Recommendation

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Issue 3:

What are the used and useful percentages of the Utility's water systems?

Recommendation:

The composite used and useful (U&U) percentage for the Unified water treatment plants (WTPs), as well as the Ponderosa Pines, Quail Run, and Sandy Acres WTPs should be considered 100 percent U&U. The composite U&U percentage for all of the Unified water distribution systems excluding the Ponderosa Pines, Quail Run, and Sandy Acres systems should be considered 83 percent U&U. The Ponderosa Pines distribution system should be considered 100 percent U&U, and the Quail Run and Sandy Acres distribution systems should each be considered 93 percent U&U. The resulting rate base adjustments are shown on Schedule No. 2-B, and the depreciation expense and property tax adjustments are shown on Schedule No. 3-B. (McRoy, M. Brown)

Staff Analysis:

In the Utility’s last rate case, all 20 of the existing WTPs were stipulated to be 100 percent U&U.[5] The distribution systems were stipulated to be 71 percent U&U. Since the last rate case, the Ashley Heights, Ponderosa Pines, Sandy Acres, and Quail Run systems were acquired and the Lakeview Hills system was sold.[6] In addition, second wells were added at the Hill Top and Winding Waters systems. Several amendments have also been approved adding territory to existing systems and Sutton’s Duplexes (now Sun Resort) and Burk’s Quads (now Ocala Gardens) were renamed.[7] Of the 23 water systems included in the current rate case, 12 have one well and the remaining 11 each have two wells. None of the water systems have storage. Each of the systems treats the raw water with liquid chlorine before it is pumped into the distribution system.

In its application, the Utility asserts that all 23 of its WTPs are 100 percent U&U. The Utility proposed a composite 79 percent U&U for the distribution systems, excluding the Ponderosa Pines, Quail Run, and Sandy Acres systems. The Utility proposed U&U percentages of 100 percent for Ponderosa Pines and 93 percent each for the Quail Run and Sandy Acres distribution systems. There are no fire hydrants in any of the Utility’s service areas; therefore, no fire flow allowance was included in the U&U analysis. The Utility reported total unaccounted for water (UFW) of 8.01 percent for all of its composite Marion County systems, and 9.74 percent for Sandy Acres. Ponderosa Pines and Quail Run are on flat rates; therefore, there was insufficient information to determine the amount of UFW for those systems.

Water Treatment Plant

Pursuant to Rule 25-30.4325, F.A.C., the U&U calculation for a WTP is determined by dividing the peak demand by the firm reliable capacity of the WTP. If the system has no storage facilities, the calculation is in gallons per minute (gpm). Consideration of growth, fire flow requirements, excessive UFW, and other factors may also be included. The following is an analysis of the four WTPs that have been added since the last rate case (Ponderosa Pines, Quail Run, Sandy Acres, and Ashley Heights), as well as an analysis of two WTPs (Hill Top and Winding Waters) where second wells were added since the last rate case. Table 3-1 contains a summary of the Utility proposed and staff recommended U&U percentages for the unified and stand-alone WTPs.

Table 3-1

U&U Percentages of Unified WTPs
	System Name	No. of Wells	Utility Proposed U&U%	Staff Recommended U&U%
1	Ashley Heights	1	100	100
2	Belleview Oaks	1	100	100
3	Country Walk	1	100	100
4	Eleven Oaks	1	100	100
5	Emil Mar	1	100	100
6	Florida Heights	2	100	100
7	Floyd Clark	1	100	100
8	Fore Oaks Estates	2	100	100
9	Hill Top	2	100	100
10	Little Lake Weir	2	100	100
11	Oak Haven	1	100	100
12	Oakhurst	1	100	100
13	Ocala Garden	1	100	100
14	Ocala Heights	2	100	100
15	Ocklawaha	2	100	100
16	Sunlight Acres	1	100	100
17	SunRay Estates	2	100	100
18	Sun Resorts	1	100	100
19	Whispering Sands	2	100	100
20	Winding Waters	2	100	86
	Composite Unified U&U		100	100
	Stand-Alone
21	Ponderosa Pines	2	100	100
22	Quail Run	1	100	100
23	Sandy Acres	2	100	100

Ponderosa Pines

The Ponderosa Pines development was added to the Utility’s service territory in 2003.[8] The system, which was previously owned by Community Water Co-op, Inc. (Co-op), was exempt from Commission regulation pursuant to Section 367.022(7), F.S. In 2002, the Co-op’s main well collapsed and, subsequently, the well was abandoned. The remaining original well was constructed in the 1980’s and has a rated capacity of 60 gpm. Sunshine constructed a second well in 2004 which is rated at 56 gpm. The wells are located on separate sites and are interconnected via a two-inch distribution system. The single maximum day (SMD) flow in the test year of 76,700 gallons (106 gpm) occurred on August 3, 2010. It does not appear that there was a fire, line break, or other unusual occurrence on that day. Due to flat-rate billing, there is not enough information available to determine UFW. According to the Utility, there are no vacant lots in the Ponderosa Pines service area. The Utility did not request a growth allowance to be included in the U&U calculation. Based on a peak day of 106 gpm and firm reliable capacity (FRC) of 56 gpm, the WTP should be considered 100 percent U&U pursuant to Rule 25-30.4325, F.A.C.

Quail Run

The Quail Run water system was constructed in the 1980’s and transferred to Sunshine in 2002.[9] The WTP has one well, rated at 360 gpm. The Utility indicated the SMD flow in the test year of 76,700 gallons (106 gpm) occurred on April 20, 2010. However, the Utility’s Monthly Operating Reports (MORs) indicate that the flow on that date was 63,000 gallons (87.5 gpm), which was the single peak day for the Quail Run system. It does not appear that there was a fire, line break, or other unusual occurrence on that day. Due to flat rate billing, there is not enough information available to determine UFW. According to the Utility, there are 4 vacant lots out of 59 lots in the Quail Run service area and there has been no significant growth the past 5 years. The Utility did not request a growth allowance be included to the U&U calculation. Pursuant to Rule 25-30.4325(4), F.A.C., a water system with one well is considered 100 percent U&U; therefore, staff recommends that the Quail Run WTP be considered 100 percent U&U.

Sandy Acres

The Sandy Acres water system was constructed in the 1980s and transferred to the Utility in 2002.[10] In addition, an amendment was approved in 2003, adding several mobile homes to the service area.[11] Further, an amendment was approved in 2010, adding several mobile homes to the service area as a result of private wells that became contaminated.[12] The WTP has two wells, rated at 230 and 89 gpm, respectively. The SMD flow in the test year of 121,000 gallons (168 gpm) occurred on October 4, 2010. It does not appear that there was a fire, line break, or other unusual occurrence on that day. The Utility’s records indicate UFW of 9.74 percent. The Utility indicated that Sandy Acres has a lot of flushing due to dead-end lines. In addition, there has been a large amount of sand buildup in wells which also contributed to more flushing. According to the Utility, there are 22 vacant lots out of 295 lots in the Sandy Acres service area. There has been a decline in the number of customers over the past five years. The Utility did not request a growth allowance to be included to the U&U calculation. The FRC of the water system is 89 gpm, pursuant to Rule 25-30.4325(6)(a), F.A.C. Based on a peak day of 168 gpm and firm reliable capacity of 89 gpm, the WTP should be considered 100 percent U&U pursuant to Rule 25-30.4325, F.A.C.

Ashley Heights

The Ashley Heights water system was constructed in the 1990’s and added to the Utility’s service territory in 1999.[13] The WTP has one well rated at 62 gpm. The SMD flow in the test year of 21,800 gallons (17.8 gpm) occurred on October 4, 2010. It does not appear that there was a fire, line break, or other unusual occurrence on that day. According to the Utility, there are no vacant lots in the Ashley Heights service area. The Utility did not request a growth allowance to be included to the U&U calculation. Pursuant to Rule 25-30.4325(4), F.A.C., a water system with one well is considered 100 percent U&U; therefore, staff recommends that the Ashley Heights WTP be considered 100 percent U&U.

Hill Top

The Hill Top WTP was stipulated to be 100 percent U&U in the Utility’s last rate case.[14] The water system was constructed in the 1980’s and has one well. In 2003, the Utility filed an amendment to its service territory to include an additional 300 acres located adjacent to the existing Hilltop development to serve some existing mobile homes and a proposed development.[15] According to the order, the developer was to pay for all necessary permits to expand the water plant and distribution system to serve the additional customers and pay all costs for construction of needed improvements to the plant and distribution system in lieu of the Utility collecting its approved system capacity charge. Rule 62-555.315(2) F.A.C., requires a minimum of two wells be connected to a community water system that is using only ground water and that is serving, or is designed to serve, 350 or more persons or 150 or more service connections. The minimum service connection requirement for this system was reached in 2004 thus, requiring a second well. The additional well was constructed in 2005 and was paid for by the developer.

The WTP has two wells, rated at 190 and 200 gpm, respectively. The SMD flow in the test year of 84,000 gallons (116 gpm) occurred on September 24, 2010. It does not appear that there was a fire, line break, or other unusual occurrence on that day. According to the Utility, there are 64 vacant lots out of 260 lots in the Hilltop service area, and there has been no significant growth the past five years. The Utility did not request a growth allowance to be included to the U&U calculation. Based on a peak day of 116 gpm and a FRC of 190 gpm, the WTP is 61 percent U&U. However, because the second well was paid for by the developer and donated to the Utility, staff recommends that the Hilltop WTP be considered 100 percent U&U.

Winding Waters

The Winding Waters WTP, which serves Winding Waters, Lake Forrest, and Lake Bryant Ridge, was stipulated to be 100 percent U&U in the Utility’s last rate case.[16] The water system was constructed in the 1980s with one well. An additional well was constructed in 1999, as a result of growth in the service area.

The WTP has two wells, rated at 160 and 600 gpm, respectively. The SMD flow in the test year of 118,000 gallons (164 gpm) occurred on January 19, 2010. According to the Utility, a main line leak occurred on that date. The second highest SMD in the test year of 99,000 gallons (138 gpm) occurred on May 18, 2010. According to the Utility, a service leak also occurred on that date. The third highest SMD flow in the test year of 95,000 gallons (132 gpm) occurred on September 24, 2010. It does not appear that there was a fire, line break, or other unusual occurrence on that day. According to the Utility, there are 15 vacant lots in the development, as well as approximately 200 homes on private wells. Based on a peak day of 132 gpm, a growth allowance of 5 gpm, and FRC of 160 gpm, staff recommends that the WTP be considered 86 percent U&U.

WTP Summary

Based on the above analysis, staff recommends that all of the Utility’s WTPs, except the Winding Waters system be considered 100 percent U&U. Winding Waters should be considered 86 percent U&U. The composite U&U percentage for the WTPs, except Ponderosa Pines, Quail Run, and Sandy Acres systems, is 98 percent based on the weighted average number of lots served by the distribution systems. It is Commission practice to consider a system 100 percent U&U when the calculation results in a U&U of 95 percent or greater.[17] As such, staff recommends that the composite U&U be rounded to 100 percent. Therefore, staff recommends that the composite U&U percentage for the Unified WTPs, as well as the Ponderosa Pines, Quail Run, and Sandy Acres WTPs, be considered 100 percent.

Water Distribution Systems

The U&U calculation for water distribution systems is determined based on the number of occupied lots connected to the systems divided by the total number of lots served by the distribution systems. Consideration may be given for growth. Table 3-2 contains a summary of the Utility proposed and staff recommended U&U percentages for the Unified and stand-alone water distribution systems.

