Recommendation

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Discussion of Issues

Issue 1:

Is the quality of service provided by Crooked Lake satisfactory?

Recommendation:

Yes. The Utility has taken reasonable actions to comply with DEP’s regulations and to address customer concerns. The DEP judgment has been satisfied and pro forma items should improve quality. All quality of service issues have been resolved. Staff recommends that the quality of service provided by the Utility be considered satisfactory. (Lee)

Staff Analysis:

Pursuant to Rule 25-30.433(1), Florida Administrative Code (F.A.C.), in water and wastewater rate cases, the Commission shall determine the overall quality of service provided by a utility. This is derived from an evaluation of three separate components of the utility operations. These components are the quality of the utility’s product, the operating conditions of the utility’s plant and facilities, and the utility’s attempt to address customer satisfaction. The rule further states that sanitary surveys, outstanding citations, violations, and consent orders on file with the DEP and the county health department over the preceding three-year period shall be considered in addition to customer comments or complaints.

Crooked Lake provides wastewater service only. The Utility’s operation of its wastewater treatment system is subject to various environmental requirements such as permitting, testing, and discharge monitoring under the jurisdiction of the DEP. In the Utility’s last SARC, the Commission found the quality of the treatment plant unsatisfactory noting that the Utility’s operating permit for the wastewater treatment plant (WWTP) had expired in 2005 and the Utility remained out of compliance with the requirement by DEP for mandated improvements.^{^[4]} The compliance issues with DEP’s enforcement actions resulted in a Final Judgment, Case No. 2006-CA-2084, entered in the Circuit Court in Polk County on July 9, 2008. The Final Judgment assessed civil penalties and costs against the Utility and provided corrective action options for the Utility.

One of the corrective action options contemplated by DEP in the Final Judgment was to bypass the Utility’s WWTP and connect to the wastewater system of the City of Lake Wales. The City Commission decided not to allow the connection based on a memorandum dated November 10, 2010. Among the reasons, the memorandum cited the high cost, projected to be $1,517,085, and the default risk of the owner of the Utility.

On June 7, 2011, DEP filed its second motion for contempt against the Utility for failing to comply with the Final Judgment, including payment due for various penalties totaling $435,000. This amount reflects the severity of the compliance issue.

As discussed in the case background, the operation of the Utility has been under the new ownership and control of Glenbrook Properties, LLC, since September 26, 2012. The new owner has taken actions to improve the operations and on July 31, 2013, DEP issued an operating permit for the WWTP. The permit contains specific compliance requirements for the construction of a surge tank, digester tank, and sludge bed. On May 27, 2014, the Utility reached a resolution and settlement with DEP regarding the Final Judgment and the outstanding compliance issues. Based on the settlement agreement, DEP agreed to release the Utility from all penalties in exchange for $50,000. The judgment has been deemed paid in full and satisfied as indicated by DEP’s filing with the court on July 15, 2014.

A review of customer complaints indicates the Utility has resolved all of the complaints tracked by the Commission. The Commission’s Consumer Activity Tracking System (CATS) recorded three complaints since January 2001. Of the three complaints, two were related to billing and one was related to service quality. The last recorded complaint was closed on May 3, 2005. Staff conducted a site visit on December 18, 2013, inspected the plant, and confirmed that there were no new DEP enforcement actions against the Utility under the new ownership.

A customer meeting was held on July 17, 2014, at the Lake Wales Public Library. Of the 12 customers that were present at the meeting, 2 customers signed up to comment. Customers who did not sign up were also given an opportunity to speak.

At the meeting, a customer raised a concern that customers on Easton Street experienced problems regarding sewage back-up. As a follow-up to address the concerns raised at the customer meeting, staff requested that the Utility provide staff with the extent of the problem and explain any actions taken to address the problem. In response, the Utility provided a list of nine reported sewage back-up incidents, including the Easton Street incident mentioned above, which occurred in 2013 and 2014. The Utility used a water jet to clear the obstruction and resolved the issue for these customers. In addition, the Utility has planned to improve the WWTP and the collection system. As further discussed in Issue 11, these pro forma items include the installation of a new surge tank, digester tank, and sludge drying bed at the WWTP, and three projects for the collection system to locate, map and clean the lines, replace up to 2,100 feet of pipes, and replace an electrical control panel. The Utility stated that these projects will improve the flow and help prevent back-up issues in the future.

Summary

The Utility has taken reasonable actions to comply with DEP’s regulations and to address customer concerns. The DEP judgment has been satisfied and pro forma items should improve quality. All quality of service issues have been resolved. Staff recommends that the quality of service provided by the Utility be considered satisfactory.

Issue 2:

What are the used and useful (U&U) percentages for the Utility’s wastewater system?

Recommendation:

Staff recommends that the WWTP and collection system be considered 100 percent U&U with no adjustment due to Infiltration and Inflow (I&I). (Lee)

Staff Analysis:

Staff evaluated the U&U for the Utility’s wastewater plant in service including the I&I and its pro forma plant items. The U&U percentage of the Utility’s wastewater system, which includes its WWTP and collection system, was determined to be 100 percent U&U in its last SARC in Docket No. 060406-SU. There has been no growth in the customer base, no change in capacity, no excessive I&I that warrant adjustments, or any plan for expansion. Based on the above, staff recommends that the WWTP and collection system be considered 100 percent U&U with no adjustment due to I&I.

Issue 3:

What is the appropriate average test year rate base for Crooked Lake?

Recommendation:

The appropriate average test year rate base for Crooked Lake is $139,303. (Golden)

Staff Analysis:

The appropriate components of the Utility's rate base include utility plant in service, land, accumulated depreciation, contributions-in-aid-of-construction (CIAC), amortization of CIAC, and working capital. Crooked Lake’s rate base was last established in its 2006 SARC by Order No. PSC-07-0077-PAA-SU.^{^[5]} Staff selected the test year ended June 30, 2013 for the instant case.

The Utility experienced a change in ownership in the middle of the test year.[6] Although the new owner attempted to obtain all records from the prior owner, Commission audit staff determined that the Utility was missing documentation for some of the prior owner’s test year expenses. As will be discussed further in Issue 6, staff reviewed an additional 12 months of the Utility’s expense data from July 2013 through June 2014 (supplemental data or supplemental year) to help fill in the gaps in the expense records. The supplemental data also included information on several plant additions made by the Utility after the test year. Based on that information, staff made several pro forma adjustments to rate base. In addition, staff made adjustments in response to concerns raised by the Office of Public Counsel (OPC) in its August 22, 2014 letter filed in this docket. A summary of each rate base component and the recommended adjustments are discussed below:

Utility Plant in Service (UPIS): The Utility recorded a test year UPIS balance of $452,262 as of June 30, 2013. The UPIS balance approved in Crooked Lake’s 2006 SARC included a $3,616 averaging adjustment for ratesetting purposes only. The Utility inadvertently included the averaging adjustment when adjusting its books, resulting in an unintended decrease to UPIS. Staff increased this account by $3,616 to reflect the correct starting balance. Staff decreased this account by $3,872 and $77,500 to remove unsupported plant additions and to reverse the recording of an unapproved acquisition adjustment, respectively.

