DATE:	March 12, 2009
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Economic Regulation (Lingo, Fletcher, Bulecza-Banks, Hudson Office of the General Counsel (Jaeger, Fleming, Klancke, Sayler)
RE:	Docket No. 080121-WS – Application for increase in water and wastewater rates in Alachua, Brevard, DeSoto, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties by Aqua Utilities Florida, Inc.
AGENDA:	03/25/09 – Special Agenda – Post-Hearing Decision – Participation is limited to Commissioners and Staff
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Edgar
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\ECR\WP\080121.RCM.DOC

Case Background

            On May 22, 2008, Aqua Utilities Florida, Inc. (AUF or Utility) filed an application for approval of interim and final water and wastewater rate increases.  By letter dated June 20, 2008, the Commission staff advised AUF that its Minimum Filing Requirements (MFRs) had several deficiencies.  To resolve the deficiencies, AUF filed additional information on July 21, 2008.  Based on this data, the MFRs were still determined to be deficient.  On August 28, 2008, AUF supplied additional data.  The supplemental data filed on August 28, 2008, satisfied the deficiencies and August 28, 2008, was established as the official filing date.  The Office of Public Counsel (OPC) and Attorney General’s office (AG) intervened in the docket.  A hearing was conducted on December 8-11, 2008.

 

            The original 8-month statutory deadline for the Commission to address the Utility’s requested final rates was January 22, 2009.  However, by letters dated May 22, 2008, and February 6, 2009, AUF agreed to extend the statutory timeframe by which the Commission is required to address the Utility’s final requested rates. 

 

            At a Special Agenda Conference on February 24, 2009, the Commission made a decision on the appropriate level of revenues for AUF based on the historical 12-month period ended December 31, 2007, with requested adjustments for pro forma plant and operating expenses.  The Commission also made certain decisions on rate design parameters.  This recommendation addresses Issues 64-67 on final rate design, Issue 70 (Amortization of Rate Case Expense), Issue 74 (Future Index and Pass Through Adjustments), and Issue 75 (Consolidated Books), which  were not decided at the February 24, 2009, Special Agenda Conference because they are dependent on the final rate design.  The Commission has jurisdiction pursuant to Sections 367.081 and 367.082, Florida Statutes (F.S.).

Discussion of Issues

Issue 64:  What water systems, if any, should be consolidated into a single rate structure?

Issue 65:  What wastewater systems, if any, should be consolidated into a single rate structure?

 

Recommendation:  Staff recommends consolidating the water systems into the following groups:

 

Band 1	Band 4	Band 6 = capped systems	Band 6  (cont.)
Jasmine Lakes      Kings Cove           Ocala Oaks        Picciola Island      Silver Lake Estates        Tangerine   Band 2 Carlton Village      Fern Terrace         Lake Gibson Estates Valencia Terrace   Band 3 Grand Terrace      Piney Woods            St. Johns Highlands Sunny Hills	Orange Hill     Quail Ridge Ravenswood Venetian Village           Band 5 48 Estates  Gibsonia Estates Interlachen Lake   / Park Manor       Lake Osborne	Arredondo             Beechers Point              East Lake Harris    Friendly Center        Haines Creek        Harmony Homes    Hermits Cove           Hobby Hills            Holiday Haven       Imperial Mobile Terrace      Jungle Den        Kingswood                  Lake Josephine            Lake Suzy                Leisure Lakes Morningview       Oakwood                     Palm Port                    Palm Terrace             Palms MHP            Pomona Park	River Grove             Rosalie Oaks           Sebring Lakes             Silver Lake Oaks   Skycrest                      Stone Mountain      Summit Chase               The Woods             Tomoka                   Village Water          Welaka / Saratoga Harbor  Wootens                   Zephyr Shores

 

Staff recommends consolidating the wastewater systems into the following groups:

Band 1	Band 2	Band 3 =                 capped systems	General Service Band
Kings Cove        Leisure Lakes         Summit Chase         Valencia Terrace	Arredondo                          Chuluota         Holiday Haven          Jasmine Lakes   Lake Suzy                   Morningview       Palm Port                    Palm Terrace    Silver Lake Oaks            South Seas     Sunny Hills                    The Woods   Venetian Village        Zephyr Shores Interlachen Lake / Park Manor	Beechers Point              Jungle Den                  Lake Gibson Est  Rosalie Oaks	Village Water           FL Central Comm

 

The Chuluota water system has been left as a stand-alone system, reflecting the Commission’s decision at the February 24, 2009 Special Agenda to reduce that system’s return on equity (ROE). 

