DATE:	June 7, 2012
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Economic Regulation (Fletcher, Maurey) Office of the General Counsel (Barrera)
RE:	Docket No. 110153-SU – Application for increase in wastewater rates in Lee County by Utilities, Inc. of Eagle Ridge.
AGENDA:	06/19/12 – Regular Agenda – Decision on Stipulation Prior to Hearing - Interested Persons May Participate
COMMISSIONERS ASSIGNED:			Graham, Balbis, Brown
PREHEARING OFFICER:			Brown
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\ECR\WP\110153.RCM.DOC

 

Case Background

Utilities, Inc. (UI or Parent) is an Illinois corporation which owns approximately 75 subsidiaries throughout 15 states including 14 water and wastewater utilities within Florida.  Utilities, Inc. of Eagle Ridge (Eagle Ridge or Utility) is a Class B utility providing wastewater service to approximately 822 customers in Lee County.  Water service is provided by Lee County Utilities.  Eagle Ridge is a wholly-owned subsidiary of UI.  Wastewater rates were last established for this Utility in 2009.[1]

On June 24, 2011, Eagle Ridge filed the application for rate increase at issue in the instant docket. By Order No. PSC-11-0388-PCO-SU, issued September 13, 2011, the Commission approved interim rates designed to generate annual revenues of $1,122,517.  This represents a revenue increase on an annual basis of $132,768 or 13.41 percent, which is being secured through a corporate undertaking by UI.  By Order No. PSC-11-0587-PAA-SU (PAA Order), issued December 21, 2011, the Commission approved rates designed to generate a wastewater revenue requirement of $1,145,096.

On December 22, 2011, Eagle Ridge timely filed a protest of the PAA Order.  On January 9, 2012, the Office of Public Counsel (OPC) timely filed a cross-petition to protest the PAA Order, pursuant to Rule 25-22.029(3), Florida Administrative Code (F.A.C.).

On May 18, 2012, Eagle Ridge and OPC (collectively, “Parties”) filed a Joint Motion Requesting Commission Approval of Stipulation and Settlement Agreement (Joint Motion).  The Joint Motion is incorporated in this recommendation as Attachment A.

This recommendation addresses the Parties’ Stipulation and Settlement Agreement.  The Commission has jurisdiction pursuant to Section 367.081 and 367.121, Florida Statutes.

 

Discussion of Issues

Issue 1: 

 Should the Commission approve the Joint Motion Requesting Commission Approval of Stipulation and Settlement Agreement?

Recommendation: 

 Yes.  The Joint Motion requesting approval of the Stipulation and Settlement Agreement should be approved.  The Utility should file a proposed customer notice and revised tariff sheets consistent with the Commission’s decision within 15 days of the Commission vote.  The approved rates should be effective for service rendered on or after the stamped approval date of the tariff pursuant to Rule 25-30.475(1), F.A.C., after staff has verified that the proposed customer notice is adequate and the notice has been provided to the customers.  The Utility should provide proof that the customers have received notice within 10 days of the date of the notice.   (Fletcher, Barrera)

Staff Analysis: 

 As outlined in the Stipulation and Settlement Agreement, Eagle Ridge petitioned the Commission to open a separate generic docket to address its protested issue relating to the Utility’s Phoenix Project.[2]  OPC agrees not to oppose that petition, and Eagle Ridge will not object to OPC including Phoenix Project issues and other issues in the generic docket that were raised in OPC’s cross-petition.  The Parties will request a 120-day investigatory period in order to meet informally with Commission staff in a good faith effort to resolve or narrow the disputed issues.[3] 

In addition, the Parties agree that, if there is an upward or downward adjustment to the previously approved revenue requirement for Eagle Ridge resulting from a final Commission decision in the generic docket, the Utility should be authorized to create a regulatory asset or liability and accrue interest on the regulatory asset[4] or liability[5] at the 30-day commercial paper rate until the establishment of rates in Eagle Ridge’s next rate proceeding.  Further, in the Utility’s next rate proceeding, the Parties agree that the unamortized regulatory asset or liability shall be amortized over four years. 