Between July 2012 and June 2014, the Utility made a significant number of repairs and plant additions. Commission audit staff identified several test year repair expenses that should be reclassified to UPIS. In addition, in its August 22 letter, OPC expressed concern about the overall level of test year repair expenses. OPC believes that some of the repairs may be an accumulation of deferred maintenance items that the new owner was forced to address. OPC supports the improvement of the system, but does not believe the repair costs represent an appropriate annual level of expense for setting rates. In order to allow the new owner to recover the investment in these repairs, OPC proposed that one roof repair be reclassified to rate base and that the remaining repairs be amortized over a four or five year period. Staff agrees with OPC that it would be appropriate to capitalize the roof repair. Further, staff believes it would also be appropriate to capitalize two repairs to replace a clarifier gear box and to raise the height of a concrete pad around a lift station to reduce infiltration. The remaining test year repair expenses will be discussed further in Issue 6.

Based on supplemental data received from the Utility, the Utility capitalized several collection system repairs and a blower motor replacement during the 12 months following the test year. In addition, the Utility purchased a second truck. The Utility currently employs two part-time maintenance employees who use the Utility’s two trucks. The first truck is kept on-site at the treatment plant, near the service area. The second truck is kept at the Utility office when not in use, which is located approximately 16 miles away from the plant and service area. Staff believes it would be appropriate to include the collection system repairs, blower motor replacement, and truck purchase as pro forma additions to UPIS. A complete list of staff’s recommended adjustments to UPIS, including associated retirements, is shown on Schedule No. 1-B. Staff’s net adjustment to UPIS is a decrease of $63,873, resulting in a recommended UPIS balance of $388,389.

Land and Land Rights: The Utility recorded a test year land balance of $6,197. No adjustments are necessary, therefore, staff recommends a land and land rights balance of $6,197.

Non-Used and Useful Plant: As discussed in Issue 2, Crooked Lake’s WWTP and collection system are considered 100 percent U&U. Therefore, a U&U adjustment is unnecessary.

Contributions-in-Aid-of-Construction (CIAC): The Utility’s recorded test year CIAC balance is $127,636. The CIAC balance approved in Crooked Lake’s 2006 SARC included a $300 averaging adjustment for ratesetting purposes only. The Utility inadvertently included the averaging adjustment when adjusting its books. Staff increased CIAC by $300 to reflect the correct starting balance. Staff recommends a CIAC balance of $127,936.

Accumulated Depreciation: Crooked Lake recorded a test year accumulated depreciation balance of $260,657. Staff decreased this account by $3,529 to remove the 2006 SARC averaging adjustment that was inadvertently included by the Utility when adjusting its books. Also, staff calculated the annual accruals to accumulated depreciation since December 31, 2005, including staff’s proposed test year and pro forma plant additions, using the prescribed rates set forth in Rule 25-30.140, F.A.C., and determined that accumulated depreciation should be increased by $1,916 to reflect the correct balance for the test year. Also, staff increased this account by $10,961 to reflect an averaging adjustment in the instant case. Staff’s net adjustment to accumulated depreciation is an increase of $9,348, resulting in an accumulated depreciation balance of $270,005.

Accumulated Amortization of CIAC: Crooked Lake’s recorded balance of amortization of CIAC is $117,782. Staff increased this account by $460 to remove the 2006 SARC averaging adjustment recorded by the Utility. Also, amortization of CIAC has been calculated by staff using composite depreciation rates. As a result, accumulated amortization of CIAC should be increased by $9,694, which results in the Utility’s CIAC becoming fully amortized during the test year. Because the CIAC is now fully amortized, no averaging adjustment is necessary in this case. Staff’s total adjustment to accumulated amortization of CIAC is an increase of $10,154, resulting in an amortization of CIAC balance of $127,936.

Working Capital Allowance: Working capital is defined as the investor-supplied funds that are necessary to meet operating expenses 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 a working capital allowance of $14,723 (based on O&M expense of $117,780/8). Staff increased the working capital allowance by $14,723.

Rate Base Summary: Based on the foregoing, staff recommends that the appropriate average test year rate base is $139,303. Rate base is shown on Schedule No. 1-A. The related adjustments are shown on Schedule No. 1-B.

Issue 4:

What is the appropriate return on equity and overall rate of return for Crooked Lake?

Recommendation:

The appropriate return on equity (ROE) is 11.16 percent with a range of 10.16 percent to 12.16 percent. The appropriate overall rate of return is 9.19 percent. (Golden)

Staff Analysis:

According to the staff audit, the Utility’s test year capital structure reflected common equity of $79,090 and long-term debt of $141,249. However, audit staff determined that the Utility inadvertently posted one note payable to two separate accounts. Staff decreased long-term debt by $27,770 to remove the additional posting. Also, staff made a pro forma adjustment to increase long-term debt by $50,000 to reflect an additional loan that was entered into during the test year, but for which payments did not begin until after the test year. In addition, staff made a pro forma adjustment to increase long-term debt by $34,514 to reflect the loan for the truck purchased in 2013, previously discussed in Issue 3. Staff’s net adjustment to long-term debt is an increase of $56,744, resulting in total long-term debt of $197,993.

The Utility’s capital structure has been reconciled with staff’s recommended rate base. The appropriate ROE is 11.16 percent based upon the Commission-approved leverage formula currently in effect.^{^[7]} Staff recommends an ROE of 11.16 percent, with a range of 10.16 percent to 12.16 percent, and an overall rate of return of 9.19 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 Crooked Lake are $143,300. (Bruce)

Staff Analysis:

Crooked Lake recorded test year service revenues of $117,975 for wastewater. During the test year, the Utility’s revenues were understated. Pursuant to Audit Finding No. 1, the Utility uses a cash basis accounting method rather than an accrual basis accounting method for posting transactions. According to Audit Finding No. 4, Crooked Lake did not record several months of revenues from the College Park Mobile Home Park and College Park was billed an incorrect base facility charge (BFC) during the test year.

