DATE:	February 1, 2007
TO:	Director, Division of the Commission Clerk & Administrative Services (Bayó)
FROM:	Division of Economic Regulation (Fletcher, Kyle, Lingo, Rendell, Rieger, Springer) Office of the General Counsel (Brubaker)
RE:	Docket No. 060258-WS – Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corp.
AGENDA:	02/13/07 – Regular Agenda –  Proposed Agency Action Except for Issues 25, 27, and 28 - Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Pending
CRITICAL DATES:			02/13/07 (5-Month Effective Date (PAA Rate Case))
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\ECR\WP\060258.RCM.DOC

 

Table of Contents

Issue       Description                                                                                                                     Page

               Case Background. - 4 -

               QUALITY OF SERVICE. - 6 -

1             Quality of Service (Rieger) - 6 -

               RATE BASE. - 8 -

2             Audit Adjustments for Rate Base, NOI and Capital Structure (Fletcher) - 8 -

3             Allocation of WSC and UIF Rate Base (Fletcher) - 11 -

4             Appropriate Water Land Balance (Fletcher) - 13 -

5             Appropriate Pro Forma Plant Additions (Fletcher, Rieger) - 16 -

6             Used and Useful (Rieger) - 23 -

7             Working Capital (Fletcher) - 26 -

8             Rate Base (Fletcher) - 27 -

               COST OF CAPITAL. - 28 -

9             Return on Equity (Springer) - 28 -

10           Weighted Average Cost of Capital (Springer, Kyle) - 29 -

               NET OPERATING INCOME. - 30 -

11           Pro Forma Miscellaneous Service Charge Revenues (Fletcher) - 30 -

12           Allocation of WSC and UIF Expenses (Fletcher) - 31 -

13           Pro Forma Salaries and Pensions (Fletcher) - 32 -

14           Rate Case Expense (Fletcher) - 34 -

15           Pro Forma Amortization Expenses (Fletcher) - 40 -

16           Property Taxes (Fletcher) - 41 -

17           Operating Income Before Any Increase (Fletcher) - 42 -

18           Revenue Requirement (Fletcher) - 43 -

19           Rate Structure (Lingo) - 44 -

20           Repression/Conservation (Lingo) - 48 -

21           Water and Wastewater Rates (Lingo, Fletcher) - 50 -

22           Reuse Rates (Fletcher) - 51 -

23           Miscellaneous Service Charges (Fletcher) - 53 -

24           Interim Refund (Fletcher) - 56 -

25           Four-Year Rate Reduction (Fletcher) - 57 -

               OTHER ISSUES. - 58 -

26           Meter Installation Fees  (Fletcher) - 58 -

27           Show Cause for Apparent Violation of a Rule (Brubaker, Fletcher) - 59 -

28           Proof of Adjustments (Fletcher) - 62 -

29           Docket Closure (Brubaker, Fletcher) - 63 -

 

Att/Sch   Description                                                                                                                     Page

A            Used and Useful Attachment                                                                                         - 64 -

B            History of Sanlando’s Reuse System                                                                              - 67 -

1-A        Water Rate Base                                                                                                           - 70 -

1-B         Wastewater Rate Base                                                                                                  - 70 -

1-C        Adjustments to Rate Base                                                                                             - 71 -

2             Capital Structure                                                                                                           - 72 -

3-A        Water Operating Income                                                                                               - 73 -

3-B         Wastewater Operating Income                                                                                      - 74 -

3-C        Adjustments to Operating Income                                                                                  - 75 -

4-A        Water Rates and  Four Year Rate Reduction                                                                 - 76 -

4-B         Wastewater Rates and Four Year Rate Reduction                                                         - 77 -

 

 Case Background

Utilities, Inc. (UI or parent) is an Illinois corporation which owns approximately 80 utility subsidiaries throughout 16 states including 16 water and wastewater utilities within the State of Florida.  Currently, UI has ten separate rate case dockets pending before the Florida Public Service Commission (Commission).  These dockets are as follows:

Docket No.                                          UI Subsidiary

060253-WS                                         Utilities Inc. of Florida

060254-SU                                          Mid-County Services, Inc.

060255-SU                                          Tierra Verde Utilities, Inc.

060256-SU                                          Alafaya Utilities, Inc.

060257-WS                                         Cypress Lakes Utilities, Inc.

060258-WS                                         Sanlando Utilities, Inc.

060260-WS                                         Lake Placid Utilities, Inc.

060261-WS                                         Utilities Inc. of Pennbrooke

060262-WS                                         Labrador Utilities, Inc.

060285-SU                                          Utilities Inc. of Sandalhaven

This recommendation addresses Docket No. 060258-WS.

Sanlando Utilities Corp. (Sanlando or utility) is a Class A utility providing water and wastewater service to approximately 10,108 water and 8,201 wastewater customers in Seminole County.  Water and wastewater rates were last established for this utility in its 1998 earnings investigation.[1] 

On May 15, 2006, Sanlando filed the Application for Rate Increase at issue in the instant docket.  The utility had deficiencies in the Minimum Filing Requirements (MFRs).  Those deficiencies were subsequently corrected, and the official filing date was established as August 22, 2006, pursuant to Section 367.083, Florida Statutes (F.S.).  The utility requested the application be processed using the Proposed Agency Action (PAA) procedure.  The test year established for interim and final rates is the 13-month average period ending December 31, 2005. 

By Order No. PSC-06-0671-FOF-WS, issued August 7, 2006, the Commission approved an interim revenue requirement of $2,098,272 for water and $3,431,093 for wastewater.  This represents an increase of $12,315 or 0.59% for water and $99,409 or 2.98% for wastewater. 

The utility requested final rates designed to generate annual water revenues of $2,506,862 and wastewater revenues of $4,023,154.  This represents a revenue increase of $420,905 (20.17%) for water and $691,470 (20.75%) for wastewater.

The intervention of the Office of Public Counsel was acknowledged by Order No. PSC-06-0548-PCO-WS, issued June 27, 2006, in this docket.    This recommendation addresses the utility’s final requested revenue increase.  The Commission has jurisdiction pursuant to Section 367.081, F.S.

Discussion of Issues

QUALITY OF SERVICE

Issue 1: 

 Is the quality of service provided by Sanlando Utilities, Inc. satisfactory?

Recommendation: 

 Yes.  The utility’s overall quality of service is satisfactory.  (Rieger)

Staff Analysis: 

 Pursuant to Rule 25-30.433(1), Florida Administrative Code (F.A.C), in every water and/or wastewater rate case, the Commission shall determine the overall quality of service provided by the utility by evaluating three separate components of water and /or wastewater operations.  The components are: 1) quality of utility’s product; 2) the operational conditions of the utility’s plant and facilities; and, 3) the utility’s attempt to address customer satisfaction.  The rule further states that sanitary surveys, outstanding citations, violations and consent orders on file with the Department of Environmental Protection (DEP) and the county health department over the preceding 3-year period shall also be considered, along with input from the DEP and health department officials and consideration of customer comments and complaints.

Our analysis of the overall quality of service provided by the utility is derived from the quality of the utility’s water and wastewater product, operational condition of the utility’s plants or facilities, and customer satisfaction.  Comments or complaints received by the Commission from customers are reviewed.  Staff has also considered the utility’s current compliance with the DEP.                    

Quality of the Product

In Seminole County, the water and wastewater programs are regulated by the DEP Central District Office in Orlando.  The utility is current in all of the required chemical analyses, and the utility has met all required standards for both water and wastewater.  The quality of drinking water delivered to the customers and the wastewater effluent quality are both considered to be satisfactory by the DEP.

Although the utility is currently in compliance with the DEP, in 2005, it did experience wastewater compliance problems with its Wekiva wastewater treatment plant.  The DEP determined that permit limits for surface water discharge concerning total phosphorus and carbonaceous biochemical oxygen demand were exceeded, and that the annual average daily flow to the percolation ponds also exceeded permit limits.  The problem was due to an inoperative pump that was part of the plant’s sodium aluminate pumping system.  The pump was replaced.  As a result of the DEP compliance violations, an April 20, 2006, Consent Order found the utility in violation with its rules and statutes and ordered it to pay $2,500 in assessed civil penalties and DEP costs.  In a July 10, 2006, letter to the utility, the DEP indicated that the Consent Order requirements had been completed.  The enforcement case with the utility was closed effective on July 5, 2006.  Staff believes that this was an isolated incident, and that there is no indication of a continued problem which warrants further investigation.   

 

Condition of Plants

As mentioned earlier in this report, a field investigation for Sanlando was conducted September 13, 2006.  Staff found no apparent problems with the operations of any of the water or wastewater treatment facilities.  The conditions of these facilities are currently in compliance with the DEP rules and regulations.  The maintenance records and the general condition of the facilities appeared to be adequate.  Therefore, staff believes that the quality of service for the condition of the water and wastewater plants is satisfactory.

Customer Satisfaction

Test Year Complaints.  The utility provided in its filing copies of customer complaints received during the test year.  The water quality complaints dealt with discoloration, odor, taste, and low pressure.  A review of these complaints found that the utility satisfactorily responded with pressure checking, flushing lines or otherwise working with the customer by advising possible modifications to be done inside the residence to correct the problems.

 Sewage back-ups were the main wastewater complaints.  For the back-up problems, the utility mainly eliminated obstructions or repaired broken lines to correct the problems. 

Correspondences.  The Commission received no correspondence concerning quality of service from customers of the utility.

 Customer Meeting.  A customer meeting was held near the utility’s service area on October 25, 2006, in the Eastmonte Civic Center Auditorium in Altamonte Springs, Florida.  The two customers who attended the meeting had no specific comments about the quality of service provided by the utility and preferred not to speak. 

Complaints on file.  The PSC Complaint Tracking System (CATS) was reviewed.  There are no open complaints with the Commission at this time. Of the three complaints (2005- present) on file with the Commission, one was related to Quality of Service.  This complaint dealt with a recurring lift station alarm that was eventually corrected with a renovation of that facility.

Staff’s Conclusion

The overall quality of service provided by the utility should be considered satisfactory.  Staff believes that the quality of product and the condition of the plants are adequate when it comes to regulatory compliance standards.  Also, after review of the complaint records and the fact that only two customers attended the customer meeting, the utility appears to be adequately addressing customer concerns. 

RATE BASE

Issue 2: 

 Should the audit rate base, net operating income, and capital structure adjustments to which the utility agrees be made?

Recommendation: 

   Yes.  Based on audit adjustments agreed to by the utility and staff, plant should be decreased by $413,782 for water and by $275,180 for wastewater; land should be decreased by $6,800 for water; accumulated depreciation should be decreased by $90,243 for water and by $59,654 for wastewater; contributions in aid of construction (CIAC) should be decreased by $582,949 for water and $698,756 for wastewater; accumulated amortization of CIAC should be decreased by $374,213 for water and $387,964 for wastewater; working capital should be increased by $125,309 for water and $58,819 for wastewater; net depreciation expense should be increased by $29,818 for water and $46,276 for wastewater; operation and maintenance (O&M) expenses should be decreased by $50,005 for water and $240 for wastewater; taxes other than income taxes (TOTI) should be increased by $3,289 for water and increased by $4,112 for wastewater; short-term debt should be decreased by $119,308; common equity should be increased by $3,093,004; long-term debt rate should be decreased by 7 basis points; and, finally, short-term debt rate should be increased by 13 basis points.  (Fletcher)

Staff Analysis: 

 In its response to staff’s audit report, Sanlando agreed to the audit findings and audit adjustment amounts listed below.  Staff recommends the following adjustments to rate base, net operating income and capital structure.

 

Audit Adjustments to Water NOI
Audit Adjustments	Depr. Expense*	Amort. Expense*	O&M Expense	TOTI
Finding No. 1	($568)	$7,142
Finding No. 2	($7,693)
Finding No. 3	($3,330)
Finding No. 5	($382)
Finding No. 6	$3,232
Finding No. 8		$8,829
Finding No. 12	$151		($50,005)
Finding No. 14	$24,210
Finding No. 15		($1,773)
Finding No. 16 - TOTI				$3,289
Total Adjustments	$15,620	$14,198	($50,005)	$3,289
*Net Depreciation Expense is the sum of Depreciation Expense and  CIAC Amortization Expense Adjustments:   ($15,620 + $14,198) = $29,818
Audit Adjustments to Wastewater NOI
Audit Adjustments	Depr. Expense	Amort. Expense	O&M Expense	TOTI
Finding No. 1		$6,344
Finding No. 2	$2,056
Finding No. 3	($2,126)
Finding No. 4	($676)
Finding No. 5	($7,748)
Finding No. 6	$2,472
Finding No. 8		$13,544
Finding No. 12	$116		($240)
Finding No. 14	$33,953
Finding No. 15		(1,659)
Finding No. 16 - TOTI				$4,112
Total Adjustments	$28,047	$18,229	($240)	$4,112
*Net Depreciation Expense is the sum of Depreciation Expense and  CIAC Amortization Expense Adjustments:   ($28,047 + $18,229) = $46,276

 

Audit Finding No. 20 Adjustments to Sanlando’s Capital Structure
Audit Adjustments	Short-Term Debt	Common Equity	Long-Term Debt Rate	Short-Term Debt Rate
Decrease S-T Debt	($119,308)
Increase Common Equity		$3,093,004
L-T Debt Rate Decrease			(.07%)
S-T Debt Rate Increase				0.13%

 

            Based on audit adjustments agreed to by the utility and staff, staff recommends that plant should be decreased by $413,782 for water and by $275,810 for wastewater; land should be decreased by $6,800 for water; accumulated depreciation should be decreased by $90,243 for water and by $59,654 for wastewater; CIAC should be decreased by $582,949 for water and $698,756 for wastewater; accumulated amortization of CIAC should be decreased by $374,213 for water and $387,964 for wastewater; working capital should be increased by $125,309 for water and  $58,819 for wastewater; net depreciation expense should be increased by $29,818 for water and $46,276 for wastewater; O&M expenses should be decreased by $50,005 for water and $240 for wastewater; TOTI should be increased by $3,289 for water and increased by $4,112 for wastewater; short-term debt should be decreased by $119,308; common equity should be increased by $3,093,004; long-term debt rate should be decreased by 7 basis points; and, finally, short-term debt rate should be increased by 13 basis points.

Issue 3: 

 What are the appropriate Water Service Corporation (WSC) and Utilities, Inc. of Florida (UIF) rate base allocations for Sanlando?

Recommendation: 

 The appropriate WSC net rate base allocation for Sanlando is $75,478 for water and $57,717 for wastewater.  This represents an increase of $13,600 and $9,020 for water and wastewater, respectively.   WSC depreciation expense should also be reduced by $405 and $310, for water and wastewater, respectively.  Further, the appropriate UIF rate base allocation for Sanlando is $106,848 water and $99,862 for wastewater. This represents water plant and accumulated depreciation decreases of $92,400 and $42,630, respectively, and wastewater plant and accumulated depreciation increases of $48,065 and $28,161, respectively.  In addition, depreciation expense should be increased by $3,100 for water and $1,883 for wastewater.  (Fletcher)

Staff Analysis: 

 On MFR Schedule A-3, the utility reflected a WSC rate base allocation of $61,878 for water and $48,697 for wastewater.  Sanlando also recorded UIF rate base allocation of $156,618 for water and $119,765 for wastewater.  Staff performed an affiliate transactions (AT) audit of Utilities, Inc., the parent company of Sanlando and its sister companies.  WSC (a subsidiary service company of UI) supplies most of the accounting, billing, and other services required by UI’s other subsidiaries.  UIF (a subsidiary of UI) provides administrative support to its sister companies in Florida.  As discussed below, staff believes several adjustments are necessary to the WSC and UIF rate bases before they are allocated to the utility.  These adjustments include recommended audit adjustments and the use of an ERC-only methodology for several WSC allocation codes.

 

Audit Adjustments

 

            In Audit Finding No. 1 of the AT audit, staff auditor recommended adjustments to WSC’s rate base consistent with Order No. PSC-03-1440-FOF-WS.[2]  First, deferred income taxes were removed because it should be a component of the capital structure.  Second, the net computer plant balances were set to zero because WSC was unable to provide sufficient supporting evidence for inter-company transfers of computers and was unable to locate several missing invoices requested.  Third, the office structure and furniture balances were adjusted because WSC was unable to locate several missing invoices requested.  In its response to the AT audit, UI agreed with the above recommended audit adjustments.  Based on the above, staff recommends that the appropriate simple average WSC rate base before any allocation is $2,122,628.  As there were no audit findings in the AT audit regarding UIF’s rate base, staff recommends that the appropriate simple average UIF rate base before any allocation is $1,113,433 as reflected in UIF’s general ledger.