Table 3-2

Water Distribution System U&U Percentages
	System Name	Total Lots with Lines	Occupied Lots with Lines	Utility Proposed U&U % %	Growth Allowance	Staff Recommended U&U %
1	Ashley Heights	50	50	100		100
2	Belleview Oaks	95	88	93		93
3	Country Walk	77	68	88		88
4	Eleven Oaks	44	40	91		91
5	Emil Mar	87	81	93		93
6	Florida Heights	118	110	93		93
7	Floyd Clark	50	50	100		100
7	Northwoods	28	24	86		86
8	Fore Oaks Estates	58	51	88		88
8	Coventry	168	158	94		94
8	Ballard Acres	23	23	100		100
9	Hill Top	64	61	95		95
9	Hill Top Phase II	37	29	78		78
9	Hill Top Phase III	159	106	67		67
10	Little Lake Weir	787	436	55		55
11	Oakhaven	82	82	100		100
12	Oakhurst	115	115	100		100
13	Ocala Garden	29	25	86		86
14	Ocala Heights	168	106	63		63
14	Reynolds	91	87	96		96
14	Silverwood Villas	84	83	99		99
14	Spanish Palms	129	45	35		35
14	Country Aire	25	21	84		84
14	Lexington Estates	72	15	21		21
15	Ocklawaha	529	346	65		65
15	Sanctuary	24	18	75		75
16	Sunlight Acres	84	80	95		95
17	SunRay Estates	97	92	95		95
17	Sugar Plum	67	64	96		96
17	Stonehill	95	90	95		95
17	Baldwin Heights	11	8	73		73
17	Carol Estates	239	236	99		99
17	Pearl Britain	32	32	100		100
17	Boulder Hill	32	30	94		94
17	Jason’s Landing	51	48	94		94
18	Sun Resorts	33	32	97		97
19	Whispering Sands	128	128	100		100
20	Winding Waters	456	191	100		42
20	Lake Forest	8	5	63		63
20	Lake Bryant Ridge	33	21	64		64
	Total/Composite	4,294	3,375	79	1.05	83
	Stand-alone Systems Systems
21	Ponderosa Pines	198	198	100	1.00	100
22	Quail Run	59	55	93	1.00	93
23	Sandy Acres	295	273	93	1.00	93

Staff reviewed the Utility’s analysis of its distribution systems, as well as the maps provided for each of the systems. The Utility reported the number of occupied lots in each system, as well as the total number of lots adjacent to the distribution systems. In its application, the Utility included 191 lots for the Winding Waters distribution system but did not include the approximately 200 lots in the development that have private wells. Staff believes it is appropriate to include all of the lots in the Winding Waters development that are adjacent to the distribution system in the lot count. Several of the homes in that area have connected to the Utility’s water system in the past, and it is expected that additional homes with private wells will connect in the future if those wells become contaminated. Therefore, staff recommends using 456 lots for Winding Waters, consistent with the lot count used in the last rate case for this development, resulting in a 42 percent U&U for that development. Although a growth allowance was not requested, the Utility’s records indicate growth for all of the water systems, excluding the Ponderosa Pines, Quail Run, and Sandy Acres systems, of an average of five percent over the past five years. Details of growth for the individual systems were not available. Staff recommends that a growth allowance of five percent (one percent per year for five years) be included in the U&U calculation for all of the water distribution systems, excluding Ponderosa Pines, Quail Run, and Sandy Acres systems, pursuant to Section 367.081(2)(a), F.S. Staff recommends that the composite U&U percentage for all of the Unified water distribution systems, excluding the Ponderosa Pines, Quail Run, and Sandy Acres be considered 83 percent. The Ponderosa Pines distribution system should be considered 100 percent U&U. The Quail Run system has not experience any significant growth, and the Sandy Acres system has experienced a loss of customers over the past five years. Therefore, the Quail Run and Sandy Acres distribution systems should each be considered 93 percent U&U.

Conclusion

In summary, the composite U&U percentage for the Unified WTPs, as well as the Ponderosa Pines, Quail Run, and Sandy Acres WTPs, should be considered 100 percent U&U. The composite U&U percentage for all of the Unified water distribution systems except the Ponderosa Pines, Quail Run, and Sandy Acres systems should be considered 83 percent U&U. The Ponderosa Pines distribution system should be considered 100 percent U&U, and the Quail Run and Sandy Acres distribution systems should each be considered 93 percent U&U. Further, the rate base adjustments are shown on Schedule No. 2-B, and the depreciation expense and property tax adjustments are shown on Schedule No. 3-B.

Issue 4:

What is the appropriate working capital allowance?

Recommendation:

The appropriate working capital allowance is $107,683. (M. Brown, Fletcher)

Staff Analysis:

Rule 25-30.433(2), F.A.C., requires that Class B utilities use the formula method, whereby the working capital allowance is based on one-eighth of O&M expense. The Utility has properly filed its allowance for working capital using the formula method. Staff has recommended adjustments to Sunshine’s O&M expense that are reflected in other issues in the recommendation. As a result, staff recommends that working capital of $107,683 be approved. This reflects an increase of $2,052 to the Utility’s requested working capital allowance of $105,631.

Table 4-1

	Utility Requested	Staff Recommended Amounts	Recommended Adjustments
Unified Systems	$92,883	$1,831	$94,714
Quail Run	2,787	48	2,835
Sandy Acres	5,326	145	5,471
Ponderosa Pines	4,635	27	4,662
Total	$105,631	$2,052	$107,683

Issue 5:

What is the appropriate rate base for the test year ended December 31, 2010?

Recommendation:

Consistent with other recommended adjustments, the appropriate rate base for the test year ended December 31, 2010, is $315,168. (M. Brown, Fletcher)

Staff Analysis:

Based on staff’s recommended adjustments, the appropriate total rate base is $315,167. A breakdown of rate base by system is shown in Table 5-1. The schedule for rate base is attached as Schedule No. 2-A, and the adjustments are shown on Schedule No. 2-B.

Table 5-1

Systems	Utility Requested	Staff Recommended Adjustments	Staff Recommended Amounts
Unified Systems	$196,182	($489)	$195,693
Quail Run	13,410	(2,036)	11,374
Sandy Acres	65,047	(51,499)	13,548
Ponderosa Pines	29,706	64,846	94,552
Total	$304,345	($10,823)	$315,168

Issue 6:

What is the appropriate return on equity?

Recommendation:

Based on the Commission leverage formula currently in effect, the appropriate return on equity (ROE) is 9.13 percent. Staff recommends an allowed range of plus or minus 100 basis points be recognized for ratemaking purposes. (M. Brown, Fletcher)

Staff Analysis:

The ROE included in the Utility’s filing is 10.85 percent. Using the 2011 leverage formula and an equity ratio of 80.70 percent, the appropriate ROE is 9.13 percent.^{^[18]} Staff recommends an allowed range of plus or minus 100 basis points be recognized for ratemaking purposes.

Issue 7:

What is the appropriate weighted average cost of capital including the proper components, amounts, and cost rates associated with the capital structure?

Recommendation:

Based on the resolution of the previous issues, the appropriate weighted average cost of capital, including the proper components, amounts, and cost rates associated with the capital structure, is 8.11 percent. (M. Brown, Fletcher)

Staff Analysis:

As shown on MFR Schedule D-1, Sunshine originally proposed an overall cost of capital of 8.67 percent. Based on the resolution of the preceding issues, staff’s recommended capital structure yields an overall cost of capital of 8.11 percent. Schedule No. 1 contains staff’s recommended capital structure.

Issue 8:

Should the Utility’s pro forma O&M expense adjustment be allowed?

Recommendation: No. Staff believes O&M expense should be reduced by $9,769. The specific adjustments to each system are set forth in the staff analysis section below. (M. Brown, Fletcher)

Staff Analysis: In its filing, on MFR page B-3, the Utility requested the indexing of certain O&M expenses beyond the test year. Because the Utility chose a historical test year, staff believes that selecting certain expenses to index is inappropriate as it creates a mismatch with the requested test year. In addition, in review of the O&M expenses listed in the Utility’s 2010 and 2011 annual reports, staff finds that when excluding the requested indexing of the selected 2010 expenses, the amount of total O&M expense for 2010 is still greater than the amount reported in 2011. Based on the above, staff recommends that O&M expense be reduced by $9,769 to reflect the removal of pro forma O&M expense. The specific adjustments to each system are set forth in the table below:

Table 8-1

	Recommended Adjustment
Unified Systems	($8,746)
Quail Run	(229)
Sandy Acres	(454)
Ponderosa Pines	(340) 000
Total	($9,769)

Issue 9:

What is the appropriate amount of rate case expense?

Recommendation:

The appropriate amount of rate case expense is $49,400. This expense should be recovered over four years for an annual expense of $12,350. Therefore, annual rate case expense should be reduced by $150. (M. Brown, Fletcher)

Staff Analysis:

In its MFRs, the Utility included an estimate of $50,000 for 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 March 29, 2012, the Utility submitted a revised estimated rate case expense through completion of the PAA process of $56,514.

Table 9-1

Description

MFR B-10

Estimated

Actual as of 3/29/12

Additional

Estimated

Utility Revised

Total

Accounting Consultant Fees

$50,000

$52,014

$4,500

$56,514

Pursuant to Section 367.081(7), F.S., the Commission shall determine the reasonableness of rate case expense and shall disallow all rate case expense determined to be unreasonable. Staff has examined the requested actual expenses, supporting documentation, and estimated expenses as listed above for the current rate case. Based on its review, staff believes several adjustments are necessary to the revised rate case expense estimate.

Accounting Consultant Fees

The first adjustment relates to the Utility’s accounting consultant fees. The revised MFR Schedule B-10 reflected accounting consultant charges of $50,000. Additional documentation was received by staff that revised actual accounting charges through March 29, 2012, of $52,014, and included an estimate to complete of $4,500. As a result, the revised actual and estimated rate case expense for accounting consultant fees totaled $56,514 ($52,014 + $4,500).

Staff believes the number of hours proposed by Sunshine for accounting consultant fees are excessive, unreasonable, and unsupported. Staff believes that many of the associated accountant’s booked hours associated with Sunshine’s MFRs were spent on correcting MFR deficiencies and duplicated work associated with changing the test year. On January 21, 2010, the Utility requested the test year ended December 31, 2009. From March 16, 2010 to March 28, 2011, the Utility requested five extensions to file its MFRs. Also, during this time, on December 20, 2011, the Utility amended its test year to December 31, 2010. In support documentation provided by the Utility, a note was made to an invoice dated December 5, 2010, stating “Started 2009 rate case, then changed test year to 2010” indicating that work performed to this point was based on the 2009 test year, and was, thereby, duplicate work.

The Utility filed its original MFRs on June 1, 2011. From June 30, 2011 to December 12, 2011, the Utility was sent four deficiency letters before satisfying the MFRs on January 5, 2012. In a data request, staff asked the following:

1. For each individual person, in each firm providing consulting services to the applicant pertaining to this docket, provide the billing rate, and an itemized description of work performed. Please provide detail of hours worked associated with each activity. Also provide a description and associated cost for all expenses incurred to date.

2. For each firm or consultant providing services for the applicant in this docket, please provide copies of all invoices for services provided to date.

3. If rate consultant invoices are not broken down by hour, please provide reports that detail by hour, a description of actual duties performed, and amount incurred to date.

4. Please provide an estimate of costs to complete the case by hour for each consultant or employee, including a description of estimated work to be performed, and detail of the estimated remaining expense to be incurred through the PAA process.