 

Regarding rate consolidation, consistent with Commission decisions in prior cases as well as the Commission’s decision on Issue 63 from the February 24, 2009 Special Agenda Conference, statewide single tariff rates should be the long term goal for AUF.  However, staff recommends that the magnitude of subsidies created for some systems is excessive; therefore, statewide single tariff rates should not be implemented in this proceeding.  Instead, staff recommends consolidating the water and wastewater systems using the capband approach, and reallocating $578,449 of revenue requirement recovery from the wastewater systems to the water systems.  The revenue reallocation should be applied only to those water systems that also have wastewater systems.  The water systems will receive the reallocated revenues based on a proration of the affected water systems’ equivalent residential connections (ERCs). 

 

In addition, staff recommends that the Commission revisit the prior decisions rendered at the Special Agenda Conference on February 24, 2009 with respect to the appropriate subsidy and affordability limits.  Based on the Commission’s approved revenue requirements for the individual systems and staff’s recommended rate consolidation methodology for the water and wastewater systems, staff recommends that a subsidy limit of $14.01, rather than $5.89, is appropriate.  Staff also recommends that the affordability limits of $62.25 and $82.25 for water and wastewater service, respectively, should be applicable to residential service only.  The Commission should not consider affordability limits for general service customers.  (Lingo)

 

Issue 64/65:  Position of the Parties

AUF:  All water systems / all wastewater systems.

OPC:  No position.

AG:  No position.

Staff Analysis:  With respect to the rate consolidation issue, several methodologies have been proposed by both AUF and staff witnesses.  A total of six rate consolidation options were presented by witnesses in this case.  Witness Stallcup testified during cross examination regarding the various methodologies that had been presented. (TR 1427)  There are two methodologies contained in direct testimony sponsored by AUF witnesses.  The first methodology is based on the stand-alone rates as they exist now. (TR 1427)  However, stand-alone rates result in unaffordable rates for many systems, especially for the wastewater systems.  The second methodology contained in AUF testimony is fully consolidated statewide rates. (TR 1427)  While this methodology appears to address the issue of affordability, it ignores any consideration of the adverse effects of excessive cross-subsidies. (TR 1400-1401) 

 

Witness Stallcup further testified regarding two additional alternatives in his own testimony.  Both of witness Stallcup’s methodologies result in rates between the rates based on AUF’s stand-alone and fully consolidated proposals.  The first of these methodologies is the capband methodology used in the Southern States rate case,[1] where systems are grouped together based on similar costs to serve, and bills are capped at the maximum affordability level. (TR 1437, 1439)  This decision was later affirmed by the First District Court of Appeal.  Because the groupings are based on similar costs to serve, the level of subsidization between customers within each consolidated group is minimized. (TR 1439)  The second methodology described to by witness Stallcup in his testimony is the “portfolio method,” wherein high cost systems are combined with low cost systems in order to reduce affordability concerns.  The result is the consolidated rate of the combined systems will be slightly greater than the low cost system would otherwise pay. (TR 1437, 1442)

 

Witness Stallcup also mentioned a consolidation methodology presented by AUF witness Franceski.  Witness Stallcup testified that this alternative methodology contained in witness Franceski’s rebuttal testimony is worthy of consideration. (TR 1427)  However, witness Stallcup earlier testified that he believed the manner in which repression was incorporated into the methodology was in error.  (TR 1421)  In addition, during his cross examination, witness Stallcup received clarification from AUF’s counsel that the sensitivity analysis included on the second page of witness Franceski’s rebuttal exhibit (EXH 135) was based on 75 percent of the Utility’s total revenue requirement – meaning the sum of:  1) 75 percent of the revenue increase requested; and 2) 75 percent of the revenue requirement in existence prior to the inception of the instant case. (TR 1418, 1424)  Therefore, witness Stallcup was not sure witness Franceski’s exhibit would be necessarily instructive. (TR 1424)  Staff was able to correct these two errors which allowed witness Franceski’s methodology to be considered.

 

The final rate consolidation methodology addressed by witness Stallcup during cross examination at the hearing was the possibility of reallocating some of the wastewater revenue recovery to the water system, should the Commission believe that the wastewater rates without the reallocation are prohibitively unaffordable. (TR 1427, 1437)  This methodology would bring down the rates for the wastewater systems, while increasing the rates, to a lesser extent, for the water systems. (TR 1438)  The reallocation methodology may be used in conjunction with any one of the other consolidation methodologies presented. (TR 1444)  Because this methodology represents a departure from Commission ratesetting methodology, staff sought explicit permission from the Commission to consider this methodology.  The Commission approved staff’s request at the February 24, 2009 Special Agenda Conference.