 

ERC Methodology

 

            WSC utilizes 11 different allocation factors to allocate its rate base and expenses.  Prior to January 1, 2004, WSC’s allocation codes one, two, three, and five were based on customer equivalents (CEs).  By Order No. PSC-03-1440-FOF-WS, pp. 23-30, the Commission found that that WSC’s method of allocating its common costs based on CEs is unsupported and unreasonable.  Further, the Commission found that UI shall use ERCs, measured at the end of the applicable test year, as the primary factor in allocating affiliate costs in Florida as of January 1, 2004.

 

            In Audit Finding No. 4 of the AT Audit, staff auditors stated that WSC allocates its common plant and expenses quarterly as of June 30, 2005.  In addition, WSC utilizes the following: “(1) If the operating system has both water and wastewater, the wastewater customer is counted as one and one-half; (2) If the customer is an availability customer only, the customer is counted as one-half; (3) If the water company is a distribution company only, the customer is counted as one-half; and, (4) If the wastewater company is a collection company only, the customer is counted as one-half.”  Staff believes that these additional four factors unnecessarily complicate the allocation process versus the use of an ERC-only methodology.  With this additional methodology, staff notes that WSC’s ERC count will not conform to the ERC count in each Florida subsidiaries’ annual report filed with the Commission.  Further, the use of an ERC-only methodology is consistent with the methodology used by the Commission to set rates for water and wastewater utilities.  Accordingly, staff recommends that UI should use the ERC-only methodology for its allocation codes one, two, three, and five.

 

Conclusion

 

            Based on the above,  staff recommends that the appropriate WSC net rate base allocation for Sanlando is $75,478 for water and $57,717 for wastewater.  This represents an increase of $13,600 and $9,020 for water and wastewater, respectively.   WSC depreciation expense should also be reduced by $405 and $310, for water and wastewater, respectively.  Further, staff recommends the appropriate UIF rate base allocation for Sanlando is $106,848 water and $99,862 for wastewater.  This represents water plant and accumulated depreciation decreases of $92,400 and 42,630, respectively, and wastewater plant and accumulated depreciation increases of $48,065 and $28,161, respectively.  In addition, depreciation expense should be increased by $3,100 for water and $1,883 for wastewater.

 

Issue 4: 

 What is the appropriate land balance for the utility's water system?

Recommendation:   The appropriate land balance for the utility's water system is $90,312.  As such, land should be reduced by $26,660

 to remove the land sold by Sanlando.  Further, Sanlando should be required to amortize the $18,405 gain on sale of land over five years which represents an annual amortization of $3,681.  (Fletcher)

Staff Analysis: 

 In its filing, Sanlando reflected a land balance of $123,772 for its water system.  As discussed in Issue 2, the water system’s land balance was reduced by $6,800.  After applying this $6,800 adjustment, the water system’s land balance is $116,922 ($123,772 less $6,800).

In Audit Finding No. 17, staff auditors stated that a warranty deed for sale of utility property between Sanlando Utilities Corp. (seller) and Congregation Beth Am (buyer) was discovered by a search of Seminole County property records.  The auditors also stated the deed, executed on May 22, 2000, was recorded in the Seminole County Clerk of the Court Official Records.  Moreover, the auditors stated they could not determine if the original cost was included in land in the previous rate case and that the sale was recorded in equipment account (4141040) of UI's general ledger.  Further, the only other documentation the utility provided to the auditors was a copy of the check for the net proceeds of $56,170.  Based on the documentary stamps of $437.50 paid to Seminole County which was recorded on the face of the warranty deed, the auditors stated that the sale price for the property was calculated to be $62,500 ($437.50 divided by $0.70 multiplied by $100).  Lastly, the auditor stated that rate base may be overstated.

In its response to the Audit Request No. SL 101-35, Sanlando stated the following:

(1)  The parcel of land was acquired by the previous utility owner for the purpose of constructing additional facilities if needed.  At one time, the prior utility was experiencing frequent low pressure complaints in this part of the distribution system.  The previous utility owners contemplated building a storage tank on this parcel of land to address the problem.  After we acquired the system from the previous owners, it was subsequently determined that there was no need for the parcel so eventually it was sold to the congregation in the adjacent parcel of land.  The deal was strictly a sale of real property with no other obligations or terms.  Congregation Beth Am is not a Sanlando customer.  It is not located within Sanlando's service area with Sand Lake Road separating our system from Seminole County Utilities' service area.  .  .  .

Further, in its response to the audit report, the utility asserted that its records do not separately reflect the original price of the land, but Sanlando recognizes the auditors’ comments in Audit Finding No. 17.  The utility confirmed staff’s understanding that the land was still reflected on Sanlando’s books.  Staff also notes that UI’s general ledger and Sanlando’s MFRs have the same land balance for the utility’s water system.

            Based on the above, staff believes two adjustments are necessary.  First, staff believes that the land balance for the water system should be reduced to remove the land sold.  Second, as explained below, staff believes that the gain on sale of this land should be amortized over five years to the benefit of the ratepayers.

Reduction of Water System’s Land Balance

            In the utility’s 1998 transfer docket, the Commission approved the transfer of Sanlando to Utilities, Inc.[3]  Florida is an original cost jurisdiction.  Pursuant to Rule 25-30.115, F.A.C., the Commission adheres to the National Association of Regulatory Utility Commissioners’ (NARUC) Uniform System of Accounts (USOA) in recording land when first devoted to public service.  As stated above, the parcel of land sold to Congregation Beth Am was never placed into service, but it is reflected in rate base.  Given the utility’s records do not separately reflect the original price of the land, staff believes it is appropriate to utilized the tax assessed value at the time of the transfer of Sanlando to UI in 1998.  The Commission has previously used the tax assessed value in order to estimate the original cost of land for rate setting purposes.[4]  The tax assessed value for this parcel of land in 1998 was $26,660.  Therefore, staff recommends that the appropriate land balance for the utility's water system is $90,312 ($116,922 less $26,660).   As such, land should be reduced by $26,660

 to remove the land sold.

Gain on Sale of Land

            Staff’s calculation of the gain on sale of this land is reflected in the following table.

           

            In the last rate case for one of Sanlando’s sister companies, UIF, the Commission ordered that gains on the sale of facilities to separate municipalities shall be attributable to the shareholders.[5]  However, staff believes that Sanlando’s sale of its land is distinguishable from UIF’s gain of sale.  First, UIF’s sale involved the transfer of all facilities and the customer bases to the separate municipalities.  As UIF’s witness Gower testified, the remaining UIF customers should not benefit from the sale of a system when the customer who paid for the facilities are now gone.   See Order No. 03-1140-FOF-WS, p. 130. Further, as the Office of Public Counsel’s witness Dismukes testified, the Commission has recognized that future profits are lost for systems sold along with the customers of a system, and that the Commission has therefore found it appropriate to assign the gain to shareholders.  See Order No. 03-1140-FOF-WS, p. 130.

            Sanlando’s sale of its land does not result in any revenue stream loss associated with a loss of the utility’s customer base.  As stated above by Sanlando, this deal was strictly a sale of real property.  Across the rate base regulated water, wastewater, gas, and electric industries, the Commission has previously approved the amortization of a gain on sale of land to the benefit of the ratepayers.[6]  Based on the above, staff recommends that the $18,405 net gain should be amortized over five years.  This represents an annual amortization of $3,681.

 

Issue 5: 

 Should adjustments be made to the utility’s pro forma plant additions?

Recommendation: 

  Yes.  Plant should be increased by $414,721 for water and decreased by $125,609 for wastewater, and accumulated depreciation should be decreased by $73,655 for water and $26,294 for wastewater.  In addition, net depreciation expense should be increased by $20,761 for water and decreased by $10,598 for wastewater.  (Fletcher, Rieger)

Staff Analysis: 

 According to its MFRs, Sanlando reflected pro forma additions of $582,777 for water and $848,365 for wastewater.  Staff has reviewed the supporting documentation and the prudence of these pro forma plant additions and believes several adjustments are necessary as discussed below.

First, based the utility’s response to a data request, Sanlando did not provided any work orders, invoices or other supporting documentation for these additions reflected in the tables below.

Water Pro Forma Additions	Amount		Wastewater Pro Forma Additions	Amount
Organization	$4,683		Organization	$6,123
Franchises	30,391		Lift Stations	11,659
WTP improvements	6,242		Service Lines	2,094
Pump Equipment	7,362		Manholes	9,273
Water Treatment Equipment	171		Services	696
Distribution Reservoirs &  Standpipes	989		Distribution Reservoir	1,547
Mains	21,397		WWTP Improvements	47,420
Services	21,043		Total Wastewater Additions	$78,812
Meters and Meter Installations	16,679
Tools	4,491
Laboratory Equipment	1,889
Communication Equipment	927
Total Water Additions	$116,264

            Based on the MFR dollar amounts and the accounts involved here, staff believes these additions are normal recurring plant additions.  If normal recurring plant additions were allowed, a strong argument could be made that CIAC and accumulated amortization of CIAC should also be projected forward another year due to the expected growth, as well as billing determinants and expenses.  This would have the effect of changing the approved 2005 historical test year to projected test year.  Because of the lack of supporting documentation and the utility’s assertion in its test year request letter that the 2005 historical test period is representative of a full year of operation, staff recommends that these normal recurring plant additions be removed from plant.

            Second, staff believes that the remaining pro forma additions are non-recurring in nature.  Staff notes that Sanlando failed to reduce depreciation expense for any of its retirements.  As discussed below, staff has several adjustments to these non-recurring water and wastewater additions.

 

Non-Recurring Water System Additions

 

            The water system projects are titled: the electrical control upgrade; the electric valve operator; and, the Wekiva Springs Road utility relocations.  First, in its response to Staff’s First Data Request, the utility asserted that the electrical control upgrade involved replacing distribution panels, installed in 1973, which are now out of production and replacing variable voltage drive units to improve reliability.  Second, Sanlando stated that, pursuant to newly imposed DEP regulations, the electric valve operator was needed because the new regulations require all system valves to be exercised in accordance with the manufacturer’s recommendations.  The utility contended that the valve exercisers for this project would decrease demands on existing personnel as well and curb hiring additional personnel to maintain compliance with the regulation.  Third, the utility stated that the Wekiva Springs Road utility relocations involve relocating water and wastewater mains due to Seminole County’s stormwater and road widening project. 

Section 367.081(2)(a)2., F.S., states that the Commission shall consider utility property, including land acquired or facilities constructed or to be constructed within a reasonable time in the future, not to exceed 24 months after the end of the historic base year used to set final rates.  The electrical control upgrade and the electric valve operator projects have been completed.  Thus, these additions have been or will be completed within the 24-month timeframe mentioned above.  However, based on information provided by the utility, Seminole County’s stormwater and road widening project has been delayed, and, as such, the completion date for the Wekiva Springs Road utility relocations project is contingent on Seminole County.

Based on supporting documentation provided by the utility, the total direct construction cost for the electrical control upgrade project was $1,128,695.  Staff calculated an allowance for funds used during construction (AFUDC) of $43,091 for this project.  With the direct construction cost and AFUDC amount, total cost for this project is $1,171,786.  This represents an increase of $671,786 above the $500,000 MFR amount.  Further, Sanlando used the date that the old control panel was placed into service and the Handy Whitman Index to derive its retirement factor.  The utility then applied its retirement factor to the cost of the $500,000 MFR amount for the electrical control upgrade project to determine Sanlando’s MFR retirement amount of $76,987.  Staff notes the Commission approved this retirement policy in the past for several UI’s subsidiaries.[7]  Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $180,425 which represents an increase of $103,438 ($180,425 less $76,987). Correspondingly, accumulated depreciation should be decreased by $69,848 and depreciation expense should be increased by $24,568.

Further, as discussed in Issue 27, the electrical control upgrade project related to the utility’s Des Pinar and Wekiva water treatment plants.  The work on the Des Pinar plant was completed almost one year before the Wekiva plant.  Because the work on each plant was independent of one another, staff believes the utility should be encouraged not to combine projects like this one but to separate them as one project for each independent purpose.  By separating them into distinct projects, staff believes it should avoid the likelihood of any excessive AFUDC accrual.

Based on supporting documentation provided by the utility, the total direct construction cost for the electric valve operator project was $6,136.  This represents a decrease of $864 ($7,000 less $6,136).  This project was not eligible for AFUDC because it took less than six months.  Correspondingly, accumulated depreciation and depreciation expense should both be decreased by $23.

In the MFRs the utility reflected $36,500 for the Wekiva Springs Road utility relocations project.  In its response to a staff data request, Sanlando provided an unsigned contract for this project.  As stated above, the utility has asserted that Seminole County’s stormwater and road widening project has been delayed and that Sanlando’s Wekiva Springs Road utility relocations project is contingent on Seminole County.  Further, based on information provided by the utility, Sanlando stated that it has not committed any funds for this project nor does it plan to until Seminole County moves forward with this project.  Due to the lack of support documentation and the uncertainty of the completion date for this project, staff recommends that the requested cost for this project should be disallowed.  Correspondingly, plant should be decreased by $36,500, and  accumulated depreciation and depreciation expense should both be decreased by $840.

Non-Recurring Wastewater System Additions

 

The wastewater system projects are titled: the five electrical modifications at lift station (LS) A-5; remote generator receptacles at LS M-3 & M-5; rehabilitation and electrical improvements at LS A-3; Devon LS A-4 rehabilitation, LS mechanical improvements at various locations; LS electrical improvements at various locations; convert F-1, L-2, & L3 to submersible lift stations; Sabal Point reuse pond swale installation; rehabilitation bar screen and surge pump at Des Pinar wastewater treatment plant; generator at Des Pinar wastewater treatment plant; and, emergency generator at York Court.  Section 367.081(2)(a)2., F.S., states that the Commission shall consider utility property, including land acquired or facilities constructed or to be constructed within a reasonable time in the future, not to exceed 24 months after the end of the historic base year used to set final rates.  All of these additions have been completed within the 24-month timeframe mentioned above.  However, as discussed below, staff has several adjustments to the projects.  Further, the conversion of F-1, L-2, & L3 to submersible lift stations project is the only requested wastewater pro forma plant addition eligible to accrue AFUDC because the other projects took less than six months to complete. 

First, in its response to Staff’s First Data Request, the utility asserted that the five electrical modifications at lift station (LS) A-5 project involved relocating a control panel and electric service to conform with electrical code at a minimum height of 36” above grade.  In its MFRs, Sanlando included $8,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $6,950.  This represents a decrease of $1,050 ($8,000 less $6,950).  Sanlando applied its retirement factor to the cost of the $8,000 MFR amount to determine the utility’s MFR retirement amount of $1,272. Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $1,105, which represents a decrease of $167.  Correspondingly, accumulated depreciation should be increased by $134 and depreciation expense should be decreased by $68.

Second, in its response to Staff’s First Data Request, the utility asserted the remote generator receptacles at LS M-3 & M-5 were needed to provide a means to connect emergency generators to control panels without crossing private property and to improve response time to avoid overflows.  In its MFRs, Sanlando reflected $14,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $12,655.  This represents a decrease of $1,345 ($14,000 less $12,655).  Correspondingly, accumulated depreciation and depreciation expense should both be decreased by $88.

Third, in its response to Staff’s First Data Request, the utility asserted that the rehabilitation and electrical improvements at LS A-3 were needed to replace the control panel, electric service, and wet well piping that were corroded and unreliable.  In its MFRs, Sanlando reflected $30,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $21,599.  This represents a decrease of $8,401 ($30,000 less $21,599).  Sanlando applied its retirement factor to the cost of the $30,000 MFR amount to determine the utility’s MFR retirement amount of $4,768. Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $3,433 which represents a decrease of $1,335. Correspondingly, accumulated depreciation should be increased by $1,071 and depreciation expense should be decreased by $371.

Fourth, in its response to Staff’s First Data Request, the utility asserted that the Devon LS A-4 rehabilitation needed to replace the control panel, electric service, pumps, piping and guide rails.  Sanlando noted that the old pumps were worn out and undersized for flow.  In its MFRs, Sanlando reflected $32,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $24,094.  This represents a decrease of $7,906 ($32,000 less $24,094).  Sanlando applied its retirement factor to the cost of the $32,000 MFR amount to determine the utility’s MFR retirement amount of $5,298.  Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $3,989 which represents a decrease of $1,309. Correspondingly, accumulated depreciation should be increased by $1,060 and depreciation expense should be decreased by $415.

Fifth, in its response to Staff’s First Data Request, the utility asserted that the LS mechanical improvements at various locations were needed to replace guide rails at six lift stations, riser pipes at 11 sites, quick disconnects at 29 sites, and check valves at three sites.  In its MFRs, Sanlando reflected $90,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $64,321. This represents a decrease of $25,679 ($90,000 less $64,321).  Sanlando applied its retirement factor to the cost of the $90,000 MFR amount to determine the utility’s MFR retirement amount of $22,622.  Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $16,168 which represents a decrease of $6,454. Correspondingly, accumulated depreciation should be increased by $5,647 and depreciation expense should be decreased by $1,312.