5. Please provide an itemized list of all other costs estimated to be incurred through the PAA process.

Although staff requested a detailed itemization of worked performed, the reports from the accounting consulting firm reflect a very broad description of hours associated with the MFR preparation. Staff is unable to determine the specific hours that the accounting consultant firm spent correcting MFR deficiencies and adjusting for the revised test year. To determine the hours associated with the above, staff compared the dates listed in the reports of the accounting consultation firm to the dates of the deficiency responses, letters requesting extension, and the request to amend test year. Staff believes that approximately 178.15 hours of the associate accountant’s hours relate to correcting MFR deficiencies and adjusting for the revised test year and should be removed from rate case expense. Accordingly, the accounting consultant fees should be decreased by $20,928.[19]

Filing Fee

In its filing, the Utility did not include the required filing fee in its requested rate case expense. In accordance with rule 25-30.020(2)(e)3. F.A.C., Sunshine paid a filing fee of $3,500. As such, staff recommends that rate case expense should be increased by $3,500.

Customer Notices

The third adjustment relates to expenses for customer notices. The Utility did not include these expenses in its requested rate case expense. The Commission has previously allowed expenses of $0.05 per envelope and $0.10 per copy.[20] Staff recommends using postage costs based on the current postage rate.

Sunshine is responsible for sending four notices: the interim notice, the initial notice, the customer meeting notice, and the notice of the final rate increase. The initial notice and customer meeting notice were combined in this docket. As such, staff estimated the cost for the notices to be approximately $10,313. Accordingly, staff recommends rate case expense be increased by $10,313 to reflect the appropriate customer notice expenses.

Conclusion

It is the Utility’s burden to justify its requested costs.[21] Further, the Commission has broad discretion with respect to the allowance of rate case expense. 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.[22] In summary, staff recommends that Sunshine’s revised rate case expense be decreased by $7,114 for unsupported and unreasonable rate case expense. The appropriate total rate case expense is $49,400. A breakdown of rate case expense is as follows:

Table 9-2

Description	MFR Estimated	Utility Revised Actual	Staff Adjustments	Total
Accounting Consultant Fees	$50,000	$56,514	($20,928)	$35,587
Filing Fee	0 000	0	3,500	3,500
Notices, Postage	0	0	10,313	10,313
Total Rate Case Expense	$50,000	$56,514	($7,114)	$49,400
Annual Amortization	$12,500	$14,129	($1,779)	$12,350

Based on the four-year amortization of rate case expense pursuant to Section 367.0816, F.S., the recommended annual rate case expense of $12,350 ($49,400/4) should be recovered over four years. Table 9-3 reflects the annual amortization adjustments of rate case expense for each system.

Table 9-3

Systems	Allocated Percent	MFR B-10 Estimate	Total Adjustments	Total Recommended
Unified Systems	86.12%	$3,125	$7,511	$10,636
Quail Run	4.89%	3,125	(2,521)	604
Sandy Acres	2.51% 000	3,125	(2,815)	310
Ponderosa Pines	6.48%	3,125	(2,325)	800
Total	100%	$12,500	($150)	$12,350

Issue 10:

Should any adjustments be made to salaries expense?

Recommendation:

Yes. Staff believes Salaries and Wages – Officers expense should be increased by $8,597. Accordingly, a corresponding adjustment should be made to increase benefits and payroll taxes by $1,132 and $658, respectively. The specific adjustments to each system are set forth in staff’s analysis section below. (M. Brown, Fletcher)

Staff Analysis:

In its MFRs, the Utility requested $374,294 for total salaries and wages expense. The Commission has previously allowed recovery of O&M expenses that reflect increases associated with customer growth and inflation, and recognized that reducing expenses back to the amount approved in the Utility’s last rate case would effectively remove an increase the Commission has already granted in prior index applications.[23] Utilizing Sunshine’s approved price indices from 1990 through 2009, and taking into account the actual increase in the total number of customers of Sunshine since its 1990 rate case, staff calculated an increase of $208,088 ($28,749+$179,339). In Sunshine's 1990 rate case, the Commission approved $218,749 for total salaries and wages expense. Accounting for the approved price indices and growth allowance results in a total of $426,837. Therefore, staff believes the Utility’s requested $374,294 for total salaries and wages expense is reasonable.

Specifically regarding Salaries and Wages – Officers expense, however, staff believes adjustments are necessary. Audit Finding No. 7 stated that the officers do not materially participate in the everyday management of the Utility. In response, the Utility stated that James H. Hodges, Sr. functioned in the role of president for many years. Sunshine asserted that, over the past few years, the full duties and responsibilities of operating the Utility were gradually transferred to the two sons, James H. Hodges, Jr. and Dewaine W. Christmas. The Utility stated that despite increasing duties and responsibilities, the sons remain in the titles and compensation levels of Secretary and Treasurer.

Moreover, the Utility stated that shortly after the passing of James H. Hodges Sr. in December 2011, a corporate meeting was held resulting in a vote to officially recognize James H. Hodges, Jr. and Dewaine W. Christmas as President and Vice President, and promoted two long-term employees to the newly vacant Secretary and Treasurer positions, effective June 1, 2012. As a result, the Utility requested an increase of $52,400, or 22.05 percent, in addition to the requested MFR amounts. Staff believes this incremental increase to be an excessive and unsupported increase considering the duties of each officer position have not changed substantially since the test year, nor does staff anticipate substantial changes on a prospective basis. However, staff believes some level of increase is appropriate, and recommends that a 3.62 percent increase, based on the 2011 and 2012 price indices, is more reasonable.[24] Therefore, staff recommends that Salaries and Wages – Officers expense be increased by $8,597.

Based on the above, staff recommends that Salaries and Wages – Officers expense be increased by $8,597. Accordingly, using the historical ratio of benefits to salaries, staff also recommends that corresponding adjustments be made to increase the Utility’s 2010 benefits by $1,133. Further, a corresponding adjustment should be made to increase payroll taxes by $658. The specific adjustments to each system are set forth in Table 10-1 below:

Table 10-1

Systems	Salary Adjustment	Benefit Adjustment	Payroll Tax Adjustments
Unified Systems	$7,404	$968	$566
Quail Run	216	41	17
Sandy Acres	557	60	43
Ponderosa Pines	420 000	64	32
Total	$8,597	$1,133	$658

Issue 11: What is the appropriate revenue requirement?

Recommendation:

The following revenue requirement should be approved:

Systems	Test Year Revenues	$ Increase	Revenue Requirement	% Increase
Unified Systems	$851,899	$68,017	$919,916	7.98%
Quail Run	14,892	12,351	27,243	82.94%
Sandy Acres	42,165	11,539	53,704	27.37%
Ponderosa Pines	34,877	15,641	50,518	44.85%
Total	$943,833	$107,548	$1,051,381	11.39%

(M. Brown, Fletcher)

Staff Analysis:

In its filing, Sunshine requested a total annual revenue requirement of $1,143,683. This requested revenue requirement represents a revenue increase of $199,850, or 17.47 percent. Consistent with staff’s recommendations concerning the underlying rate base, cost of capital, and operating income issues, staff recommends approval of rates designed to generate a water revenue requirement of $1,051,381. The computation of the revenue requirement is shown on Schedule No. 3-A. The recommended water revenue requirements exceed staff’s adjusted test year revenues by $107,548, or 11.39 percent. These recommended pre-repression revenue requirements will allow the Utility the opportunity to recover its expenses and earn an 8.11 percent return on its total investment.

Issue 12:

What are the appropriate billing determinants for the test year?

Recommendation:

The appropriate billing determinants for the test year are shown in Sunshine’s revised MFR Schedules E-2 and E-14, and are summarized below:

Sunshine Utilities of Central Florida, Inc. Test Year Ending December 31, 2010 Appropriate Test Year Billing Determinants
System Name	Bills Rendered	Equivalent Residential Connections	(000) Gallons Sold
Unified Systems	37,675	41,654	227,726
Sandy Acres	2,641	2,641	17,005
Ponderosa Pines (1)	2,125	2,125	13,457
Quail Run (1)	1,082	1,082	8,046
(1) Gallons sold based on 90 percent of gallons treated from MFR volume 1 Schedules F-1 for the respective systems. Sources: Sunshine Utilities of Central Florida, Inc., Minimum Filing Requirements, Schedules E-2, E-14 and F-1.

(Lingo)

Staff Analysis:

The current rate structure for the Unified Systems and Sandy Acres system is the base facility charge (BFC)/uniform gallonage charge rate structure. Therefore, Sunshine bills the customers of these systems based on metered billing data. The test year billing determinants detail for these respective systems is contained on MFR Schedules E-2 and E-14. The current rate structure for the Ponderosa Pines and Quail Run systems is the flat rate structure; therefore, there is no metered data regarding the number of gallons sold for these systems during the test year. However, system-specific data regarding the number of bills rendered by customer class is presented on MFR Schedule E-2.

In the past, in circumstances for which no test year metered customer consumption data is available for a utility, the Commission has utilized MFR volume 1 entitled, “Schedule F-1: Gallons of Water Pumped, Sold and Unaccounted For” to calculate a proxy total consumption figure based on 90 percent of the gallons of water treated at the system’s water treatment plant.[25] Staff believes it is reasonable to use this same methodology to calculate proxy total consumption figures for both the Ponderosa Pines and Quail Run systems.

There were no audit adjustments made to test year revenues, and staff is unaware of any billing problems during the test year period. Therefore, based on the foregoing discussion, staff recommends that the appropriate number of billing determinants for the test year are shown on Table 12-1.

Table 12-1

Sunshine Utilities of Central Florida, Inc. Test Year Ending December 31, 2010 Appropriate Test Year Billing Determinants
System Name	Bills Rendered	Equivalent Residential Connections	(000) Gallons Sold
Unified Systems	37,675	41,654	227,726
Sandy Acres	2,641	2,641	17,005
Ponderosa Pines (1)	2,125	2,125	13,457
Quail Run (1)	1,082	1,082	8,046
(1) Gallons sold based on 90 percent of gallons treated from MFR Schedules F-1 for the respective systems. Sources: Sunshine Utilities of Central Florida, Inc., Minimum Filing Requirements, Schedules E-2, E-14 and F-1.

Issue 13:

What, if any, limits should be imposed on subsidy values that could result if the current stand-alone rates are converted to a more consolidated rate structure?

Recommendation:

Staff recommends that the appropriate subsidy limit, based on 7,000 gallons of usage, should represent no more than 21 percent of the pre-repression bill resulting from consolidation. The pre-repression bill is based on staff’s recommended consolidation, rate structures, revenue requirements and repression adjustments. (Lingo)

Staff Analysis:

Subsidization is inherent in any rate structure. Subsidies are created when lower average cost systems are combined with higher average cost systems. It is important that the Commission consider subsidies because Section 367.081(2)(a)1., F.S., states that in setting rates for water or wastewater systems, “the commission shall, either upon request or upon its own motion, fix rates which are just, reasonable, compensatory, and not unfairly discriminatory.”

Based on staff’s analysis of the most recent water rate case involving Aqua Utilities Florida, Inc. (AUF), the Commission found that the appropriate subsidy limit, based on 7,000 gallons of usage per month, was an absolute value of $12.50.^{^[26]} Staff notes that this was the figure used in Proposed Agency Action Order No. PSC-11-0256-PAA-WS, issued July 1, 2011. It was not protested and therefore deemed stipulated.