College Park is a bulk service customer that is served by a 2” master meter. College Park was billed a BFC based on the 2” meter size, which is 8 equivalent residential connections (ERCs). However, pursuant to Order No. PSC-07-0077-PAA-SU,[8] College Park should be billed a BFC based on the number of units or ERCs behind the master meter. There are 100 ERCs behind the master meter. Staff adjusted the test year billing determinants for College Park. Based on the appropriate billing determinants and the rates in effect during the test year, staff determined service revenues to be $143,300. There are no miscellaneous revenues. Therefore, service revenues should be increased by $25,325. Based on the above, staff recommends the appropriate test year revenues for Crooked Lake are $143,300.

Issue 6:

What is the appropriate amount of test year operating expenses?

Recommendation:

The appropriate amount of operating expenses for the Utility is $154,475. The Utility should be required to provide proof within 90 days of the effective date of the final order that the commercial general liability insurance has been purchased. Also, the Utility should be required to provide proof of continued payment of the commercial general liability insurance premiums prior to implementation of the Phase II rate increase. In the event that the Utility does not purchase the liability insurance and begin making regular payments, the Phase II rates should be reduced to remove this expense. (Golden)

Staff Analysis:

Crooked Lake recorded operating expenses of $150,881 for the test year ended June 30, 2013. The test year operating expenses have been reviewed and invoices, canceled checks, and other supporting documentation have been examined. However, staff believes the test year does not adequately reflect a full year of the Utility’s normal operations going forward for some expense accounts. As previously discussed in Issue 3, the Utility experienced a change in ownership in the middle of the test year, resulting in a lack of documentation for some expenses. In addition, the new owner began making operational changes during the latter half of the test year and beyond that are not fully captured by the test year. Therefore, to help fill in the gaps and better assess the Utility’s expenses going forward, staff also reviewed an additional 12 months of the Utility’s expense data following the test year for July 2013 through June 2014. Based upon the test year and supplemental data, staff made several adjustments to the Utility’s operating expenses, as summarized below. In addition, staff made several adjustments in response to concerns raised by the OPC in its August 22, 2014 letter filed in this docket.

Expense Reclassifications – Crooked Lake recorded total O&M expenses of $132,836 for the test year. Pursuant to Rule 25-30.115, F.A.C., water and wastewater utilities are required to maintain their accounts and records in conformity with the 1996 National Association of Regulatory Utility Commissioners’ Uniform System of Accounts (NARUC USOA). Crooked Lake has maintained a majority of its expense accounts using the NARUC USOA. However, during the test year, a number of expenses were misclassified, either to an incorrect NARUC account or a non-NARUC subaccount. Staff reclassified those expenses to the correct NARUC accounts. The reclassifications are revenue neutral, have no impact on the revenue requirement, and are made simply to adjust the Utility’s test year account balances to the correct starting balances for ratesetting purposes. The adjusted account balances are reflected on Schedule No. 3-C in the “Total Per Utility” column, which continues to reflect the Utility’s test year O&M expense total of $132,836 following the reclassifications. Staff’s remaining adjustments that have a revenue impact are discussed in detail below.

Salaries and Wages – Employees (701) – Crooked Lake recorded $19,741 for salaries in this account. The Utility experienced significant employee turnover and, as a result, did not record salaries expense every month during the test year. Near the end of the test year, the Utility employed an office manager and maintenance worker. The office manager works approximately 20 hours per week at an hourly rate of $12.50, resulting in annual salary of $13,000. The maintenance worker was initially employed to work 15 hours per week at an hourly rate of $10, resulting in an annual salary of $7,800. Based on the supplemental data, the maintenance worker’s hours increased to an average of 23 hours per week. Also, a representative of the Utility advised staff that the Utility had increased the wage for maintenance work to $11 per hour. The increase in the hourly rate and average hours worked increased the maintenance worker’s annual salary to $13,156. Total annual salaries for both positions equals $26,156 ($13,000 + $13,156), an increase of $6,415 over the Utility’s test year balance of $19,741 ($26,156 - $19,741 = $6,415).

In August 2014, the maintenance employee resigned from the Utility to take another job, and the Utility hired two new part-time maintenance employees. Each new employee was hired to work up to 20 hours per week at an hourly rate of $11. The supplemental data only provides salary information for one maintenance worker through June 2014. A representative of the Utility advised staff that the two new maintenance workers’ hours per week will vary depending upon the work required in each particular week. The Utility anticipates that the average of 23 hours per week reflected during the supplemental year for the former maintenance employee should be sufficient to cover both of the new maintenance positions, and that no additional increase in salary expense is necessary at this time.

Based on the 2012 AWWA Compensation Survey, the hourly rate for an office/administrative services manager ranges from approximately $20 to $21 per hour. The Compensation Survey does not provide salary information for the maintenance worker positions, however, the Commission has previously approved maintenance worker salaries based on an hourly rate of $11. The Utility’s salaries are on the low end of the scale, and as such do not warrant any downward adjustments.

Also, for informational purposes, the Utility initially contracted with a third party vendor to handle payroll services near the end of the test year. The third party vendor charged for this service by including an additional percentage factor in the payroll calculations. However, based on the supplemental data, the Utility subsequently arranged for the College Park Mobile Home Park office, a related party, to process the Utility’s payroll. A Utility representative informed staff that the Utility had discontinued using the third party vendor because it was less expensive for College Park to provide the payroll services. College Park does not charge the Utility for the payroll services. The total salaries expense would be approximately $1,150 higher than recommended if the Utility had continued receiving payroll services through the third party vendor.

Based on the above, staff increased this account by $6,415 to reflect the current total salaries expense of $26,156. Staff recommends salaries and wages – employees expense of $26,156.

Employee Pensions and Benefits (704) – The Utility did not record any expenses in this account during the test year. Based on the supplemental data, the Utility applies an employee benefits factor of approximately 7.2 percent to the office manager and maintenance employee salaries for disability, health, vision, and dental insurance. Therefore, staff increased this account by $1,895 to reflect the employee benefits associated with the office manager and maintenance employee positions. Staff recommends employee pensions and benefits expense of $1,895.