Sixth, in its response to Staff’s First Data Request, the utility asserted the LS electrical improvements at various locations were needed to replace six control panels, install sixteen service disconnects, and raise one panel to standard height to meet electrical code and to provide reliable service.  In its MFRs, Sanlando reflected $115,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $111,827.  This represents a decrease of $3,173 ($115,000 less  $111,827).  Sanlando applied its retirement factor to the cost of the $115,000 MFR amount to determine the utility’s MFR retirement amount of $18,278.  Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $17,774 which represents a decrease of $504.  Correspondingly, accumulated depreciation should be increased by $399 and depreciation expense should be decreased by $660.

Seventh, in its response to Staff’s First Data Request, the utility asserted  the conversion of F-1, L-2, & L3 to submersible lift stations was needed to pumps and piping located in a subsurface dry pit constituted a confined space hazard.  Sanlando noted that the dry pit pumps were worn and inefficient and the electrical components were expensive to repair when pump failures occurred.  In its MFRs, Sanlando reflected $360,287 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $374,638. Staff calculated an AFUDC of $10,993 for this project.  With the direct construction cost and AFUDC amount, total cost for this project is $385,631.  This represents a increase of $25,344 ($385,631 less $360,287).  Sanlando applied its retirement factor to the cost of the $360,287 MFR amount to determine the utility’s MFR retirement amount of $59,650. Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $63,846 which represents a decrease of $4,196. Correspondingly, accumulated depreciation should be decreased by $3,422 and depreciation expense should be decreased by $1,221.

Eighth, in its response to Staff’s First Data Request, the utility asserted that the Sabal Point reuse pond swale installation involved modifying the reuse irrigation pond design to avoid an unauthorized discharge to the Wekiva River.  In its MFRs, Sanlando reflected $10,300 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $9,319.  This represents a increase of $981 ($10,300 less $9,319).  Staff notes that the utility used a service life of 50 years to depreciate this project; however, in accordance with Rule 25-30.140, F.A.C., the appropriate service life is 43 years for this project.  Correspondingly, accumulated depreciation and depreciation expense should both be increased by $11.

Ninth, in its response to Staff’s First Data Request, the utility asserted the rehabilitation bar screen and surge pump at Des Pinar wastewater treatment plant was needed to provide a means to safely remove and maintain surge pumps and to replace a bar screen and splitter box due to corrosion.  In its MFRs, Sanlando reflected $50,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $99,275. This represents an increase of $49,275 ($99,275 less $50,000).  Sanlando applied its retirement factor to the cost of the $50,000 MFR amount to determine the utility’s MFR retirement amount of $28,146. Using the utility’s retirement factor and staff’s total direct construction cost for this project, staff calculated a retirement amount of $55,884 which represents a decrease of $27,738. Correspondingly, accumulated depreciation should be decreased by $25,003 and depreciation expense should be decreased by $370.

Tenth, in its response to Staff’s First Data Request, the utility asserted that the generator at Des Pinar wastewater treatment plant was needed to provide alternative power during outages to maintain treatment and field office operations and to replace distribution panel.  In its MFRs, Sanlando reflected $100,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $113,703.  This represents a increase of $13,703 ($113,703 less $100,000).  Correspondingly, accumulated depreciation and depreciation expense should both be decreased by $757.

Eleventh, in its response to Staff’s First Data Request, the utility asserted that the emergency generator at York Court was needed to provide alternative power during outages because this lift station has only 45 minutes of storage capacity at average day before overflowing into the Sweetwater Creek.  In its MFRs, Sanlando reflected $100,000 for this addition.  Based on supporting documentation provided by the utility, the total direct construction cost for this project was $35,581.  This represents a decrease of $64,419 ($100,000 less $35,581).  Correspondingly, accumulated depreciation and depreciation expense should both be decreased by $3,583.

Summary of Pro Forma Additions

            The following table illustrates staff pro forma water adjustments.

 

The following table illustrates staff pro forma wastewater adjustments.

Pro Forma Plant Additions	Per MFRs	Per Staff	Difference
Organization	$6,123	$0	($6,123)
Five Electrical Modifications at LS A-5	8,000	6,950	(1,050)
Five Electrical Modifications at LS A-5 - Retirement	(1,272)	(1,105)	167
Remote Generator Receptacles at LS M-3 and M-5	14,000	12,655	(1,345)
Rehab and Electrical Improvements at LS A-3	30,000	21,599	(8,401)
Rehab and Electrical Improvements at LS A-3 - Retirement	(4,768)	(3,433)	1,335
Rehab Devonshire LS A-4	32,000	24,094	(7,906)
Rehab Devonshire LS A-4 - Retirement	(5,298)	(3,989)	1,309
LS Mechanical Improvements @ Various Locations	90,000	64,321	(25,679)
LS Mechanical Improvements @ Various Locations - Ret.	(22,622)	(16,168)	6,454
LS Electrical Improvements @ Various Locations	115,000	111,827	(3,173)
LS Electrical Improvements @ Various Locations – Ret.	(18,278)	(17,774)	504
Convert F-1, L-2 & L-3 to Submersible LSs	360,287	385,631	25,344
Convert F-1, L-2 & L-3 to Submersible LSs - Retirement	(59,650)	(63,846)	(4,196)
Lift Stations	11,659	0	(11,659)
Service Lines	2,094	0	(2,094)
Manholes	9,273	0	(9,273)
Services	696	0	(696)
Sabal Point Reuse Pond Swale Installation	10,300	9,319	(981)
Distribution Reservoir	1,547	0	(1,547)
Rehab. Bar Screen & Surge Pump at Des Pinar WWTP	50,000	99,275	49,275
Rehab. Bar Screen & Surge Pump at Des Pinar WWTP-Ret.	(28,146)	(55,884)	(27,738)
Generator and ATS at Des Pinar WWTP	100,000	113,703	13,703
Emergency Generator @ York Court	100,000	35,581	(64,419)
WWTP Improvements	47,420	0	(47,420)
Total	$848,365	$722,756	($125,609)
Accumulated Depreciation	$102,282	$128,576	$26,294
Depreciation Expense	$37,752	$27,154	($10,598)

 

            Based on the above, staff recommends that plant should be increased by $414,721 for water and decreased by $125,609 for wastewater, and accumulated depreciation should be decreased by $73,655 for water and $26,294 for wastewater.  In addition, net depreciation expense should be increased by $20,761 for water and decreased by $10,598 for wastewater.  

 
Issue 6: 

 What are the used and useful percentages of the utility's reuse and wastewater systems?

Recommendation: 

  Sanlando’s water treatment plants are 100% used and useful, the wastewater treatment plants are 100% used and useful, and the water distribution and wastewater collection systems are 100% used and useful as reflected in Attachment A.  (Rieger)

Staff Analysis: 

 In its application, the utility asserts the water and wastewater treatment plants, as well as the water distribution and wastewater collection systems, are all 100% used and useful.  Sanlando’s water treatment plants (Des Pinar, Knollwood, and Wekiva) are interconnected; therefore, only one used and useful calculation is needed.  The wastewater treatment plants (Wekiva and Des Pinar) are not interconnected, and separate used and useful calculations can be made for each system.  In the utility’s prior rate case, by Order No. 23809,[8] the Commission recognized that the water treatment plants, the wastewater treatment plants, and the water distribution and wastewater collection systems were all 100% used and useful.

Water Treatment Plants

The used and useful calculation of the water treatment plant is determined by dividing the peak demand by the firm reliable capacity of the water treatment system, based on 12 hours of pumping.  Consideration is given to fireflow, unaccounted for water, and growth.   In accordance with the American Waterworks Association Manual of Water Supply Practices, the highest capacity well should be removed from the calculation to determine the plant’s reliability.  In this case, the firm reliable capacity is determined by assuming that the utility’s largest well, rated at 4,600 gpm, is out of service. 

As detailed in Attachment A to this report, unaccounted for water (7.67%) is not considered excessive and allowances for an annual customer growth of 51 ERCs should be used.  Since it appears no anomaly occurred on that day, the peak usage day of 12,360,000 gallons (May 25, 2005) should be used. 

The utility included annual historical growth of 51 ERCs per year for five years plus an additional 22.4 ERCs per year based on a new development located in the existing service territory.  Staff believes that because the new development is within the existing territory, it should be considered part of the normal growth.  As a result, it is recommended that growth be based on the average historical growth only. 

As reflected in Attachment A, the water treatment plants are considered 100% used and useful based on a peak day demand of 12,360,000 gallons, required fireflow of 150,000 gallons, a growth allowance of 284,280 gallons, divided by the firm reliable plant capacity of 9,913,680 gallons.

 

 

Storage 

The utility has determined usable storage (3,127,500 gallons) to be ninety percent of the total ground storage capacity.  The usable storage is less than the peak day demand and is not considered oversized.  Therefore, the storage is 100% used and useful.  It should be noted that the storage is needed to meet the required fire flow on the peak day.

Wastewater Treatment Plants

In accordance with Rule 25-30.432, F.A.C., the used and useful calculation for the wastewater treatment plants are determined on the basis of the DEP permitted plant capacity.  Consideration is given for growth and inflow and infiltration (I&I).  The utility believes the Wekiva facility should be considered 100% used and useful because the plant was fully utilized in the last rate case, plant capacity has gone relatively unchanged, and the system is near build out.  In the prior rate case, although the flows indicated that the Wekiva plant was 75% used and useful, the plant was found to be 100% used and useful because of regulatory requirements to insure adequate backup and wasteload allocation and the utility’s prudent expansion investment. 

In the previous rate case, the used and useful calculations were based on the maximum month average daily demand.  In accordance with Rule 25-30.432, F.A.C., the plant must be evaluated on the basis of the DEP permitted plant capacity.  Wekiva’s current permitted plant capacity (2,900,000 gpd) is based on annual average daily flows.  The average annual daily flows during the test year were 2,160,641 gpd.  There does not appear to be excessive I&I.  A customer growth allowance of 34,586 gpd should be used.  In the MFRs, the utility included annual historical growth of 31 ERCs for five years plus an additional 22.4 ERCs per year based on a new development located in the existing service territory.  As discussed in the water section, staff believes that because the new development is within the existing territory, it should be considered part of the normal growth.  As a result, it is recommended that a growth allowance be based on the average historical growth of 24.7 ERCs.

As reflected in Attachment A, based on flows, the Wekiva plant is 76% used and useful.  However, staff recommends that the Wekiva wastewater treatment plant be considered 100% used and useful, as determined in the last rate case.  The plant expansion included in the last rate case was a prudent utility investment in response to DEP requirements to insure adequate backup and wasteload allocation and there has been no change in capacity since the last rate case.  In addition, there has been limited growth in recent years and the area the system is designed to serve is essentially built out with the exception of a small potential development in the existing service territory.  Staff’s used and useful determination is consistent with the provisions of Rule 25-30.432, F.A.C.

In the previous rate case, the Des Pinar wastewater treatment plant was found to be 100% used and useful because the system that it served was considered completely built out.  In that rate case, the used and useful calculation was based on maximum month daily average demand.  In accordance with Rule 25-30.432, F.A.C., the plant must be evaluated on the basis of the DEP permitted plant capacity.  Like the Wekiva plant, Des Pinar’s current permitted plant capacity is based on annual average daily flows.  As reflected in Attachment A, the plant is 69% used and useful based on its permitted capacity of 500,000 gpd and average annual daily flows of 345,112 gpd.  However, staff recommends that the Des Pinar wastewater treatment plant be considered 100% used and useful because the plant capacity has not changed since the previous Commission finding on used and useful and the area the plant serves is still at build out with no expected growth potential.  Staff’s used and useful determination is consistent with the provisions of Rule 25-30.432, F.A.C.

Water Distribution and Wastewater Collection Systems

The used and useful calculations for the water distribution and wastewater collection systems are determined by the number of customers connected to the systems divided by the capacity of the systems.  Consideration is given for growth.  In this case, growth is not considered a factor since the existing lines are built out and significantly contributed.  Therefore, the water distribution and wastewater collection systems are considered 100% used and useful.

Issue 7: 

 What is the appropriate working capital allowance?

Recommendation: 

 The appropriate working capital allowance is $295,976 for water and $431,745 for wastewater.  As such, working capital should be increased by $55,481 for water and $80,931 for wastewater.  (Fletcher)

Staff Analysis: 

 Rule 25-30.433(2), F.A.C., requires Class A utilities to use the balance sheet approach to calculate the working capital allowance.  According to its filing, Sanlando utilized the balance sheet approach and calculated a working capital allowance of $115,186 for water and $291,995 for wastewater.  However, as discussed below, staff believes that several adjustments to the utility’s working capital balance are necessary.

 

            As discussed in Issue 2, working capital was increased by $125,309 for water and  $58,819 for wastewater in order to reflect the audit adjustments agreed to by the utility and staff.  As addressed in Issue 14, staff is recommending total rate case expense of $151,475.  Based on prior Commission practice, the average unamortized balance of the total allowed rate case expense is included in working capital.[9]  In its MFRs, Sanlando did not reflect any unamortized rate case expense balance for this docket.  Thus, staff recommends that working capital be increased by  $55,481 for water and  $80,931 for wastewater.

 

Based on the above, staff recommends the appropriate working capital allowance is $295,976 ($115,186 plus $125,309 plus $55,481) for water and $431,745 ($291,995 plus $58,819 plus $80,931) for wastewater.  As such, working capital should be increased by $55,481 for water and $80,931 for wastewater.

Issue 8: 

 What is the appropriate rate base for the December 31, 2005 test year?

Recommendation: 

 Consistent with other recommended adjustments, the appropriate 13-month average rate base for the test year ending December 31, 2005 is $4,011,116 for water and $9,695,430 for wastewater.  (Fletcher)

Staff Analysis: 

 Consistent with other recommended adjustments, the appropriate 13-month average rate base for the test year ending December 31, 2005 is $4,011,116 for water and $9,695,430 for wastewater.  Staff’s recommended schedules for rate base are shown on Schedules 1-A and 1-B, respectively.  The adjustments are shown on Schedule 1-C.

COST OF CAPITAL

Issue 9: 

 What is the appropriate return on common equity?

Recommendation: 

 The appropriate return on common equity is 11.46% based on the Commission leverage formula currently in effect.  Staff recommends an allowed range of plus or minus 100 basis points be recognized for ratemaking purposes.  (Springer)

Staff Analysis: 

 The return on equity (ROE) included in the utility’s filing is 11.78%.  This return is based on the application of the Commission’s leverage formula approved in Order No. PSC-05-0680-PAA-WS and an equity ratio of 39.96%.[10] 

 

            As noted in Audit Finding No. 20, UI’s average common equity balance of $91,510,699 should be adjusted upward by $3,093,004 to $94,603,703.  Per its response to the Audit Report, the utility is in agreement with the audit opinion.  This adjustment increased the equity ratio as a percentage of investor-supplied capital from 39.96% to 40.77%.

 

            Based on the current leverage formula approved in Order No. PSC-06-0476-PAA-WS and an equity ratio of 40.77%, the appropriate ROE is 11.46%.[11]  Staff recommends an allowed range of plus or minus 100 basis points be recognized for ratemaking purposes.

 

Issue 10: 

 What is the appropriate weighted average cost of capital including the proper components, amounts, and cost rates associated with the capital structure for the test year ended December 31, 2005?

Recommendation: 

 The appropriate weighted average cost of capital for the test year ended December 31, 2005 is 8.36%.  (Springer, Kyle)

Staff Analysis: 

 Based upon the proper components, amounts, and cost rates associated with the capital structure for the test year ended December 31, 2005, staff recommends a weighted average cost of capital of 8.36%.  The weighted average cost of capital included in the utility’s filing is 8.56%.

 

            The test year per book amounts were taken directly from Sanlando’s MFR filing Schedule D-2.  Staff made specific adjustments to three components in the utility’s proposed capital structure.  As noted in Audit Finding No. 20, UI’s average common equity balance should be adjusted upward by $3,093,004.  In addition, staff auditors recommended an adjustment of $119,308 to decrease the balance of short-term debt.  Finally, staff made an adjustment of $135,573 to increase the balance of deferred income taxes. 

 

            In Audit Finding No. 21, staff auditors noted that the utility understated its calculation of deferred taxes for accelerated depreciation for state income tax purposes by $17,623.  Further, the auditors discovered that deferred taxes for intangible plant were understated by $17,265 for state tax purposes and were understated by $100,685 for federal tax purposes.  Accordingly, staff recommends that the balance of deferred taxes be increased by $135,573, the total of these amounts.  Per its response to the Audit Report, the utility is in agreement with the audit opinion regarding these adjustments.