Staff does not believe that an absolute value of $12.50 is an appropriate subsidy limit to use in this case, because it would potentially comprise a significant, unreasonable percentage of a customer’s bill. For example, when considering Sunshine’s full rate consolidation request, a subsidy of merely $6.28 paid by the Sandy Acres system would represent greater than 25 percent of the consolidated monthly bill for that system. Therefore, staff does not believe that an absolute value of $12.50 is an appropriate subsidy limit to use in this case.

In the alternative, when staff analyzed AUF’s Commission-approved water system consolidation, revenue requirements and subsidies on a relative basis, in no instance did the subsidy for any stand alone system exceed 21 percent of the Commission-approved consolidated bill for that system at 7,000 gallons of usage.^{^[27]} In other words, the mere imposition of rate consolidation did not represent more than 21 percent of any customer’s bill at 7,000 gallons of usage. Staff believes this relative approach is reasonable in this case, given the current rate structures and rates of the Utility’s four systems in this case.

Ultimately, the determination of the subsidy limit for the respective water systems should be based on an analysis using the Commission’s approved revenue requirements for the applicable systems. Based on the foregoing discussion, consistent with the Commission’s findings in the AUF case referenced above, staff recommends that the subsidy limit represent no more than 21 percent of any rate group’s pre-repression bill at 7,000 gallons of usage. The pre-repression bill is based on staff’s recommended consolidation, rate structures, revenue requirements and repression adjustments.

Issue 14:

What are the appropriate rate structures for the Utility’s water systems?

Recommendation: The appropriate rate structure for the Utility’s Unified Systems and Sandy Acres residential water customers is a three-tiered inclining block rate structure with usage blocks for monthly consumption of: (a) 0-5,000 gallons, (b) 5,001-10,000 gallons, and (c) usage in excess of 10,000 gallons. The usage block rate factors should be 1.0, 1.093 and 2.186, respectively, with both the multi-residential and general service gallonage charge rate based on the average overall water rate per 1,000 gallons. The appropriate rate structure for the Utility’s Ponderosa Pines and Quail Run water customers is a BFC/uniform gallonage charge rate structure. The BFC cost recovery allocation for all four systems should be set at 40 percent.

(Lingo)

Staff Analysis:

The Utility’s current water system rate structure for both the Unified Systems and Sandy Acres system is the monthly BFC/uniform gallonage charge rate structure. For the Unified Systems, the monthly BFC prior to filing for a 5/8” x 3/4” meter was $8.34, with a gallonage charge rate of $2.04 for each 1,000 gallons used. For the Sandy Acres system, the monthly BFC prior to filing for a 5/8” x 3/4” meter was $4.69, with a gallonage charge rate of $1.47 each 1,000 gallons used. The Utility’s Ponderosa Pines and Quail Run systems both currently utilize a flat, nonconsumption-based rate structure. Therefore, detailed test year billing data does not exist for these two systems. The monthly flat rates prior to filing for these two systems were $15.66 and $9.50, respectively.

The Commission has a Memorandum of Understanding (MOU) with the five Water Management Districts (WMDs or Districts). Guidelines of the five Districts is to eliminate nonconsumption-based rate structures, and to set the base facility charges such that they recover no more than 40 percent of the revenues to be generated from monthly service.[28] The Commission complies with these guidelines whenever possible.[29] This 40 percent BFC guideline is consistent with the results of the statewide Water Conservation Initiative’s (WCI) final report, issued in April 2002.[30] The Commission has also cooperated with the WMDs regarding requests for conservation rate structures, implementing the inclining-block rate structure as its rate structure of choice.[31]

Staff, using its recommended revenue requirements for the four respective stand-alone systems, evaluated the Utility’s request to change its four water systems to a fully consolidated BFC/uniform gallonage charge rate structure. As will be discussed in Issue 16, staff recommends that the appropriate combination of systems is: 1) to combine the Unified Systems and Sandy Acres system into a single, consolidated system; and 2) to combine the Ponderosa Pines and Quail Run system into a single, consolidated system. Therefore, the rate structure discussions will follow below in the same manner.

Unified Systems and Sandy Acres system

Detailed consumption data is necessary to implement an inclining-block rate structure. Since this test-year consumption detail does not exist for the Ponderosa Pines and Quail Run systems, the implementation of a more conservation-oriented rate structure such as an inclining-block rate structure must necessarily be restricted to the Unified Systems and Sandy Acres system at this time.

Staff performed a detailed analysis of the Utility’s combined Unified Systems and Sandy Acres 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 goals and practices.

The appropriate threshold for a residential customer’s discretionary usage is 5,000 gallons per month. (This figure is derived based on the average number of persons per household, gallons used per day per person, and the number of days per month (3 x 50 x 30 = 4,500 gallons, rounded up to 5,000 gallons). Based on staff’s analysis of the consolidated residential billing data, the average consumption at 5,000 gallons or less is approximately 2,700 gallons per month, which is not indicative of high overall average consumption. However, the billing data indicates that at monthly consumption greater than 5,000 gallons, the average residential consumption is significantly greater, at approximately 11,000 gallons per month.

Therefore, staff’s recommends that the residential usage blocks be set for monthly usage of: 1) 0-5,000 gallons; 2) 5,001-10,000 gallons; and 3) usage in excess of 10,000 gallons. This rate structure has the effect of: 1) restricting repression being applied to non-discretionary usage below 5,000 gallons in the first block; 2) targeting greater-than-average consumption in the second block; and 3) sending the strongest conservation signals to those customers whose consumption exceeds 10,000 gallons per month in the third block. In addition, staff recommends that the BFC cost recovery be set at 40 percent to comply with WMD guidelines. Staff recommends that the rate structure for the water system’s non-residential class remain unchanged. This rate structure has been the Commission’s choice for non-residential customer classes.[32]

Ponderosa Pines and Quail Run systems

As mentioned previously, both systems currently utilize a flat, nonconsumption-based rate structure, so detailed test year billing data does not exist for these two systems. Therefore, an inclining-block rate structure cannot be designed. In the alternative, a BFC/uniform gallonage charge rate structure may be designed and implemented. As discussed in Issue 12 and shown on Table 12-1, in circumstances for which no test year metered consumption data is available for a utility, the Commission has utilized a schedule in MFR volume 1 entitled “Schedule F-1: Gallons of Water Pumped, Sold and Unaccounted For” to calculate a proxy total consumption figure based on 90 percent of the gallons of water pumped at the system’s water treatment plant.[33] As also shown on Table 12-1, staff has determined the number of equivalent residential connections for these two systems. Therefore, a BFC/uniform gallonage charge rate structure may be designed and implemented, with the BFC cost recovery be set at 40 percent to comply with WMD guidelines.

Based on the foregoing, the appropriate rate structure for the Utility’s Unified Systems and Sandy Acres residential water customers is a three-tiered inclining block rate structure with usage blocks for monthly consumption of: (a) 0-5,000 gallons, (b) 5,001-10,000 gallons, and (c) usage in excess of 10,000 gallons. The usage block rate factors should be 1.0, 1.093 and 2.186, respectively, with both the multi-residential and general service gallonage charge rate based on the average overall water rate per 1,000 gallons. The appropriate rate structure for the Utility’s Ponderosa Pines and Quail Run water customers is a BFC/uniform gallonage charge rate structure. The BFC cost recovery allocation for all four systems should be set at 40 percent.

Issue 15:

What is the appropriate rate consolidation for the Utility’s water systems?

Recommendation:

Staff recommends that: 1) the Unified Systems and the Sandy Acres system be combined into a single, consolidated system; and 2) the Ponderosa Pines and Quail Run systems be combined into a single, consolidated system. (Lingo)

Staff Analysis:

Marion County and Sandy Acres systems

As discussed in Issue 14, detailed consumption data for the test year exists only for the Marion County and Sandy Acres systems. At monthly consumption greater than 5,000 gallons, the average consumption for these systems is approximately 11,000 gallons per month. Therefore, staff recommends the consolidation of these systems in order to implement an inclining-block rate structure.

Ponderosa Pines and Quail Run systems

As also discussed in Issue 14, these two systems currently utilize a flat, nonconsumption-based rate structure. As discussed in Issue 12, in circumstances for which no test year metered customer consumption data is available for a utility, the Commission has utilized MFR Schedule F-1 entitled “Schedule F-1: Gallons of Water Pumped, Sold and Unaccounted For” to calculate a proxy total consumption figure based on 90 percent of the gallons of water treated at the system’s water treatment plant.[34] Staff believes it is reasonable to use this same methodology to calculate proxy total consumption figures for both the Ponderosa Pines and Quail Run systems in order to design a BFC/uniform gallonage charge rate structure.

Based on the foregoing, staff recommends that is appropriate to combine: 1) the Unified Systems and the Sandy Acres system into a single, consolidated system; and 2) the Ponderosa Pines and Quail Run systems into a single, consolidated system.

Issue 16:

What are the appropriate repression adjustments?

Recommendation:

The appropriate repression adjustments for the water systems are shown in the table below.

Staff’s Recommended Repression Adjustments Based on Staff’s Recommended Water System Consolidation Methodology
System Name	Unified Systems / Sandy Acres Consolidation	Ponderosa Pines/ Quail Run Consolidation
1,000 Gallons Repressed	(5,377)	(3,295)
Expense Adjustments:
Purchased Power	($1,464)	($767)
Chemicals	($439)	($92)
Regulatory Assessment Fees	($86)	($39)
Total	($1,988)	($898)

(Lingo)

Staff Analysis:

The Commission does not apply repression adjustments to nondiscretionary consumption.[35] Applying repression to only discretionary usage results in usage block rate factors for the Unified Systems/Sandy Acres consolidated system of 1.0, 1.093 and 2.186 for usage blocks one through three, respectively.

As discussed in Issue 14, detailed test year billing data does not exist for the Ponderosa Pines/Quail Run consolidated system. However, in cases in which the Commission has changed a utility’s rate structure from a flat rate structure to a BFC/gallonage charge rate structure, consumption reductions have ranged from 44 percent to greater than 60 percent. Therefore, staff recommends that applying a price elasticity adjustment of -0.5 to the Ponderosa Pines/Quail Run system is both conservative and fair.[36]

Therefore, based on staff’s recommended billing determinants, revenue requirements, rate cap thresholds, rate structures, and consolidations for the respective water systems, the recommended repression adjustments are shown in Table 16-1 on the following page.

Table 16-1

Staff’s Recommended Repression Adjustments Based on Staff’s Recommended Water System Consolidation Methodology
System Name	Unified Systems / Sandy Acres Consolidation	Ponderosa Pines/ Quail Run Consolidation
1,000 Gallons Repressed	(5,377)	(3,295)
Expense Adjustments:
Purchased Power	($1,464)	($767)
Chemicals	($439)	($92)
Regulatory Assessment Fees	($86)	($39)
Total	($1,988)	($898)

Issue 17:

What are the appropriate water rates for the Utility?

Recommendation:

The appropriate monthly water rates are shown on Schedule 4 for the respective systems. Excluding miscellaneous service charges, and including the repression adjustments discussed in Issue 16, the recommended water rates produce revenues of $925,685 for the Unified Systems/Sandy Acres consolidated system, and $73,615 for the Ponderosa Pines/Quail Run consolidated system. The Utility should file revised water tariff sheets and a proposed customer notice to reflect the Commission-approved rates for the water 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 ten days after the date of the notice. (Lingo, M. Brown, Fletcher)

Staff Analysis:

The appropriate pre-repression revenue requirement, excluding miscellaneous service charges, is $927,673 for the Unified Systems/Sandy Acres consolidated system. As discussed in Issue 14, staff recommends that the appropriate rate structure for the residential class is a three-tier inclining block rate structure, with usage blocks for monthly consumption of: a) 0-5,000 gallons; b) 5,001-10,000 gallons; and 3) all usage in excess of 10,000 gallons. The recommended usage block rate factors should be 1.0, 1.093 and 2.186, respectively.