Sludge Removal Expense (711) – The Utility recorded sludge removal expense of $2,220 during the test year. However, this amount only covers two instances of sludge removal that occurred near the end of the test year under the new owner’s operation. A review of the supplemental data indicates that the Utility required sludge removal services 11 times in the year following the test year, for a total of $12,170. Three instances of sludge removal totaling $2,088 appear to be repair related. Sludge removal required in conjunction with repairs is typically recorded as a repair under Account No. 736, Contractual Services – Other, and therefore, is not considered to be part of the Utility’s normal sludge removal process. Consequently, the total expense for routine sludge removal equals $10,082 ($12,170 - $2,088). Engineering staff believes the Utility will continue to require this level of sludge removal going forward until both the treatment plant and collection system are upgraded. Therefore, staff increased this account by $7,862 to reflect the appropriate annual sludge removal expense. Staff recommends sludge removal expense of $10,082.

Purchased Power (715) – The Utility recorded purchased power expense of $8,935. This total includes late fees and penalties that are not recoverable in a rate proceeding, but excludes five additional power bills applicable to the test year. The net adjustment for removing the late fees and penalties and adding the missing power bills is an increase of $132. Therefore, staff increased this account by $132 to reflect the appropriate test year purchased power expense. The test year included sufficient supporting documentation to establish annual purchased power expense, therefore, staff did not pursue the use of supplemental data to adjust this account. A cursory review of the supplemental data suggests that the purchased power expense may have decreased following the test year. However, it is anticipated that the Utility’s purchased power expense will increase after completion of the new surge tank and second digester tank. The potential increase in purchased power expense resulting from the new plant additions has not been determined yet. Therefore, in consideration of the sufficient test year data, as well as the anticipated future increase in purchased power expense, staff does not believe any further adjustments are appropriate at this time. Staff recommends purchased power expense for the test year of $9,067.

Chemicals (718) – The Utility recorded chemicals expense of $4,793. Staff decreased this account by $610 to remove two of the prior owner’s invoices that lacked supporting documentation. Also, staff decreased this account by $62 to remove surcharges that were raised as a concern by OPC. In its August 22 letter, OPC noted that there were several instances in the latter part of the test year in which Garrard Framing and Drywall, Inc. (GF&D), a related company, made purchases on behalf of the Utility and assessed a 10 percent surcharge. OPC believes the ratepayers should not be required to pay for the surcharges resulting from this related party purchase arrangement. During the test year, a total of $229 in surcharges was assessed on eight invoices reflected in the chemicals, materials and supplies, contractual services – other, and miscellaneous expense accounts. Regarding the chemicals expense account, OPC proposed that $62 be removed for surcharges applied to two chemical purchase invoices.

It is not uncommon for businesses to assess surcharges to cover additional expenses such as fuel cost, services, travel time, and equipment use. Staff believes GF&D is entitled to assess a surcharge to cover any additional expenses it incurs in providing a service, even if the work or service is performed for a related company. However, staff notes that the expenses in question would not ordinarily include a surcharge if the purchases had been made directly by the Utility rather than a third party. For this reason and in consideration of OPC’s objection, staff believes it would be acceptable to remove the GF&D surcharges. Accordingly, as previously noted, staff decreased this account by $62 to remove the surcharges. Based on test year data, chemicals expense should be decreased by $672 ($610+$62), resulting in test year chemicals expense of $4,121.

However, staff believes the lack of some supporting documentation from the prior owner, combined with the variation in types of chemicals purchased and number of vendors used, warrants consideration of the supplemental data related to chemicals expense to better assess this expense going forward. Near the end of the test year, the new owner began purchasing all chemicals from a single vendor, thereby providing more stability to the data reflected in this account. According to the supplemental data, the Utility incurred $3,719 in chemicals expense in the year following the test year, which is $402 less than staff’s adjusted test year expense of $4,121. Staff believes it would appropriate to decrease this account by $402 to annualize the chemicals expense based on the supplemental data. Staff’s total adjustment to this account based on both the test year data and supplemental data is a decrease of $1,074. Therefore, staff recommends chemicals expense of $3,719.

Materials and Supplies (720) – The Utility recorded materials and supplies expense of $2,252. As discussed above, OPC proposed removing surcharges assessed to the Utility by GF&D. Specifically, OPC proposed removing a total of $70 for surcharges applied to three invoices for materials and supplies. Consequently, staff has decreased this account by $70, resulting in a materials and supplies expense of $2,182 for the test year.

Contractual Services - Billing (730) – The Utility recorded contractual services – billing expense of $5,757. Crooked Lake contracts with Park Water Company, Inc. to bill and collect the applicable wastewater revenues. Based upon the contract rate of approximately $576 per month, the annual billing expense is $6,909. The Utility’s test year balance of $5,757 only reflects 10 months of billing expense, therefore, staff increased this account by $1,152 to reflect 12 months of billing expense ($5,757 + $1,152 = $6,909). The supplemental data indicates that the contract rate for the billing service has not changed since the test year. Therefore, staff recommends contractual services – billing expense of $6,909.

Contractual Services - Professional (731) – Crooked Lake recorded contractual services – professional expense of $630. Audit staff determined that the Utility incurred an additional $6,650 in test year accounting service expense, resulting in a total accounting service expense of $7,280 for the test year. Based on the supplemental data, the Utility incurred a total of $6,550 in accounting services expense during the 12 months following the test year.

In its August 22 letter, OPC expressed concern that the test year included duplicative charges and non-recurring expenses that should be removed. Staff agrees that $630 of the test year expense reflects accounting services that occurred prior to the test year. In addition, staff agrees that a portion of the $6,650 invoice reflects non-recurring expenses that should be amortized. Based on the supplemental data, staff believes the appropriate annual accounting services expense is $6,550. Therefore, staff increased this account by $5,920 ($6,550 - $630 = $5,920) to reflect the annual accounting services expense of $6,550. Also, staff believes it would be appropriate to amortize the $100 difference between the test year and supplemental year accounting service fees as non-recurring ($6,650 - $6,550 = $100). Rule 25-30.433(8), F.A.C., requires that non-recurring expenses be amortized over a 5-year period unless a shorter or longer period of time can be justified. Accordingly, staff increased this account by $20 to reflect the 5-year amortization of the non-recurring test year accounting services.

Based on the supplemental data, the Utility incurred $5,240 for legal services related to its DEP permit renewal, PSC certificate application docket, and SARC. Staff believes it would be appropriate to recognize those expenses in this case. As will be discussed below under Account No. 765, Regulatory Commission Expense, staff believes it would be appropriate to include $250 of the legal fees in rate case expense. The remaining legal fees of $4,990 ($5,240 - $250) are non-recurring and should be amortized. Staff increased this account by $998 ($4,990/5) to reflect the 5-year amortization of legal services expense.

