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Case
Background
On February 28, 2013, an application was filed in Docket No. 130055-WS,
for the transfer of the water and wastewater systems and Certificate Nos. 620-W
and 533-S from L.P. Utilities Corporation (LPUC) to LP Waterworks, Inc. (LPWWI
or Utility). On March 13, 2014, the Commission approved the transfer.
On May 24, 2013, LPUC c/o LPWWI filed an application for a staff-assisted
rate case (SARC). LPWWI is a Class C water and wastewater utility providing
service in Highlands County. The Utility is located in the water use caution area
of the Southwest Florida Water Management District (SWFWMD). A significant
portion of LPWWI’s residential customer base is seasonal. Based on the billing
data for the 12 months ended May 31, 2013, the Utility served approximately 370
individually metered, residential and several general service water and
wastewater customers in the Camp Florida Resort RV Park (RV Park or Park). In
addition, the Utility provided water only service to approximately 54
residential customers in the Hickory Hills and Lake Ridge Estates subdivisions
and a few general service customers outside the Park.
The current rates were set by Order No. PSC-03-1051-FOF-WS, issued
September 22, 2003.[1]
This final order was based partially on Order No. PSC-02-1739-PAA-WS, issued
December 10, 2002. Subsequent to this SARC decision, the system was
transferred from Woodlands of Lake Placid, L.P., to LPUC by Order
PSC-04-1162-FOF-WS, issued November 22, 2004, in Docket No. 030102-WS.[2]
LPUC filed an application for a SARC in Docket 110208-WS, on June 20, 2011.
Docket No. 110208-WS closed with no rate decision, due to LPUC filing a notice
of voluntary withdrawal of its SARC in January 2013.
For the instant docket, the official filing date of the SARC has been
determined to be July 22, 2013. Audit staff filed an audit report on September
18, 2013, for the 12 months ended May 31, 2013. On December 18, 2013, a staff
report was filed and sent to the Utility to allow review by customers prior to
the customer meeting. The customer meeting was held on January 16, 2014, at
the Lakeview Clubhouse in the RV Park. In a letter filed on January 24, 2014,
the Office of Public Counsel (OPC) identified a list of concerns regarding the
discussion at the customer meeting and the information included in the staff
report that addressed the preliminary review of the requested rate increase. The
issues raised by customers included unaccounted for water, billing, financial
efficiency, and rate shock concerns. In addition, letters from customers
opposing the rate increase were also filed in the docket. Many customers
stated that the increase would cause a hardship and they would prefer a gradual
increase phased in over three to five years.
The Commission has jurisdiction in this case pursuant to Sections
367.011, 367.0814, 367.101, and 367.121, Florida Statutes (F.S.).
Discussion of Issues
Issue 1:
Is the quality of service provided by LP Waterworks, Inc. satisfactory?
Recommendation: Yes. Staff
recommends that the quality of service provided by LPWWI be considered
satisfactory. (Lee)
Staff Analysis: Pursuant to Rule 25-30.433(1),
Florida Administrative Code (F.A.C.), the Commission determines the overall
quality of service a utility provides by evaluating the quality of its product,
the operational condition of its plant and facilities, and its attempt to
address customer satisfaction.
Quality of Utility’s Product and Operating Condition of the
Utility’s Facilities
The operation of the Utility is subject to various
environmental requirements such as permitting, testing, on-site review, and
monitoring under the jurisdiction of Florida Department of Environmental
Protection (DEP). DEP’s jurisdiction covers the quality of the Utility’s water
product and the operational condition of its water and wastewater plant and
facilities.
To prevent contamination of drinking water supplies,
DEP conducts sanitary surveys and compliance inspections on a routine basis.
In a letter dated April 10, 2013, DEP identified items in the compliance
inspection report that the Utility should address. The noted deficiencies included
a buildup of vegetation around the east well, lock requirement for the shut off
valve, and documentation for the last inspection for the east tank. The
Utility responded to DEP’s sanitary survey report and addressed all noted
deficiencies. Staff found no outstanding enforcement issues regarding the
operational conditions of the Utility’s water facilities.
In addition, DEP has jurisdiction over the
operational condition of the wastewater treatment plant and facilities. DEP’s
comprehensive evaluation of a wastewater facility’s overall compliance status
is based on review of past monitoring data and results from inspections such as
its Compliance Evaluation Inspection (CEI). On May 24, 2012, DEP conducted a
CEI designed to verify the Utility’s compliance with applicable requirements
and compliance schedules for chemical and biological self-monitoring programs.
The Utility responded to DEP’s CEI report and addressed all noted
deficiencies. Staff found no outstanding enforcement issues regarding the
operational conditions of the Utility’s wastewater facilities.
Customer Concerns and Actions Taken to Address Service Quality
On December 18, 2013, a staff report was filed and sent to
the Utility to allow review by customers prior to the customer meeting which
was held on January 16, 2014. There were approximately 40 customers in
attendance at the customer meeting. Of the 40 customers, 5 signed-up to
comment and customers who did not sign-up to comment were offered an
opportunity to speak.
Among the service quality concerns raised at the
meeting was a high water pressure incident experienced by several customers. A
few customers also reported low water pressure incidents. They also noted that
the response speed for reported problems, such as leaks, service interruptions,
and water pressure problems, was slow compared with the previous owner. Staff
requested that the Utility provide responses to these customer concerns.
The Utility did not dispute the high pressure
incident reported by a customer on October 28, 2013. The cause, according to the
Utility’s service technician, was a defective pressure switch. The defective
pressure switch was replaced and the air relief valve was checked as part of
the corrective actions. The Utility also took actions to provide information
and assistance to the affected customers to address the damage claims.
The Utility stated that the low pressure incidents
were due to the power fluctuations from the electric supplier and this caused
the Programmable Logic Controller (PLC) to fault. The attempt to troubleshoot
the PLC with the assistance from the manufacturer was unsuccessful. The
Utility reported that it took action to bypass the PLC and the repair corrected
the problem.
The Utility also recognized that the previous owner
was able to address problems faster. The previous owner had maintenance
personnel at the Park while the nearest maintenance technician of the Utility’s
contractor was 20 miles from the Park. The Utility stated that a maintenance
technician who lives within 5 miles of the Park has been hired and this action
should improve future response times.
Summary
The Utility has taken reasonable actions to comply
with DEP’s regulations and to address customer concerns. Staff recommends that
the quality of service provided by the Utility be considered satisfactory.
Issue 2: What are the Used and Useful percentages of the Utility’s
water and wastewater systems?
Recommendation: For the water system, the treatment
plant and the distribution system should be considered 100 percent and 87
percent Used and Useful (U&U), respectively. For the wastewater system,
the treatment plant and the collection system should be considered 59 percent
and 100 percent U&U, respectively. The concern regarding the excessive
unaccounted for water should be addressed by reducing the test year water
treatment cost of purchased power and chemicals by 8.5 percent. (Lee)
Staff Analysis: Based on Rules 25-30.431, 25-30.432, and
25-30.4325, F.A.C., the Commission’s U&U evaluation of water and wastewater
system includes consideration of the formula-based method and all relevant
factors such as prior decisions, conservation, and change in customer base. In
simple terms, the formula-based method calculates the customer demand as a
percentage of the capacity. The customer demand is based on the actual demand
in the test period and the estimated demand over the five-year statutory growth
period.
Water System
By Order PSC-02-1739-PAA-WS, issued December 10, 2002, in Docket No.
020010-WS, the Utility’s water treatment facilities and distribution system
were determined to be 100 percent and 87 percent U&U, respectively.
There has been no change in the capacity of the water treatment
facilities. The actual test year demand by the fire flow requirements of 500
gallons per minute (gpm) is greater than the firm reliable capacity of 380
gpm. Therefore, based on the same formula-based method used in the last SARC
decision, the water treatment plant should continue to be 100 percent
U&U.