 

A summary of the consolidation methodologies evaluated by staff appears on Table 64-1 on the following page.  

                                                                                                                         TABLE 64-1

 

DESCRIPTION OF RATE CONSOLIDATION METHODOLOGIES (1)
Methodology	Description
Stand Alone	The rates for the individual water and wastewater systems are based on the revenue requirements, equivalent residential connections (ERCs) and gallons sold for those systems.
Fully Consolidated (Single Tariff)	The revenue requirements, ERCs and gallons sold for the water and wastewater systems, respectively, are combined.  The result is a statewide consolidated rate structure such that:  1)  all water customers pay the same rates for service; and 2) all wastewater customers pay the same rate for service.
Capband	This methodology involves multiple steps.  Using the water system as an example, first, average stand alone bills for the water systems are ranked from least to greatest.  Second, any bill that exceeds the affordability limit of $62.25 for water systems is “capped” at that affordability limit.  The capping of the individual systems’ bills results in an underrecovery of revenues for the overall water system.    The third step is that the revenue underrecovery for the water systems is spread over the less expensive water systems.  Fourth, if spreading the underrecovered revenues to the less expensive systems causes any of the resulting water bills to exceed the affordability limit of $62.25, that system’s bill is then capped.  Finally, whatever underrecovered revenues that still exist are spread over the remaining uncapped systems until all revenues are recovered.  This five-step iterative process is applied in the same manner to the wastewater systems, except that the affordability limit for wastewater systems is $82.25.
Portfolio	This methodology involves grouping systems with high stand alone rates with systems that have lower stand alone rates.  By carefully selecting the systems to be combined, the resulting consolidated rates for each group can be much lower for the customers with high stand alone rates, while slightly increasing the rates for the lower cost systems in that group.
Reallocation from Wastewater to Water	Staff’s recommended methodology involves multiple steps, and is closely related (although not explicitly tied) to the capband methodology discussed above.  The first two steps for this methodology are the same as for the capband approach:  first, average stand alone bills for the water and wastewater systems are ranked from least to greatest.  Second, any bill that exceeds the affordability limits of $62.25 for water systems and $82.25 for wastewater systems are “capped” at that affordability limit.  Capping the bills results in an underrecovery of revenues for the water and wastewater systems.    The third step differs from the pure capband approach in that the calculated revenue underrecovery for both the water and wastewater systems is spread over the less expensive water systems.  Fourth, if spreading the underrecovered revenues to the less expensive water systems causes any of the resulting water bills to exceed the affordability limit of $62.25, that system’s bill is then capped.  Finally, whatever underrecovered revenues that still exist are spread over the remaining uncapped systems until all revenues are recovered.
(1)  The water systems’ capped bill of $62.25 is based on residential consumption of 7,000 gallons (kgals) per month.  The wastewater systems’ capped bill of $82.25 is based on residential consumption of 6 kgals per month.

 

A thumbnail comparison of the pros and cons of the consolidation methodologies being considered is shown on Table 64-2 below:

                                                                                                               TABLE 64-2

  

PROS AND CONS OF RATE CONSOLIDATION METHODOLOGIES
Method	Pros	Cons
Stand-alone	No subsidies	Unaffordable rates for many systems
Fully consolidated	Affordable rates	Ignores resulting excessive subsidies for certain systems
Capband	Bills are capped at affordability limits; systems are grouped to minimize subsidies	High cost systems are subsidized by lower cost systems
Portfolio	Grouping high cost systems with low cost systems makes high cost systems affordable	Combining systems with such dissimilar costs increases subsidies paid by low cost systems
Reallocation from wastewater to water	Reduces the most unaffordable wastewater bills	Water customers who are also wastewater customers subsidize the high cost wastewater systems

 

The Commission in this proceeding is faced with selecting a rate consolidation methodology that best balances competing interests.  Striking a balance between rates that include reasonable levels of subsidization and rates that are affordable is a difficult task, especially considering the capital intensive, rising-cost nature of the water and wastewater industry.