 

            Staff revised the respective cost rates proposed by the utility.  The appropriate cost rate for common equity of 11.46% is discussed in Issue 9.   In addition, the auditors in staff Audit Finding No. 20 recommended an adjustment to the cost rates for long-term and short-term debt.   The long-term debt cost rate was reduced from the utility proposed rate of 6.65% to 6.58%.   The short-term cost rate was increased from the utility proposed rate of 5.01% to 5.14%.  Per its response to the Audit Report, the utility is in agreement with the audit opinion regarding these adjustments. 

 

            Based on the proper components, amounts, and cost rates associated with the capital structure for the test year ended December 31, 2005, staff recommends a weighted average cost of capital of 8.36%.  Schedule No. 2 details staff’s recommendation.

 

NET OPERATING INCOME

Issue 11: 

 Should a pro forma miscellaneous adjustment be made to test year revenues?

Recommendation: 

  Yes. Using the incremental increase from the recommended charges addressed in Issue 23 and the historical reconnections and premise visits, miscellaneous service revenues of $1,565 should be imputed equally among water and wastewater ($783 each for water and wastewater).  Accordingly, water and wastewater regulatory assessment fees (RAFs) should both be increased by $35.  (Fletcher)

Staff Analysis: 

 In its filing, Sanlando reflected miscellaneous service revenue charges of $10,833 for water and $17,347 for wastewater.  As discussed in Issue 23, staff is recommending $21 for initial connections, normal reconnections, and premises visits during normal hours, which represents an increase of $6 for the initial connections and normal reconnections and an increase of $11 for the premises visits.  In its response to Staff’s Third Data Request, the utility stated that in the 2005 test year, it had 226 normal reconnections and 19 premise visits.  Using the incremental increase from the recommended charges and the historical reconnections and premise visits, staff recommends that miscellaneous service revenues of $1,565 should be imputed equally among water and wastewater.  Accordingly, water and wastewater RAFs should both be increased by $35.

Issue 12: 

 What is the appropriate amount of allocated WSC and UIF expenses for Sanlando?

Recommendation: 

 Based on the above audit adjustments and the ERC-only methodology, the appropriate WSC O&M expenses and taxes other than income for Sanlando are $399,125 and $18,383, respectively.  As such, water and wastewater O&M expenses should be decreased by $14,217 and $10,871, respectively, and water and wastewater taxes other than income should be increased by $4,979 and $3,808, respectively.  Further, the appropriate UIF O&M expenses for Sanlando are $21,290 for water and $16,281 for wastewater.  As such, water and wastewater O&M expense should be decreased by $498 and $381, respectively.  (Fletcher)

Staff Analysis: 

 On MFR Schedule B-12, the utility reflected total WSC allocated O&M expenses of $424,213 and taxes other than income of $9,596.  Sanlando also recorded total UIF allocated O&M expenses of $38,449.  As discussed below, staff believes adjustments are necessary to the WSC and UIF expenses before they are allocated to the utility.  These adjustments include recommended audit adjustments and the use of an ERC-only methodology for several WSC allocation codes.

In Audit Finding No. 2 of the AT audit, the staff auditor recommended adjustments to WSC’s expenses consistent with Order No. PSC-03-1440-FOF-WS, pp. 82-84.  The auditor recommended removal of:  (1) insurance premiums for former employee directors’ life insurance policies; (2) fiduciary policies protecting directors, officers; and, (3) pension funds.  The auditor believes these items should be eliminated because they were for the benefit of UI’s shareholders.  Second, the auditor recommended the removal of interest expense and interest income because they are included as components of UI’s capital structure.  In its response to the AT audit, UI agreed with the above recommended audit adjustments.  Based on the above, staff recommends that the appropriate WSC expenses, before any allocation, are $7,458,207.  Further, there was no audit finding in the AT audit regarding UIF’s expenses.  Thus, staff recommends that the appropriate UIF O&M expenses before any allocation are $266,650.

As recommended in Issue 3, UI should use the ERC-only methodology for its allocation codes one, two, three, and five.  Based on the above audit adjustments and the ERC-only methodology, staff recommends that the appropriate WSC O&M expenses and taxes other than income for Sanlando are $399,125 and $18,383, respectively.  As such, water and wastewater O&M expenses should be decreased by $14,217 and $10,871, respectively, and water and wastewater taxes other than income should be increased by $4,979 and $3,808, respectively.  Further, staff recommends the appropriate UIF O&M expenses for Sanlando are $21,290 for water and $16,281 for wastewater.  As such, water and wastewater O&M expense should be decreased by $498 and $381, respectively.

Issue 13: 

 Should an adjustment be made to the utility's pro forma salaries & wages, pensions & benefits, and payroll taxes?

Recommendation: 

 Yes.  Sanlando’s salaries and wages should be decreased by $43,936 for water and $22,352 for wastewater.  Accordingly, pensions and benefits should be reduced by $26 for water and increased by $120 for wastewater, respectively, and payroll taxes should be reduced by $2,357 and $1,803 for water and wastewater, respectively.  (Fletcher)

Staff Analysis: 

 On MFR Schedule B-5, Sanlando reflected historical water salaries and wages and pensions and benefits of $400,586 and $586,390, respectively.  On MFR Schedule B-6, the utility reflected historical wastewater salaries and wages and pensions and benefits of $129,447 and $105,018, respectively.  On MFR Schedule B-15, Sanlando reflected historical payroll taxes of $48,118 for water and $39,036 for wastewater. 

On MFR Schedule B-3, the utility requested pro forma increases in water salaries and wages, pensions and benefits, and payroll taxes of $61,999, $5,863, and $4,527, respectively, and requested increases in wastewater salaries and wages, pensions and benefits, and payroll taxes of $48,793, $4,615, and $3,563, respectively.  The pro forma salaries and wages represents increases of 15.48% for water and 8.32% for wastewater.  The pro forma pensions and benefits represents increases of 4.53% for water and 4.39% for wastewater.

In Staff’s First Data Request in Docket No. 060261-WS, the utility was asked to explain why its pro forma salaries and wages increases were significantly greater than the Commission’s 2006 price index of 2.74%.  In its response, the utility explained that its increases include all new employees’ salaries, payroll taxes, and benefits for office employees and operators.  The utility also stated that the salaries were annualized to reflect a full year of costs and a cost of living increase was applied across the board to all Florida office employees and operators.

In Staff’s Fifth Data Request in Docket No. 060256-SU, UI was asked to provide the total number of full-time and part-time employees for its Florida subsidiaries, their average salary, and average salary percentage increases for all Florida managerial and non-managerial employees through September 2006.  According to the information provided, the historical average salary increases for all Florida Employees from 2001 to 2005 has been 4.51%.  UI realized a net reduction of eight total Florida employees from 2005 to June 2006.  The total average salaries from 2005 to 2006 increased $74,616; however, staff notes the total requested pro forma salary increases in UI’s current docketed rate cases in Florida is $332,883.  If the salary increases for all Florida employees were limited to an across the board increase of the 4.51% historical five-year average, the pro forma salary increases for all of UI’s current docketed cases would be $105,776.

From the information provided by UI, staff is unable to attribute the 2006 employee changes to the respective pro forma salary increases in the UI docketed cases.  The utility has the burden of proving that its costs are reasonable.  See Florida Power Corp. v. Cresse, 413 So. 2d 1187, 1191 (1982).  Staff believes that UI has not met its burden of proof of showing how the employee changes from 2005 to 2006 effect the respective rate cases.

On January 18, 2007, the utility hand delivered a two-page document reflecting the title and duties of two new employees.  However, this document did not contain the annual salary for these two employees nor did it show the utility’s calculation of how their respective salaries are allocated to the UI’s Florida subsidiaries.  Further, the utility has not provided any information regarding any other employee changes from July 1, 2006, to the present.

As such, with the exception of Sandalhaven (a negative pro forma salary adjustment of $573),[12] staff believes the requested pro forma salary increases in UI’s other respective rate cases are excessive.  Staff notes the historical 5-year average salary increase of 4.51% is 177 basis points above the Commission's 2006 Price Index of 2.74%.  With the exception of Sandalhaven, staff recommends that pro forma salary increases in all of UI’s respective cases should be limited to the 4.51% above the 2005 historical salary amounts.  The Commission has previously limited pro forma salaries adjustments to a utility’s historical average salary increases.[13]  Thus, staff recommends that Sanlando’s salaries and wages should be decreased by $43,936 for water and $22,352 for wastewater.  Accordingly, pensions and benefits should be reduced by $26 for water and increased by $120 for wastewater, respectively, and payroll taxes should be reduced by $2,357 and $1,803 for water and wastewater, respectively.

Issue 14: 

 What is the appropriate amount of rate case expense?

Recommendation: 

 The appropriate rate case expense is $155,900.  This expense should be recovered over four years for an annual expense of $38,975.  Thus, rate case expense should be decreased by $1,761 and $1,848 for water and wastewater, respectively. (Fletcher)

Staff Analysis: 

 Sanlando included in its MFRs an estimate of $170,338 for current rate case expense.  Staff requested an update of the actual rate case expense incurred, with supporting documentation, as well as the estimated amount to complete the case.  On November 29, 2006,         the utility submitted a revised estimated rate case expense through completion of the PAA process of $229,143.  The components of the estimated rate case expense are as follows:

 

	MFR Estimated	Actual	Additional Estimated	Revised Total
Legal and Filing Fees	$56,300	$32,588	$49,750	$82,338
Accounting Consultant Fees	49,840	42,076	7,719	49,795
Engineering Consultant Fees	5,000	3,207	4,275	7,482
Fees for Service Area Maps	0	3,310	0	3,310
WSC In-house Fees	41,600	28,975	14,533	43,508
Office Temp Fees	0	2,485	17,466	19,951
Travel – WSC	3,200	0	3,200	3,200
Miscellaneous	12,000	1,209	10,791	12,000
Notices	2,398	7,559	0	7,559
Total Rate Case Expense	$170,338	$121,409	$107,734	$229,143

 

            Pursuant to Section 367.081(7), F.S., the Commission shall determine the reasonableness of rate case expenses and shall disallow all rate case expenses determined to be unreasonable.    Also, it is the utility’s burden to justify its requested costs.  See Florida Power Corp. v. Cresse, 413 So. 2d 1187, 1191 (Fla. 1982).  Further, the Commission has broad discretion with respect to allowance of rate case expense; however, it would constitute an abuse of discretion to automatically award rate case expense without reference to the prudence of the costs incurred in the rate case proceedings.  See Meadowbrook Util. Sys., Inc. v. FPSC, 518 So. 2d 326, 327  (Fla. 1st DCA 1987), 529 So. 2d 694 (Fla. 1988).  As such, staff has examined the requested actual expenses, supporting documentation, and estimated expenses as listed above for the current rate case.  Based on our review, staff believes several adjustments are necessary to the revised rate case expense estimate.

 

            The first adjustment relates to costs incurred to correct deficiencies in the MFR filing.  Rose, Sundstrom & Bentley, LLP (RS&B), the law firm representing Sanlando, reduced its invoice amounts by $1,925 which were attributable to MFR deficiencies.  However, based on staff’s review of invoices, RS&B’s actual costs related to MFR deficiencies were $2,351, which represents an additional $426.  AUS Consultants (AUSC), the utility’s accounting consulting firm, and Management & Regulatory Consultants, Inc. (MRCI), Sanlando’s engineering consultant, had actual costs of $2,309 and $313, respectively, for MFR deficiencies.  Based on the descriptions for hours reflected on the timesheets provided by the utility, Ms. Weeks, a WSC employee spent 7 hours or $294 on MFR deficiencies.  The Commission has previously disallowed rate case expense associated with correcting MFR deficiencies because of duplicative filing costs.[14]  Accordingly, staff recommends that $3,342 ($426 + $2,309 + $313 + $294) should be removed as duplicative and unreasonable rate case expense.

 

            The second adjustment relates to the utility’s estimated legal fees and expenses to complete the rate case.  The utility’s counsel estimated 150 hours or $41,250 in fees plus $6,000 in expenses to complete the rate case.  A list of tasks to complete the case was provided by legal counsel, but no specific amount of time associated with each item, only a total number of hours and the total cost.  While the descriptions of the activities or tasks appeared reasonable, staff had no basis to determine whether the individual hours estimated were reasonable.  Staff reviewed these requested legal fees and expenses and believes these estimates reflect an overstatement.  As noted in the case background, UI currently has ten pending rate cases with the Commission.  In eight out of the ten rate cases, the same 150 hour amount of estimated legal hours to complete was submitted for the estimated processing of each of the cases.

 

            Although the estimate to complete did not indicate the period of time it included, staff made the assumption it included November, 2006 through February, 2007.  This would allow time for reviewing the recommendation, attending the Agenda Conference, reviewing the Commission’s PAA order, and submitting the appropriate customer notice and tariffs for approval.  Using an estimated amount of time to complete of four months for each of the eight rate cases, the legal office would have to work over 11 hours each day, including all holidays and all weekends.  This would be exclusive work on just these cases.  However, staff is aware of numerous other pending dockets, including the other two remaining UI rate cases, and undocketed projects also being worked on by this legal firm.  Further, when the recognized holidays and weekends are removed, this firm would require work of approximately 18 hours everyday exclusively for these eight rate cases.  Staff does not believe this is a reasonable assumption.

 

            As discussed above, it is the utility’s burden to justify its requested costs.  Staff believes that 40 hours is a reasonable amount of time to respond to data requests, conference with the client and consultants, review staff’s recommendation, travel to agenda and attend to miscellaneous post PAA matters.  This is consistent with hours allowed for completion by the Commission in the 2004 Labrador Utilities, Inc. (Labrador) rate case.[15]   This amounts to $11,000 of rate case expense, a reduction of $30,250. 

            Further, there was no breakdown provided for the $6,000 in disbursements required for legal counsel to complete the case.  Thus, this amount is unsupported.  However, staff calculated a travel allowance.  Staff believes that a reasonable cost for one person traveling from Orlando to Tallahassee, including meals, vehicle mileage and one day’s lodging is $414.  This was the amount of travel expense the Commission allowed for this law firm in the 2004 Labrador rate case supra.  Staff calculated travel expenses of $389, using the current state mileage rate (215 miles x 2 trips x $.455 = $215), hotel rates from a website ($109), and a meal allowance ($65), but recommends $414 consistent with the 2004 Labrador case.  Further, because legal counsel will also represent Lake Placid Utilities, Inc. (Docket No. 060260-WS) and Cypress Lakes Utilities, Inc., (Docket No. 060257-WS) at this same agenda, staff believes that travel expenses should be allocated equally among these three cases.  Therefore, staff believes $138 is the appropriate travel expense.  In addition to travel expense, staff calculated an amount for miscellaneous disbursements.  Staff added the actual and unbilled legal disbursements less the filing fee, divided by eight, the number of months represented by the data, then multiplied by two, the time remaining until the agenda.  Thus, staff believes $2,988 is a reasonable amount for miscellaneous disbursements.  Therefore, staff believes disbursements should be decreased by $2,874 ($6,000 - $138 - $2,988).  Accordingly, staff recommends that rate case expense be decreased by $33,124 ($30,250 + $2,874).

 

            The third adjustment relates to the utility’s estimated consultant fees for Mr. Seidman to complete the rate case.  Mr. Seidman estimated 24 hours or $3,000 plus $25 in expenses to complete the rate case.  Specifically, Mr. Seidman estimated 30 hours to assist with and respond to data requests (ten hours for Commission staff discovery and 20 hours for OPC discovery) and four hours to prepare for and attend the agenda.  Staff believes that four hours is a reasonable amount of time to prepare for and attend the agenda in this docket.  This is consistent with the hours allowed for completion by the Commission in the Indiantown Company, Inc. and the Mid-County Services, Inc. rate cases.[16]   However, after the MFR deficiencies, staff has not sent any discovery to which Mr. Siedman would be responsible.  As such, staff believes these ten hours should be disallowed.  Further, OPC had twenty-four questions in its discovery, and staff believes that the utility should respond to the production of document requests.  Mr. Siedman has already reflected 7 actual hours in response to OPC discovery.  As such, staff believes the estimated 20 hours for OPC discovery is excessive, and believes a total of 20 hours is more reasonable to respond to OPC's questions.  As such, staff believes that the estimated allowed hours should be thirteen which represent a reduction of seven hours.  Therefore, staff recommends that rate case expense be decreased by $2,125 (17 hours x $125).