For the distribution system, the evaluation is based on the demand and
capacity measured on the basis of equivalent residential connections. The
customer demand is the sum of the 389 connections for the test year and the
additional 7 connections estimated over the five-year statutory growth period.
The total demand is 87 percent of the distribution capacity of 457
connections. Therefore, the water distribution system should be considered 87
percent U&U.
Wastewater System
In the last SARC decision mentioned above, the Utility’s wastewater
treatment plant and collection system were determined to be 59 percent and 85
percent U&U, respectively.
There has been no change in capacity of the wastewater treatment plant,
which is permitted by the DEP to operate at no more than 50,000 gallons per day
(gpd) of monthly Average Daily Flow (ADF). Daily flows are measured and
reported to DEP monthly. Monthly ADF for the system typically peaks in
February, therefore, February ADF is used to measure the actual demand in the
test period.
Based on the flow data reported to DEP, the ADF for February 2013 was
9,250 gpd which represents less than 20 percent of the plant capacity. Upon
further review, staff noted a significantly lower flow beginning in June 2012.
In response to staff’s request, the Utility tested the Ultrasonic Flow Meter at
the treatment plant on August 21, 2013, and found that the meter was only
registering flow up to 15 gpm. For future reports, the Utility obtained DEP’s
permission to measure the flow at the lift station. The flow data reported
subsequently indicate that the reported 9,250 gpd of ADF for February 2013 is
very likely due to the faulty meter.
Due to the lack of accurate flow data, staff examined additional data
which suggests that the growth of wastewater customers has remained relatively
flat over the past 12 years. The wastewater plant only serves the RV Park and
the staff did not identify any significant growth in that customer base. Therefore,
staff recommends that the wastewater treatment plant be considered 59 percent
U&U, consistent with Order No. PSC-02-1739-PAA-WS.
The same rationale of no customer growth can be applied to the
collection system as well. Because the existing collection system was designed
to serve the RV Park, staff recommends that the collection system be deemed 100
percent U&U.
Unaccounted For Water
During the test year ended May 31, 2013, 18.0
million gallons of treated water were metered at the water treatment
facilities. Of those, 14.7 million gallons, or 81.5 percent of the amount
produced, were metered and billed to customers. The remaining 18.5 percent of
the amount produced was not generating revenues. Rule 25-30.4325(1)(e),
F.A.C., provides that the excessive unaccounted for water (EUW) is unaccounted
for water in excess of 10 percent of the amount produced. Therefore, EUW is 8.5
percent after the 10 percent allowance by Commission practice.
Accordingly, staff recommends that the test year
water treatment cost of purchased power and chemicals be reduced by 8.5
percent. The corresponding amount of adjustment is further discussed in Issue
6 regarding the operating expense.
Summary
Regarding the water system, staff recommends that the treatment plant
and the distribution system should be considered 100 percent and 87 percent U&U,
respectively. For the wastewater system, staff recommends that the treatment
plant and the collection system should be considered 59 percent and 100 percent
U&U, respectively. Staff recommends that the test year water treatment
cost of purchased power and chemicals be reduced by 8.5 percent due to EUW.
Issue 3: What is the appropriate average test year rate base
for L.P. Waterworks, Inc.?
Recommendation:
The appropriate average test year rate base balances for L.P. Waterworks, Inc.
are $86,549 for water and $104,793 for wastewater. (Barrett)
Staff
Analysis: The appropriate components of the Utility’s rate base
include utility plant in service, accumulated depreciation,
contribution-in-aid-of-construction (CIAC), amortization of CIAC and working
capital. The last proceeding that established balances for rate base was
Docket No. 020010-WS.[3]
Staff selected the test year ended May 31, 2013, for the instant rate case. A
summary of each component and the recommended adjustments follows:
Utility Plant in Service (UPIS): The Utility recorded
$469,295 for water and $377,807 for wastewater. Staff’s adjustments to UPIS
are identified in Table 3-1 below.
Table 3-1
|
|
Adjustment Description
|
Water
|
Wastewater
|
|
1.
|
To reflect plant balance (301) per Order No. PSC-02-1739-PAA-WS
|
$414
|
$0
|
|
2.
|
To reflect plant balance (310) per Order No. PSC-02-1739-PAA-WS
|
2,506
|
0
|
|
3.
|
To reflect plant balance (334) per Order No. PSC-02-1739-PAA-WS
|
27,663
|
0
|
|
4.
|
To reclassify an O&M item to the appropriate UPIS account
(336)
|
620
|
0
|
|
5.
|
To reflect plant balance (340) per Order No. PSC-02-1739-PAA-WS
|
(3,281)
|
0
|
|
6.
|
To reflect plant balance (351) per Order No. PSC-02-1739-PAA-WS
|
0
|
346
|
|
7.
|
To reflect plant balance (380) per Order No. PSC-02-1739-PAA-WS
|
0
|
5,200
|
|
8.
|
To reflect plant balance (390) per Order No. PSC-02-1739-PAA-WS
|
0
|
645
|
|
|
Total
|
$27,922
|
$6,191
|
Staff’s net adjustments to UPIS are increases of $27,922 and $6,191 for
water and wastewater, respectively. Staff’s recommended UPIS balance is
$497,217 for water and $383,998 for wastewater.
Land & Land Rights: The Utility recorded a test year
land value of $20,598 for water and $36,000 for wastewater. Staff believes no
adjustments are necessary, and staff recommends a land balance of $20,598 for
water and $36,000 for wastewater.
Non-Used and Useful Plant: As discussed in Issue 2, the
treatment plant and the distribution system should be considered 100 percent
and 87 percent U&U, respectively. For the wastewater system, the treatment
plant and the collection system should be considered 59 percent and 100 percent
U&U, respectively. Therefore, staff recommends adjustments of $5,100 and $3,072
for water and wastewater, respectively, for non used and useful plant, and
related adjustments to accumulated depreciation, CIAC, and accumulated
amortization.
Contributions In Aid of Construction (CIAC): L.P.
Waterworks, Inc. recorded CIAC balances of $204,307 for water and $65,600 for
wastewater. Staff’s adjustments to CIAC are identified in Table 3-2 below.
Table 3-2
|
|
Adjustment Description
|
Water
|
Wastewater
|
|
1.
|
To increase CIAC balance per Order No. PSC-03-1051-FOF-WS
|
($30,608)
|
$0
|
|
2.
|
To increase CIAC additions for January 2002 through May 2012
|
(30,731)
|
(26,800)
|
|
|
Total
|
($61,339)
|
($26,800)
|
Staff’s net adjustments to CIAC are increases of $61,339 and
$26,800 for water and wastewater, respectively, to reflect the CIAC balances per Order No. PSC-03-1051-FOF-WS,
issued September 22, 2003, in Docket No. 020010-WS. Staff recommends CIAC
balances of $265,646 and $92,400 for water and wastewater, respectively.
Accumulated Depreciation: L.P. Waterworks, Inc. recorded
balances for accumulated depreciation of $266,493 and $291,400 for water and
wastewater, respectively. Staff has calculated accumulated depreciation using
the prescribed rates set forth in Rule 25-30.140, F.A.C., and determined that
accumulated depreciation should be increased by $38,298 for water and decreased
by $18,965 for wastewater. Staff recommends accumulated depreciation balances
of $304,791 for water and $272,435 for wastewater.
Amortization
of CIAC: L.P. Waterworks, Inc. recorded balances for amortization of
CIAC of $100,229 for water and $37,965 for wastewater. Staff has increased
amortization of CIAC by $32,282 for water and $5,264 to
reflect the amortization of CIAC per Order No.