 

Witness Smeltzer testified on rebuttal that the Commission has already determined that it is appropriate to consider a number of goals and objectives in evaluating a proposed rate structure, including: (1) the affordability of rates for all customers; (2) ease of administration; (3) customer acceptance and understandability; (4) fairness (the degree to which subsidies will occur); (5) rate continuity/stability for all customers; (6) conservation and resource protection; (7) revenue stability and predictability for the utility; and (8) impact of rate structure on future acquisitions. (TR 1455) 

 

Subsidization is inherent in any rate structure.  Once the subsidization concept is accepted, the question becomes: What level of subsidization is acceptable?  The Utility has requested to fully consolidate its rates (a/k/a/ single tariff pricing).  This forces involuntary subsidization of some customers and systems by other customers and systems.   However, systems making plant improvements is an example of how the subsidization levels change and often reverse over time.  Witness Stallcup testified that when the Commission looks at whether a rate is unfairly discriminatory, it typically looks at whether the rate would cause some customers to unfairly subsidize other groups of customers.  It is a judgment call as to what constitutes fairness. (TR 1413, 1414)  The ultimate decision to determine what subsidy is appropriate is a policy decision for the Commission to make. (TR 1413) 

 

Witness Smeltzer testified that the subsidization levels referenced by witness Stallcup from prior Commission orders are somewhat arbitrary, and that subsidies change throughout time depending on numerous factors, including capitalization needs. (TR 1457, 1460)  The focus should really be on fairness, not on a specific dollar amount.  Witness Smeltzer testified that he agreed with witness Stallcup that there is no single right or wrong answer for determining the appropriate subsidy values. (TR 1457)

 

The starting point for staff’s analysis was the Commission-approved revenue requirements for each water and wastewater system resulting from the February 24, 2009, Special Agenda.  Staff’s analysis of the appropriate consolidation methodology included each of the methods shown in Table 64-1.  Based on staff’s analysis, witness Franceski’s methodology is similar to witness Stallcup’s portfolio approach, except witness Franceski’s methodology allows for the subsidy limits to be exceeded for certain systems with relatively low rates.  This would permit more systems to be combined into any given rate group and result in a fewer number of rate groups.  After correcting witness Franceski’s exhibit for the errors previously discussed, witness Franceski’s and witness Stallcup’s consolidation methodologies are conceptually the same, varying only with regards to the levels of subsidies allowed in the consolidation process.  Therefore, in staff’s analysis, these two methodologies were treated as one.  The results of staff’s comparative analysis for the water and wastewater systems are shown on the following page on Tables 64-3 and 64-4, respectively.

 

                                                                                                                  TABLE 64-3

 

RESULTS OF STAFF’S COMPARATIVE ANALYSIS: RESIDENTIAL WATER SYSTEMS (1) (2)
	Rate Consolidation Without Reallocation
	Stand Alone	Fully Consolidated	Capband	Portfolio
Minimum Bill	$17.05	$42.83	$22.80	$23.27
Maximum Bill	$229.16	$42.83	$62.25	$70.38
Maximum Subsidy Paid	$0.00	$25.77	$9.49	$9.30
Maximum Subsidy Received	$0.00	($186.34)	($166.91)	($205.89)
Number of Rate Groups / Bands	56	1	5	6
(1) Excluding Chuluota. (2) Bills are based on residential consumption of 7,000 gallons per month.

 

 

                                                                                                                  TABLE 64-4

 

RESULTS OF STAFF’S COMPARATIVE ANALYSIS: RESIDENTIAL WASTEWATER SYSTEMS (1)
	Rate Consolidation Without Reallocation
	Stand Alone	Fully Consolidated	Capband	Portfolio
Minimum Bill	$41.72	$84.50	$61.26	$54.22
Maximum Bill	$384.24	$84.50	$96.00	$96.69
Maximum Subsidy Paid	$0.00	$42.78	$20.07	$19.66
Maximum Subsidy Received	$0.00	($299.74)	($301.99)	($305.60)
Number of Rate Groups / Bands	23	1	4	4
(1)  Bills are based on residential consumption of 6,000 gallons per month.

 

Staff’s evaluation of the results of the implementation of the current stand alone methodology for the water and wastewater systems shown on Tables 64-3 and 64-4 leads staff to conclude that implementing this methodology on a going-forward basis could potentially violate Section 367.081(2)(a)1, F.S., for two opposite, yet equally important, reasons.  Section 367.081(2)(a)(1), F.S., provides that “the commission shall . . . fix rates which are just, reasonable, compensatory, and not unfairly discriminatory.”  First, under the stand-alone methodology, there are some systems whose compensatory rates charged to customers would probably be unreasonable because of their unaffordability, thereby violating Section 367.081, F.S.  Second, from the Utility’s perspective, if the bills are unaffordable, then the Utility would be in jeopardy of not recovering its full revenue requirement.  Staff believes the potential inability to collect its full revenue requirements would violate the “compensatory” requirement of the statute.  Therefore, staff believes that stand-alone rates are inappropriate for this utility on a going forward basis.