 

            The fourth adjustment addresses the utility’s estimated $32,037 of consultant fees for AUSC to complete the rate case.  AUSC estimated 16.56 hours or $3,064 for Mr. Fogelsanger and 24.50 hours or $4,655 for Mr. Palko.  The utility asserted that these estimated hours were to assist with data requests and audit facilitation.  First, on November 29, 2006, Sanlando provided staff with an update on AUSC’s actual and estimated costs to complete this case.  Staff notes that AUSC had no actual costs from August 30, 2006 to November 29, 2006.  Based on the types of questions in staff’s data requests subsequent to November 29, 2006, staff believes the utility, with some assistance of its legal counsel, would be responsible for addressing them, not AUSC.  Second, the staff audit report was issued on October 16, 2006, and the utility’s response to this audit, in which most audit findings were agreed to, was filed with the Commission on November 13, 2006.  As such, there should be no estimated hours related to the audit in this case.  Third, according to MFR Schedule B-10, the type of services to be rendered by AUSC were only to assist with the MFRs, data requests and audit facilitation.  Based on the above, staff believes the utility has not met its burden to justify any of the $7,719 estimated fees for AUSC to complete the rate case.  Thus, staff recommends that rate case expense be decreased by $7,719. 

 

            The fifth adjustment relates to WSC In-house and Office Temps fees.  In its rate case expense update, the utility provided time sheets for WSC employees and invoices for the Office Temps who were assisting WSC.  WSC timesheet reflected 781.80 total actual hours for twelve employees, which totaled $28,975.  As stated earlier, staff has recommended disallowing 7 hours related to Ms. Weeks working on MFR deficiencies.  Further, in January 2005, which represents approximately 14 months prior to the utility’s test year request letter for this case, Ms. Weeks spent one hour or $42 related to "Sanlando Hurricane Expenses."  In addition, Mr. Dihel reflected 65 hours or $2,015 for Sanlando’s last index and pass-through application and reflected six hours or $186 related to "Sanlando Roll Forward".  Staff believes that the utility has not met its burden of proof that these hours relate to the utility's current rate case.  As such, staff believes that the additional 72 hours or $2,243 ($42 +$2,015 + $186) should be disallowed. 

 

            Furthermore, in its rate case expense update, the utility simply stated that the WSC employees estimated hours of 294.87 and the Office Temps estimated hours of 1,027.42, both related to assistance with data requests and audit facilitation.  Using these hours, the utility asserted that the estimate of costs for WSC employees and Office Temps to complete the case  are $14,533 and $17,466, respectively.   Staff has several additional concerns regarding these estimated hours.  First, as stated earlier, there should be no estimated hours related to the audit in this case because the utility has already responded to the audit and those associated hours reflected in the actual hours.  Second, in those cases where rate case expense has not been supported by detailed documentation, the Commission’s practice has been to disallow some portion or remove all unsupported amounts.[17]  Third, based on the types of questions in staff’s data requests subsequent to November 29 , 2006, staff believes that the utility, with some assistance of its legal counsel, would be responsible for addressing them, not the Office Temps.  Staff believes a reasonable method to estimated WSC employee hours to complete the case is to utilize the average monthly hours of staff’s adjusted actual hours.  Using this method, staff calculated an estimate for WSC employees to complete the case of  266.27 hours which represents a reduction of 28.60 hours or $965.  Thus, staff recommends that rate case expense should be decreased by $20,674  ($2,243 + $17,466 + $965).

            The sixth adjustment addresses WSC travel expenses.  In its MFRs, the utility estimated $3,200 for travel.  Staff believes that a reasonable cost for one person traveling round trip from Chicago to Tallahassee, airfare, car rental, parking and lodging is $750.  This was the amount of travel expense the Commission allowed for WSC in the 2004 Labrador rate case.   On December 20, 2006, staff calculated travel expenses of $606, using the airfare for January 22, 2007 ($333), current rental car rates ($107), hotel rate from a website ($86) and a meal allowance ($80).  Staff realizes that estimated travel expenses are subject to change.  Thus, consistent with the 2004 Labrador case, staff recommends total travel expenses of $750 for the January 23, 2007, Agenda Conference.  Further, because WSC is also present on behalf of Lake Placid Utilities, Inc. and Cypress Lakes Utilities, Inc. at this same agenda, staff believes that travel expenses should be allocated equally among these three utilities.  Therefore, staff believes $250 is the appropriate travel expense.  Accordingly, staff recommends that rate case expense be decreased by $2,950.

 

            The seventh adjustment relates to WSC expenses for FedEx Corporation (FedEx), copies and other miscellaneous costs.  In its MFRs, the utility estimated $12,000 for these items.  In support of this expense, the utility provided only $1,209 in costs from FedEx invoices for services through October 20, 2006.  There was no breakdown or support for the remaining $10,791.  Staff is also concerned with the amount of requested costs for FedEx expense.  UI has requested and received authorization from the Commission to keep its records outside the state in Illinois.  This is pursuant to Rule 25-30.110(2)(b), F.A.C.  However, when a utility receives this authorization, it is required to reimburse the Commission for the reasonable travel expense incurred by each Commission representative during the review and audit of the books and records.  Further, these costs are not included rate case expense or recovered through rates.  By Order No. PSC-93-1713-FOF-SU, p. 19., issued November 30, 1993, in Docket No. 921293-SU, In Re: Application for a Rate Increase in Pinellas County by Mid-County Services, Inc., the Commission found the following: "The utility also requested recovery of the actual travel costs it paid for the Commission auditors. Because the utility's books are maintained out of state, the auditors had to travel out of state to perform the audit. We have consistently disallowed this cost in rate case expense. See Order No. 25821, issued February 27, 1991, and Order No. 20066, issued September 26, 1988.”  Staff believes that the requested amount of shipping costs in this rate case directly relates to the records being retained out of state.  The utility typically ships its MFRs, answers to data request, etc., to its law firm located in central Florida.  Then, these are submitted to the Commission.  Staff does not believe that the ratepayers should bear the related costs of having the records located out of state.  This is a decision of the shareholders of the utility, and, therefore, they should bear the related costs.  Therefore, staff recommends that rate case expense be decreased by $12,000.

 

            The eighth adjustment relates to customer notices and postage thereof.  The utility is requesting costs of $5,446 for notices and $2,113 for postage.  Sanlando provided invoices totaling $5,446 for copying costs of its initial, customer meeting, and interim notices for this case, and it included copying costs related to Docket No. 040384-WS, In re: Application by Sanlando Utilities, Corp. for amendment of water and wastewater certificates in Seminole County.  Staff believes that the $1,050 cost of the notice for Docket No. 040384-WS is a non-recurring expense beyond the test year in this case and should be disallowed.  Further, as the utility must also notice its customers of the final rate increase, staff believes rate case expense should be increased by $770 for the final notice.  In its update of rate case expense, the utility did not provide any support for its postage.  However, Sanlando has already sent out a combined initial notice and customer meeting notice, and an interim notice.  Also, the utility will be sending a final notice.  Based on a discussion with the utility, WSC presort service postage rate is $0.341.  Using the utility’s total customer count and a unit cost of $0.341 for the above-mentioned notices, staff calculated the total postage for notices to be $11,083.  This represents an increase of $8,970.  Based on the above, staff recommends that rate case expense should increased by $8,690  [($1,050) plus $770 plus $8,970].

 

            In summary, staff recommends that the utility’s revised rate case expense be decreased by $73,243 for MFR deficiencies, unsupported and unreasonable rate case expense.  The appropriate total rate case expense is $155,900.  A breakdown of rate case expense is as follows:

 

 

In its MFRs, the utility requested total rate case expense of $170,338 which amortized over four years would be $42,584.  The utility actually included in its MFRs $23,847 and $18,737 for rate case expense in the test year for water and wastewater, respectively. The recommended total rate case expense should be amortized over four years, pursuant to Section 367.016, F.S.  This represents annual amortization of $38,975 ($155,900 divided by four).  Therefore, rate case expense should be decreased by $1,761 and $1,848 for water and wastewater, respectively.

Issue 15: 

 Should an adjustment be made to the utility's pro forma amortization expenses?

Recommendation: 

  Yes.  The water and wastewater amortization expenses should be reduced by $6,600 and $24,600, respectively.  Further, the wastewater O&M expense should be increased by $32,862.  (Fletcher)

Staff Analysis: 

 In its MFRs, Sanlando reflected $6,600 ($33,000 divided by five years) amortization expense for painting the Des Pinar water tank, and $24,600 ($123,000 divided by  five years) amortization expense for sanitary sewer cleaning.  In a data request, staff asked the utility to provide its supporting documentation regarding the above projects.  Based on Sanlando’s response to this data request, staff believes adjustments are necessary for these projects.

Des Pinar Water Tank Painting Project

In response to a staff data request, the utility stated that this project included painting the exterior of two ground storage tanks, as well as, the equipment building exterior. Sanlando asserted that the painting effort will protect and extend the service life of the facilities.  However, the utility failed to provide any supporting documentation for the Des Pinar water tank painting project.  Thus, due to lack of support documentation, staff recommends that the water amortization expenses be reduced by $6,600.

Sanitary Sewer Cleaning

            In its response to a staff data request, the utility stated that, while the sanitary sewer cleaning was included in the MFRs as a deferred project, it is a recurring annual expense of $123,000 or more and should be included as an adjustment to O&M expenses.  According to Audit Finding No. 23, staff auditors stated that, in 2005, Sanlando charged $89,068 for the utility’s continuing maintenance plan to televise, video, clean, and repair ten percent of its sanitary sewer pipes each year.  The auditors also stated that, if the utility does not continue to expend a like amount for each succeeding year after the test year, the associated O&M expense in the MFRs may be overstated.  In its response to the audit, Sanlando asserted that the amount spent from January 2006, through November 2006, for sewer main cleaning was $134,422 based on its general ledger, and, as such, the utility proposes that a pro forma adjustment in the amount of $50,000 over test year O&M expenses should be made to account for sewer main cleaning on a going forward basis. 

            In its response to a staff data request, Sanlando provided invoices which it stated would  support an annual amount for cleaning the sewer mains.  Based on staff’s review of these invoices, there were only two invoices totaling $121,930 associated with the utility’s continuing maintenance plan for its sanitary sewer pipes.  The other invoices related to cleaning several lift stations and a few apparent emergency sewer main cleanings of specific areas of its collection system.  Based on the above, staff recommends that the wastewater amortization expense should be decreased by $24,600 and that the wastewater O&M expense should be increased by $32,862 ($121,930 less $89,068).

Issue 16: 

 Should any adjustments be made to property taxes?

Recommendation: 

 Yes.  In order to reflect a corresponding increase in property taxes as a result of the recommended pro forma net plant additions, property taxes should be increased by $18,339 for water and $13,950 for wastewater.  (Fletcher)

Staff Analysis: 

 On MFR Schedule B-15, the utility reflected per book property taxes of $89,396 for water and $122,895 for wastewater.  In its MFRs, Sanlando did not adjust its property taxes for its pro forma plant additions.  As discussed in Issue 5, staff is recommending pro forma net plant additions of $1,120,212 for water and $851,333 for wastewater.  In order to reflect a corresponding increase in property taxes as a result of the recommended pro forma net plant additions, staff also recommends that property taxes should be increased by $18,339 for water and $13,950 for wastewater.

Issue 17: 

 What is the test year pre-repression water and wastewater operating income before any revenue increase?

Recommendation: 

  Based on the adjustments discussed in previous issues, staff recommends that the test year pre-repression water operating income before any provision for increased or decreased revenues should be $94,186 for water and $414,413 for wastewater.  (Fletcher)

Staff Analysis: 

 As shown on Schedule 3-A and 3-B, after applying staff’s adjustments, pre-repression net operating income before any revenue increase is $94,186 for water and $414,413 for wastewater.  Staff’s adjustments to pre-repression operating income are shown on Schedule 3-C.

Issue 18: 

 What is the appropriate pre-repression revenue requirement for the December 31, 2005 test year?

Recommendation: 

 The following pre-repression revenue requirement should be approved.  (Fletcher)

	Test Year Revenues	$ Increase	Revenue Requirement	% Increase
Water	$2,086,740	$404,581	$2,491,321	19.39%
Wastewater	$3,332,467	$664,394	$3,996,861	19.94%

Staff Analysis: 

 Sanlando requested final rates designed to generate annual water revenues of $2,506,862 and wastewater revenues of $4,023,154.  This represents a revenue increase of $420,905 (20.17%) for water and $691,470 (20.75%) for wastewater.  Consistent with staff’s recommendations concerning the underlying rate base, cost of capital, and operating income issues, staff recommends approval of rates that are designed to generate a pre-repression revenue requirements of $2,491,321 for water and $3,996,861 for wastewater.  The recommended revenue requirements exceeds staff’s adjusted test year revenues by $404,581 or 19.39% for water and $664,394 or 19.94% for wastewater.  The recommended pre-repression revenue requirement will allow the utility the opportunity to recover its expenses and earn a 8.36% return on its investment in wastewater rate base.

Issue 19: 

 What are the appropriate rate structures for the utility's water and wastewater systems?

Recommendation: 

 The appropriate rate structure for the water system’s residential class is a change to a two-tier inclining-block rate structure.  The appropriate usage blocks are 0-10 kgal/month in the first usage block, and in excess of 10 kgal/month in the second usage block.  The appropriate rate factors are 1.0 and 2.0 respectively.  The appropriate rate structure for the water system’s nonresidential classes is a continuation of its base facility charge (BFC)/uniform gallonage charge rate structure.   The BFC cost recovery percentage for the water system should be set at 30.3%.  The entire water system revenue increase should be applied to the gallonage charge.  In addition, $500,000 of the wastewater system revenue requirement associated with the reuse facilities should be reallocated to the water system’s gallonage charge.  The appropriate rate structure for the wastewater system is a continuation of the BFC/gallonage charge rate structure.  The residential wastewater monthly gallonage cap should be set at 10 kgal.  The wastewater rates prior to filing should receive an across the board percentage increase of 4.9%.  (Lingo)

Staff Analysis: 

 The utility’s current water system rate structure for the residential class consists of a BFC/uniform gallonage rate structure.  Prior to filing for rate relief, the BFC for 5/8” x 3/4” meter customers was $4.25 per month.  The usage charge prior to filing was $0.44 per kgal.

Sanlando is located in Seminole County within the St. Johns River Water Management District (SJRWMD or District).  The entire District has been designated a water resource caution area.  Furthermore, approximately 39% of SJRWMD, including the Sanlando service area, are identified as priority water resource caution areas.  These are areas where existing and reasonably anticipated sources of water and water conservation efforts may not be adequate to    supply water for all existing legal uses and anticipated future needs, or to sustain the water resources and related natural systems.  In 1991, the Commission entered into a Memorandum of Understanding (MOU) with the five Water Management Districts (WMDs), in which the agencies recognized that it is in the public interest to engage in a joint goal to ensure the efficient and conservative utilization of water resources in Florida, and that a joint cooperative effort is necessary to implement an effective, state-wide water conservation policy. 

Water Rates  Staff performed a detailed analysis of the utility’s billing data.  Based on this analysis, staff believes that it is appropriate to implement an inclining block rate structure for this utility’s residential rate class.  During the 2005 test year, average residential consumption was 19.5 kgal/month, with approximately 18% of residential customers consuming over 30 kgal/month.  This level of usage is indicative of a very high level of discretionary, or non-essential, usage that is relatively sensitive to price increases.  Therefore, in light of the SJRWMD’s desire to reduce water consumption in this area, staff believes that it is appropriate to implement an inclining block rate structure for this utility in order to encourage water conservation.

Staff performed additional analysis of the utility’s billing data in order to evaluate various BFC cost recovery percentages, usage blocks, and usage block rate factors for the residential rate class.  The goal of the evaluation was to select the rate design parameters that 1) allow the utility to recover its revenue requirement, 2) equitably distribute cost recovery among the utility’s customers, and 3) implement where appropriate water conserving rate structures consistent with the Commission’s Memorandum of Understanding with the state’s Water Management Districts. 

           

To increase the water-conserving nature of the rate structure, staff recommends that the entire increase in water system revenue requirements be allocated to the gallonage charge, and that the BFC remain unchanged at $4.25 for a 5/8” x 3/4” meter customer.  By shifting cost recovery to the water system gallonage charge while holding the BFC constant, staff is able to design a more effective water conserving rate structure.  Furthermore, by setting the rate factors at 1.0 and 2.0 for the two usage blocks, staff is able to target the water conserving rate structure to customers who use more than 10 kgal/month while minimizing price increases to customers who use less.

 

The traditional BFC/uniform gallonage charge rate structure has been the Commission’s water rate structure of choice for nonresidential customer classes.  The uniform gallonage charge should be calculated by dividing the total revenues to be recovered through the gallonage charge by the total of gallons attributable to all rate classes.  This should be the same methodology used to determine the general service gallonage charge in this case.  With this methodology, the general service customers would continue to pay their fair share of the cost of service.