PSC-02-1739-PAA-WS, issued December 10, 2002, in Docket No. 020010-WS.
Staff recommends amortization of CIAC balances of $132,511 for water and
$43,229 for wastewater.
Working Capital Allowance: Working capital is defined as
the investor-supplied funds that are necessary to meet operating expenses or
going-concern requirements of the Utility. Consistent with Rule 25-30.433(2),
F.A.C., staff used the one-eighth of the operation and maintenance (O&M)
expense formula approach for calculating the working capital allowance.
Applying this formula, staff recommends working capital allowances of $11,761
for water (based on O&M expense of $94,086/8), and $9,472 for wastewater
(based on O&M expense of $75,780/8), Staff recommends increasing the
working capital allowances by $11,761 for water and $9,472 for wastewater.
Rate Base Summary: Based on the foregoing, staff recommends
that the appropriate average test year rate bases are $86,549 for water and $104,793
for wastewater. Rate base for water is shown on Schedule No. 1-A and on
Schedule No. 1-B for wastewater. The related adjustments for water and
wastewater are shown on Schedule No. 1-C.
Issue 4: What is the
appropriate rate of return on equity and overall rate of return for L.P.
Waterworks, Inc.?
Recommendation:
The appropriate return on equity (ROE) is 8.74 percent with a range of 7.74
percent to 9.74 percent. The appropriate overall rate of return is 8.74
percent. (Barrett)
Staff
Analysis: The Utility’s capital structure consists of $322,313 of
common stock and $165,935 in retained earnings, totaling $488,248 in total
common equity. The Utility has no long-term debt or customer deposits. The
appropriate ROE is 8.74 percent using the Commission-approved leverage formula
currently in effect.[4]
The Utility’s capital structure has been reconciled with staff’s recommended
rate base. Staff recommends an ROE of 8.74 percent, with a range of 7.74
percent to 9.74 percent, and an overall rate of return of 8.74 percent. The
ROE and overall rate of return are shown on Schedule No. 2.
Issue 5: What is the appropriate amount of test
year revenues?
Recommendation: The appropriate test year revenues
for LP Waterworks, Inc.’s water and wastewater systems are $59,191 and $47,642,
respectively. (Thompson)
Staff Analysis: LP recorded total test year water
revenues of $57,226, which include water service revenues of $56,346 and
miscellaneous revenues of $880. The Utility recorded total test year
wastewater service revenues of $46,581. Based on staff’s review of the Utility’s
billing determinants and the rates that were in effect during the test year
ended May 31, 2013, staff determined service revenues for the water system
should be increased by $1,965 to reflect total test year service revenues of
$58,311. Service revenues for the wastewater system should be increased by
$1,061 to reflect total test year service revenues of $47,642.
Based on the above adjustments, the service revenues for the Utility’s
water and wastewater system should be increased by $1,965 and $1,061,
respectively. Staff recommends the appropriate test year revenues for LP’s
water and wastewater systems are $59,191 and $47,642, respectively. Test year
revenues are shown on Schedule Nos. 3-A and 3-B.
Issue 6: What is the
appropriate amount of operating expense?
Recommendation:
The appropriate amounts of operating expense for L.P. Waterworks, Inc. are
$109,046 for water and $86,324 for wastewater. (Barrett)
Staff Analysis: L.P. Waterworks, Inc. recorded
operating expense of $74,113 for water and $67,534 for wastewater for the test
year ended May 31, 2013. The test year O&M expenses have been reviewed,
and invoices, canceled checks, and other supporting documentation have been
examined. Staff has made several adjustments to the Utility’s operating
expenses as summarized below:
Salaries and Wages - Employees (601/701): L.P. Waterworks, Inc.
recorded $11,069 for water and $9,056 for wastewater employee salaries expense
in these accounts. Staff has made
adjustments to remove these amounts because the amounts are captured in the
Contractual Services – Other account. Staff recommends $0 for these
accounts for water and wastewater.
Salaries and Wages - Officers (603/703): The Utility recorded $2,767
for water and $2,233 for wastewater officer salaries expense. Staff has
increased these accounts by $3,233 for water and $3,767 for wastewater because
the officers administer and oversee the Utilities’ management services
agreement, which is addressed in the discussion of Contractual Services – Other
(636/736). Staff recommends salaries and wages for officers of $6,000 for
water and $6,000 for wastewater.
Purchased Power (615/715): L.P. Waterworks, Inc. recorded $4,941
for purchased power expense for water and $4,800 for wastewater in these
accounts. Staff reviewed the invoices from the Utility and recommends
adjustments to remove $1,265 for water and $312 for wastewater to reflect the
appropriate test year purchased power expense. Staff also recommends removing
$321 for excessive unaccounted for water (EUW). Staff notes that EUW was
previously discussed in Issue 2. The sum of these adjustments removes $1,578 from
water purchased power and $312 from wastewater purchased power. Staff
recommends purchased power expense of $3,363 for water and $4,479 for
wastewater.
Chemicals (618/718): The Utility recorded $1,053 for water and
$96 for wastewater for chemicals expense, based on invoices covering a partial
year. Staff reviewed additional invoices from the Utility to annualize this
expense and recommends increases of $1,175 for water and $175 for wastewater.
Staff also recommends removing $90 of water expense for EUW. As noted above, EUW
was previously discussed in Issue 2. The net of these adjustments results in
increases of $1,085 for water and $175 for wastewater. Staff recommends
chemical expense of $2,138 for water and $271 for wastewater.
Materials and Supplies (620): The Utility recorded $0 for
materials and supplies. Staff has increased this account by $15, based on an
audit adjustment. Staff recommends a balance of $15 for this account.
Contractual Services -
Professional (631/731): L.P. Waterworks, Inc. recorded $1,829 for water and
$26,398 for wastewater in contractual services - professional. Staff has made adjustments to remove
these amounts because the amounts are captured in the Contractual Services –
Other account. Staff recommends $0 for both water and wastewater.
Contractual Services - Testing (635/735):
The Utility recorded $5,994 for
water and $0 for wastewater for testing expense. Staff has made an adjustment
to contractual services testing to remove $5,994 for water because this expense
is captured in the Contractual Services – Other account. Staff
recommends $0 for Contractual
Services - Testing for both water and wastewater.
Contractual Services – Other (636/736): L.P. Waterworks, Inc. recorded
$22,312 for water and $0 for wastewater. Staff has increased these accounts by
$54,872 for water and $58,692 for wastewater to account for the Utilities’
management services agreement.
Background Information
Staff notes that the prior owner of this Utility employed a management
services agreement with Highlands Executive Labor Personnel (H.E.L.P.
agreement). The H.E.L.P. agreement provided “for the day-to-day operations of
the Utility providing water and wastewater service,” including:
§
Processing of accounts (billing and collections).
§
Meter reading.
§
Coordination and reporting with governmental agencies.
§
Supervision of direct labor.
§
Reimbursement for the direct costs for trips to meetings,
conferences, or hearing related to the operation of the utility.
The former
owners paid $750 per week ($3,000 per month) for the H.E.L.P. agreement.
On December 27, 2012, the Utility signed a five year
management services agreement with U.S. Water Services Corporation (U.S. Water
contract). Table 4 of the U.S. Water contract provides a summary of the scope
of the agreement, setting forth the respective cost responsibilities for the Utility’s
owner and U.S. Water Services Corporation.[5] The Utility asserts that the
U.S. Water agreement provides more services than typical agreements for
management services because:
§
The U.S. Water contract put in place certified utility operators
with a focus on preventative and prescriptive maintenance services.
§
All Customer Service/Billing/Collection functions are provided by
the same entity (U.S. Water Services Corporation).