 

After analyzing the Utility’s fully consolidated request, staff believes the subsidies paid by the Kings Cove and Silver Lakes Estates water systems (in excess of $25 paid by each system) and by the Kings Cove, Leisure Lakes, Summit Chase and Valencia Terrace wastewater systems (in excess of $34.70 paid by each system) are unacceptably high.  Therefore, staff believes the Utility’s fully consolidated request is also inappropriate.

 

The remaining methodologies under consideration for both the water and wastewater systems are the capband and portfolio methodologies.  As shown on Table 64-3, for the water system, the capband and portfolio methods produced comparable minimum bills and maximum subsidies paid.  However, there are two areas in which the capband method yields better results than the portfolio method.  First, the maximum bill under the capband method is approximately $8.00 less per month than under the portfolio method.  Second, the capband method produces five resulting rate bands, compared to six under the portfolio method.  Therefore, staff believes the capband methodology is the appropriate consolidation methodology for the Utility’s water systems.

 

The results of the wastewater systems’ analysis were less clear.  The capband and portfolio methods produced comparable maximum bills, maximum subsidies paid, and the same number of resulting rate groups.  However, the minimum bill under the portfolio method is approximately $7.00 less than under the capband method.  Staff notes that the maximum bill under both the capband and portfolio approaches is greater than the $82.25 affordability value for wastewater systems approved in Issue 61 by the Commission at the February 24, 2009 Special Agenda Conference.  Therefore, while staff does not dismiss the importance of the minimum bill paid, staff believes it is more important to consider the maximum bill paid, due to overall affordability considerations.  Since the maximum wastewater bill exceeds the Commission-approved threshold, staff believes a reallocation of wastewater revenue requirements to the water systems is necessary to bring wastewater bills down to Commission-approved values.  As discussed in Table 64-1, the reallocation methodology is closely related to the capband method in terms of application.  Based on the foregoing, staff believes the capband methodology is also the appropriate consolidation methodology for the Utility’s wastewater systems. 

 

Based on staff’s recommendation that the appropriate consolidation methodologies for the water and wastewater systems is the capband methodology, and recognizing that a reallocation of wastewater revenues is necessary to bring wastewater bills down to Commission-approved values, staff recommends that the appropriate amount of wastewater revenue reallocation to the water system is $578,449.  This amount is based upon the under recovery that results from capping, at $82.25, the rates for the wastewater systems with bills in excess of $82.25.

 

Staff believes that in order to ensure the fair application of the reallocation methodology,  the revenue requirement reallocation should only be applied to those water systems that also have wastewater systems.  The water systems will receive the reallocated revenues from the wastewater systems based on a proration of the affected water systems’ ERCs.  Staff prepared an analysis in Table 64-5 that highlights the implementation of its recommendations.

 

                                                                                                                  TABLE 64-5

 

RESULTS OF COMPARATIVE ANALYSIS BASED ON STAFF’S RECOMMENDED RATE CONSOLIDATION METHODOLOGY:  RESIDENTIAL WATER AND WASTEWATER SYSTEMS
	Rate Consolidation Combining:  (1)  Reallocation of $578,449 in Wastewater Revenue Requirement to the Water Systems; and (2) Capband Methodologies
	Water Systems (1)	Wastewater Systems (2)
Minimum Bill	$29.96	$45.03
Maximum Bill	$62.25	$82.25
Maximum Subsidy Paid	$14.01	$9.82
Maximum Subsidy Received	($166.91)	($301.99)
Number of Rate Groups / Bands	6	3
(1) Bills are based on residential consumption of 7,000 gallons per month. (2)  Bills are based on residential consumption of 6,000 gallons per month.