The appropriate pre-repression revenue requirement, excluding miscellaneous service charges, is $74,513 for the Ponderosa Pines/Quail Run consolidated system. Staff recommends that the appropriate rate structure for the Ponderosa Pines/Quail Run systems, as well as all non-residential classes in this rate case, is the traditional BFC/uniform gallonage charge rate structure. As discussed in Issue 16, staff recommends that a repression adjustment be made to both of the Unified Systems/Sandy Acres and Ponderosa Pines/Quail Run consolidated water systems. The BFC cost recovery percentage for all systems should be set at 40 percent. Applying these recommendations to staff’s recommended pre-repression revenue requirements result in the final rates contained on Schedule 4 for the respective systems. These rates are designed to recover post-repression revenue requirements of $925,685 for the Unified Systems/Sandy Acres consolidated system, and $73,615 for the Ponderosa Pines/Quail Run consolidated system.

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 ten days after the date of the notice.

Issue 18:

What are the appropriate miscellaneous service charges?

Recommendation:

The appropriate miscellaneous service charges, fees and deposits are contained in the table below.

Sunshine Utilities of Central Florida, Inc. Test Year Ending December 31, 2010 Recommended Miscellaneous Service Charges
Type of Charge	Business Hours	After Hours
Initial Connection	$21	$42
Normal Reconnection	$21	$42
Violation Reconnection	$21	$42
Premises Visit	$21	$42
Late Fee	$5	N/A
Meter Test Deposit
5/8” x 3/4”	$20	N/A
1”	$25	N/A
1 1/4”	$25	N/A
1 1/2”	$25	N/A
2” and greater	Actual cost	N/A
Customer Deposits
5/8” x 3/4”	2 x (avg of 2 months’ bill)	N/A
1”	2 x (avg of 2 months’ bill)	N/A
1 1/4”	2 x (avg of 2 months’ bill)	N/A
1 1/2”	2 x (avg of 2 months’ bill)	N/A
2” and greater	2 x (avg of 2 months’ bill)	N/A
Meter Tampering Charge / Illegal Reconnect	$50	$50
Sources: Sunshine Utilities of Central Florida, Inc., Minimum Filing Requirements, Schedules E-5.

The Utility should file revised water tariff sheets that include provisions for the recommended charges, fees and deposits contained in the table above. Staff should be given authority to administratively approve these tariff sheets upon verification they are consistent with the Commission’s decision. The revised tariff sheets should be implemented on or after the stamped approval date on the revised tariff sheet, if no protest is filed and once the proposed customer notice has been approved by staff as adequate, and the customers have received the approved notice. The notice may be combined with the notice for the approved service rates. (Lingo)

Staff Analysis:

The Utility’s current and requested charges are shown on Table 18-1 on the following page.

Table 18-1

Sunshine Utilities of Central Florida, Inc. Test Year Ending December 31, 2010 Requested Miscellaneous Service Charges
Type of Charge	Business Hours Present Proposed		After Hours Present Proposed
Initial Connection	$15	$30	$15	$30
Normal Reconnection	$15	$30	$15	$30
Violation Reconnection	$15	$30	$20	$60
Premises Visit	$10	$20	N/A	$30
Late Fee	$2	$5	N/A	N/A
Meter Deposit
5/8” x 3/4”	$20	$30	N/A	N/A
1”	$25	$30	--	N/A
1 1/4”	--	$30	--	N/A
1 1/2”	$25	$30	N/A	N/A
2” and greater	Actual cost	Actual cost	N/A	N/A
Customer Deposits
5/8” x 3/4”	$40	$50	N/A	N/A
1”	--	$50	--	N/A
1 1/4”	--	$50	--	N/A
1 1/2”	--	$50	--	N/A
2” and greater	--	$50	--	N/A
Meter Tampering Charge / Illegal Reconnect	--	$100	--	$100
Sources: Sunshine Utilities of Central Florida, Inc., Minimum Filing Requirements, Schedules E-5.

Section 367.091, F.S., requires that rates, charges, and customer service policies be approved by the Commission. The Commission has authority to establish, increase, or change a rate or charge. The Commission may also set a nonsufficient funds (NSF) fee in accordance with Sections 68.065 and 832.08(5), F.S.

Miscellaneous Services Charges

Rule 25-30.460, F.A.C., addresses applications for miscellaneous service charges. Pursuant to this rule, all water and wastewater utilities may apply for these charges, and the charges shall be included in each company’s tariffs and shall include rates for initial connections, normal reconnections, violation reconnections, and premise visit charges. Pursuant to this rule, the aforementioned charges are allowed to be levied by utilities.

Rule 25-30.460, F.A.C., also allows a utility to request an additional charge (“after hours charge”) for overtime when the customer requests that service be performed after normal hours. The after hours charge(s) may be the same rate as the charge during normal working hours; however, it the utility seeks a charge other than the normal working hours charge, the utility must file cost support. Section 367.091(6), F.S., authorizes the utility to file an application to establish, increase, or change a rate or charge other than monthly rates or service availability charges, which also must be accompanied by cost support.

Subsequent to its filing, the Utility contacted staff to request that its revised miscellaneous service charges and fees be consistent with similar, recently-approved charges by the Commission.[37] The costs of the Utility appear to be typical of other utilities. Therefore, staff recommends that miscellaneous service charges of $21 for normal hours and $42 for after hours be approved. These charges are consistent with Commission decisions in several recent rate cases.[38]

Late (Delinquent) Payment Charge

In Order No. PSC-01-0998-TRF-WU, the Commission found that the goal of allowing late fees to be charged by a utility is twofold: first, it encourages current and future customers to pay their bills on time; and second, if payment is not made on time, it ensures that the cost associated with the late payments is not passed on to the customers who do pay on time.[39] Allowing a late fee encourages prompt payment by current and future customers. Therefore, a late payment fee is appropriate. A late payment fee of $5 is consistent with prior Commission practice and Orders.[40]

Meter Test Deposits

As shown in Table 18-1, the Utility has requested an increase in these deposits. No such deposit is required by Commission rules.[41] The Commission’s standard meter test deposit charges are: 1) $20 for a 5/8” x 3/4” meter, 2) $25 for 1” to 1 1/2” meters, and 3) actual cost for meter sizes of 2” or greater.[42] Staff recommends that these charges be approved for the Utility.

Customer Deposits

The purpose of initial customer deposits is to establish credit with the utility. Rule 25-30.311(1), F.A.C., sets out the criteria for establishment of credit for customers. The criteria include: (a) furnishing a satisfactory guarantor, (b) paying a cash deposit, or (c) furnishing an irrevocable letter of credit from a bank or a surety bond. Specifically, Rule 25-30.311(1), F.A.C., states:

Each company’s tariff shall contain their specific criteria for determining the amount of initial deposit. Each utility may require an applicant for service to satisfactorily establish credit, but such establishment of credit shall not relieve the customer from complying with the utilities’ rules for prompt payment of bills.

Further, Rule 25-30.311, F.A.C., also provides guidelines for collecting, administering, and refunding customer deposits. Pursuant to Rule 25-30.311(5), F.A.C.:

After a customer has established a satisfactory payment record and has had continuous service for a period of 23 months, the utility shall refund the residential customer’s deposits . . ., providing the customer has not, in the preceding 12 months, (a) made more than one late payment of a bill (after the expiration of 20 days from the date of mailing or delivery by the utility), (b) paid with check refused by a bank, (c) been disconnected for nonpayment, or at any time, (d) tampered with the meter, or (e) used service in a fraudulent or unauthorized manner.

In addition, the utility is required to pay interest on all customer deposits pursuant to Rule 25-30.311(4), F.A.C.

The Commission has recognized that customer deposits may be required to encourage payment of bills or recovery of past due amounts. Customer deposits are designed to minimize the exposure of bad debt expense for the utility, and ultimately the general body of ratepayers. Historically, the Commission has set customer deposits equal to two month’s bills based on average consumption. For the initial deposit, the amount is based on the average consumption per residential customer, calculated on the total residential usage divided by the number of residential bills. Therefore, the deposits are calculated specifically by the customer class.[43]

Not only is collecting a customer deposit to recover this two-month period of service consistent with past Commission practice, it is also consistent with one of the fundamental principals of ratemaking - ensuring that the cost of providing service is recovered from the cost causer. The methodology addressed above for calculating initial customer deposits is also consistent with the methodologies for natural gas utilities pursuant to Rule 25-7.083, F.A.C., and electric utilities pursuant to Rule 25-6.097, F.A.C.[44]

Meter Tampering Fee

The Utility has requested the establishment of a meter tampering fee. In prior cases, the Commission has determined that $50 adequately reflects the typical costs to be incurred in investigating and resolving situations of meter tampering. However, the fee is appropriate only where an investigation reveals evidence of meter tampering.[45]

Therefore, based on the foregoing, the appropriate miscellaneous service charges, fees and deposits are contained in the table below.

Table 18-2

Sunshine Utilities of Central Florida, Inc. Test Year Ending December 31, 2010 Recommended Miscellaneous Service Charges
Type of Charge	Business Hours	After Hours
Initial Connection	$21	$42
Normal Reconnection	$21	$42
Violation Reconnection	$21	$42
Premises Visit	$21	$42
Late Fee	$5	N/A
Meter Test Deposit
5/8” x 3/4”	$20	N/A
1”	$25	N/A
1 1/4”	$25	N/A
1 1/2”	$25	N/A
2” and greater	Actual cost	N/A
Customer Deposits
5/8” x 3/4”	2 x (avg of 2 months’ bill)	N/A
1”	2 x (avg of 2 months’ bill)	N/A
1 1/4”	2 x (avg of 2 months’ bill)	N/A
1 1/2”	2 x (avg of 2 months’ bill)	N/A
2” and greater	2 x (avg of 2 months’ bill)	N/A
Meter Tampering Charge / Illegal Reconnect	$50	$50
Sources: Sunshine Utilities of Central Florida, Inc., Minimum Filing Requirements, Schedules E-5.

Issue 19:

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 not in effect during the interim period. The revised revenue requirements for the interim collection period should be compared to the amount of interim revenue requirement granted. Based on this calculation, a refund of 5.69 percent is required for the Sandy Acres system. (M. Brown, Fletcher)

Staff Analysis:

By Order No. PSC-11-0358-PCO-WU, the Commission approved interim water rates subject to refund, pursuant to Section 367.082, F.S. In this proceeding, the test period for establishment of interim rates was the historical simple average period ended December 31, 2010. The approved interim rates did not include any provisions for pro forma operating expenses or plant. The interim increase was designed to allow recovery of actual interest costs, and the floor of the last authorized range for return on equity.

Consistent with Section 367.082(4), F.S., any refund must 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 that interim rates are in effect shall be removed. To establish the proper refund amount, staff calculated a revised revenue requirement for the interim period using the same data used to establish final rates. Rate case expense was excluded because it was not an actual expense during the interim collection period. Applying the requirements of the interim statute, staff recommends that interim refunds are required for only the stand-alone system of Sandy Acres because the calculated interim period revenue requirement was less than the interim revenue requirement approved in Order No. PSC-11-0358-PCO-WU. Staff’s calculations for its recommended interim refunds are shown in the table below.