§
Minor repairs (up to a $400 threshold) are covered by U.S. Water.
§
Testing services and permitting expenses are covered by U.S.
Water.
§
Meter/hydrant testing is provided.
§
Record keeping & governmental relations are addressed as
well.
Section 4 of
the U.S. Water contract addresses the monthly fees for service. Per the
contract, L.P. Waterworks Inc. is obligated to pay U.S. Water Services
Corporation $6,432 monthly for the water operation and $4,891 monthly for the
wastewater operation (for a monthly total of $11,323).
Staff reviewed both agreements, and it appears that the U.S. Water
contract is much more comprehensive in nature than the now-expired H.E.L.P.
agreement.
Bids for
Management Service and Pricing
In a Data Request response dated January 27, 2014, the Utility states
that it sought other bidders for the management services provided in the U.S. Water
contract. Bids were solicited from two local companies and one
Statewide/Nationwide contracting enterprise. According to the Data Request
response, these contractors “declined to bid on this work due to their skill
levels, depth of services, or [the work] would require additional
sub-contractors . . . .” As a result, the Utility entered into the management
services agreement with U.S. Water Services Corporation.
Because the U.S. Water contract is more comprehensive than the H.E.L.P.
agreement was, staff believes a price comparison between the two may not be
appropriate for a side-by-side analysis. In evaluating the pricing, staff
looked at another U.S. Water contract that provided identical services, and
compared that to data the Utility provided in a Data Request. To facilitate
reviewing this information, staff developed Tables 6-1 and Table 6-2 (below).
Staff developed Table 6-1 using summary data the Utility provided in a
Data Request response dated January 27, 2014. The data is from a 2011 study
conducted by Wetzel Consulting, LLC (WetCon), an independent consultant that
evaluated utilities in the southern U.S. using American Water Works Association
(AWWA) Performance Indicators. Eleven indicators were captured in the WetCon
study, but L.P. Waterworks Inc., used the annual cost per account indicators
for Customer Service and for O&M to demonstrate that the U.S. Water
contract compares favorably with other utilities in the South. The Utility
states that the annualized total cost of the U.S. Water contract falls between
the top and median quartile of those in the survey sample. The summary of the
data is shown below in Table 6-1:
Table
6-1
|
Summary of WetCon study
Annual Cost per account in South
($/account)
|
|
Utilities sampled
|
Customer Service
|
O&M
|
Total Annual Cost per account
|
|
Top Quartile
|
$36.43
|
$246.00
|
$282.43
|
|
Median Quartile
|
$41.16
|
$301.00
|
$342.16
|
|
Bottom Quartile
|
$52.38
|
$379.00
|
$431.38
|
Staff developed Table 6-2 to convert the U.S. Water contract (shown as “LPW”
in Table 6-2) values and those from a similar agreement (shown as “Comp” in
Table 6-2) in order to facilitate a direct comparison on the basis used in the
WetCon study. Staff believes the “annual cost per account” basis is the most
meaningful tool to directly compare the findings in the WetCon study with the
U.S. Water contract fees at issue in this rate case. By using this analysis,
the annual cost per account for the U.S. Water contract is $326.81, or $27.23
per month, as shown in Table 6-2 below. This amount is slightly lower than the
median quartile of utilities sampled in the WetCon study, as shown in Table 6-1.
Table
6-2
|
Comparison of two U.S. Water Services Corporation
contracts
to assess an Annual Cost per account ($/Customer)
|
|
|
Monthly Charge from US Water to Utility
|
|
|
|
Customer Counts/2012 Annual Report
|
|
Unit Cost per Customer/Month
|
|
|
|
Water
|
WW
|
Total
|
|
Annual
|
|
Water
|
WW
|
|
Water
|
WW
|
SUM
|
Annual
|
|
|
(a)
|
(b)
|
(c)
|
|
(d)
|
|
(e)
|
(f)
|
|
(g)
|
(h)
|
(i)
|
(j)
|
|
|
|
|
(c)=(a+b)
|
|
(d)=(c)*12
|
|
|
|
|
(g)=c/e
|
(h)=c/f
|
(i)=g+h
|
(j)=(i)*12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPW
|
$6,432
|
$4,891
|
$11,323
|
|
$135,876
|
|
434
|
394
|
|
$14.82
|
$12.41
|
$27.23
|
$326.81
|
|
Comp.
|
$3,183
|
$2,978
|
$6,161
|
|
$73,932
|
|
186
|
179
|
|
$17.11
|
$16.64
|
$33.75
|
$405.00
|
Affiliate
Relationship
Because there is a nexus[6] between the utility’s
owners and U.S. Water Services Corporation, staff considered how the Commission
addressed affiliate transactions in other cases. In Order No.
PSC-12-0102-FOF-WS,[7]
the Commission found that “evaluating whether and how much affiliate costs
should be included in rates, we are aware of the relevant statutes and cases on
rates and affiliate transactions,” and stated Section 367.081(2)(a)1., F.S.,
sets forth the Commission’s responsibility in rate setting. In part, Section
367.081(2)(a)1., F.S. provides:
The commission shall, either upon request or upon its own motion, fix
rates which are just, reasonable, compensatory, and not unfairly
discriminatory. In every such proceeding, the commission shall consider the
value and quality of the service and the cost of providing the service, which
shall include, but not be limited to, debt interest; the requirements of the
utility for working capital; maintenance, depreciation, tax, and operating
expenses incurred in the operation of all property used and useful in the
public service; and a fair return on the investment of the utility in property
used and useful in the public service . . . .
In Order No. PSC-12-0102-FOF-WS, the Commission referred to Section
367.081(2)(a)1., F.S., and found:
As reflected in
the statute cited above [Section 367.081(2)(a)1., F.S], we are required to set
reasonable rates, but we must also set rates that are compensatory. The
provisions in the statute require that we consider the cost of providing
service, which includes operating expenses incurred in the operation of all
property used and useful in the public service, as well as a fair return on the
investment of the Utility in property used and useful in the public service.
In conducting our analysis of the appropriate operating expenses to be
included, we are mindful of two Florida Supreme Court cases. In the case of Keystone
Water Co v. Bevis, 278 So. 2d 606 (Fla. 1973), the Court held that a
utility is entitled to a fair rate of return on property used or useful in
public service. In Keystone, the Court further found that rates which
do not yield a fair rate of return are unjust, unreasonable, and confiscatory
and their enforcement deprives a utility of due process.[8] Additionally,
in GTE v. Deason, 642 So. 2d 545 (Fla. 1994), the Florida Supreme Court
laid out the standard of review for affiliate transactions, stating:
The mere fact that a utility is doing business with an affiliate does
not mean that unfair or excess profits are being generated, without more.
Charles F. Phillips, Jr., The Regulation of Public Utilities 254-55
(1988). We believe the standard must be whether the transactions exceed the
going market rate or are otherwise inherently unfair . . . . If the answer is
“no,” then the PSC may not reject the utility’s position.
GTE v. Deason, 645 So. 2d at 547-548.
Summary
Staff acknowledges that the U.S Water contract is a significant
operating expense. However, staff notes that the U.S Water contract is
comprehensive in nature, and provides the Utility’s customers with services
that prior owners/operators did not. Staff notes that providing such services
is the primary reason that the water and wastewater expenses are increased.
Although an affiliate relationship appears to exist between the
Utility’s owners and U.S. Water Services Corporation, staff believes the
holdings in Keystone v. Bevis and GTE v. Deason indicate that an
affiliate relationship is not “unfair” on its face. As noted previously, no
other service companies provided bids for the services included in the U.S.
Water contract, and staff believes this is relevant. Because the Utility’s
customers will be getting an array of services that no other management
services company was willing to provide, staff is recommending that the expense
for the U.S Water contract is appropriate.