 

Staff notes that neither the water nor the wastewater systems’ resulting maximum bills exceed the respective affordability limits approved by the Commission in Issue 61 at the February 24, 2009 Special Agenda Conference.  However, despite running numerous scenarios and calculations, staff was unable to calculate rates which met Commission-approved levels for both subsidy and affordability.  The subsidy values for both systems exceed the Commission-approved values of $5.89 per system.  Therefore, staff recommends that the Commission revisit the prior decision rendered in Issue 61 at the Special Agenda Conference on February 24, 2009 with respect to the appropriate subsidy limits.  Based on the Commission’s approved revenue requirements for the individual systems and staff’s recommended rate consolidation methodology for the water and wastewater systems, staff recommends that a subsidy limit of $14.01 for the water system, rather than $5.89, is appropriate.  Staff also recommends that the affordability limits of $62.25 and $82.25 for water and wastewater service, respectively, be specifically for residential service.  The Commission should not consider affordability limits for general service customers.

 

Therefore, based on the foregoing, staff recommends that the water systems should be consolidated into the following groups:

 

 

Band 1	Band 4	Band 6 = capped systems	Band 6  (cont.)
Jasmine Lakes      Kings Cove           Ocala Oaks        Picciola Island      Silver Lake Estates        Tangerine   Band 2 Carlton Village      Fern Terrace         Lake Gibson Estates Valencia Terrace   Band 3 Grand Terrace      Piney Woods            St. Johns Highlands Sunny Hills	Orange Hill     Quail Ridge Ravenswood Venetian Village           Band 5 48 Estates  Gibsonia Estates Interlachen Lake   / Park Manor       Lake Osborne	Arredondo             Beechers Point              East Lake Harris    Friendly Center        Haines Creek        Harmony Homes    Hermits Cove           Hobby Hills            Holiday Haven       Imperial Mobile Terrace      Jungle Den        Kingswood                  Lake Josephine            Lake Suzy                Leisure Lakes Morningview       Oakwood                     Palm Port                    Palm Terrace             Palms MHP            Pomona Park	River Grove             Rosalie Oaks           Sebring Lakes             Silver Lake Oaks   Skycrest                      Stone Mountain      Summit Chase               The Woods             Tomoka                   Village Water          Welaka / Saratoga Harbor  Wootens                   Zephyr Shores

 

Staff recommends that the wastewater systems should be consolidated into the following groups:

Band 1	Band 2	Band 3 =                 capped systems	General Service Band
Kings Cove        Leisure Lakes         Summit Chase         Valencia Terrace	Arredondo                          Chuluota         Holiday Haven          Jasmine Lakes   Lake Suzy                   Morningview       Palm Port                    Palm Terrace    Silver Lake Oaks            South Seas     Sunny Hills                    The Woods   Venetian Village        Zephyr Shores Interlachen Lake / Park Manor	Beechers Point              Jungle Den                  Lake Gibson Est  Rosalie Oaks	Village Water           FL Central Comm

 

The Chuluota water system has been left as a stand-alone system, reflecting the Commission’s decision at the February 24, 2009 Special Agenda Conference to reduce that system’s ROE. 

 

Staff recommends consolidating the water and wastewater systems by using the capband approach, and reallocating $578,449 from the wastewater systems to the water systems.  The revenue reallocation should be applied only to those water systems that also have wastewater systems.  The water systems will receive the reallocated revenues based on a proration of the affected water systems’ ERCs. 

 

In addition, staff recommends that the Commission revisit its prior decision rendered in Issue 61 at the Special Agenda Conference on February 24, 2009 with respect to the appropriate subsidy and affordability limits.  Based on the Commission’s approved revenue requirements for the individual systems and staff’s recommended rate consolidation methodology for the water and wastewater systems, staff recommends that a subsidy limit of $14.01, rather than $5.89, is appropriate.  Staff also recommends that the affordability limits of $62.25 and $82.25 for water and wastewater service, respectively, be applicable to residential service only.  The Commission should not consider affordability limits for general service customers.

 
Issue 66: 

 What, if any, are the appropriate repression adjustments to make?

Recommendation: 

 The appropriate repression adjustments, based on a price elasticity factor of -0.3 applied to residential water consumption greater than 5,000 gallons per month, are shown in Table 66-1 contained in the staff analysis portion of this issue.

In order to monitor the effects of both the changes in revenues and rate structure, the Utility should be ordered to file monthly reports detailing the number of bills rendered, the consumption billed and the revenues billed for each system.  In addition, the reports should be prepared, by customer class and meter size.  The reports should be filed with staff, on a quarterly basis, for a period of two years beginning 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)

Position of the Parties

AUF: 

 As explained in Issue 45, only repression adjustments to chemicals and purchased power should be made.

OPC: 

 The adjustments, if any, should be made using no more than a -.2 price elasticity of demand for water usage in excess of 5,000 gallons per month.

AG: 

 Adopts OPC’s position.

