DATE:	March 1, 2007
TO:	Director, Division of the Commission Clerk & Administrative Services (Bayó)
FROM:	Division of Economic Regulation (Joyce, Rendell) Office of the General Counsel (Jaeger)
RE:	Docket No. 060693-WS – Petition for establishment of allowance for funds used during construction (AFUDC) rate for systems located in Alachua, Brevard, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties, by Aqua Source Utility, Inc. d/b/a Aqua Utilities Florida, Inc., Arredondo Utility Company, Inc. d/b/a Aqua Utilities Florida, Inc., Crystal River Utilities, Inc. d/b/a Aqua Utilities Florida, Inc., Jasmine Lakes Utilities Corporation d/b/a Aqua Utilities Florida, Inc., Ocala Oaks Utilities, Inc. d/b/a Aqua Utilities Florida, Inc, and Aqua Utilities Florida, Inc., effective January 1, 2006.
AGENDA:	03/13/07 – Regular Agenda – Proposed Agency Action – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Administrative
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			This item should be placed immediately before Docket No. 060819-WS
FILE NAME AND LOCATION:			S:\PSC\ECR\WP\060693.RCM.DOC

 

 Case Background

Aqua Utilities Florida, Inc. (Aqua or utility) is a wholly owned subsidiary of Aqua Utilities, Inc., formerly AquaSource Utility, Inc.   Aqua Utilities, Inc., a Texas corporation, is a wholly owned subsidiary of Aqua America Inc.  Aqua America Inc., directly or indirectly through subsidiaries, owns and operates water and wastewater systems in thirteen states.  In Florida, Aqua furnishes regulated water and wastewater service in Alachua, Brevard, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties. 

Prior to November 22, 2006, Aqua operated six separate subsidiaries in Florida.  On September 25, 2006, Aqua’s six regulated Florida subsidiaries filed a joint application for acknowledgement of corporate reorganization and approval of name change.  By Order No. PSC-06-0973-FOF-WS, issued November 22, 2006, in Docket No. 060643-WS, the Commission approved Aqua’s corporate reorganization and request for name change, effective the date of the order.  Per that order, all entities are owned and operated under the name Aqua Utilities Florida, Inc.  Attachment A shows the organizational structure before the reorganization and Attachment B shows the organizational structure after the reorganization.

Prior to the Commission’s approval of Aqua’s corporate reorganization and name change,  Aqua filed the instant petition on October 19, 2006, for establishment of an AFUDC rate for each of the six separate Aqua America-owned entities.  In accordance with Rule 25-30.116(4), Florida Administrative Code (F.A.C.), Aqua filed the following schedules:  (a) a schedule showing the capital structure, cost rates and weighted average cost of capital that are the basis for the AFUDC rate requested; (b) a schedule showing capital structure; and, (c) a schedule showing the calculation of the monthly AFUDC rate using the methodology set out in Rule 25-30.116(4), F.A.C.  These AFUDC rates would be effective for eligible projects as of January 1, 2006, through October 12, 2006.

On December 21, 2006, Aqua filed a petition for the establishment of a uniform AFUDC rate to be applied to eligible projects as of October 13, 2006, forward.  The recommendation to address Aqua’s uniform AFUDC rate is being addressed in Docket No. 060819-WS.

This recommendation addresses the establishment of an AFUDC rate for Aqua.  The Commission has jurisdiction pursuant to Section 367.121, Florida Statutes.

Discussion of Issues

Issue 1: 

 What is the appropriate AFUDC rate for Aqua Utilities Florida, Inc.?

Recommendation: 

 The appropriate AFUDC and discounted monthly rates for each of the systems for the period January 1, 2006, through October 12, 2006, are listed below. (Joyce)

Systems	AFUDC Rate	Monthly Discounted Rate
Arredondo Estates/Arredondo Farms	8.18%	0.657371
Jasmine Lakes	8.02%	0.644956
Crystal River Utilities, Inc.	8.88%	0.711487
AquaSource Utility, Inc.	8.88%	0.711487
Ocala Oaks	7.33%	0.591224
Aqua Utilities Florida Inc.	8.85%	0.709174

 

Staff Analysis: 

   Rule 25-30.116 provides that Construction Work in Progress (CWIP) that is not included in rate base may accrue AFUDC.  Rule 25-30.116(2)(a), F.A.C., provides than an AFUDC rate shall be determined using the utility’s most recent 12-month average embedded cost of capital.  Aqua’s average cost of capital was calculated using the 12-month period ended December 31, 2005.  Rule 25-30.116(5), F.A.C., states that the new AFUDC rate shall be effective the month following the end of the 12-month period used to establish that rate and may not be retroactively applied to a previous fiscal year unless authorized by the Commission.  Therefore, the approved rates should be applicable for eligible construction projects beginning January 1, 2006, through October 12, 2006.

Projects may be included in CWIP and accrue AFUDC if the projects involve gross additions to plant in excess of $5,000 and are expected to be completed in excess of sixty days after commencement of construction or were originally expected to be completed in sixty days or less but are not ready for service after sixty days.

Aqua’s application includes a calculation to discount the simple interest rate of each AFUDC rate to reflect the effects of compounding monthly.  Staff has reviewed this calculation and determined that the utility incorrectly used the formula.  As such, staff has recalculated the monthly discounted rates to reflect the appropriate effects of compounding monthly.

Therefore, staff recommends that the following AFUDC rates and monthly discounted rates be approved:

 

Systems	AFUDC Rate	Monthly Discounted Rate
Arredondo Utility Company, Inc.	8.18%	0.657371
Jasmine Lakes Utilities Corporation	8.02%	0.644956
Crystal River Utilities, Inc.	8.88%	0.711487
AquaSource Utility, Inc.	8.88%	0.711487
Ocala Oaks Utilities, Inc.	7.33%	0.591224
Aqua Utilities Florida Inc.	8.85%	0.709174

 

These AFUDC rates would be effective for eligible projects from January 1, 2006 through October 12, 2006.

 

Issue 2: 

 Should this docket be closed?

Recommendation: 

 Yes.  If no timely protest from a substantially affected person on the Commission approved AFUDC rate is received within 21 days of the issuance of the PAA Order, the PAA Order on the AFUDC rate will become final upon issuance of a Consummating Order, and the docket should be closed.  (Joyce, Jaeger)

Staff Analysis: 

 If no timely protest from a substantially affected person on the Commission approved AFUDC rate is received within 21 days of the issuance of the PAA Order, the PAA Order on the AFUDC rate will become final upon issuance of a Consummating Order, and the docket should be closed