Staff recommends Contractual Services – Other expenses of $77,184 for
water and $58,692 for wastewater.
Rents
(640/740): L.P. Waterworks, Inc. recorded rent expense of $210 for water
and $172 for wastewater. Staff has made adjustments to remove these amounts
because no supporting documents were provided. Staff recommends rent expense
of $0 for water and wastewater.
Insurance
Expense (655/755): L.P. Waterworks, Inc. recorded $0 insurance expense for
water and $433 for wastewater. Based on an audit-related adjustment, staff has
increased these accounts by $551 for water, and by $118 for wastewater. Staff
recommends insurance expense of $551 for water and $551 for wastewater.
Regulatory Commission
Expense (665/765): L.P. Waterworks, Inc. recorded $0 for regulatory Commission expense. Regarding
the current rate case, pursuant to Rule 25-22.0407, F.A.C., the Utility is
required to mail notices of the customer meeting and notices of final rates to
its customers. For the customer meeting notices, staff has estimated $213 for
postage expense, $217 for printing expense, and $22 for envelopes, for a cost
of $452. In addition, staff has estimated $213 for postage expense, $87 for
printing expense, and $22 for envelopes, for the cost of noticing water and
wastewater customers of new rates, for a total of $322. The Utility paid a
$1,000 rate case filing fee for the water utility, and a $1,000 rate case
filing fee for the wastewater utility. The total rate case expense including
postage, notices, envelopes, and filing fee is $2,774. Pursuant to Section
367.0816, F.S., rate case expense is amortized over a four-year period, which
is $694 per year ($2,774/4). Staff’s net adjustments to this account result in
increases of $347 for water, and $347 for wastewater. Staff recommends
regulatory Commission expense of $347 for water and $347 for wastewater.
Bad Debt Expense (670/770): L.P. Waterworks, Inc. recorded bad
debt expense of $1,123 for water and $907 for wastewater. In addition, the
Utility requested that its bad debt expense be 2 percent of revenue. Staff
believes bad debt expense of 2 percent of revenues is reasonable, and, based on
staff’s recommended rate increase, staff has made adjustments to these accounts
of $1,235 for water and $998 for wastewater. Staff recommends bad debt expense
of $2,358 for water and $1,905 for wastewater.
Miscellaneous Expense (675/775): L.P. Waterworks, Inc. recorded
$6,735 for water and $5,367 for wastewater for miscellaneous expense. Staff made
audit-related adjustments to reclassify a $15 expense and remove $5,253 from
water. Staff made an additional adjustment of $169 from water to remove a
billing cards expense. Staff also made an audit-related adjustment to remove
$4,993 from wastewater, and an additional adjustment of $138 for removing a
billing cards expense. The sum of these adjustments reduces miscellaneous
expense by $5,437 for water and $5,131 for wastewater. Staff recommends
miscellaneous expense of $1,298 for water and $236 for wastewater.
Sludge Removal Expense (711): L.P. Waterworks, Inc. recorded $0
for wastewater sludge removal. Staff has made an adjustment to increase this
account by $3,300. In a document the Utility provided to staff on January 16,
2014, sludge removal expenses were estimated to cost $1,800 in January and
about $980 every three months thereafter. Staff amortized the $1,800 expense
over five years, and calculated three occurrences of the $980 expense per year for
a total of $3,300. Staff recommends a sludge removal expense of $3,300 for
wastewater.
Operation
and Maintenance Expenses (O&M) Summary: Total adjustments to O&M
expense result in an increase of $35,220 for water and $26,318 for wastewater.
Staff=s recommended
O&M expense is $94,086 for water and $75,780 for wastewater. O&M
expenses are shown on Schedule Nos. 3-A and 3-B for water and wastewater,
respectively.
Depreciation
Expense (Net of Related Amortization of CIAC): The Utility recorded
depreciation expense of $12,286 for water and $12,939 for wastewater during the
test year. Staff has calculated depreciation expense using the prescribed
rates set forth in Rule 25-30.140, F.A.C., and determined depreciation expense
to be $16,531 for water and $6,169 for wastewater. The Utility recorded an
Amortization of CIAC of $6,168 for water and $2,328 for wastewater during the
test year. Staff has made adjustments to increase this account by $2,630 for
water, and $258 for wastewater. Therefore, staff recommends net depreciation
expense of $7,733 for water and $3,583 for wastewater.
Taxes Other
Than Income (TOTI): The Utility recorded $9,129 for water and $7,461 for
wastewater for TOTI. Based on audit-related adjustments, staff decreased these
amounts by $1,902 and $500 for water and wastewater, respectively. Therefore,
staff recommends TOTI balances of $7,227 for water and $6,961 for wastewater.
Income Tax:
The Utility is a limited liability company and did not record income tax for
the test year. As a limited liability company, the entity pays no income tax.
Therefore, staff has not made any adjustments to this account.
Operating Expenses Summary: The application of staff=s recommended adjustments
to L.P. Waterworks, Inc.’s recorded test year operating expenses result in
staff=s recommended operating
expenses of $109,046 for water and $86,324 for wastewater. Operating expenses
are shown on Schedule No. 3-A for water and Schedule 3-B for wastewater. The
related adjustments for water and wastewater are shown on Schedule No. 3-C.
Issue 7: What is the appropriate
revenue requirement?
Recommendation:
The appropriate revenue requirement is $116,611 for water and $95,483 for
wastewater, resulting in an annual increase of $57,420 for water (97.01
percent), and an annual increase of $47,841 for wastewater (100.42 percent).
(Barrett)
Staff
Analysis: L.P. Waterworks, Inc. should be allowed annual
increases of $57,420 for water (97.01 percent) and 47,841 for wastewater (100.42
percent). This will allow the Utility the opportunity to recover its expenses
and earn an 8.74 percent return on its investment. The calculations are shown
in Table 7-1 and Table 7-2 for water and wastewater, respectively:
Table 7-1
|
Water
Revenue Requirement
|
|
Adjusted Rate Base
|
|
$86,549
|
|
Rate of Return
|
|
x
.0874
|
|
Return on Rate Base
|
|
$
7,564
|
|
Adjusted O&M expense
|
|
94,086
|
|
Depreciation expense
|
|
16,531
|
|
Amortization
|
|
(8,798)
|
|
Taxes Other Than Income
|
|
7,227
|
|
Income Taxes
|
|
0
|
|
Revenue Requirement
|
|
$116,611
|
|
Less Test Year Revenues
|
|
59,191
|
|
Annual Increase
|
|
$57,420
|
|
Percent Increase/(Decrease)
|
|
97.01%
|
|
|
|
|
Table 7-2
|
Wastewater
Revenue Requirement
|
|
Adjusted Rate Base
|
|
$104,793
|
|
Rate of Return
|
|
x
.0874
|
|
Return on Rate Base
|
|
$
9,159
|
|
Adjusted O&M expense
|
|
75,780
|
|
Depreciation expense
|
|
6,169
|
|
Amortization
|
|
(2,586)
|
|
Taxes Other Than Income
|
|
6,961
|
|
Income Taxes
|
|
0
|
|
Revenue Requirement
|
|
$95,483
|
|
Less Test Year Revenues
|
|
47,642
|
|
Annual Increase
|
|
$47,841
|
|
Percent Increase/(Decrease)
|
|
100.42%
|
|
|
|
|
Issue 8:
What are the appropriate rate structures and
rates for LP Waterworks, Inc.’s water and wastewater systems?