Finally, the supplemental data indicates that as of June 2014, the Utility incurred $1,095 in contractual engineering fees related to the pro forma plant additions included in the Phase II revenue requirement. The Utility should be authorized to hold this expense and any other preliminary pro forma project expenses in Account 183 – Preliminary Survey and Investigation Charges. Upon completion of the pro forma projects, the expenditures held in this account will be charged to the appropriate utility plant account associated with the pro forma projects.

Staff’s total adjustment to this account is an increase of $6,938. Therefore, staff recommends contractual services - professional expense for the test year of $7,568.

Contractual Services - Other (736) – Crooked Lake recorded contractual services – other expense of $32,764. As shown on Schedule No. 3-B, staff decreased this account by a net adjustment of $5,922. Staff increased this account by $35,151 to reverse an unsupported accounting journal entry to reclassify 2013 capital improvements from this account. Also, staff decreased this account by $5,941 and $197 to remove unsupported contractual service expenses and two non-utility repairs, respectively. As discussed previously in Issue 3, staff also reclassified a number of test year repairs to UPIS to be included in rate base based on audit findings, an OPC proposed adjustment, and additional staff review. In its August 22 letter, OPC proposed that this account should be adjusted to remove any contractual services that are now covered under the salaried maintenance positions. Staff agrees with OPC that there is some duplication of work and that some additional adjustments are warranted. Staff identified and removed $384 in test year contractual services that are now covered by the salaried maintenance position or are now performed by new contractual service providers. Also, staff increased the initial fence replacement cost of $2,205 to $2,385 to include $180 in additional contractual labor related to that project that should also be reclassified to UPIS.

As discussed previously in Issue 3, OPC believes that some of the repairs may be an accumulation of deferred maintenance items that the new owner was forced to address, and that it would be appropriate to amortize the repairs as non-recurring expenses. Staff agrees with OPC that a number of repairs are non-recurring and should be amortized. However, based on engineering staff’s review, it is anticipated that the Utility will continue to require a high level of certain types of repairs due to accelerated wear and tear on the system caused by the condition of the collection system. In order to determine an appropriate expense level going forward, staff compared test year expenses to the repair and contractual service expenses incurred during the supplemental year. After taking into consideration the Utility’s current recurring contractual service expenses, routine maintenance repairs, anticipated recurring repairs, and repairs that should be reclassified to UPIS for inclusion in rate base, staff determined that the Utility will need approximately $26,800 in total contractual services – other expense.

Staff believes it is worth noting that although the Utility originally estimated it would cost $1,500 to conduct the smoke test on the collection system, the Utility was subsequently able to arrange to have the smoke test performed by the Florida Rural Water Association (FRWA) as a member service. Consequently, the total cost for the smoke test was reduced to $427, which included $341 in labor costs for assistance received from the Utility’s contract operator and $86 in repairs following the smoke test. Amortized over 5 years, the total cost reflected in this account associated with the smoke test is $85.

A complete list of staff’s recommended adjustments to this account is shown on Schedule No. 3-B. Based on staff’s review of both the test year and supplemental data, the net adjustment to this account is a decrease of $5,922, resulting in a recommended contractual services – other expense of $26,842.

Transportation Expense (750) – Crooked Lake recorded $5,475 for transportation expense for the test year. Staff decreased this account by $3,250 to remove two of the prior owner’s invoices that lacked supporting documentation. Also, staff decreased this account by $1,122 to remove several adjusting journal entries for 2012 that lacked sufficient supporting documentation.

As discussed in Issue 3, the Utility owns two trucks that are used by the maintenance employees. However, neither the test year nor the supplemental year reflect any fuel purchases for the trucks. Staff was advised by a representative of the Utility that fuel is purchased for the Utility’s trucks using a related party’s fuel credit card. Specifically, College Park’s fuel credit card is used to purchase fuel for one truck owned by the mobile home park and the two trucks owned by the Utility.

A Utility representative advised staff that the total fuel purchases for all three trucks averages $400 per month, and estimated that only half of the total or $200 per month was attributable to the Utility’s two trucks because the Utility’s on-site truck does not require refueling as often as the Utility’s other truck or College Park’s truck. An average of $200 per month equates to an annual fuel expense of $2,400, or an average of $23 per week for each truck. An average of $23 per week may be insufficient for the truck that travels between the Utility office and treatment plant, a distance of approximately 16 miles one-way. However, because the on-site truck will likely not require refueling every week, the combined weekly average of $46 should be sufficient to cover both truck’s fuel purchases. Staff believes it would be appropriate to make an adjustment to include a fuel allowance for the Utility’s two trucks. Therefore, staff increased this account by $2,400 to reflect the annual vehicle fuel expense.

Staff’s net adjustment to this account is a decrease of $1,972. Staff recommends transportation expense for the test year of $3,503.

Insurance Expense (755) – The Utility recorded insurance expense of $14,747 for the test year. The recorded amount included insurance coverage purchased by the prior Utility owner. Commission audit staff determined that the expense for the automobile insurance for the Utility’s truck and commercial general liability insurance for the Utility’s operations purchased by the new owner would be $9,498, resulting in a decrease of $5,249. A review of the supplemental data indicates that the insurance premium for the first truck increased and that the Utility added additional coverage for the second truck purchased in 2014, increasing the Utility’s annual insurance expense to $13,345.

However, the supplemental data did not include payments for general liability insurance. A representative of the Utility advised staff that the Utility had dropped the general liability coverage, but was planning to purchase liability insurance again in a few months. Both the test year and supplemental data demonstrate that the Utility has diverted a significant amount of financial resources toward repairing and improving the Utility facilities during the past two years, possibly limiting the cash flow available for other expenditures. In consideration of the Utility’s test year purchase of liability insurance, and the stated intent to purchase liability insurance again in the near future, staff believes it would be appropriate to include an allowance for the liability insurance in the Utility’s Phase I revenue requirement, contingent upon the Utility subsequently providing proof that the insurance coverage has resumed and payments are being made.

The Commission has previously allowed this approach for the establishment of employee pension plans.[9] Consistent with the Commissions’ decisions in those cases, staff believes it would be appropriate to require the Utility to provide proof within 90 days of the effective date of the final order that the commercial general liability insurance has been purchased. In addition, staff believes the Utility should be required to provide documentation showing all subsequent payments that have been made on the insurance premiums as proof of continued payment prior to implementation of the Phase II rate increase. In the event that the Utility does not purchase the liability insurance and begin making regular payments, the Phase II rates should be reduced to remove the test year annual commercial general liability insurance expense of $8,017. Therefore, staff decreased this account by $1,402 to reflect the Utility’s current and estimated insurance costs for the automobile and general liability insurance. Staff recommends insurance expense for the test year of $13,345.

