interest coverage to guarantee any potential refund. Since UI provides all
investor capital to its subsidiaries, staff has reviewed the financial
statements of the parent company to determine if UI can support a corporate
undertaking on behalf of its subsidiaries. UI’s 2001, 2002 and 2003 financial
statements were used to determine the financial condition of the company.
Staff’s analysis shows that UI experienced a significant decline in net income
and interest coverage during 2001 and 2002 compared to prior years. The primary
reason for this reversal was merger-related charges of $9.8 million in 2001 and
$9.9 million in 2002. UI stated that merger related costs have been fully
recovered and there will be no additional charges levied by the parent. In
2003, UI showed improvement in both profitability and interest coverage. Absent
these merger-related charges, UI’s financial performance would show a 3-year
trend of stable equity capitalization, interest coverage, and profitability.
Based upon this analysis, staff recommends that a cumulative amount of $447,240
is acceptable contingent upon receipt of the written guarantee of UI and
written confirmation of its oral attestation that UI does not have any
outstanding guarantees on behalf of UI-owned utilities in other states.
Pursuant to Rule 25-30.360(6), F.A.C.,
the utility shall continue to provide a report by the 20th day of each month
indicating the monthly and total revenue collected subject to refund. Should a
refund be required, the refund should be with interest and undertaken in
accordance with Rule 25-30.360, F.A.C. In no instance should maintenance and
administrative costs associated with any refund be borne by the customers. The
costs are the responsibility of, and should be borne by, the utility.
Issue
2: Should this
docket be closed?
Recommendation: No. The
docket should remain open pending the Commission’s final action on the
utility’s requested rate increase. (Fletcher, Jaeger)
Staff Analysis: The
docket should remain open pending the Commission’s final action on the
utility’s requested rate increase.