Recommendation: The
recommended monthly water and wastewater rates are shown on Schedule Nos. 4-B
and 4-D, respectively. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The
approved rates should be effective for service rendered on or after the stamped
approval date on the tariff sheet, 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 and the notice has been received by the
customers. The Utility should provide proof of the date notice was given
within ten days of the date of the notice. (Thompson)
Staff Analysis:
Water
The
Utility’s water system is located in Highlands County within the Southern Water
Use Caution Areas of the SWFWMD. The Utility provides water service to approximately
370 individually metered residential and several general service customers in
Camp Florida Resort. In addition, the Utility provides water only service to
approximately 54 residential customers in Hickory Hills and Lake Ridge Estates
subdivisions and a few general service customers outside the RV Park.
Approximately 45 percent of the residential customer bills during the test year
had zero gallons indicating a seasonal customer base. The average residential
water demand, excluding zero gallon bills, is 4,940 gallons per month. Currently,
LP’s water system rate structure consists of a base facility charge (BFC) and a
uniform gallonage charge for both residential and general service customers.
The units in the RV Park are billed based on 80 percent of the residential BFC
for a 5/8″ x 3/4" meter.
Staff performed an analysis of the Utility’s billing data in
order to evaluate various BFC cost recovery percentages, usage blocks, and
usage block rate factors for the residential rate class. The goal of the
evaluation was to select the rate design parameters that: (1) produce the
recommended revenue requirement; (2) equitably distribute cost recovery among
the Utility’s customers; (3) establish the appropriate non-discretionary usage
threshold for restricting repression; and (4) implement, where appropriate,
water conserving rate structures consistent with Commission practice.
In the Utility’s last SARC, Docket No. 020010-WS, the
approved rate structure included a BFC for the RV Park lots equal to 80 percent
of the BFC for a 5/8″ x 3/4" meter. Although meters had been
installed in the RV Park, only a few months of metered data were available to
use in calculating rates. It appears that an assumption was made that
customers in the RV Park would place less demand on the water system than a
typical single family home. Based on a review of the current billing data, the
average demand for customers in the RV Park is slightly more than the average
demand of the customers in single family homes; therefore, staff recommends
that a discounted BFC for customers in the RV Park is no longer appropriate.
Due to the seasonal nature of the customers, staff recommends that 40
percent of the water revenues should be generated from the BFC in order to
ensure that the Utility will have sufficient cash flow to cover fixed costs.
The average people per household served by the water system is two; therefore,
based on the number of persons per household, 50 gallons per day per person,
and the number of days per month, the non-discretionary usage threshold should
be 3,000 gallons per month. Staff recommends that the traditional BFC and
gallonage charge rate structure with an additional rate block for the
non-discretionary usage threshold of 3,000 gallons for residential customers
should be approved. This rate structure minimizes increases at lower levels of
consumption while maintaining revenue sufficiency for the Utility.
Based on billing data provided by the Utility and an assumption of
3,000 gallons per month of non-discretionary usage, approximately 55 percent of
total residential consumption is discretionary and, therefore, subject to the
effects of repression. A repression adjustment quantifies changes in
consumption patterns in response to an increase in price. Customers will
typically reduce their discretionary consumption in response to price changes,
while non-discretionary consumption remains relatively unresponsive to price
changes. Based on a recommended revenue increase of 97 percent, the
residential discretionary consumption can be expected to decline by 3,765,000
gallons resulting in anticipated average residential demand of 3,572 gallons
per month, excluding zero gallon bills. Staff recommends a 27.7 percent
reduction in total residential consumption and corresponding reductions of $863
for purchased power, $549 for chemicals, and $67 for RAFs to reflect the
anticipated repression, which results in a post repression revenue requirement
of $114,252.
Based
on the above, staff recommends that all residential and general service water
customers be billed a BFC based on meter size. In addition, 40 percent of
the revenue requirement should be recovered through the BFC. Residential
rates should include a non-discretionary threshold of 3,000 gallons and
discretionary usage should be reduced by 3,765,000 gallons to reflect the
anticipated reduction in demand. Staff’s recommended rate structure,
along with two alternate rate structures, and the resulting rates are shown on
Schedule Nos. 4-A and 4-B.
Wastewater
The Utility provides wastewater service to the residential and general
service customers in Camp Florida Resort; wastewater service is not provided to
the residential and general service water customers outside the RV Park.
Approximately 49 percent of the residential customers’ wastewater bills during
the test year had zero gallons. The average water demand for wastewater
customers, excluding zero gallon bills, was 5,141 gallons per month. Currently,
the residential rate structure for the wastewater system consists of a uniform BFC
for all meter sizes and gallonage charge with an 8,000 gallon cap. General
service customers are billed a BFC by meter size and a gallonage charge that is
1.2 times higher than the residential gallonage charge.
Staff performed an analysis of the Utility’s billing data to evaluate
various BFC cost recovery percentages and gallonage caps for the residential
customers. The goal of the evaluation was to select the rate design parameters
that: (1) produce the recommended revenue requirement; (2) equitably
distribute cost recovery among the Utility’s customers; and (3) implement a
gallonage cap that considers the amount of water that may return to the
wastewater system.
Typically, Commission practice is to set the BFC allocation to at least
50 percent due to the capital intensive nature of wastewater plants. Based on
the seasonality of LP’s wastewater customers and the significant increase in
the revenue requirement, staff recommends that 60 percent of the revenue
requirement should be generated from the BFC in order to mitigate the rate
increase. In addition, based on the expected reduction in water demand
described above, staff recommends that a repression adjustment also be made for
wastewater. Because wastewater rates are calculated based on customers’
water demand, if those customers’ water demand is expected to decline, then the
billing determinants used to calculate wastewater rates should also be
adjusted. Therefore, staff recommends that a repression adjustment for
the discretionary usage should also be made to calculate wastewater
rates. Based on the billing analysis for the wastewater system, staff
recommends that discretionary usage be reduced by 2,047,000 gallons to reflect
the anticipated reduction in water demand used to calculate wastewater
rates. Staff recommends a 22.5 percent reduction in total residential
consumption and corresponding reductions of $1,008 for purchased power, $61 for
chemicals, $743 for sludge removal, and $82 for RAFs to reflect the anticipated
repression, which results in a post repression revenue requirement of $93,589.
Further, staff recommends no change to the Utility’s existing residential cap
of 8,000 gallons because a reduction to the cap would result in fewer gallons
to spread the revenue requirement across and an additional increase in the
wastewater gallonage charge. General service customers should continue to be
billed a BFC by meter size and a gallonage charge that is 1.2 times higher than
the residential gallonage charge. Staff’s recommended rate structure, along
with two alternate rate structures, and the resulting wastewater rates are
shown on Schedule Nos. 4-C and 4-D.
Summary
Based
on the foregoing, staff recommends 40 percent of the water revenues should be
generated from the BFC. The traditional BFC and gallonage charge rate
structure with an additional rate block for the non-discretionary usage
threshold of 3,000 gallons should be approved for the water system. A 27.7
percent reduction in total residential consumption and corresponding reductions
of $863 for purchased power, $549 for chemicals, and $67 for RAFs should be
made to reflect the anticipated repression. General service customers should
continue to be billed a BFC and gallonage charge.
Staff
recommends that 60 percent of the wastewater revenues be generated from the
BFC. The residential wastewater customers’ rate structure should consist of a
BFC for all meter sizes, with a cap of 8,000 gallons. A 22.5 percent reduction
in total residential consumption and corresponding reductions of $1,008 for
purchased power, $61 for chemicals, $743 for sludge removal, and $82 for RAFs
should be made to reflect the anticipated repression. General service
wastewater customers should be billed a BFC and gallonage charge that is 1.2
times higher than the residential gallonage charge.
The recommended monthly water and wastewater rates
are shown on Schedule Nos. 4-B and 4-D, respectively. The Utility should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheet, 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 and the
notice has been received by the customers. The Utility should provide proof of
the date notice was given within ten days of the date of the notice.