Table 19-1

Interim Refund Calculations
		RAF	Interim	Interim
	Recom.	Grossed	Period	Rev. Req.	Interim
System	Rev. Req.	RCE	Rev. Req.	Per Order	Excess	Refund %
Unified Systems	$919,916	($11,137)	$908,779	$899,204	($9,575)	No Refund
Quail Run	27,243	(325)	26,918	26,581	(337)	No Refund
Sandy Acres	53,704	(838)	52,866	56,318	3,452	5.69%
Ponderosa Pines	50,518	(632)	49,886	44,993	(4,893)	No Refund
TOTAL	$1,051,382	($12,932)	$1,038,450	$1,027,096	($11,354)

Issue 20:

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, Florida Statutes?

Recommendation:

The rates should be reduced as shown on Schedule No. 4 to remove $12,096 collectively for the Unified and Sandy Acres systems and $957 collectively for the Quail Run and Ponderosa Pines systems related annual rate case expense and the associated return included in working capital, grossed-up for regulatory assessment fees (RAFs), 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 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 25-30.475(1), F.A.C. The rates should not be implemented until staff has approved the proposed customer notice. Sunshine should provide proof of the date notice was given within 10 days of 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 (M. Brown, 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, the associated return included in working capital, and the gross-up for RAFs, which is $12,096 collectively for the Unified and Sandy Acres systems and $957 collectively for the Quail Run and Ponderosa Pines systems. The decreased revenue will result in the rate reduction recommended by staff on Schedule No. 4.

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 25-30.475(1), F.A.C. The rates should not be implemented until staff has approved the proposed customer notice. Sunshine should provide proof of the date notice was given within 10 days of 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 21:

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 National Association of Regulatory Utility Commissioners (NARUC) Uniform System of Accounts (USOA) primary accounts associated with the Commission approved adjustments?

Recommendation:

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

Staff Analysis:

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

Issue 22:

Should this docket be closed?

Recommendation:

No. If no person whose substantial interests are affected by the proposed agency action files a protest within 21 days of the issuance of the order, a consummating order will be issued. 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, and that the interim refund has been completed and verified by staff. Once these actions are complete, this docket should be closed administratively, and the escrow account should be released. (Jaeger, M. Brown, Fletcher)

Staff Analysis:

If no person whose substantial interests are affected by the proposed agency action files a protest within 21 days of the issuance of the order, a consummating order will be issued. 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, and that the interim refund has been completed and verified by staff. Once these actions are complete, this docket should be closed administratively, and the escrow account should be released.

	Sunshine Utilities of Central Florida, Inc. - Unified Systems	Schedule No. 3-B
	Adjustment to Operating Income	Docket No. 100048-WU
	Test Year Ended 12/31/10

	Explanation	Water


	Operating Revenues
	Remove requested final revenue increase.	($147,200)

	Operation and Maintenance Expense
1	Audit adjustments agreed to by Utility. (Issue 2)	($4,354)
2	Remove Pro Forma Index Adjustment. (Issue 8)	(8,746)
3	To reflect the appropriate rate case expense. (Issue 9)	7,511
4	To reflect appropriate officer salaries and benefits. (Issue 11)	8,372
	Total	$2,783

	Depreciation Expense - Net
1	Audit adjustments agreed to by Utility. (Issue 2)	($793)
2	Reflect appropriate non-U&U depreciation expense. (Issue 3)	4,976
	Total	$4,183

	Taxes Other Than Income
1	RAFs on revenue adjustments above.	($6,624)
2	Reflect appropriate non-U&U property taxes. (Issue 3)	(1,011)
3	To reflect appropriate payroll tax for officer salaries. (Issue 11)	566
	Total	($7,069)

Sunshine Utilities of Central Florida, Inc. - Unified Systems				Schedule No. 4
Water Monthly Service Rates			Docket No. 100048-WU
Test Year Ended 12/31/10
	Rates	Commission	Utility	Staff	Four-year
	Prior to	Approved	Requested	Recomm.	Rate
	Filing	Interim	Final	Final	Reduction
General Service, Residential Service, Multi-Family
Base Facility Charge by Meter Size:
5/8" x 3/4"	$8.34	$8.83	$10.00	$8.36	$0.10
3/4"	$0.00	$0.00	$0.00	$12.54	$0.16
1"	$20.82	$22.04	$24.00	$20.90	$0.26
1-1/4"	$31.23	$33.06	$36.00	$31.35	$0.39
1-1/2"	$41.65	$44.09	$50.00	$41.80	$0.52
2"	$66.63	$70.53	$76.00	$66.88	$0.83
3"	$133.47	$141.28	$152.16	$133.76	$1.66
4"	$208.22	$220.40	$237.37	$209.00	$2.60
6"	$416.47	$440.83	$474.78	$418.00	$5.19
8"	$0.00	$0.00	$0.00	$752.40	$9.35
10"	$0.00	$0.00	$0.00	$1,212.20	$15.06

RS Gallonage Charges
0-5,000	$2.04	$2.16	$2.40	$1.94	$0.02
5,001-10,000	$2.04	$2.16	$2.40	$2.12	$0.03
Over 10,000	$2.04	$2.16	$2.40	$4.24	$0.05

GS & MR Gallonage Charges
Gallonage Charge, per 1,000 Gallons	$2.04	$2.16	$2.40	$2.32	$0.03

	Typical Residential Bills 5/8" x 3/4" Meter
3,000 Gallons	$14.46	$15.31	$17.20	$14.18	$0.18
5,000 Gallons	$18.54	$19.62	$22.00	$18.06	$0.22
10,000 Gallons	$28.74	$30.42	$34.00	$28.66	$0.36

	Sunshine Utilities of Central Florida, Inc.- Quail Run				Schedule No. 2-A
	Schedule of Water Rate Base			Docket No. 100048-WU
	Test Year Ended 12/31/10
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year

1	Plant in Service	$49,953	$0	$49,953	$0	$49,953

2	Land and Land Rights	0	0	0	0	0

3	Non-used and Useful Components	0	(621)	(621)	0	(621)

4	Accumulated Depreciation	(20,710)	0	(20,710)	(20,479)	(41,189)

5	CIAC	(24,738)	0	(24,738)	24,738	0

6	Amortization of CIAC	6,739	0	6,739	(6,343)	396

7	Acquisition Adjustment	(19,685)	19,685	0	0	0

8	Accum. Amort. Of Acq. Adjustment	3,445	(3,445)	0	0	0

9	Working Capital Allowance	2,787	0	2,787	48	2,835

10	Rate Base	($2,209)	$15,619	$13,410	($2,036)	$11,374

	Sunshine Utilities of Central Florida, Inc.- Quail Run		Schedule No. 3-B
	Adjustment to Operating Income	Docket No. 100048-WU
	Test Year Ended 12/31/10

	Explanation		Water


	Operating Revenues
	Remove requested final revenue increase.		($17,260)

	Operation and Maintenance Expense
1	Audit adjustments agreed to by Utility. (Issue 2)		($177)
2	Remove Pro Forma Index Adjustment. (Issue 8)		(229)
3	To reflect the appropriate rate case expense. (Issue 9)		(2,815)
4	To reflect appropriate officer salaries and benefits. (Issue 11)		257
	Total		($2,964)

	Depreciation Expense - Net
	Audit adjustments agreed to by Utility. (Issue 2)		$793

	Taxes Other Than Income
1	RAFs on revenue adjustments above.		($777)
2	To reflect appropriate payroll tax for officer salaries. (Issue 11)		17
	Total		($760)

Sunshine Utilities of Central Florida, Inc.- Quail Run				Schedule No. 4
Water Monthly Service Rates			Docket No. 100048-WU
Test Year Ended 12/31/10
	Rates	Commission	Utility	Staff	4-year
	Prior to	Approved	Requested	Recomm.	Rate
	Filing	Interim	Final	Final	Reduction
General Service, Residential, Multi-Family
Unmetered Flat Rate	$9.50	$17.66	$0.00	$0.00	$0.00

General Service, Residential, Multi-Family
Base Facility Charge by Meter Size:
5/8" x 3/4"	$0.00	$0.00	$10.00	$9.18	$0.11
3/4"	$0.00	$0.00	$0.00	$13.77	$0.17
1"	$0.00	$0.00	$24.00	$22.95	$0.28
1-1/4"	$0.00	$0.00	$36.00	$34.88	$0.43
1-1/2"	$0.00	$0.00	$50.00	$45.90	$0.56
2"	$0.00	$0.00	$76.00	$73.44	$0.90
3"	$0.00	$0.00	$152.16	$146.88	$1.81
4"	$0.00	$0.00	$237.37	$229.50	$2.82
6"	$0.00	$0.00	$474.78	$459.00	$5.65
8"	$0.00	$0.00	$0.00	$826.20	$10.17
10"	$0.00	$0.00	$0.00	$1,331.10	$16.38

Gallonage Charge, per 1,000 Gallons
GS/RS/MRS-Gallonage Charge	$0.00	$0.00	$2.40	$2.43	$0.03

	Typical Residential Bills 5/8" x 3/4" Meter
3,000 Gallons	$9.50	$17.66	$17.20	$16.47	$0.20
5,000 Gallons	$9.50	$17.66	$22.00	$21.33	$0.26
10,000 Gallons	$9.50	$17.66	$34.00	$33.48	$0.41

	Sunshine Utilities of Central Florida, Inc.- Sandy Acres				Schedule No. 2-A
	Schedule of Water Rate Base			Docket No. 100048-WU
	Test Year Ended 12/31/10
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year

1	Plant in Service	$78,802	$0	$78,802	$37,144	$115,946

2	Land and Land Rights	0	0	0	290	290

3	Non-used and Useful Components	0	(2,022)	(2,022)	0	(2,022)

4	Accumulated Depreciation	(15,679)	0	(15,679)	(89,078)	(104,757)

5	CIAC	(54,830)	0	(54,830)	0	(54,830)

6	Amortization of CIAC	53,450	0	53,450	0	53,450

7	Acquisition Adjustment	39,523	(39,523)	0	0	0

8	Accum. Amort. Of Acq. Adjustment	(6,917)	6,917	0	0	0

9	Working Capital Allowance	5,326	0	5,326	145	5,471

10	Rate Base	$99,675	($34,628)	$65,047	($51,499)	$13,548

	Sunshine Utilities of Central Florida, Inc.- Sandy Acres		Schedule No. 3-B
	Adjustment to Operating Income	Docket No. 100048-WU
	Test Year Ended 12/31/10

	Explanation		Water


	Operating Revenues
	Remove requested final revenue increase.		($19,080)

	Operation and Maintenance Expense
1	Audit adjustments agreed to by Utility. (Issue 2)		($252)
2	Remove Pro Forma Index Adjustment. (Issue 8)		(454)
3	To reflect the appropriate rate case expense. (Issue 9)		(2,325)
4	To reflect appropriate officer salaries and benefits. (Issue 11)		617
	Total		($2,414)

	Depreciation Expense - Net
	Audit adjustments agreed to by Utility. (Issue 2)		$1,068

	Taxes Other Than Income
1	RAFs on revenue adjustments above.		($859)
2	To reflect appropriate payroll tax for officer salaries. (Issue 11)		43
	Total		($816)