 

Allocation of Reuse Costs  Traditionally, costs associated with the provision of water service are allocated to the water customers, and those associated with the provision of wastewater service are allocated to the wastewater customers.  The evolution of reuse of reclaimed water as a method of effluent disposal, aquifer recharge, and water conservation has brought change to the traditional allocation of revenue requirement.  In recognition that water customers benefit from the conservation facilitated by reuse, it is appropriate to consider whether a portion of the wastewater or reuse costs should be shared by the water customers. 

 

Section 367.0817, F.S., sets forth the Commission’s authority to allocate the costs of providing reuse among any combination of a utility’s customer base and recognizes that all customers benefit from the water resource protection afforded by reuse.  Specifically, Section 367.0817(3), F.S., states:

All prudent costs of a reuse project shall be recovered in rates.  The Legislature finds that reuse benefits water, wastewater, and reuse customers.  The commission shall allow a utility to recover the costs of a reuse project from the utility’s water, wastewater, or reuse customers or any combination thereof as deemed appropriate by the commission.

This provision recognizes that all customers benefit from the water resource protection afforded by reuse.

Determining how much of the wastewater revenue requirement should be allocated to the water customers is difficult given the discretionary nature of Section 367.0817, F.S..  Although the statute acknowledges that reuse benefits water, wastewater and reuse customers, there is no guidance in the statute as to how to measure these benefits.  In addition, the statute does not state when it is appropriate to undertake such an allocation or how much should be allocated.  These decisions are left solely to the Commission’s discretion.[18]  Different criteria to consider in deciding whether and how much of a reuse system’s costs may be allocated to water customers include but are not limited to:  1) recognition of perceived benefit; 2) average usage of the water customers; 3) the level of water rates; 4) the magnitude of the wastewater revenue increases; and 5) the need to send a stronger price signal to achieve water conservation.[19]

 

In this case, analysis also showed that average residential consumption per customer is 19.553 kgal per month.  This level of consumption indicates that there is a very high level of discretionary, or non-essential, consumption.  Absent any rate design or reuse allocation adjustment, the rates would be $4.25 for a 5/8” x 3/4” meter, with a gallonage charge of $.61 per kgal.  These rates do not represent meaningful conservation rates. 

Due to the high average monthly usage per residential customer, low rates and the need to send a strong price signal to the customers to achieve conservation, staff is recommending that $500,000 of the wastewater system revenue requirement associated with the reuse facilities be shifted to the gallonage charge portion of the water rate structure.  In doing so, staff believes it is a step toward a more aggressive water conservation rate structure geared to target those users with high levels of discretionary consumption.  The Commission has taken similar approaches in prior cases involving shifting a portion of reuse revenues to the water system.  Furthermore, if the Commission were to continue Sanlando’s current water rate structure and low rates, it would send an adverse signal to the utility’s customers.  At a time when the utilities in the state need to encourage customers to conserve water, staff believes it would be inappropriate not to utilize all means possible to create incentives for customers to use les water.

 

            Wastewater Rates  The utility’s current wastewater system rate structure consists of a BFC/gallonage charge rate structure.  Prior to filing for rate relief, the BFC for  5/8” x 3/4” meter customers was $11.35 per month.  The corresponding monthly gallonage charge for residential service was $1.51, capped at 10 kgal of usage, while the general service gallonage charge rate was 1.2 times greater than the residential charge, at $1.82 per kgal, with no usage cap.

 

A consequence of shifting $500,000 of the wastewater system revenue requirement to the water system is that the resulting increase to the wastewater system was decreased to 4.9%.  Staff believes that, due to the small percentage increase, the wastewater rates prior to filing should be increased by 4.9% across the board to yield the recommended rates.

 

Based on the foregoing, the appropriate rate structure for the water system’s residential class is a change to a two-tier inclining-block rate structure.  The appropriate usage blocks are for monthly usage of 0-10 kgal in the first usage block, and in excess of 10 kgal in the second usage block.  The appropriate rate factors are 1.0 and 2.0, respectively.  The appropriate rate structure for the water system’s nonresidential classes is a continuation of its base facility charge (BFC)/uniform gallonage charge rate structure.   The BFC cost recovery percentage for the water system should be set at 30.3%.  The entire water system revenue increase should be applied to the gallonage charge.  In addition, $500,000 of the wastewater system revenue requirement associated with the reuse facilities should be reallocated to the water system’s gallonage charge.  The appropriate rate structure for the wastewater system is a continuation of the BFC/gallonage charge rate structure.  The residential wastewater monthly gallonage cap should be set at 10 kgal.  The wastewater rates prior to filing should receive an across the board percentage increase of 4.9%.

 

Issue 20: 

 Are repression adjustments appropriate in this case, and, if so, what are the appropriate adjustments to make for this utility, what are the corresponding expense adjustments to make and what are the final revenue requirements for respective water and wastewater systems

Recommendation: 

 Yes, a repression adjustment to the water system is appropriate for this utility.  For the water system, test year kgal sold should be reduced by 176,292 kgal to 2,018,839 kgal, purchased power expense should be reduced by $32,727, chemicals expenses should be reduced by $5,415 and RAFs should be reduced by $1,797.  The final post-repression revenue requirement for the water system should be $2,939,855.  Staff recommends no repression adjustment to the wastewater system because it is immaterial.  The final revenue requirement for the wastewater system should be $3,496,864.

In order to monitor the effect of the rate structure and rate changes, the utility should be ordered to file reports detailing the number of bills rendered, the consumption billed and the revenues billed on a monthly basis.  In addition, the reports should be prepared by customer class, usage block, and meter size.  The reports should be filed with staff, on a quarterly basis, for a period of two years beginning with the first billing period after the approved rates go into effect.  To the extent the utility makes adjustments to consumption in any month during the reporting period, the utility should be ordered to file a revised monthly report for that month within 30 days of any revision.  (Lingo)

Staff Analysis: 

 Staff conducted a detailed analysis of the consumption patterns of the utility’s residential customers as well as the increase in residential bills resulting from the increase in revenue requirements.  This analysis showed that a very small portion (4.7%) of the residential bills rendered during the test year were for consumption levels below 1 kgal per month.  This indicates that the bulk of the customer base of the utility are full time residents.  This analysis also showed that average residential consumption per customer was 19.553 kgal per month.  This level of consumption indicates that there is a very high level of discretionary, or non-essential, consumption of approximately 13.553 kgal per customer per month.  Discretionary usage, such as outdoor irrigation, is relatively responsive to changes in price, and is therefore subject to the effects of repression.

Using our database of utilities that have previously had repression adjustments made, staff calculated a repression adjustment for this utility based upon the recommended increase in revenue requirements in this case, and the historically observed response rates of consumption to changes in price.  This is the same methodology for calculating repression adjustments that the Commission has approved in prior cases.  Based on this methodology, staff calculated that test year residential consumption for this utility should be reduced by 176,292 kgal. purchased power expense should be reduced by $32,727, chemicals expenses should be reduced by $5,415 and RAFs should be reduced by $1,797.  The final post-repression revenue requirement for the water system should be $2,939,855.  Staff recommends no repression adjustment to the wastewater system because it is immaterial.  The final revenue requirement for the wastewater system should be $3,496,864.

 

In order to monitor the effect of the rate changes, the utility should be ordered to file reports detailing the number of bills rendered, the consumption billed, and the revenues billed on a monthly basis.  In addition, the reports should be prepared by customer class, usage block, and meter size.  The reports should be filed with staff, on a quarterly basis, for a period of two years beginning with the first billing period after the approved rates go into effect.  To the extent the utility makes adjustments to consumption in any month during the reporting period, the utility should be ordered to file a revised monthly report for that month within 30 days of any revision.

Issue 21: 

 What are the appropriate monthly rates for the water and wastewater systems for the utility?

Recommendation: 

 The appropriate monthly water rates are shown on Schedule No. 4-A.  The appropriate wastewater monthly rates are shown on Schedule No. 4-B.  Excluding miscellaneous service charges, the recommended water rates produce revenues of $2,939,855.  Excluding miscellaneous service charges, the recommended wastewater rates produce revenues of $3,496,864.  The utility should file revised water and wastewater tariff sheets and a proposed customer notice to reflect the Commission-approved rates for the water and wastewater systems.  The approved rates should be effective for service rendered on or after the stamped approval date of the revised tariff sheets pursuant to Rule 25-30.475(1), F.A.C.  In addition, the approved rates should not be implemented until staff has approved the proposed customer notice.  The utility should provide proof of the date notice was given no less than 10 days after the date of the notice.  (Lingo, Fletcher)

Staff Analysis: 

 The appropriate pre-repression revenue requirements, excluding miscellaneous service charges, is $2,979,794 for the water system and $3,496,864 for the wastewater system.  As discussed in Issue 19, staff recommends that the appropriate rate structure for the water system’s residential class is a two-tier inclining-block rate structure, with monthly usage blocks of 0-10 kgal for the first block, and usage in excess of 10 kgal for the second block.  The usage block rate factors should be 1.0 and 2.0, respectively.  The BFC cost recovery percentage should be set at 30.3%, causing the utility’s BFC for a 5/8” x ¾” meter customer to remain unchanged from the corresponding rate prior to filing.  Staff recommends that the traditional BFC/uniform gallonage charge rate structure be applied to all non-residential rate classes.  As also discussed in Issue 19, staff recommends that the residential wastewater gallonage cap remain at 10 kgal, and that the rates prior to filing receive an across the board increase of 4.9% to achieve the recommended revenue requirement.  As discussed in Issue 20, staff recommends that a repression adjustment be made to the water system.  Applying these rate designs and repression adjustments to the recommended pre-repression revenue requirements results in the final rates contained in Schedules No. 4-A and No. 4-B.  These rates are designed to recover a post-repression revenue requirement for the water system of  $2,939,855, and a post-repression revenue requirement for the wastewater system of $3,496,864.

The utility should file revised wastewater tariff sheets and a proposed customer notice to reflect the Commission-approved wastewater rates.  The approved rates should be effective for service rendered on or after the stamped approval date of the revised tariff sheets pursuant to Rule 25-30.475(1), F.A.C.  The approved wastewater rates should not be implemented until staff has approved the proposed customer notice.  The utility should provide proof of the date notice was given no less than 10 days after the date of the notice.

A comparison of the utility’s original rates, requested rates, and staff’s recommended water and wastewater rates are shown on Schedules Nos. 4-A and 4-B, respectively.

Issue 22: 

 What are the appropriate reuse rates for this utility?

Recommendation: 

  No rate should be established for the utility’s large reuse end-users at this time.  Sanlando should be encouraged to begin negotiating with its large reuse end-users regarding charging for this service in the future.  Within twelve months of the effective date of the final order in this docket, the utility should submit a report outlining the results of its negotiations with its large reuse end-users and provide a copy of all corresponding related to those negotiations.  A residential reuse base facility charge of $3.65 and a gallonage charge of $0.39 per thousand gallons should be approved for this utility.  The utility should file tariff sheets which are consistent with the Commission’s decision within 30 days from the Commission’s vote.  The tariff sheets should be approved upon staff’s verification that the tariffs are consistent with the Commission’s decision.  The approved rates should be effective for service rendered on or after the stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C.  (Fletcher)

Staff Analysis: 

 In its analysis of what the appropriate reuse rates should be for this utility, staff believes it would be helpful to provide the history of Sanlando’s reuse system, which is discussed in Attachment B.  As discussed in Attachment B, Sanlando’s current reuse end-users include golf courses, a plant nursery, and the City of Altamonte Springs.   In Staff’s Fourth Data Request, the utility was asked to explain why it was not charging any of these reuse end-users.  In its response, Sanlando stated the following:

The absence of a reuse rate avoids having an impediment to the use of reclaimed water, which is an operational advantage over using alternative disposal sites. If these large reuse customers were forced to pay for reuse, then their reclaimed water use on an annualized basis would be repressed.  In anticipation of this repression, the Utility would need to build additional storage tanks, develop additional reuse customers, and/or discharge more frequently and for greater duration into Sweetwater Creek. Since Sweetwater Creek is tributary to the Wekiva River, and because the Wekiva River Protection Act limits the amount of nitrogen that can be discharged, this may not be a viable option.

In order to avoid the possibility of significant capital expenditures resulting from repressed reclaimed water usage, staff recommends that no rate should be established for these large reuse end-users at this time.  The Commission has previously authorized no charges for large reuse end-users in order to recognize the mutual benefit for the utility as a disposal means for its wastewater effluent and the end-users’ need for irrigation.[20] 

            Although staff believes no charges are not appropriate in this proceeding for these large reuse end-users, a rate may be appropriate in the future.  In United Water Florida Inc.’s 1998 rate proceeding,[21] this Commission stated, “We believe from a policy standpoint that reclaimed water should be regarded as a valuable resource for which a charge should apply when possible.”  Thus, staff believes that the utility should be encouraged to begin negotiating with its large reuse end-users regarding charging for this service in the future.  Further, staff recommends that, within twelve months of the effective date of the final order in this docket, the utility should submit a report outlining the results of its negotiations with its large reuse end-users and provide a copy of all corresponding related to those negotiations.

            As discussed in Issue 6, the utility is basically at built-out.  Thus, staff notes that retrofitting of the existing customers’ irrigation systems would be required.  Because retrofitting can be capital intensive, staff does not recommend any change for the existing customers.  However, according to Schedule S-13 of Sanlando’s 2005 annual report, the utility stated that the Gallimore subdivision consisting of 112 residential units would be developed with reuse facilities. In its response to a staff data request, the utility expressed a desire for a residential reuse tariff.

            In determining the appropriate amount for the BFC and gallonage charges, staff  considered the average reuse charge of utilities in Seminole County with the same residential reuse BFC and gallonage charge structure.  According to DEP’s 2005 Reuse Inventory report issued June 2006, the average BFC was $6.10 with a range from $3.65 to $8.55, and the average gallonage charge was $0.39 per thousand gallons with a range of $0.25 to $0.54.  Based on the above, staff believes a BFC of $3.65 and a gallonage charge of $0.39 per thousand gallons is reasonable and should be approved.  Staff notes that, at the January 23, 2007, Agenda Conference, the Commission approved these exact same reuse rates for Alafaya Utilities, Inc., who is also in Seminole County and is Sanlando’s sister company.  Further, as recommended in Issue 26, staff is recommending a water and reuse meter installation fee of $150. 

The utility should file tariff sheets which are consistent with the Commission’s decision within 30 days from the Commission’s vote.  The tariff sheets should be approved upon staff’s verification that the tariffs are consistent with the Commission’s decision.  The approved rates should be effective for service rendered on or after the stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C.

 

  
Issue 23: 

 Should the utility be authorized to revise its miscellaneous service charges, and, if so, what are the appropriate charges?

Recommendation: 

 Yes.  The utility should be authorized to revise its miscellaneous service charges.  The appropriate charges are reflected below.  The utility should file a proposed customer notice to reflect the Commission-approved charges.  The approved charges should be effective for service rendered on or after the stamped approval date of the tariff, pursuant to Rule 25-30.475(1), F.A.C., provided the notice has been approved by staff.  Within 10 days of the date the order is final, the utility should be required to provide notice of the tariff changes to all customers.  The utility should provide proof the customers have received notice within 10 days after the date that the notice was sent.  (Fletcher)

Staff Analysis: 

 The miscellaneous service charges were approved for Sanlando on March 8, 1999, and have not changed since that date. The utility’s approved charges are the same as the standard charges that the Commission had approved since at least 1990 – a period of 16 years.  Staff believes these charges should be updated to reflect current costs.  The utility agrees with this update.  Staff recommends that Sanlando be allowed to increase its water and wastewater miscellaneous service charges from $15 to $21 and from $15 to $42 for after hours, and to modify its Premises Visit (in lieu of disconnection) charge.  If both water and wastewater services are provided, a single charge is appropriate unless circumstances beyond the control of the utility requires multiple actions.  The current and recommended charges are shown below.

                                      Water Miscellaneous Service Charges

 

                               Wastewater Miscellaneous Service Charges

 

The standard miscellaneous service charges have not been updated in over 16 years and costs for fuel and labor have risen substantially since that time.  Further, the Commission’s price index has increased approximately 60% in that period of time.  The Commission has expressed concern with miscellaneous service charges that fail to compensate utilities for the cost incurred.  By Order No. PSC-96-1320-FOF-WS, issued October 30, 1996,[22] the Commission expressed “concern that the rates [miscellaneous service charges] are eight years old and cannot possibly cover current costs” and directed staff to “examine whether miscellaneous service charges should be indexed in the future and included in index applications.”  Currently, miscellaneous service charges may be indexed if requested in price index applications pursuant to Rule 25-30.420, F.A.C.  However, few utilities request their miscellaneous service charges be indexed.  Staff applied the approved price indices from 1990 through 2005 to Sanlando’s $15 miscellaneous service charge, and the result was a charge of $21.00.  Therefore, staff believes a $21 charge is reasonable, cost based, and consistent with prior Commission decisions.  (See Order No. PSC-06-0684-PAA-WS, issued August 8, 2006,[23] and Order No. PSC-05-0776-TRF-WS, issued July 26, 2005,[24] in which the Commission approved a $20 charge for connection and reconnections during normal hours and a $40 after hours charge for Mad Hatter Utility, Inc.) 