Issue 9: What is the appropriate
amount by which rates should be reduced in four years after the published
effective date to reflect the removal of the amortized rate case expense as
required by Section 367.0816, F.S.?
Recommendation:
The water rates should be reduced as shown on Schedules No. 4-B and 4-D, to
remove rate case expense grossed-up water and wastewater for regulatory
assessment fees and 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. L.P.
Waterworks, Inc. 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 one month prior to the actual date of the required rate
reduction. 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 the reduction in the
rates due to the amortized rate case expense. (Barrett)
Staff Analysis: Section 367.0816, F.S., requires
that the rates be reduced immediately following the expiration of the four-year
period by the amount of the rate case expense previously included in rates.
The reduction will reflect the removal of revenue associated with the
amortization of rate case expense, the associated return in working capital,
and the gross-up for Regulatory Assessment Fees (RAFs). The total reduction is
$734 ($367 for water and $367 for wastewater). Using L.P. Waterworks, Inc.’s
current revenue, expenses, capital structure and customer base, the reduction
in revenue will result in the rate decreases as shown on Schedules No. 4-B and
4-D.
The
Utility should be required to file revised tariff sheets no later than one
month prior to the actual date of the required rate reduction. L.P.
Waterworks, Inc. also should be required to file a proposed customer notice
setting forth the lower rates and the reason for the reduction.
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 the reduction in the rates
due to the amortized rate case expense.
Issue 10: What are the appropriate initial customer deposits
for LP Waterworks, Inc.?
Recommendation: The appropriate initial customer
deposits should be $45 and $50 for the residential 5/8″ x 3/4″
meter size for water and wastewater, respectively. The initial customer
deposits for all other residential meter sizes and all general service meter
sizes should be two times the average estimated bill for water and wastewater.
The approved customer deposits should be effective
for services rendered or connections made on or after the stamped approval date
on the tariff sheets, pursuant to Rule 25-30.475, F.A.C. The Utility should be
required to charge the approved charges until authorized to change them by the
Commission in a subsequent proceeding. (Thompson)
Staff Analysis: Rule 25-30.311,
F.A.C., contains the criteria for collecting, administering, and refunding
customer deposits. 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 initial customer deposits
equal to two times the average estimated bill.[9] Currently, the
Utility’s existing initial deposits for residential 5/8” x 3/4" meters are
$35 each for both water and wastewater. Based on staff’s recommended rates,
the existing initial customer deposits are not sufficient to cover two months’
bills for water and wastewater, respectively. Staff recommends the existing
initial customer deposit be increased to reflect two times the average
estimated bill for both water and wastewater to ensure that the cost of
providing service is recovered from by those incurring cost.
Staff recommends the
appropriate initial customer deposits should be $45 and $50 for the residential
5/8″ x 3/4″ meter size for water and wastewater, respectively. The
initial customer deposits for all other residential meter sizes and all general
service meter sizes should be two times the average estimated bill for water
and wastewater. The approved customer deposits
should be effective for services rendered or connections made on or after the
stamped approval date on the tariff sheets, pursuant to Rule 25-30.475, F.A.C.
The Utility should be required to charge the approved charges until authorized
to change them by the Commission in a subsequent proceeding.
Issue 11: Should the recommended
rates be approved for the Utility on a temporary basis, subject to refund with
interest, in the event of a protest filed by a party other than the Utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the recommended rates should be
approved for the Utility on a temporary basis, subject to refund with interest,
in the event of a protest filed by a party other than the Utility. L.P.
Waterworks, Inc. should file revised tariff sheets and a proposed customer
notice to reflect the Commission-approved rates. The approved rates should be
effective for service rendered on or after the stamped approval date on the
tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition, the temporary
rates should not be implemented until staff has approved the proposed notice,
and the notice has been received by the customers. Prior to implementation of
any temporary rates, the Utility should provide appropriate security. If the
recommended rates are approved on a temporary basis, the rates collected by the
Utility should be subject to the refund provisions discussed below in the staff
analysis. In addition, after the increased rates are in effect, pursuant to
Rule 25-30.360(6), F.A.C., the Utility should file reports with the
Commission’s Office of Commission Clerk no later than the 20th of each month
indicating the monthly and total amount of money subject to refund at the end
of the preceding month. The report filed should also indicate the status of
the security being used to guarantee repayment of any potential refund.
(Barrett)
Staff
Analysis: This recommendation proposes an increase in water and
wastewater rates. A timely protest might delay what may be a justified rate
increase resulting in an unrecoverable loss of revenue to the Utility.
Therefore, pursuant to Section 367.0814(7), F.S., in the event of a protest
filed by a party other than the Utility, staff recommends that the recommended
rates be approved as temporary rates. L.P. Waterworks, Inc. should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheet, pursuant to
Rule 25-30.475(1), F.A.C. In addition, the temporary rates should not be
implemented until staff has approved the proposed notice, and the notice has
been received by the customers. The recommended rates collected by the Utility
should be subject to the refund provisions discussed below.
L.P. Waterworks, Inc. should be authorized to collect the temporary
rates upon staff’s approval of an appropriate security for the potential refund
and the proposed customer notice. Security should be in the form of a bond or
letter of credit in the amount of $70,197, based upon the commercial paper rate
for March 2014. Alternatively, the Utility could establish an escrow agreement
with an independent financial institution.
If L.P. Waterworks, Inc. chooses a bond as security, the bond should
contain wording that indicates that it will be terminated regarding one of the
following conditions:
1)
The Commission approves the rate increase.
2)
If the Commission denies the increase, the Utility shall refund the
amount collected that is attributable to the increase.
If
L.P. Waterworks, Inc. chooses a letter of credit as a security, it should
contain the following conditions:
1) The letter of credit is irrevocable for
the period it is in effect.
2) The letter of credit will be in effect
until a final Commission order is rendered, either approving or denying the
rate increase.
If security is provided through an escrow
agreement, the following conditions should be part of the agreement:
1) No monies in the escrow account may be
withdrawn by the Utility without the express approval of the Commission.
2) The escrow account shall be an interest
bearing account.
3) If a refund to the customers is required,
all interest earned by the escrow account shall be distributed to the customers.
4) If a refund to the customers is not
required, the interest earned by the escrow account shall revert to L.P.
Waterworks, Inc.
5) All information on the escrow account
shall be available from the holder of the escrow account to a Commission
representative at all times.
6) The amount of revenue subject to refund
shall be deposited in the escrow account within seven days of receipt.
7) This escrow account is established by
the direction of the Florida Public Service Commission for the purpose(s) set
forth in its order requiring such account. Pursuant to Cosentino v. Elson,
263 So. 2d 253 (Fla. 3d DCA 1972), escrow accounts are not subject to
garnishments.
8)
The Commission Clerk must be a signatory to the escrow agreement.
9)
The account must specify by whom and on whose behalf such monies were
paid.
In no instance should the maintenance and administrative costs
associated with the refund be borne by the customers. These costs are the
responsibility of, and should be borne by, the Utility. Irrespective of the
form of security chosen by L.P. Waterworks, Inc., an account of all monies
received as a result of the rate increase should be maintained by the Utility.
If a refund is ultimately required, it should be paid with interest calculated
pursuant to Rule 25-30.360(4), F.A.C.
L.P.
Waterworks, Inc. should maintain a record
of the amount of the bond, and the amount of revenues that are subject to
refund. In addition, after the increased rates are in effect, pursuant to Rule
25-30.360(6), F.A.C., the Utility should file reports with the Commission’s
Office of Commission Clerk no later than the 20th of each month indicating the
monthly and total amount of money subject to refund at the end of the preceding
month. The report filed should also indicate the status of the security being
used to guarantee repayment of any potential refund.