Regulatory Commission Expense (765) – Crooked Lake recorded regulatory commission expense of $6,132 for the test year to reflect the Utility’s 2012 regulatory assessment fee (RAF) payment. The test year RAF’s are discussed below in the Taxes Other Than Income section. Consequently, staff decreased this account by $6,132 to remove the 2012 RAF payment from this account. Also, staff increased this account by $150 to reflect the 5-year amortization of the Utility’s certificate docket filing fee ($750/5 = $150).

Regarding the instant case, the Utility is required by Rule 25-22.0407, F.A.C., to provide notices of the customer meeting and notices of final rates for Phases I and II in this case to its customers. Staff estimated a total cost for the three notices comprised of $476 for postage expense, $324 for printing expense, and $49 for envelopes. This results in $849 for the noticing requirement. The Utility paid a $1,000 rate case filing fee. Pursuant to Section 367.0816, F.S., rate case expense is amortized over a 4-year period. Also, based on the supplemental data, the Utility received assistance with this case from the contract operator and attorney. The contract operator provided assistance on two occasions with answering Commission-issued data requests at a cost of $385, and the attorney provided $250 in legal services, resulting in total consulting fees for this case of $635. Based on the above, staff recommends total rate case expense of $2,484 ($849 + $1,000 + $635), which amortized over 4 years is $621. Staff’s net adjustment to this account is a decrease of $5,361. Staff recommends regulatory commission expense of $771.

Bad Debt Expense (770) – Crooked Lake recorded bad debt expense of $22,710 for the test year. The bad debt expense was written off at the end of 2012 following the sale of the Utility. The prior Utility owner did not report any bad debt expense in any of the annual reports filed with the Commission from the Utility’s last rate proceeding in 2006 through 2012. Commission audit staff conducted a review of the Utility’s customer accounts receivable balance for the 3-year period of 2010 through 2012, and determined that bad debt expense of $3,734 is a more reasonable estimate of the Utility’s average annual uncollectable revenues.

The Utility subsequently filed its 2013 Annual Report, which reflected bad debt expense of $5,131. In its August 22 letter, OPC agreed that the 3-year average is a reasonable approach, but proposed that it be updated to use the most recent data available, namely 2011 through 2013. Staff agrees with OPC that it would be acceptable to update the bad debt estimate using more current information. Consequently, Commission audit staff conducted an additional review of the Utility’s reported bad debt of $5,131 for 2013, and determined that only $3,532 of that total represented bad debt for customer accounts receivable balances greater than 90 days delinquent. Using the updated 2013 data, audit staff determined that an appropriate average bad debt expense is $3,654. Therefore, staff has decreased this account by $19,056. Staff recommends bad debt expense of $3,654 for the test year.

Miscellaneous Expense (775) – The Utility recorded miscellaneous expense of $6,679. Staff has decreased this account by $4,240 to reflect the 5-year amortization of the Utility’s pro forma wastewater treatment plant permit renewal fee. Also, staff has decreased this account by $543 to remove non-utility expenses of the prior owner. As discussed above, OPC proposed removing surcharges assessed to the Utility by GF&D. Accordingly, staff decreased this account by $32 to remove surcharges applied to one miscellaneous expense invoice.

The test year included an expense for the Utility’s annual FRWA membership of approximately $238. Based on the supplemental data, the dues have increased slightly since the test year to approximately $253. Therefore, staff increased this account by $15 to reflect the increase in the Utility’s FRWA membership dues. In addition, the supplemental data reflected additional business license and reporting expenses that were not included in the test year but represent recurring expenses. Accordingly, staff made adjustments to increase this account by $58 to reflect the Utility’s annual business license fee, and also increased this account by $150 to reflect the Utility’s annual Florida Department of State annual report fee. Staff’s net adjustment to this account is a decrease of $4,592. Therefore, staff recommends miscellaneous expense of $2,087 for the test year.

Operation and Maintenance Expense (O&M Summary) – Based on the above adjustments, O&M expense should be decreased by $15,055, resulting in total O&M expense of $117,780. Staff’s recommended adjustments to O&M expense are shown on Schedule Nos. 3-A and 3-B.

Depreciation Expense (Net of Amortization of CIAC) – The Utility’s records reflect test year depreciation and CIAC amortization of $14,724 and ($994), respectively, for a net depreciation expense of $13,730 ($14,724 - $994) for the test year. Staff calculated depreciation expense using the prescribed rates set forth in Rule 25-30.140, F.A.C. and determined depreciation expense to be $23,468. Therefore, staff increased this account by $8,744 ($23,468 - $14,724). As discussed in Issue 3, the Utility’s CIAC became fully amortized during the test year. Therefore, the CIAC amortization expense also ended during the test year. In order to reflect removal of the CIAC amortization expense going forward, staff increased this account by $994 to zero out the test year balance. This results in a net depreciation expense of $23,468 ($23,468 - $0). Therefore, staff recommends net depreciation expense of $23,468.

Taxes Other Than Income (TOTI) – Crooked Lake recorded a TOTI balance of $4,315. Staff increased this account by $6,449 to reflect the appropriate test year RAFs. Commission audit staff determined the Utility’s annual property taxes based on a 2012 tax year. Subsequent to the audit, the 2013 property tax records become available. In its August 22 letter, OPC noted that the Utility’s 2013 property taxes were lower than in previous years, and proposed that the 2013 taxes be used. However, following OPC’s letter, the 2014 property taxes became available, reflecting additional changes and a slight increase over the 2013 taxes. Staff agrees with OPC that the current property tax information is more reflective of the Utility’s property taxes going forward. Accordingly, staff decreased TOTI by $1,565 ($4,315 - $2,750) to reflect the appropriate property taxes based on the 2014 tax year.

In addition, staff increased this account by $2,949 to reflect the appropriate payroll taxes. Staff’s net adjustment to test year TOTI is an increase of $7,832. In addition, as discussed in Issue 7, revenues have been increased by $23,983 to reflect the change in revenue required to cover expenses and allow an opportunity to earn the recommended rate of return. As a result, TOTI should be increased by $1,079 to reflect RAFs of 4.5 percent on the change in revenues. Therefore, staff recommends TOTI of $13,226.

Income Tax – The Utility is an 1120 Corporation and did not record income tax for the test year. Based on its current income tax return, Crooked Lake has a large amount of net loss carry forwards. These net loss carry forwards are sufficient enough to offset any income tax liability for the next few years. Therefore, staff has not made any adjustments to this account.