Sanlando’s current tariff includes a Premises Visit (in lieu of disconnection) charge.  This charge is levied when a service representative visits a premises for the purpose of discontinuing service for non-payment of a due and collectible bill and does not discontinue service, because the customer pays the service representative or otherwise makes satisfactory arrangements to pay the bill.  Staff recommends the “Premises Visit In Lieu of Disconnection” charge should be replaced with what will be called a “Premises Visit.”  In addition to those situations described in the definition of the current Premises Visit In Lieu of Disconnection, the new Premises Visit charge will also be levied when a service representative visits a premises at a customer’s request for a complaint resolution or for other purposes and the problem is found to be the customer’s responsibility.  This charge is consistent with Rule 25-30.460(1)(d), F.A.C.  In addition, by Order No. PSC-05-0397-TRF-WS, issued April 18, 2005,[25] the Commission approved a Premises Visit Charge to be levied when a service representative visits a premises at the customer’s request for complaint and the problem is found to be the customer’s responsibility.  Based on the foregoing, staff recommends the Premises Visit (in lieu of disconnection) be eliminated and the Premises Visit charge is reasonable and should be approved.

            In summary, staff recommends the Commission approve the utility’s miscellaneous service charges of $21 and after hours charges of $42, because the increased charges are cost-based, reasonable, and consistent with fees the Commission has approved for other utilities.  The utility should file a proposed customer notice to reflect the Commission-approved charges.  The approved charges should be effective for service rendered on or after the stamped approval date of the tariff, pursuant to Rule 25-30.475(1), F.A.C., provided the notice has been approved by staff.  Within ten days of the date the order is final, the utility should be required to provide notice of the tariff changes to all customers.  The utility should provide proof the customers have received notice within ten days after the date the notice was sent.

 

Issue 24: 

 In determining whether any portion of the interim increase granted should be refunded, how should the refund be calculated, and what is the amount of the refund if any?

Recommendation: 

 The proper refund amount should be calculated by using the same data used to establish final rates, excluding rate case expense and other items not in effect during the interim period. This revised revenue requirement for the interim collection period should be compared to the amount of interim revenues granted. Based on this calculation, no refund is required.  Further, upon issuance of the Consummating Order in this docket, the corporate undertaking should be released.  (Fletcher)

Staff Analysis: 

 By Order No. PSC-06-0671-FOF-WS, issued August 7, 2006, the Commission approved an interim revenue requirement of $2,098,272 for water and $3,431,093 for wastewater.  This represents an increase of $12,315 or 0.59% for water and $99,409 or 2.98% for wastewater.  The interim collection period is September 2006 through January 2007.

According to Section 367.082, F.S., any refund should be calculated to reduce the rate of return of the utility during the pendency of the proceeding to the same level within the range of the newly authorized rate of return.  Adjustments made in the rate case test period that do not relate to the period interim rates are in effect should be removed.  Rate case expense is an example of an adjustment which is recovered only after final rates are established.

In this proceeding, the test period for establishment of interim and final rates is the 12-month period ending December 31, 2005.  Sanlando’s approved interim rates did not include any provisions for pro forma or projected operating expenses or plant.  The interim increase was designed to allow recovery of actual interest costs, and the lower limit of the last authorized range for equity earnings. 

To establish the proper refund amount, staff has calculated interim period revenue requirements utilizing the same data used to establish final rates.  Rate case expense was excluded because this item is prospective in nature and did not occur during the interim collection period.  Using the principles discussed above, because the revenue requirements of $2,098,272 for water and $3,431,093 for wastewater granted in Order No. PSC-06-0671-FOF-WS, for the interim test year is less than the revenue requirements for the interim collection period of $2,468,194 for water and $3,979,176 for wastewater, staff recommends that no refund is required.  Further, upon issuance of the Consummating Order in this docket, the corporate undertaking should be released.

Issue 25: 

 What is the appropriate amount by which rates should be reduced four years after established effective date to reflect the removal of the amortized rate case expense as required by Section 367.0816, F.S.?

Recommendation: 

 The water and wastewater rates should be reduced as shown on Schedule Nos. 4-A and 4-B to remove $23,126 of water rate case expense and $17,685 of wastewater  rate case expense (grossed-up for regulatory assessment fees).  The decrease in rates should become effective immediately following the expiration of the four-year rate case expense recovery period, pursuant to Section 367.0816, F.S.  The utility should be required to file revised tariffs and a proposed customer notice setting forth the lower rates and the reason for the reduction no later than 30 days prior to the actual date of the required rate reduction.  The approved rates should be effective for service rendered on or after the stamped approval date of the revised tariff sheets pursuant to Rule 25-40.475(1), F.A.C. The rates should not be implemented until staff has approved the proposed customer notice. The utility should provide proof of the date notice was given no less than 10 days after the date of the notice.  (Fletcher)

Staff Analysis: 

 Section 367.0816, F.S., requires rates to be reduced immediately following the expiration of the four-year amortization period by the amount of the rate case expense previously included in the rates. The reduction will reflect the removal of revenues associated with the amortization of rate case expense and the gross-up for regulatory assessment fees which is $23,126 for water and $17,685 for wastewater. The decreased revenue will result in the rate reduction recommended by staff on Schedule No. 4-A and Schedule No. 4-B. 

The utility should be required to file revised tariff sheets and a proposed customer notice to reflect the Commission-approved rates. The approved rates should be effective for service rendered on or after the stamped approval date of the revised tariff sheets pursuant to Rule 25-40.475(1), F.A.C. The rates should not be implemented until staff has approved the proposed customer notice. The utility should provide proof of the date notice was given no less than 10 days after the date of the notice.

If the utility files this reduction in conjunction with a price index or pass-through rate adjustment, separate data should be filed for the price index and/or pass-through increase or decrease, and for the reduction in the rates due to the amortized rate case expense.

OTHER ISSUES

Issue 26: 

 What are the appropriate meter installation fees for the utility’s water and reuse customers?

Recommendation: 

 Sanlando should be authorized to collect water and reuse meter installation fees of $150 for a 5/8”x3/4” meter and actual cost for meters greater than 5/8”x3/4”.  The utility should file a proposed customer notice to reflect the Commission-approved charges.  The approved charges should be effective for service rendered on or after the stamped approval date of the tariff, pursuant to Rule 25-30.475(1), F.A.C., provided the notice has been approved by staff.  Within 10 days of the date the order is final, the utility should be required to provide notice of the tariff changes to all customers.  The utility should provide proof the customers have received notice within 10 days after the date that the notice was sent.    (Fletcher)

Staff Analysis: 

 The utility currently has an authorized water meter installation fee of $60 and $110 for a 5/8”x3/4” and 1” meters, respectively.  In its response to a staff data request, Sanlando stated that the new Gallimore subdivision is currently under construction and that no meters have been installed.  The utility asserted that the cost to install 5/8”x3/4” meter would be $150, which includes labor and materials and that the cost to install meters greater than 5/8”x3/4” should be at actual cost.  The Commission has approved a meter installation fee of $250 by Order No. PSC-03-0740-PAA-WS,[26] issued June 23, 2003, and a $200 fee by Order No, PSC-04-1256-PAA-WU,[27] issued December 20, 2004, for 5/8”x3/4” meters.  In addition, a $190 fee was approved by Order No. PSC-02-1831-TRF-WS,[28] issued December 20, 2002.  Therefore, staff recommends that Sanlando should be authorized to collect water and reuse meter installation fees of $150 for 5/8”x3/4” meter and actual cost for meters greater than 5/8”x3/4”.

The utility should file a proposed customer notice to reflect the Commission-approved charges.  The approved charges should be effective for service rendered on or after the stamped approval date of the tariff, pursuant to Rule 25-30.475(1), F.A.C., provided the notice has been approved by staff.  Within 10 days of the date the order is final, the utility should be required to provide notice of the tariff changes to all customers.  The utility should provide proof the customers have received notice within 10 days after the date that the notice was sent.

 

Issue 27: 

 Should the utility be required to show cause, in writing within 21 days, why it should not be fined for its apparent violation of Rule 25-30.116(1)(d)5., F.A.C.? 

Recommendation: 

 Yes. Sanlando Utilities, Corp. should be ordered to show cause in writing, within 21 days, why it should not be fined a total of $500 for its apparent violation of Rule 25-30.116(1)(d)5., F.A.C.  The order to show cause should incorporate the conditions stated below in the staff analysis.  (Brubaker, Fletcher)

Staff Analysis: 

 Rule 25-30.116(1)(d)5., F.A.C., states:

When the construction activities for an ongoing project are expected to be suspended for a period exceeding six (6) months, the utility shall notify the Commission of the suspension and the reason(s) for the suspension, and shall submit a proposed accounting treatment for the suspended project.

As discussed in Issue 5, staff is recommending a pro forma water plant increase of $1,178,493 for the utility’s electric control upgrade project.  According to the support documentation provided for this project, the first invoice of $40,165 was dated June 22, 2004, and the second invoice of $4,877 was dated April 26, 2005.  Based on these invoice dates, it appears the utility had suspended this project for approximately 10 months.  However, the utility did not notify the Commission of this project’s suspension nor did it submit a proposed accounting treatment, as required by Rule 25-30.116(1)(d)5., F.A.C. 

            In response to staff’s first inquiry, the Vice President of Operations in Florida (VPOF) stated that the 10-month suspension reflected the completion of the work at the Des Pinar water treatment plant (WTP) and the start-up of the work at the Wekiva WTP.  The VPOF asserted that, due to the size and complexity of the Wekiva WTP design as well as the impact of Hurricane Katrina on the costs of materials, the portion of the project associated with Wekiva WTP was reexamined in an effort to verify the cost effectiveness of the design.  Based on this initial response, it appeared that the work on the Des Pinar WTP was completed in June 2004.  However, upon a further data request from the corporate office personnel of the utility’s parent, UI stated that the work on the Des Pinar WTP was not completed until January 2006.  UI also asserted that the invoices for this work totaled $169,688 and that this amount remained in construction work in progress and accrued an AFUDC.

As stated above, the work on the Des Pinar plant was completed almost one year before the Wekiva plant.  Because the work on each plant was independent of one another, staff believes the utility should be encouraged not to combine projects like this one but rather to separate them as one project for each independent purpose.  By separating them into distinct projects, staff believes it should avoid the likelihood of any excessive AFUDC accrual.  As discussed in Issue 6, staff recommended the appropriate amount of AFUDC for this project in accordance with  Rule 25-30.116, F.A.C.  Thus, Sanlando will not realize a return on any unwarranted AFUDC resulting from the suspension of the electric control upgrade project.

            Section 367.161, F.S., authorizes the Commission to assess a penalty of not more than $5,000 for each offense, if a utility is found to have knowingly refused to comply with, or have willfully violated any Commission rule, order, or provision of Chapter 367, F.S..  In failing to notify the Commission of this project’s suspension and to submit a proposed accounting treatment, the utility’s act was “willful” in the sense intended by Section 367.161, F.S..  In Order No. 24306, issued April 1, 1991, in Docket No. 890216-TL, In Re: Investigation Into The Proper Application of Rule 25-14.003, F.A.C., Relating To Tax Savings Refund For 1988 and 1989 For GTE Florida, Inc., the Commission, having found that the company had not intended to violate the rule, nevertheless found it appropriate to order it to show cause why it should not be fined, stating that “[i]n our view, ‘willful’ implies an intent to do an act, and this is distinct from an intent to violate a statute or rule.”  Additionally, "[i]t is a common maxim, familiar to all minds that 'ignorance of the law' will not excuse any person, either civilly or criminally.” Barlow v. United States, 32 U.S. 404, 411 (1833).

Staff realizes that there are going to be numerous plant projects to keep track of for such a large water system like Sanlando’s.  However, Sanlando’s parent, UI, is a very large and sophisticated company providing water and wastewater service to customers in several states, and, as such, staff believes UI should be more likely to be cognizant of the Commission’s rules than perhaps the smaller water and wastewater companies.  Staff believes that UI’s continued pattern of disregard for the Commission’s rules, statutes, and orders warrants more than just a warning.

Based on the above, staff recommends that Sanlando be made to show cause in writing, within 21 days, why it should not be fined a total of $500 for its apparent violation noted above.  Staff recommends that the show cause order incorporate the following conditions:

1.                           The utility’s response to the show cause order should contain specific allegations of fact and law;

2.                           Should Sanlando file a timely written response that raises material questions of fact and makes a request for a hearing pursuant to Sections 120.569 and 120.57(1), F.S., a further proceeding will be scheduled before a final determination of this matter is made;

3.                           A failure to file a timely written response to the show cause order should constitute an admission of the facts herein alleged and a waiver of the right to a hearing on this issue;

4.                           In the event that Sanlando fails to file a timely response to the show cause order, the fine should be deemed assessed with no further action required by the Commission;

5.                           If the utility responds timely but does not request a hearing, a recommendation should be presented to the Commission regarding the disposition of the show cause order; and

6.                           If the utility responds to the show cause order by remitting the fine, this show cause matter should be considered resolved.

Further, the utility should be put on notice that failure to comply with Commission orders, rules, or statutes will again subject the utility to show cause proceedings and fines of up to $5,000 per day per violation for each day the violation continues as set forth in Section 367.161, F.S.

 

Issue 28: 

 Should the utility be required to provide proof, within 90 days of an effective order finalizing this docket, that it has adjusted its books for all the applicable NARUC USOA primary accounts associated with the Commission approved adjustments?

Recommendation: 

 Yes.  To ensure that the utility adjusts is books in accordance with the Commission’s decision, Sanlando should provide proof, within 90 days of the final order issued in this docket, that the adjustments for all the applicable NARUC USOA primary accounts have been made.  (Fletcher)

Staff Analysis: 

 To ensure that the utility adjusts its books in accordance with the Commission’s decision, staff recommends that Sanlando provide proof within 90 days of the final order issued in this docket that the adjustments for all the applicable NARUC USOA primary accounts have been made.

 

Issue 29: 

 Should this docket be closed?

Recommendation: 

 No.  If no timely protest is filed by a substantially affected person within 21 days of the Proposed Agency Action Order, a Consummating Order should be issued and the corporate undertaking released.  However, the docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the utility and approved by staff.  (Brubaker, Fletcher)

Staff Analysis:   If no timely protest is filed by a substantially affected person within 21 days of the Proposed Agency Action Order, a Consummating Order should be issued and the corporate undertaking released.  However, the docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the utility and approved by staff.

Sanlando Utilities Corp.                                                                                                Attachment A

                                                                                                                                         Page 1 of 3 

 

 

Water Treatment System With Storage

Used and Useful Analysis

 

 

 

Sanlando Utilities Corp.                                                                                           Attachment A

                                                                                                                                      Page 2 of 3

 

Wekiva Wastewater Treatment System

Used and Useful Analysis

 

 

Sanlando Utilities Corp.                                                                                              Attachment A

                                                                                                                                      Page 3 of 3

 

Des Pinar Wastewater Treatment System

Used and Useful Analysis

 

 

Sanlando Utilities Corp.                                                                                              Attachment B

                                                                                                                                      Page 1 of 3

 

History of Sanlando’s Reuse System

In Docket No. 900338-WS,[29] the Commission approved a water conservation plan for Sanlando, which includes the construction of an effluent reuse system.  As required by that docket, Sanlando filed a petition for a limited proceeding to implement the water conservation plan on March 10, 1993, in Docket No. 930256-WS.  On December 10, 1993, the Commission issued Order No. PSC-93-1771-FOF-WS, approving Sanlando's petition and requiring the utility to file a proposed charge for reclaimed water.  Specifically, the Commission authorized increased water gallonage charges in order to generate revenue for the conservation plan and required the utility to establish an escrow account to deposit those funds and any excess revenues.