Issue 12: 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 applicable National Association of
Regulatory Commissioners Uniform System of Accounts (NARUC 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, L.P. Waterworks, Inc. should provide proof, within 90
days of the final order in this docket, that the adjustments for all applicable
NARUC USOA primary accounts have been made. (Barrett)
Staff
Analysis: To ensure that the Utility adjusts its books in
accordance with the Commission’s decision, L.P. Waterworks, Inc. should provide
proof, within 90 days of the final order in this docket, that the adjustments
for all applicable NARUC USOA primary accounts have been made.
Issue 13: 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 should 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. Once these actions are complete, this
docket should be closed administratively. (Murphy)
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 should 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.
Once these actions are complete, this docket should be closed administratively.
|
LP Waterworks, Inc.
|
SCHEDULE NO. 1-A
|
|
TEST YEAR ENDED 5/31/2013
|
DOCKET NO. 130153-WS
|
|
SCHEDULE OF WATER RATE BASE
|
|
|
|
|
BALANCE
|
STAFF
|
BALANCE
|
|
|
PER
|
ADJUSTMENTS
|
PER
|
|
DESCRIPTION
|
UTILITY
|
TO UTIL. BAL.
|
STAFF
|
|
|
|
|
|
|
UTILITY PLANT IN SERVICE
|
$469,295
|
$27,922
|
$497,217
|
|
|
|
|
|
|
LAND & LAND RIGHTS
|
20,598
|
0
|
20,598
|
|
|
|
|
|
|
NON-USED AND USEFUL COMPONENTS
|
0
|
(5,100)
|
(5,100)
|
|
|
|
|
|
|
CIAC
|
(204,307)
|
(61,339)
|
(265,646)
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION
|
(266,493)
|
(38,298)
|
(304,791)
|
|
|
|
|
|
|
AMORTIZATION OF CIAC
|
100,229
|
32,282
|
132,511
|
|
|
|
|
|
|
WORKING CAPITAL ALLOWANCE
|
0
|
11,761
|
11,761
|
|
|
|
|
|
|
WASTEWATER RATE BASE
|
$119,322
|
($32,773)
|
$86,549
|
|
|
|
|
|
|
|
LP Waterworks, Inc.
|
|
SCHEDULE NO. 1-B
|
|
|
TEST YEAR ENDED 5/31/2013
|
|
DOCKET NO. 130153-WS
|
|
|
SCHEDULE OF WASTEWATER RATE BASE
|
|
|
|
|
|
|
BALANCE
|
STAFF
|
BALANCE
|
|
|
|
PER
|
ADJUST.
|
PER
|
|
|
DESCRIPTION
|
UTILITY
|
TO UTIL. BAL.
|
STAFF
|
|
|
|
|
|
|
|
1.
|
UTILITY PLANT IN SERVICE
|
$377,807
|
$6,191
|
$383,998
|
|
|
|
|
|
|
|
2.
|
LAND & LAND RIGHTS
|
36,000
|
0
|
36,000
|
|
|
|
|
|
|
|
3.
|
NON-USED AND USEFUL COMPONENTS
|
0
|
(3,072)
|
(3,072)
|
|
|
|
|
|
|
|
4.
|
CIAC
|
(65,600)
|
(26,800)
|
(92,400)
|
|
|
|
|
|
|
|
5.
|
ACCUMULATED DEPRECIATION
|
(291,400)
|
18,965
|
(272,435)
|
|
|
|
|
|
|
|
6.
|
AMORTIZATION OF CIAC
|
37,965
|
5,264
|
43,229
|
|
|
|
|
|
|
|
7.
|
WORKING CAPITAL ALLOWANCE
|
0
|
9,472
|
9,472
|
|
|
|
|
|
|
|
8.
|
WASTEWATER RATE BASE
|
$94,772
|
$10,021
|
$104,793
|
|
|
|
|
|
|
|
|
LP
Waterworks, Inc.
|
SCHEDULE
NO. 1-C
|
|
|
|
TEST
YEAR ENDED 5/31/2013
|
DOCKET
NO. 130153-WS
|
|
|
|
ADJUSTMENTS
TO RATE BASE
|
PAGE
1 OF 2
|
|
|
|
|
|
|
|
|
|
|
WATER
|
WASTEWATER
|
|
|
|
UTILITY PLANT IN SERVICE
|
|
|
|
|
1.
|
To
reflect plant balance (301) per Order No. PSC-02-1739-PAA-WS
|
$414
|
$0
|
|
|
2.
|
To
reflect plant balance (310) per Order No. PSC-02-1739-PAA-WS
|
2,506
|
0
|
|
|
3.
|
To
reflect plant balance (334) per Order No. PSC-02-1739-PAA-WS
|
27,663
|
0
|
|
|
4.
|
To
reclassify an O&M item to the appropriate account (336)
|
620
|
0
|
|
|
5.
|
To
reflect plant balance (340) per Order No. PSC-02-1739-PAA-WS
|
(3,281)
|
0
|
|
|
6.
|
To
reflect plant balance (351) per Order No. PSC-02-1739-PAA-WS
|
0
|
346
|
|
|
7.
|
To
reflect plant balance (380) per Order No. PSC-02-1739-PAA-WS
|
0
|
5,200
|
|
|
8.
|
To
reflect plant balance (390) per Order No. PSC-02-1739-PAA-WS
|
0
|
645
|
|
|
|
Total
|
$27,922
|
$6,191
|
|
|
|
|
|
|
|
|
|
CWIP
|
|
|
|
|
|
Not
applicable
|
$0
|
$0
|
|
|
|
|
|
|
|
|
|
LAND
|
|
|
|
|
|
Not
applicable
|
$0
|
$0
|
|
|
|
|
|
|
|
|
|
NON-USED AND USEFUL PLANT
|
|
|
|
|
1.
|
To
reflect non used and useful plant
|
($27,518)
|
($48,212)
|
|
|
2.
|
To
reflect non used and useful accumulated depreciation
|
13,792
|
45,140
|
|
|
3.
|
To
reflect non used and useful CIAC
|
15,899
|
0
|
|
|
4.
|
To
reflect non used and useful accumulated amortization
|
(7,274)
|
0
|
|
|
|
Total
|
($5,100)
|
($3,072)
|
|
|
|
|
|
|
|
|
|
CIAC
|
|
|
|
|
1.
|
To
reflect CIAC balance per Order No. PSC-03-1051-FOF-WS
|
($30,608)
|
$0
|
|
|
2.
|
To
reflect CIAC additions for January 2002 through May 2012
|
(30,731)
|
(26,800)
|
|
|
|
Total
|
($61,339)
|
($26,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LP
Waterworks, Inc.
|
SCHEDULE
NO. 1-C
|
|
|
|
TEST
YEAR ENDED 5/31/2013
|
DOCKET
NO. 130153-WS
|
|
|
|
ADJUSTMENTS
TO RATE BASE
|
PAGE
2 OF 2
|
|
|
|
|
|
|
|
|
|
|
WATER
|
WASTEWATER
|
|
|
|
ACCUMULATED DEPRECIATION
|
|
|
|
|
|
To
reflect the appropriate test year accumulated depreciation (AF3)
|
($38,298)
|
$18,965
|
|
|
|
|
|
|
|
|
|
AMORTIZATION OF CIAC
|
|
|
|
|
|
To
reflect Amortization of CIAC per Order No. PSC-02-1739-PAA-WS
|
$32,282
|
$5,264
|
|
|
|
|
|
|
|
|
|
WORKING CAPITAL ALLOWANCE
|
|
|
|
|
|
To
reflect 1/8 of test year O&M expenses.
|
$11,761
|
$9,472
|
|
|
|
|
|
|
|