Operating Expenses Summary – The application of staff’s recommended adjustments to Crooked Lake’s test year operating expenses result in operating expenses of $154,475. The Utility should be required to provide proof within 90 days of the effective date of the final order that the commercial general liability insurance has been purchased. Also, the Utility should be required to provide proof of continued payment of the commercial general liability insurance premiums prior to implementation of the Phase II rate increase. In the event that the Utility does not purchase the liability insurance and begin making regular payments, the Phase II rates should be reduced to remove this expense. Operating expenses are shown on Schedule Nos. 3-A and 3-B. The adjustments are shown on Schedule No. 3-C.

Issue 7:

What is the appropriate Phase I revenue requirement?

Recommendation:

The appropriate Phase I revenue requirement is $167,283, resulting in an annual increase of $23,983 (16.74 percent). (Golden)

Staff Analysis:

Crooked Lake should be allowed an annual increase of $23,983 (16.74 percent). This will allow the Utility the opportunity to recover its expenses and earn a 9.19 percent return on its investment. The calculations are as follows:

Table 7-1

Wastewater Revenue Requirement
Adjusted Rate Base		$139,303
Rate of Return		x 9.19%
Return on Rate Base		$12,809
Adjusted O&M Expense		117,780
Depreciation Expense (Net)		23,468
Taxes Other Than Income		13,226
Income Taxes		0
Revenue Requirement		$167,283
Less Adjusted Test Year Revenues		143,300
Annual Increase		$23,983
Percent Increase		16.74%

Issue 8:

What are the appropriate rate structures and rates for the Utility's wastewater system?

Recommendation:

The recommended rate structures and monthly wastewater rates are shown on Schedule Nos. 4-A and 4-B, 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 10 days of the date of the notice. (Bruce)

Staff Analysis:

Crooked Lake is located in Polk County and serves two mobile home parks, Crooked Lake Mobile Home Park (Crooked Lake Park) and College Park. Crooked Lake Park consists of 323 residential customers that are billed individually. College Park consists of approximately 100 residential customers and a clubhouse which are billed as a bulk service customer. The average water demand for the residential and bulk wastewater customers is 4,753 gallons. Currently, the Utility’s residential rate structure consists of a uniform base facility charge (BFC) for all meter sizes and a 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. The bulk service customer is billed a BFC based on the number of ERCs behind the meter and a gallonage charge with an 8,000 gallon cap per connection.

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 approximately the amount of water that may return to the wastewater system.

Typically, the Commission’s practice is to allocate at least 50 percent of the wastewater revenue to the BFC due to the capital intensive nature of wastewater plants. Therefore, staff recommends a BFC allocation of 50 percent. Currently, the Utility’s residential wastewater gallonage cap is set at 8,000 gallons per month. The wastewater gallonage cap recognizes that not all water used by the residential customers is returned to the wastewater system. It is Commission practice to set the wastewater cap at approximately 80 percent of residential water sold. Based on staff’s review of the billing analysis, 84 percent of the gallons are captured at the 6,000 gallon consumption level. For this reason, staff recommends that the gallonage cap for residential customers be reduced to 6,000 gallons. Staff also recommends that the general service gallonage charge be 1.2 times greater than the residential gallonage charge which is consistent with Commission practice. Furthermore, the demand for customers of College Park is very similar to the demand for the customers in the single family homes. Therefore, staff recommends that the bulk service rate structure should consist of a BFC based on the number of ERCs behind the meter and a gallonage charge with a 6,000 gallon cap per ERC.

Because water service is provided by Park Water, staff believes that any impact on water demand based on an increase in the wastewater rates of Crooked Lake Park would be de minimis. Therefore, staff does not recommend a repression adjustment.

Based on the foregoing, staff recommends that 50 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 6,000 gallons. General service wastewater customers should be billed a BFC based on meter size and gallonage charge that is 1.2 times higher than the residential gallonage charge. The bulk service customer’s rate structure should consist of a BFC based on the number of ERCs behind the meter and a gallonage charge with a 6,000 gallon cap per ERC. A repression adjustment is not appropriate in this rate case. Staff’s recommended rate structure and the resulting wastewater rates are shown on Schedule Nos. 4-A and 4-B.

The recommended rate structure and monthly wastewater rates are shown on Schedule Nos. 4-A and 4-B, 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 10 days of the date of the notice.

Issue 9:

What is the appropriate amount by which rates should be reduced four years after the established effective date to reflect the removal of the amortized rate case expense as required by Section 367.0816, F.S.?

Recommendation:

The wastewater rates should be reduced as shown on Schedule No. 4-B, to remove rate case expense grossed-up for RAFs 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. 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 one month prior to the actual date of the required rate reduction. If Crooked Lake 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. (Golden, Bruce)

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 the rates. The reduction will reflect the removal of revenues associated with the amortization of rate case expense, the associated return on working capital, and the gross-up for RAFs which is $658. Using the Utility's current revenues, expenses, and customer base, the reduction in revenues will result in the rate decrease shown on Schedule No. 4-B.

Crooked Lake should be required to file revised tariff sheets no later than one month prior to the actual date of the required rate reduction. The Utility also should be required to file a proposed customer notice setting forth the lower rates and the reason for the reduction. If Crooked Lake 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:

Should the Commission approve a Phase II increase for pro forma items for Crooked Lake?

Recommendation:

Yes. The Commission should approve a Phase II revenue requirement associated with pro forma items. The Utility’s Phase II revenue requirement is $237,653 which equates to a 42.07 percent increase over the Phase I revenue requirement. Staff recommends that the increase be applied as an across-the-board increase to the Phase I rates.

Crooked Lake should be required to complete the pro forma items within 12 months of the issuance of the consummating order. The Utility should also be required to submit a copy of the final invoices and cancelled checks for all pro forma plant items. In addition, the Utility should be required to provide proof of continued payment of the commercial general liability insurance premiums prior to implementation of the Phase II rates. In the event that the Utility does not purchase the liability insurance and begin making regular payments, the Phase II rates should be reduced to remove this expense. The Utility should be allowed to implement the above rates once all pro forma items have been completed, documentation has been provided showing that the improvements have been made, and the status of the commercial general liability insurance expense has been determined. Once verified, the 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. The rates should not be implemented until notice has been received by the customers. Crooked Lake should provide proof of the date notice was given within 10 days of the date of the notice. If the Utility encounters any unforeseen events that will impede the completion of the pro forma items, the Utility should immediately notify the Commission in writing. (Golden, Lee, Bruce)

Staff Analysis:

As discussed in Issues 1 and 2, the Utility has taken actions to improve the operating conditions of the WWTP and bring the Utility into compliance with DEP requirements. In addition, the Utility proposes to locate, map, and clean the collection system and replace an electrical control panel. The Utility has requested recognition of the pro forma plant items in the instant case. The following table summarizes the pro forma plant items, estimated cost, and estimated time to complete.