Sunshine Utilities of Central Florida, Inc.- Sandy Acres				Schedule No. 4
Water Monthly Service Rates			Docket No. 100048-WU
Test Year Ended 12/31/10
	Rates	Commission	Utility	Staff	Four-year
	Prior to	Approved	Requested	Recomm.	Rate
	Filing	Interim	Final	Final	Reduction
General Service, Residential Service, Multi-Residential
Base Facility Charge by Meter Size:
5/8" x 3/4"	$4.69	$6.45	$10.00	$8.36	$0.10
3/4"	$0.00	$0.00	$0.00	$12.54	$0.16
1"	$11.73	$16.14	$24.00	$20.90	$0.26
1-1/4"	$0.00	$0.00	$36.00	$31.35	$0.39
1-1/2"	$0.00	$0.00	$50.00	$41.80	$0.52
2"	$0.00	$0.00	$76.00	$66.88	$0.83
3"	$0.00	$0.00	$152.16	$133.76	$1.66
4"	$0.00	$0.00	$237.37	$209.00	$2.60
6"	$0.00	$0.00	$474.78	$418.00	$5.19
8"	$0.00	$0.00	$0.00	$752.40	$9.35
10"	$0.00	$0.00	$0.00	$1,212.20	$15.06

RS Gallonage Charges
0-5,000	$1.47	$2.02	$2.40	$1.94	$0.02
5,001-10,000	$1.47	$2.02	$2.40	$2.12	$0.03
Over 10,000	$1.47	$2.02	$2.40	$4.24	$0.05

GS & MR Gallonage Charges
Gallonage Charge, per 1,000 Gallons	$1.47	$2.02	$2.40	$2.32	$0.03

	Typical Residential Bills 5/8" x 3/4" Meter
3,000 Gallons	$9.10	$12.52	$17.20	$14.18	$0.18
5,000 Gallons	$12.04	$16.56	$22.00	$18.06	$0.22
10,000 Gallons	$19.39	$26.67	$34.00	$28.66	$0.36

	Sunshine Utilities of Central Florida, Inc.- Ponderosa Pines				Schedule No. 2-A
	Schedule of Water Rate Base			Docket No. 100048-WU
	Test Year Ended 12/31/10
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year

1	Plant in Service	$70,501	$0	$70,501	$20,851	$91,352

2	Land and Land Rights	10,000	0	10,000	0	10,000

3	Non-used and Useful Components	0	0	0	0	0

4	Accumulated Depreciation	(12,226)	0	(12,226)	7,063	(5,163)

5	CIAC	(54,651)	0	(54,651)	40,851	(13,800)

6	Amortization of CIAC	11,447	0	11,447	(3,946)	7,501

7	Acquisition Adjustment	10,000	(10,000)	0	0	0

8	Accum. Amort. Of Acq. Adjustment	(1,750)	1,750	0	0	0

9	Working Capital Allowance	4,635	0	4,635	27	4,662

10	Rate Base	$37,956	($8,250)	$29,706	$64,846	$94,552

[1] See Order No. 25722, issued February 13, 1992, in Docket No. 900386-WU, In re: Application for rate increase in Marion County by Sunshine Utilities of Central Florida, Inc.

[2] See Order No. PSC-02-1292-PAA-WU, issued September 23, 2002, in Docket No. 020256-WU, In re: Application for transfer of Certificate No. 380-W from A. P. Utilities, Inc. in Marion County to Sunshine Utilities of Central Florida, Inc., holder of Certificate No. 363-W, for amendment of Certificate No. 363-W, and for cancellation of Certificate No. 380-W.

[3] See Order No. PSC-02-1832-PAA-WU, issued December 20, 2002, in Docket No. 011632-WU, In re: Application for transfer of Certificate No. 364-W from Linadale Water Company in Marion County to Sunshine Utilities of Central Florida, Inc.

[4] See Order No. PSC-03-1333-PAA-WU, issued November 24, 2003, in Docket No. 030340-WU, In re: Application for transfer of facilities of Community Water Co-Op, Inc., an exempt utility in Marion County, to Sunshine Utilities of Central Florida, Inc. (holder of Certificate No. 363-W); and for amendment of Certificate No. 363-W to add territory.

[5] See Order No. 25722, issued February 13, 1992, in Docket No. 900386-WU, In re: Application for rate increase in Marion County by Sunshine Utilities of Central Florida, Inc.

[6] See Order No. PSC-10-0679-FOF-WU, issued November 15, 2010, in Docket No. 100377-WU, In re: Application for transfer of water facilities to Marion County, and amendment of Certificate No. 363-W by Sunshine Utilities of Central Florida, Inc.

[7] See Order Nos. PSC-10-0557-FOF-WU, issued September 7, 2010, in Docket No. 100156-WU, In re: Application of Sunshine Utilities of Central Florida to amend its Water Certificate No. 363-W to include additional territory in Marion County, Florida; PSC-06-0478-FOF-WU, issued June 5, 2006, in Docket No. 060283-WU, In re: Application for amendment of Certificate No. 363-W to add and delete territory in Marion County by Sunshine Utilities of Central Florida, Inc.; Order No. PSC-04-1032-FOF-WU, issued October 25, 2004, in Docket No.040388-WU, In re: Application for amendment of Certificate No. 363-W in Marion County by Sunshine Utilities of Central Florida, Inc.; PSC-03-1333-PAA-WU, issued November 24, 2003, in Docket No.030340-WU, In re: Application for transfer of facilities of Community Water Co-Op, Inc. an exempt utility in Marion County, to Sunshine Utilities of Central Florida, Inc. (holder of Certificate No. 363-W); and for amendment of Certificate No. 363-W to add territory.; PSC-03-1099-FOF-WU, issued October 2, 2003, in Docket No. 030128-WU, In re: Application for amendment of Certificate No. 363-W to add territory in Marion County by Sunshine Utilities of Central Florida, Inc.; PSC-03-0244-FOF-WU, issued February 20, 2003, in Docket No. 021034-WU, In re: Application for amendment of Certificate No. 363-W to add territory in Marion County (Sandy Acres) by Sunshine Utilities of Central Florida, Inc.; PSC-02-1292-PAA-WU, issued September 23, 2002, in Docket No. 020256-WU, In re: Application for transfer of Certificate No. 380-W from A. P. Utilities, Inc. in Marion County to Sunshine Utilities of Central Florida, Inc., holder of Certificate No. 363-W, and for cancellation of Certificate No. 380-W.; PSC-02-1832-PAA-WU, issued December 20, 2002, in Docket No. 011632-WU, In re: Application for transfer of Certificate No. 380-W from Linadale Water Company in Marion County to Sunshine Utilities of Central Florida, Inc.; PSC-00-1062-FOF-WU, issued June 2, 2000, in Docket No. 991681-WU, In re: Application for amendment of Certificate No. 363-W to add territory in Marion County by Sunshine Utilities of Central Florida, Inc.; PSC-99-2390-FOF-WU, issued December 7, 1999, in Docket No. 980543-WU, In re: Application for amendment of Certificate No. 363-W to add territory in Marion County by Sunshine Utilities of Central Florida, Inc.; and PSC-98-0385-FOF-WU, issued March 11, 1998, in Docket No. 971297-WU, In re: Application for amendment of Certificate No. 363-W by Sunshine Utilities of Central Florida, Inc. in Marion County.

[17] See Order Nos. PSC-09-0385-FOF-WS, issued May 29, 2009, in Docket No. 080121-WS, In re: 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. p. 48; and PSC-03-1440-FOF-WS, issued December 22,2003, in Docket No. 020071-WS, In re: Application for a rate increase in Marion. Orange, Pasco, Pinellas and Seminole Counties by Utilities, Inc. of Florida, pp. 41-44.

[18] See Order No. PSC-11-0287-PAA-WS, issued July 5, 2011, in Docket No. 110006-WS, In re: Water and Wastewater Industry Annual Reestablishment of Authorized Range of Return on Common Equity for Water and Wastewater Utilities Pursuant to Section 367.081(4)(f), Florida Statutes.

[19] This amount is comprised of four rates. The accounting firm-proprietor’s rate of $150/hr (42 hours), an associate C.P.A.’s rate of $100/hr (136.15 hours), and another employee listed at two different rates of $50/hr (7.35 hours) and $75/hr (8.6 hours).

[20] See Order No. PSC-11-0587-PAA-SU, issued December 21, 2011, in Docket No. 110153-SU, In re: Application for increase in wastewater rates in Lee County by Utilities, Inc. of Eagle Ridge, at p. 19.

[21] See Florida Power Corp. v. Cresse, 413 So. 2d 1187, 1191 (Fla. 1982)

[22] See Meadowbrook Util. Sys., Inc. v. FPSC, 518 So. 2d 326, 327 (Fla. 1st DCA 1987), rev. den., 529 So. 2d 694 (Fla. 1988)

[23] See Order Nos. PSC-96-1133-FOF-SU, issued September 10, 1996, in Docket No. 950387-SU, In re: Application for a rate increase for North Ft. Myers Division in Lee County by Florida Cities Water Company - Lee County Division, p. 27.; and PSC-12-0102-FOF-WS, issued March 5, 2012, in Docket No. 100330-WS, In re: Application for increase in water/wastewater rates in Alachua, Brevard, DeSoto, Hardee, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties by Aqua Utilities Florida, Inc., at pp. 69-70, and 110.

[24] This amount is approximately $43,946 less than if the Utility were granted the full allowance for previously approved indices and customer growth.

[25] See Order No. PSC-08-0262-PAA-WS, issued April 28, 2008, in Docket No. 070414-WS, In re: Application for staff-assisted rate increase in Polk County by Hidden Cove, Ltd.; Order No. PSC-08-0496-PAA-WS, issued August 5, 2008, in Docket No. 070417-WS, In re: Application for staff-assisted rate case in Polk County by Anglers Cove West, Ltd.

[26] See Order No. PSC-12-0102-FOF-WS, issued March 5, 2012, in Docket No. 100330-WS, In re: Application for increase in water/wastewater rates in Alachua, Brevard, Desoto, Hardee, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties by Aqua Utilities Florida, Inc.

[28] See Order No. PSC-02-0593-FOF-WS, issued April 30, 2002, in Docket No. 010503-WU, In re: Application for increase in water rates for Seven Springs system in Pasco County by Aloha Utilities, Inc.; and Order No. PSC-03-1440-FOF-WS, issued December 22, 2003, in Docket No. 020071-WS, In re: Application for rate increase in Marion, Orange, Pasco, Pinellas and Seminole Counties by Utilities, Inc. of Florida.

[29] See Order No. PSC-09-0385-FOF-WS, issued May 29, 2009, in Docket No. 080121-WS; Order No. PSC-94-1452-FOF-WU, issued November 28, 1994, in Docket No. 940475-WU, In re: Application for rate increase in Martin County by Hobe Sound Water Company; Order No. PSC-01-0327-PAA-WU, issued January 6, 2001, in Docket No. 000295-WU, In re: Application for increase in water rates in Highlands County by Placid Lakes Utilities, Inc.; Order No. PSC-00-2500-PAA -WS, issued December 26, 2000, in Docket No. 000327-WS, In re: Application for Staff-assisted rate case in Putnam County by Buffalo Bluff Utilities, Inc.; and Order No. PSC-02-0593-FOF-WS.

[31] See Order No. PSC-09-0385-FOF-WS; Order No. PSC-03-0647-PAA -WS, issued May 28, 2003, in Docket No. 020407-WS, In re: Application for rate increase in Polk County by Cypress Lakes Utilities, Inc.; Order No. PSC-00-0248-PAA-WU; Order No. PSC-01-0327-PAA-WU; Order No. PSC-02-0593-FOF-WS; and Order No. PSC-03-1440-FOF-WS.