Staff Analysis: 

 Although not addressed in any testimony in the proceeding, a review of witness Stallcup’s workpapers indicates that he has made a repression adjustment to the Fuel for Power account.  Witness Szczygiel shows that this type of adjustment is inconsistent with past Commission practice[2] and, therefore, should not be made. (TR 1550, 1551)

At the Commission’s Special Agenda Conference on February 24, 2009, the Commission approved in Issue 60 a repression calculation based on a price elasticity factor of -0.3 applied to residential water consumption greater than 5,000 gallons per month.  Based on staff’s recommended water and wastewater system consolidations as discussed in Issues 64 and 65, the resulting repression adjustments are listed, by rate groupings, on Table 66-1 shown on the following page. 

 

                                                                                                                                      TABLE 66-1

 

AQUA UTILITIES FLORIDA, INC. DOCKET NO. 080121-WS STAFF’S RECOMMENDED REPRESSION ADJUSTMENTS WATER SYSTEMS
System Name			Pre- Repression  Residential Kgals		Total Expense Reduction Due to Repression				Post- Repression Residential Kgals
Rate Group 1			607,725		$25,566				501,294
Rate Group 2			112,790		$8,496				88,942
Rate Group 3			69,706		$2,962				63,819
Rate Group 4			38,140		$2,502				31,565
Rate Group 5			73,908		$59,018				54,001
Rate Group 6			305,994		$104,326				265,351

 

Issue 67:  What are the appropriate monthly rates for the water and wastewater systems for the Utility?

 

Recommendation:  The appropriate monthly rates for the water systems are shown, by system, on Schedule No. 1-A.  The appropriate monthly rates for the wastewater systems are shown, by system, on Schedule No. 1-B.  Excluding miscellaneous service revenues and reuse revenues, the recommended water rates are designed to produce total Utility revenues of $8,996,933, while the recommended wastewater rates are designed to produce corresponding revenues of $5,585,679.  The recommended reuse rates are designed to produce revenues of $36,144, and the recommended sprinkler head rates are designed to produce revenues of $1,146.

 

            The Utility should 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 25-30.475(1), Florida Administrative Code (F.A.C.).  In addition, the rates should not be implemented until staff has approved the proposed customer notice.  The Utility should provide proof of the date the notice was given no less than 10 days after the date of the notice.  (Lingo, Fletcher)

 

Position of the Parties

AUF: 

 The appropriate monthly rates for the water and wastewater systems for the Utility are contained in the MFRs for each respective system.

OPC: 

 No position.

AG: 

 No position.

Staff Analysis:  Excluding miscellaneous service revenues and reuse revenues, the recommended water rates are designed to produce total Utility revenues of $8,996,933, while the recommended wastewater rates are designed to produce corresponding revenues of $5,585,679.  The recommended reuse rates are designed to produce revenues of $36,144, and the recommended sprinkler head rates are designed to produce revenues of $1,146.  The appropriate monthly rates for the water systems are shown, by system, on Schedule No. 1-A.  The appropriate monthly rates for the wastewater systems are shown, by system, on Schedule No. 1-B.

 

            Approximately 35 percent of the water systems’ monthly service revenues is recovered through the base facility charges, while approximately 65 percent represents revenue recovery through the consumption charges.  For the wastewater systems, approximately 50 percent of the monthly service revenues is recovered through the base facility charges, while approximately 50 percent represents revenue recovery through the consumption charges.

 

            The Utility should 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 25-30.475(1), F.A.C.  In addition, the rates should not be implemented until staff has approved the proposed customer notice.  The Utility should provide proof of the date the notice was given no less than 10 days after the date of the notice.

 

Issue 70: 

 What is the appropriate amount by which rates should be reduced four years after the 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. 1-A and 1-B to remove $288,580 of water and $104,511 of wastewater rate case expense, grossed-up for regulatory assessment fees, which is being amortized over a four-year period.  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 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.  AUF should provide proof of the date notice was given no less than 10 days after the date of the notice.  (Hudson)

Position of the Parties

AUF: 

   This is a fall out calculation based on adjustments to revenue requirements and the appropriate rate case expense.

 

OPC:  This is a fall-out issue.

 

AG:  Adopts OPC’s position.

 

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 $288,580 for water and $104,511 for wastewater.  The decreased revenue will result in the rate reduction recommended by staff on Schedule Nos. 1-A and 1-B.

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.  AUF 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.

Issue 74: 

 Should the Utility be allowed to make future index and pass through filings on a consolidated basis?