Several timely protests were filed to Order No. PSC-93-1771-FOF-WS, and the Office of Public Counsel (OPC) and St. Johns River Water Management District (SJRWMD) intervened in the docket.  Consequently, the matter was set for formal hearing.  By Order No. PSC-95-0536-S-WS, issued April 28, 1995, the Commission approved the revised stipulation, with modifications, and ordered the docket to remain open pending the issuance of an IRS letter ruling on the parties' proposed plan.  The Commission ordered the parties to report the results of the IRS ruling, and authorized the parties to implement the terms of the stipulation if the ruling were favorable to the proposed plan.  By Order No. PSC-95-1213-S-WS, issued October 2, 1995, the Commission modified Order No. PSC-95-0536-S-WS, striking a paragraph unrelated to the IRS ruling and substituting new language in its place, but otherwise affirmed the order.  Sanlando requested a tax ruling by letter dated June 15, 1995, to the IRS.  The IRS letter ruling, dated March 15, 1996, ruled that the monies received by the utility in connection with the reuse facility would not qualify as contributions to capital.

On September 10, 1997, the utility filed a Motion to Hold Docket No. 930256-WS in Abeyance Pending Commission's Ruling on Application for Approval of Reuse Project Plan and Increase for Wastewater Rates.  By Order No. PSC-97-1460-PCO-WS, issued November 19, 1997, the Commission granted Sanlando's motion and ordered that Docket 930256-WS be held open in monitor status pending a ruling on the merits of Sanlando’s application filed in Docket No. 971186-SU.

On September 11, 1997, Sanlando filed an Application for Approval of a Reuse Project Plan and Increase in Wastewater Rates (Docket No. 971186-SU - new reuse application), which proposed to undertake the reuse project through the use of borrowed capital.  The applicant’s SJRWMD Consumptive Use Permit Number 2-117-0006UR2 and pending renewal of its Florida Department of Environmental Protection (DEP) Wastewater Permit Number FL0036251 require that the utility implement a reuse program.  To satisfy the permit conditions, the utility proposed to construct a reuse treatment facility along with reuse transmission and distribution mains.  The project was designed to provide reclaimed water to four commercial customers (three golf courses and a commercial nursery).  The applicant requested that the Commission establish reuse rates and increase wastewater rates to recover the initial cost of the reuse project.  When reuse customers were connected and the utility started receiving reuse revenue, the utility proposed to partially reduce the wastewater rates.

Sanlando Utilities Corp.                                                                                              Attachment B

                                                                                                                                      Page 2 of 3

By Order No. PSC-97-1337-PCO-SU, issued October 27, 1997, the Commission acknowledged the intervention of OPC.  By Order No. PSC-97-1582-PCO-SU, issued December 17, 1997, the Commission granted intervention by SJRWMD.

Based upon a review of Sanlando’s 1996 annual report, the Commission conducted an investigation of possible over earnings on a going forward basis for Sanlando’s water and wastewater systems.  After examining the utility’s 1996 annual report and completing a benchmark analysis, the Commission completed a limited scope audit of certain 1996 operation and maintenance expenses.  Subsequently, the utility's 1997 annual report was received on May 1, 1998.  Due to the observations made in Docket No. 971186-SU concerning over earnings, the Commission completed an expedited review of the annual report.

By Order No. PSC-98-0892-PCO-WS, issued July 6, 1998, in 980670-WS, the Commission initiated an investigation into the utility’s rates and charges, ordered the utility to hold 5.17% of water revenues and 9.86% of wastewater revenues subject to refund, and required security in the form of a corporate undertaking to protect the potential refund.  Additional revenues were subject to refund because of price indexes initiated in 1996 and 1997. 

On July 29, 1998, Utilities, Inc. filed an application for transfer of majority control of Sanlando to Utilities, Inc.  By Order No. PSC-99-0152-FOF-WS, issued January 25, 1999, in Docket No. 980957-WS, the Commission approved the transfer of majority control.

On April 7, 1999, Commission staff attended a presentation at the Altamonte City Commission Chambers by representatives of Sanlando and the City of Altamonte Springs (City).  The purpose of the presentation was to inform all interested persons that Sanlando and the City were in the process of developing a revised reuse project plan which would have Sanlando interconnect with the City’s reuse system.  The Commission was advised that this proposal may include golf courses and a commercial plant nursery which would be connected from the reuse line constructed to the City’s reuse lines.  At that time, the Commission was advised that the time frame included 90 days for City Commission approval, six to nine months of design, and 18 months of construction.

By Order No. PSC-00-0111-PAA-WS, issued January 12, 2000, the Commission ordered Sanlando to credit water CIAC in the amount of $138,460, and wastewater CIAC in the amount of $260,432 to reflect 1997 and 1998 over earnings which were held subject to refund plus interest.  The Commission also ordered the utility to continue to hold 5.17% of annual water and 9.86% of annual wastewater revenues subject to refund as required by Order No. PSC-98-0892-PCO.  Further, the Commission ordered Sanlando’s parent company, UI, to continue to maintain the existing corporate undertaking on behalf of Sanlando as guarantee of any potential refund of revenues pending the outcome of an analysis of the utility’s 1999 earnings.

By Order No. PSC-00-0112-PAA-SU, issued January 12, 2000, the Commission ordered Sanlando to file a revised reuse project application within six months of the effective date of that Order.  On March 9, 2000, Sanlando filed an “Amended Application for Approval of Reuse Project Plan.”  The $5,831,000 plan calls for Sanlando to interconnect with the City’s reuse system, and offer reuse to two golf courses, two homeowners’ associations’ common areas, and a commercial nursery.  The utility did not file the various justifications required by Section 367.0817, F.S. (Reuse Projects), because

Sanlando Utilities Corp.                                                                                              Attachment B

                                                                                                                                      Page 3 of 3

it is not proposing to recover the cost of the reuse project through rates.  Sanlando states that its investment will eliminate any question of over earnings for the year 2000 and beyond.  Construction was scheduled to commence June 2000, and be completed by the end of 2001.

On March 13, 2000, Sanlando filed a “Motion to Close Docket 980670-WS,” proposing that it book any 1999 over earnings as CIAC consistent with the Commission’s prior actions, and that the docket be closed.  The Motion also proposed that as of January 1, 2000, no earnings be held subject to refund, and that the corporate undertaking be terminated.  On March 24, 2000, OPC filed a “Citizens’ response to Sanlando’s Motion to close Docket No. 980670-WS”, strongly objecting to Sanlando’s Motion, and recommending denial of Sanlando’s Motion to close Docket No. 980670-WS, to credit 1999 over earnings to CIAC, and to not require Sanlando to hold revenues for the year 2000 subject to refund.  On April 14, 2000, a noticed conference call was held between the utility, Commission staff and OPC to review the utility’s Motion.  The utility confirmed that it would agree to credit CIAC for the amount of monies held subject to refund for 1999 ($407,009), provided this Commission would: 1) not require the utility to hold revenues subject to refund after January 1, 2000; 2) terminate the corporate undertaking; and, 3) not conduct an audit of 1999 utility books.

On July 10, 2000, the Commission issued Order No. PSC-00-1263-PAA-WS, which provided for the consolidation of Dockets Nos. 980670-WS and 971186-SU, and further approved Sanlando’s Motion to Close Docket No. 980670-WS, filed March 13, 2000, as an offer of settlement.  Accordingly, Sanlando’s 1999 revenues held subject to refund were ordered to be charged to CIAC within 90 days of the effective date of the Order, and no further revenues of Sanlando were to be held subject to refund after January 1, 2000.  The Order also provided that Utilities, Inc.’s corporate undertaking which guarantees Sanlando’s potential refund shall be canceled, and established Sanlando’s rate of return on equity as 9.81%, with a range of 8.81% to 10.81%.  Finally, by Order No. PSC-00-1263-PAA-WS, the Commission approved Sanlando’s amended reuse project plan, filed March 10, 2000.

On July 31, 2000, OPC timely filed a petition protesting Order No. PSC-00-1263-PAA-WS.  However, on September 6, 2000, OPC and Sanlando filed a Joint Motion to Accept Settlement Agreement (Motion).  In their Motion, the parties requested that the Commission approve a settlement agreement which was executed by the parties on August 31, 2000.  The agreement was also endorsed with the signatures of representatives of the Wekiva Hunt Club Community Association, Inc., the Regency Professional Management, Inc., the Sweetwater Oaks Homeowners’ Association, Inc., and the Springs Community Association.  No other protests were filed in this docket, and the withdrawal of OPC’s protest obviated the need for a hearing.  In light of these circumstances, the Commission found it reasonable to grant the parties’ Motion and approve the settlement agreement in its entirety.[30]  Among other provisions of the settlement, Sanlando was required to reduce its monthly water base facility charge in order to reduce annual water revenues by one hundred twenty thousand dollars.  Further, the provisions and rulings in Order No. PSC-00-1263-PAA-WS were hereby affirmed, with 1999 water over earnings subject to refund being charged to water CIAC and 1999 wastewater over earnings subject to refund being charged to wastewater CIAC.

 

	Sanlando Utilities Corp.				Schedule No. 1-A
	Schedule of Water Rate Base				Docket No. 060258-WS
	Test Year Ended 12/31/05
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year
1	Plant in Service	$15,392,075	$455,549	$15,847,624	($77,861)	$15,769,763
2	Land and Land Rights	123,772	0	123,772	(33,460)	90,312
3	Non-used and Useful Components	0	0	0	0	0
4	Accumulated Depreciation	(8,283,471)	(21,327)	(8,304,798)	206,528	(8,098,270)
5	CIAC	(11,463,717)	0	(11,463,717)	582,949	(10,880,768)
6	Amortization of CIAC	7,208,315	0	7,208,315	(374,213)	6,834,103
7	Working Capital Allowance	115,186	0	115,186	180,790	295,976
8	Rate Base	$3,092,160	$434,222	$3,526,382	$484,734	$4,011,116

 

	Sanlando Utilities Corp.					Schedule No. 1-B
	Schedule of Wastewater Rate Base					Docket No. 060258-WS
	Test Year Ended 12/31/05
		Test Year		Utility	Adjusted	Staff	Staff
		Per		Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility		ments	Per Utility	ments	Test Year
1	Plant in Service	$22,423,326		$1,086,168	$23,509,494	($439,833)	$23,069,661
2	Land and Land Rights	202,552		0	202,552	0	202,552
3	Non-used and Useful Components	0		0	0	0	0
4	Accumulated Depreciation	(10,546,485)		171,623	(10,374,862)	114,110	(10,260,752)
5	CIAC	(12,337,150)		0	(12,337,150)	698,756	(11,638,394)
6	Amortization of CIAC	8,278,582		0	8,278,582	(387,964)	7,890,619
7	Working Capital Allowance	291,995		0	291,995	139,750	431,745
8	Rate Base	$8,312,820		$1,257,791	$9,570,611	$124,819	$9,695,430

 

 

	Sanlando Utilities Corp.	Schedule No. 1-C
	Adjustments to Rate Base	Docket No. 060258-WS
	Test Year Ended 12/31/05
	Explanation	Water	Wastewater
	Plant In Service
1	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	($413,782)	($275,180)
2	To included the appropriate net WSC rate base. (Issue 3)	13,600	9,020
3	To reflect the appropriate allocated plant from UIF. (Issue 3)	(92,400)	(48,065)
4	To reflect the appropriate amount of pro forma plant.  (Issue 5)	414,721	(125,609)
	Total	($77,861)	($439,833)
	Land
1	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	($6,800)	$0
2	Remove land sold.  (Issue 4)	(26,660)	0
	Total	($33,460)	$0
	Accumulated Depreciation
1	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	$90,243	$59,654
2	To reflect the appropriate allocated plant from UIF. (Issue 3)	42,630	28,161
3	To reflect the appropriate amount of pro forma plant.  (Issue 5)	73,655	26,294
	Total	$206,528	$114,110
	CIAC
	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	$582,949	$698,756
	Accumulated Amortization of CIAC
	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	($374,213)	($387,964)
	Working Capital
1	To reflect audit adjustments agreed to by the utility and staff. (Issue 2)	$125,309	$58,819
2	To reflect the appropriate working capital allowance.  (Issue 7)	55,481	80,931
	Total	$180,790	$139,750

 

	Sanlando Utilities Corp.								Schedule No. 2
	Capital Structure-13-Month Average								Docket No. 060258-WS
	Test Year Ended 12/31/05
			Specific	Subtotal	Pro rata		Capital
		Total	Adjust-	Adjusted	Adjust-		Reconciled			Cost	Weighted
	Description	Capital	ments	Capital	ments		to Rate Base		Ratio	Rate	Cost
Per Utility
1	Long-term Debt	$133,025,102	$0	$133,025,102	($125,564,135)		$7,460,967		56.97%	6.65%	3.79%
2	Short-term Debt	4,522,923	0	4,522,923	(4,269,813)		253,110		1.93%	5.01%	0.10%
3	Preferred Stock	0	0	0	0		0		0.00%	0.00%	0.00%
4	Common Equity	91,510,699	0	91,510,699	(86,376,546)		5,134,153		39.20%	11.78%	4.62%
5	Customer Deposits	123,053	0	123,053	0		123,053		0.94%	6.00%	0.06%
6	Deferred Income Taxes	125,710	0	125,710	0		125,710		0.96%	0.00%	0.00%
10	Total Capital	$229,307,487	$0	$229,307,487	($216,210,494)		$13,096,993		100.00%		8.56%
Per Staff
11	Long-term Debt	$133,025,102	$0	$133,025,102	($125,387,427)		$7,637,675		55.72%	6.58%	3.66%
12	Short-term Debt	4,522,923	(119,308)	4,403,615	(4,150,780)		252,835		1.84%	5.14%	0.09%
13	Preferred Stock	0	0	0	0		0		0.00%	0.00%	0.00%
14	Common Equity	91,510,699	3,093,004	94,603,703	(89,172,003)		5,431,700		39.63%	11.46%	4.54%
15	Customer Deposits	123,053	0	123,053	0		123,053		0.90%	6.00%	0.05%
16	Deferred Income Taxes	125,710	135,573	261,283	0		261,283		1.91%	0.00%	0.00%
20	Total Capital	$229,307,487	$3,109,269	$232,416,756	($218,710,210)		$13,706,546		100.00%		8.36%
									LOW	HIGH
					RETURN ON EQUITY				10.46%	12.46%
				OVERALL RATE OF RETURN					7.96%	8.75%

 

 

	Sanlando Utilities Corp.						Schedule No. 3-A
	Statement of Water Operations						Docket No. 060258-WS
	Test Year Ended 12/31/05
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted	Revenue	Revenue
	Description	Utility	ments	Per Utility	ments	Test Year	Increase	Requirement
1	Operating Revenues:	$2,052,465	$454,397	$2,506,862	($420,123)	$2,086,740	$404,581	$2,491,321
							19.39%
	Operating Expenses
2	Operation & Maintenance	1,408,097	198,023	1,606,120	(110,443)	1,495,677		1,495,677
3	Depreciation	181,254	44,929	226,183	47,074	273,257		273,257
4	Amortization	5,313	6,600	11,913	(10,281)	1,632		1,632
5	Taxes Other Than Income	227,119	27,731	254,850	2,588	257,438	18,206	275,645
6	Income Taxes	35,074	70,688	105,762	(141,213)	(35,451)	145,393	109,942
7	Total Operating Expense	$1,856,857	$347,971	$2,204,828	($212,274)	$1,992,554	$163,599	$2,156,153
8	Operating Income	$195,608	$106,426	$302,034	($207,848)	$94,186	$240,982	$335,168
9	Rate Base	$3,092,160		$3,526,382		$4,011,116		$4,011,116
10	Rate of Return	6.33%		8.56%		2.35%		8.36%

 

 

	Sanlando Utilities Corp.						Schedule No. 3-B
	Statement of Wastewater Operations						Docket No. 060258-WS
	Test Year Ended 12/31/05
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted	Revenue	Revenue
	Description	Utility	ments	Per Utility	ments	Test Year	Increase	Requirement
1	Operating Revenues:	$3,287,485	$735,669	$4,023,154	($690,688)	$3,332,467	$664,394	$3,996,861
							19.94%
	Operating Expenses
2	Operation & Maintenance	1,997,793	186,685	2,184,478	(2,710)	2,181,768		2,181,768
3	Depreciation	291,577	50,953	342,530	33,485	376,015		376,015
4	Amortization	2,205	24,600	26,805	(24,600)	2,205		2,205
5	Taxes Other Than Income	305,428	41,108	346,536	(15,454)	331,082	29,898	360,980
6	Income Taxes	126,411	176,672	303,083	(276,099)	26,984	238,761	265,745
7	Total Operating Expense	$2,723,414	$480,018	$3,203,432	($285,378)	$2,918,054	$268,659	$3,186,713
8	Operating Income	$564,071	$255,651	$819,722	($405,309)	$414,413	$395,736	$810,148
9	Rate Base	$8,312,820		$9,570,611		$9,695,430		$9,695,430
10	Rate of Return	6.79%		8.56%		4.27%		8.36%