The National Association of Regulatory Utility Commissioners’ Uniform System of Accounts defines regulatory assets or liabilities as follows:

‘Regulatory Assets and Liabilities’ are assets and liabilities that result from rate actions of regulatory agencies. Regulatory assets and liabilities arise from specific revenues, expenses, or gains or losses that would have been included in determination of net income in one period under the general requirements of the Uniform System of Accounts but for it being probable that; 1) such items will be included in a different period(s) for purposes of developing the rates the utility is authorized to charge for its utility services; or 2) in the case of regulatory liabilities, that refunds to customers, not provided for in other accounts, will be required.  Regulatory assets and liabilities can also be created in reconciling differences between the requirements of generally accepted accounting principles, regulatory practice and tax laws.

Statement of Financial Accounting Standards 71 allows regulated companies to defer costs and create regulatory assets, provided that it is probable that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate-making purposes.  To create a regulatory asset or liability, a regulated utility must have the approval of its regulator.  This concept of deferral accounting allows utilities to defer costs due to events beyond their control and seek recovery through rates at a later time.  The alternative would be for a utility to seek a rate case each time it experiences an exogenous event.  Based on the above, staff believes the Commission should authorize the creation of a regulatory asset or liability resulting from its post-hearing decision in the generic docket.

Moreover, the Parties agree that the PAA Order should be amended to eliminate the language relating to the determination of the used and useful percentage for Eagle Ridge’s wastewater treatment plant.  It is the intent of the Parties that the PAA Order not have precedential value regarding the used and useful percentage for the wastewater treatment plant.  The Commission has previously approved a proposed settlement where the language regarding a used and useful calculation was stricken from a proposed agency action order.[6]  Staff agrees that the language of the PAA Order which the Parties seek to strike can be eliminated because each rate case is decided on its own merits.  Notwithstanding the above amendment, the Parties have stipulated to the wastewater revenue requirement set forth in the PAA Order.  Finally, Eagle Ridge agrees not to file a new rate case until at least two years after the approval of this Stipulation and Settlement Agreement. 

Staff believes that the Parties’ Stipulation and Settlement Agreement is a reasonable resolution because it addresses all protested issues in this docket.  Further, staff believes that it is in the public interest for the Commission to approve the Stipulation and Settlement Agreement because it promotes administrative efficiency and avoids the time and expense of a hearing borne solely by the customers of Eagle Ridge.  In keeping with the Commission’s long-standing practice of encouraging parties to settle contested proceedings whenever possible,[7] staff recommends that the Commission approve the Parties’ Stipulation and Settlement Agreement. 

If the Motion and Stipulation and Settlement Agreement are approved, the Utility should file a proposed customer notice and revised tariff sheets consistent with the Commission’s decision within 15 days of the Commission vote.  The approved rates should be effective for service rendered on or after the stamped approval date of the tariff pursuant to Rule 25-30.475(1), F.A.C., after staff has verified that the proposed customer notice is adequate and the notice has been provided to the customers.  The Utility should provide proof that the customers have received notice within 10 days after the date of the notice.
Issue 2: 

 Should this docket be closed?

Recommendation: 

 Yes.  If the Commission approves staff’s recommendation in Issue 1, this docket should be closed upon the issuance of the final order approving the Parties’ Stipulation and Settlement Agreement.  Further, upon the issuance of the final order approving the Parties’ Stipulation and Settlement Agreement, staff recommends the corporate undertaking amount approved by the Commission for interim rates be released.  (Barrera, Fletcher)

Staff Analysis: 

 If the Commission approves staff’s recommendation in Issue 1, this docket should be closed upon the issuance of the final order approving the Parties’ Stipulation and Settlement Agreement.  Further, upon the issuance of the final order approving the Parties’ Stipulation and Settlement Agreement, staff recommends the corporate undertaking amount approved by the Commission for interim rates be released.

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