Recommendation:  If the Commission approves fully consolidated rates, AUF should be allowed to make future index and pass-through filings on a consolidated basis.  If the Commission does not approve fully consolidated rates, staff recommends that: 1) AUF should be allowed to file price indexes on a consolidated basis; 2) pass-throughs should be separate for any approved stand alone rate systems; and, 3) for systems a part of an approved rate band, pass-throughs should be shared by all systems within each respective band.

  (Fletcher)

Position of the Parties

AUF: 

 Yes.  Consistent with its single cost of service methodology, AUF should be allowed to make future index and pass through filings on a consolidated basis.  This comports with Order No. PSC-96-1320-FOF-WS at 240-241.

OPC: 

 No position.

AG: 

 Adopts OPC’s position.

Staff Analysis:  By Order No. PSC-96-1320-FOF-WS, p. 241, the Commission found the following:

 

            We agree with Mr. Ludsen that the purpose of indexes is to allow utilities to recover increases in expenses resulting from inflation.  The index factor is the same for each service area no matter where it is located in the state.  Therefore, index increases must be implemented on a utility-wide basis.  This may automatically move some service areas over the cap.  However, the cap is a target for reasonable and affordable rates and not a ceiling.

 

            Regarding pass-through increases, for the service areas at or above the cap, we find it appropriate to require that a pass-through rate adjustment shall be implemented on a plant-specific basis.  These facilities have been targeted as high cost plants that need to be studied further to determine if they ever would or should be included in a banded or uniform rate structure.  In the meantime, a pass-through adjustment should be borne solely by customers within those service areas.  However, for service areas that are part of a rate band, pass-throughs must be shared by all facilities within the band.  These service areas have been identified as having similar costs, at least in terms of their stand alone rates.  The rates should not be differentiated once they have been combined for ratemaking purposes.

            If the Commission approves fully consolidated rates, staff recommends that AUF be allowed to make future index and pass-through filings on a consolidated basis.  If the Commission does not approve fully consolidated rates, consistent with the Commission’s prior decision above, staff recommends that: 1) AUF should be allowed to file price indexes on a consolidated basis; 2) pass-throughs should be separate for any approved stand alone rate systems; and 3) for systems a part of an approved rate band, pass-throughs should be shared by all systems within each respective band.

Issue 75: 

 Should the Utility's request to consolidate its in-state FPSC-regulated accounting, filing, and reporting requirements from individual system bases to one combined set of books be allowed?

Recommendation: 

 If the Commission approves fully consolidated rates, AUF should be allowed to consolidate its in-state FPSC-regulated accounting, filing, and reporting requirements from individual system basis to one combined set of books.  If the Commission does not approve fully consolidated rates, the Utility should be allowed to consolidate its in-state FPSC-regulated accounting, filing, and reporting requirements from individual system basis to the number of stand alone rates and rate bands approved by the Commission.  (Fletcher)

Position of the Parties

AUF: 

 Yes. 

OPC: 

 No position.

AG: 

 Adopts OPC’s position.

Staff Analysis:  AUF witness Smeltzer testified that under the Utility’s single cost of service proposal, AUF’s Commission-regulated operation would be treated as one-entity, instead of 82 separate systems, for the purposes of establishing the Utility’s overall revenue requirement.  (TR 1452)  Mr. Smeltzer stated that utility plant and related accounts would continue to be tracked and reported by individual system. (TR 1453)  Mr. Smeltzer asserted that AUF would maintain its accounting of operations for the Commission-regulated systems separate from its non-jurisdictional systems, as well as continue to separate water from wastewater. (TR 1453)

 

            If the Commission approves fully consolidated rates, staff recommends that AUF should be allowed to consolidate its in-state FPSC-regulated accounting, filing, and reporting requirements from individual system bases to one combined set of books.  If the Commission does not approve fully consolidated rates, staff recommends that the Utility should be allowed to consolidate its in-state FPSC-regulated accounting, filing, and reporting requirements from individual system bases to the number of stand alone rates and rate bands approved by the Commission.

Issue 76: 

 Should this docket be closed?

Recommendation: 

 If the Commission’s final order is not appealed, this docket should be closed upon staff’s approval of the tariffs, verification of the required refunds, and the expiration of the time for filing an appeal.  (Jaeger, Fletcher)

 

Staff Analysis: 

 If the Commission’s final order is not appealed, this docket should be closed upon staff’s approval of the tariffs, verification of the required refunds, and the expiration of the time for filing an appeal.