[32] See Order Nos. PSC-08-0812-PAA-WS, in Docket No. 070695-WS, In re: Application for increase in water and wastewater rates in Martin County by Miles Grant Water and Sewer Company; and PSC-09-0647-PAA-WS, issued September 24, 2009, in Docket No. 080714-WS, In re: Application for staff-assisted rate case in Lake County by Hidden Valley SPE LLC d/b/a Orange Lake Utilities.

[33] See Order No. PSC-08-0262-PAA-WS, issued April 28, 2008, in Docket No. 070414-WS, In re: Application for staff-assisted rate increase in Polk County by Hidden Cove, Ltd.; Order No. PSC-08-0496-PAA-WS, issued August 5, 2008, in Docket No. 070417-WS, In re: Application for staff-assisted rate case in Polk County by Anglers Cove West, Ltd.

[34] See Order No. PSC-08-0262-PAA-WS, issued April 28, 2008, in Docket No. 070414-WS, In re: Application for staff-assisted rate increase in Polk County by Hidden Cove, Ltd.; Order No. PSC-08-0496-PAA-WS, issued August 5, 2008, in Docket No. 070417-WS, In re: Application for staff-assisted rate case in Polk County by Anglers Cove West, Ltd.

[35] See Order No. PSC-03-1140-FOF-WS, issued December 22, 2003, in Docket No. 020071-WS, In re: Application for rate increase in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida; Order No. PSC-10-0117-PAA-WU, issued February 26, 2010, in Docket No. 080695-WU, In re: Application for general rate increase by Peoples Water Service Company of Florida, Inc.; Order No. PSC-11-0385-PAA-WS, issued September 13, 2011, in Docket No. 100127-WS, In re: Application for increase in water and wastewater rates in Marion County by Tradewinds Utilities, Inc.

[36] See Order No. PSC-03-0008-PAA-WU, issued January 2, 2003, in Docket No. 020406-WU, In re: Application for staff-assisted rate case in Polk County by Pinecrest Ranches, Inc.

[37] Sunshine Utilities of Central Florida, Inc., email from Dewaine Christmas to James McRoy dated June 4, 2012.

[38] See Order No. PSC-06-0684-PAA-WS, issued August 8, 2006, in Docket No. 050587-WS, In re: Application for staff-assisted rate case in Charlotte County by MSM Utilities, LLC.; Order No. PSC-07-0130-SC-SU, issued February 15, 2007, in Docket No. 060256-SU, In re: application for increase in wastewater rates in Seminole County by Alafaya Utilities, Inc.; Order No. PSC-07-0604-PAA-WU, issued July 30, 2007, in Docket No. 050862-WU, In re: Application for staff-assisted rate case in Marion County by County-Wide Utility Co., Inc.

[39] See Order No. PSC-01-0998-TRF-WU, issued April 23, 2001, in Docket No. 010232-WU, In re: Request for approval of tariff filing to add “set rate” late fee to water tariff by Lake Yale Treatment Associates, Inc., in Lake County.

[40] See Order No. PSC-10-0257-TRF-WU, issued April 26, 2010, in Docket No. 090429-WU, In re: Request for approval of imposition of miscellaneous service charges, delinquent payment charge and meter tampering charge in Lake County, by Pine Harbour Water Utilities, LLC.; Order No. PSC-09-0385-FOF-WS; Order No. PSC-07-0604-PAA-WU, issued July 30, 2007, in Docket No. 050862-WU, In re: Application for staff-assisted rate case in Marion County by County-Wide Utility Co., Inc.

[41] See Order No. PSC-99-0756-FOF-WS, issued April 19, 1999, in Docket No. 980731-WS, In re: Application for certificate to provide water and wastewater service in Charlotte County by Hunter Creek Utilities, LLC.

[43] See Order No. PSC-12-0102-FOF-WS, issued March 5, 2012, in Docket No. 100330-WS, In re: Application for increase in water/wastewater rates in Alachua, Brevard, DeSoto, Hardee, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties by Aqua Utilities Florida, Inc.

[45] See Order No. PSC-10-0257-TRF-WU, issued April 26, 2010, in Docket No. 090429-WU, In re: Request for approval of imposition of miscellaneous service charges, delinquent payment charge and meter tampering charge in Lake County, by Pine Harbour Water Utilities, LLC.


DATE:	June 7, 2012
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Economic Regulation (M. Brown, Fletcher, Daniel, Lingo, Maurey, McRoy, Stallcup) Office of the General Counsel (Jaeger)
RE:	Docket No. 100048-WU – Application for increase in water rates in Marion County by Sunshine Utilities of Central Florida, Inc.
AGENDA:	06/19/12 – Regular Agenda – Proposed Agency Action Except for Issue Nos. 20 & 21 – Interested Persons May Participate
COMMISSIONERS ASSIGNED:		All Commissioners
PREHEARING OFFICER:		Balbis
CRITICAL DATES:		5-Month Effective Date Waived Through June 19, 2012
SPECIAL INSTRUCTIONS:		None
FILE NAME AND LOCATION:		S:\PSC\ECR\WP\100048.RCM.DOC

Audit Findings	Description of Audit Adjustments
Finding No. 1	Reflect Commission-ordered adjustments (COAs) to plant, land, and accumulated depreciation for Sandy Acres
Finding No. 2	Reflect COAs to plant, accumulated depreciation, CIAC, and accumulated amortization of CIAC for Ponderosa Pines
Finding No. 3	Reflect COA to land for Marion County Unified Systems
Finding No. 4	Reflect COAs to CIAC for Quail Run and Marion County Unified Systems
Finding No. 5	Reflect COAs to accumulated depreciation for Quail Run, and accumulated amortization of CIAC for Quail Run and Marion County Unified Systems
Finding No. 6	Reflect appropriate depreciation and CIAC Amortization Expense
Finding No. 7	Reflect appropriate Operations & Maintenance (O&M) Expense

Sunshine Audit Adjustments	Plant	Land	Accum.Depr.	CIAC	Accum. Amort. of CIAC	O&M Exp.	Depr. Exp.	CIAC Amort. Expense
Finding No. 1	$37,144	$290	($89,078)
Finding No. 2	20,851		7,063	$40,851	($3,946)
Finding No. 3		(250)
Finding No. 4 - Quail Run				24,738
Finding No. 4 - Unified Systems				(24,738)
Finding No. 5 - Quail Run			(20,479)		(6,343)
Finding No. 5 - Unified Systems					6,343
Finding No. 6
Unified Systems								($793)
Quail Run								793
Sandy Acres							$1,068
Ponderosa Pines							(1,259)	1,189
Finding No. 7
Unified Systems						($4,354)
Quail Run						(177)
Sandy Acres						(252)
Ponderosa Pines						(870)
Adjustment Totals	$57,995	$40	($102,494)	$40,851	($3946)	($5,653)	($191)	$1,189

	Sunshine Utilities of Central Florida, Inc.							Schedule No. 1
	Capital Structure-Simple Average						Docket No. 100048-WU
	Test Year Ended 12/31/10
			Specific	Subtotal	Prorata	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	$0	$0	$0	$0	$0	0.00%	0.00%	0.00%
2	Short-term Debt	52,692	0	52,692	74,750	127,442	32.25%	5.83%	1.88%
3	Preferred Stock	0	0	0	0	0	0.00%	0.00%	0.00%
4	Common Equity	220,289	0	220,289	1,983	222,272	56.25%	10.85%	6.10%
5	Customer Deposits	47,654	0	47,654	(2,234)	45,420	11.49%	6.00%	0.69%
6	Deferred Income Taxes	0	0	0	0	0	0.00%	0.00%	0.00%
7	Total Capital	$320,635	$0	$320,635	$74,499	$395,134	100.00%		8.67%

Per Staff
8	Long-term Debt	$0	$0	$0	$0	$0	0.00%	0.00%	0.00%
9	Short-term Debt	52,692	0	52,692	(1,055)	51,637	16.38%	5.83%	0.96%
10	Preferred Stock	0	0	0	0	0	0.00%	0.00%	0.00%
11	Common Equity	220,289	0	220,289	(4,412)	215,877	68.50%	9.13%	6.25%
12	Customer Deposits	47,654	0	47,654	0	47,654	15.12%	6.00%	0.91%
13	Deferred Income Taxes	0	0	0	0	0	0.00%	0.00%	0.00%
14	Total Capital	$320,635	$0	$320,635	($5,467)	$315,168	100.00%		8.11%

							LOW	HIGH
				RETURN ON EQUITY			8.13%	10.13%
				OVERALL RATE OF RETURN			7.43%	8.80%

	Sunshine Utilities of Central Florida, Inc. - Unified Systems						Schedule No. 3-A
	Statement of Water Operations					Docket No. 100048-WU
	Test Year Ended 12/31/10
		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:	$859,176	$139,923	$999,099	($147,200)	$851,899	$68,017	$919,916
							7.98%
	Operating Expenses
2	Operation & Maintenance	$745,722	$9,210	$754,932	$2,783	$757,715		$757,715

3	Depreciation	67,166	(7,726)	59,440	4,183	63,623		63,623

4	Amortization	0	0	0	0	0		0

5	Taxes Other Than Income	80,396	6,314	86,710	(7,069)	79,641	3,061	82,702

6	Income Taxes	0	0	0	0	0	0	0

7	Total Operating Expense	893,284	7,798	901,082	(103)	900,979	3,061	904,040

8	Operating Income	($34,108)	$132,125	$98,017	($147,097)	($49,080)	$64,956	$15,876

9	Rate Base	$182,443		$196,182		$195,693		$195,693

10	Rate of Return	-18.70%		49.96%		-25.08%		8.11%

	Sunshine Utilities of Central Florida, Inc. - Unified Systems		Schedule No. 2-B
	Adjustments to Rate Base		Docket No. 100048-WU
	Test Year Ended 12/31/10

	Explanation		Water


	Land
	Audit adjustments agreed to by Utility. (Issue 2)		($250)

	Non-used and Useful
	To reflect net non-used and useful adjustment. (Issue 3)		$16,325

	CIAC
	Audit adjustments agreed to by Utility. (Issue 2)		($24,738)

	Accumulated Amortization of CIAC
	Audit adjustments agreed to by Utility. (Issue 2)		$6,343

	Working Capital
	Reflect the appropriate working capital allowance. (Issue 4)		$1,831

Recommended

Adjustment

Unified Systems

($8,746)

Quail Run

(229)

Sandy Acres

(454)

Ponderosa Pines

(340)

Total

($9,769)

Description

MFR B-10

Estimated

Actual as of 3/29/12

Additional

Estimated

Utility Revised

Total

Accounting Consultant Fees

$50,000

$52,014

$4,500

$56,514

Description

MFR

Estimated

Utility Revised Actual

Staff Adjustments

Total

Accounting Consultant Fees

$50,000

$56,514

($20,928)

$35,587

Filing Fee

0

0

3,500

3,500

Notices, Postage

0

0

10,313

10,313

Total Rate Case Expense

$50,000

$56,514

($7,114)

$49,400

Annual Amortization

$12,500

$14,129

($1,779)

$12,350

Systems

Allocated Percent

MFR B-10 Estimate

Total Adjustments

Total Recommended

Unified Systems

86.12%

$3,125

$7,511

$10,636

Quail Run

4.89%

3,125

(2,521)

604

Sandy Acres

2.51%

3,125

(2,815)

310

Ponderosa Pines

6.48%

3,125

(2,325)