Table 10-1

Crooked Lake Pro Forma Plant Items
Project	Description	Benefit (Reason)	Estimated Cost	Estimated Time to Complete
WWTP Modification	Construct surge tank, digester tank, and sludge bed per DEP permit	To comply with the specific requirements for such additions in DEP WWTP permit issued in 2013.	$359,612	About 90 days after start
Collection System Mapping and Cleaning	Map current pipe locations and thoroughly clean	To locate lines that need to be replaced and to allow a better flow to main lift station.	$50,000	About 15 days after start
Replacement of Electrical Control Panel	Install NEMA 4X duplex control panel	To fix float sticking and failure at lift station.	$6,050	Within one week after start
Replacement of 4" Force Main	Replace up to 2,100 feet of 4" pipes	To repair and replace pipes to improve service	$61,622	About 15 days after start
Total:			$477,284

As discussed in Issue 1, the WWTP permit issued by DEP contains specific compliance requirements for the construction of a new surge tank, digester tank, and sludge bed. Section 367.081(2)(a)2, F.S., provides that notwithstanding the in-service plant U&U considerations, a utility should be allowed to recover from customers the full amount of environmental compliance costs. The Statute further provides that for purposes of this requirement, the term “environmental compliance costs” includes all reasonable expenses and fair return on any prudent investment incurred by a utility in complying with the requirements or conditions contained in any permitting, enforcement, or similar decisions of the DEP, a water management district, or any other governmental entity with similar regulatory jurisdiction. In addition, the Utility proposes three projects for the collection system to locate, map and clean the lines, replace up to 2,100 feet of 4 inch pipes, and replace an electrical control panel.

Based on staff’s review and site visit, these pro forma items appear to be needed for compliance and for improvement of service. In addition, the Utility has provided competitive bids that demonstrated its actions to minimize the cost of the proposed plant improvements. Also, as discussed in Issue 1 regarding the severity of the compliance issue, the cost for the alternative corrective option contemplated by DEP, estimated at $1,517,085 by the City of Lake Wales, was cost prohibitive.

The pro forma costs should be allowed to be recovered upon verification that all items have been completed and documentation provided showing that the improvements have been made. The Utility should be required to submit a copy of the fully itemized invoices for all pro forma plant items prior to inclusion in rates. The detailed documentation is to ensure that the Utility takes prudent actions to verify that the contracted work was built as planned, and completed at the lowest possible cost.

Staff is recommending a Phase II revenue requirement associated with the pro forma items for a number of reasons. First, it assures that the pro forma items are completed prior to the Utility’s recovery of the investment in rates. In the past, there have been instances when the Commission approved an increase in revenue requirement associated with pro forma items only to have the utility in question fail to complete the pro forma investments. In addition, addressing the pro forma items in a single case saves additional rate case expense to the customers because the Utility would not need to file another rate case or limited proceeding to seek recovery for these items. The Commission has recently approved a Phase-In approach in Docket Nos. 110238-WU, 110165-SU, 100471-SU, and 130265-WU.^{^[10]}

The Utility’s Phase II revenue requirement should be $237,653 which equates to a 42.07 percent increase over the Phase I revenue requirement. The increase should be applied as an across-the-board increase to the Phase I rates. Crooked Lake should complete the pro forma items within 12 months of the issuance of the consummating order. Phase II rate base is shown on Schedule Nos. 5-A and 5-B. The Utility plans to fund the pro forma construction through debt. The capital structure for Phase II is shown on Schedule No. 6. The revenue requirement is shown on Schedule Nos. 7-A and 7-B. The resulting rates are shown on Schedule No. 8.

Issue 11:

What are the appropriate initial customer deposits for Crooked Lake?

Recommendation:

The appropriate initial customer deposit for the residential wastewater customers should be $76. 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 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. (Bruce)

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.^{^[11]} Currently, the Utility’s existing initial deposit for residential customers is $45.[12] Based on staff’s recommended rates, the existing initial customer deposit is not sufficient to cover two months’ bills for wastewater service. Staff recommends the existing initial customer deposit be increased to reflect two times the average estimated bill for wastewater service to ensure that the cost of providing service is recovered from those incurring cost.

Staff recommends the appropriate initial customer deposit for the residential wastewater customers should be $76. 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 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 12:

Should the recommended rates be approved for Crooked Lake on a temporary basis, subject to refund, 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, in the event of a protest filed by a party other than the Utility. Crooked Lake 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 Clerk’s office 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. (Golden)

Staff Analysis:

This recommendation proposes an increase in 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. Crooked Lake 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.

The Utility 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 $15,999. Alternatively, the Utility could establish an escrow agreement with an independent financial institution.

If the Utility chooses a bond as security, the bond should contain wording to the effect that it will be terminated only under the following conditions:

1. The Commission approves the rate increase; or

2. If the Commission denies the increase, the Utility shall refund the amount collected that is attributable to the increase.

If the Utility 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, and,

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 the Utility;

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; and

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 the Utility, 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.

The Utility 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 Clerk’s office 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 13:

Should Crooked Lake be required to provide proof, within 90 days of an effective order finalizing this docket, that it has adjusted its books for all applicable 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, Crooked Lake 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. In addition, the Utility should be required to establish and maintain its records using the accrual basis. (Golden)

Staff Analysis:

The NARUC USOA requires that the books of accounts of all wastewater utilities shall be kept by the double entry method, on an accrual basis. Further, each utility shall keep its accounts monthly and shall close its books at the end of each calendar year. Commission audit staff noted that the Utility’s current accounting system is not in full compliance with the NARUC requirement. Specifically, the Utility’s records are maintained on a cash basis during the year by the Utility’s office manager. At the end of the year, the Utility’s outside accountant changes the general ledger to an accrual basis through a series of journal entry adjustments. The differences between a cash basis and accrual basis of accounting, and the fact that the test year did not equate to a calendar year, complicated the audit staff’s effort to adapt the information from the Utility’s accounting system for this proceeding. In order to use the Utility’s records for ratemaking purposes, audit staff was required to convert half of the Utility’s test year accounting records from a cash basis to an accrual basis, considerably increasing the audit staff’s work.

Although it is acceptable for the Utility to continue to maintain its records on a cash basis for other purposes, such as income taxes, the Utility must take steps to establish monthly records using the accrual basis in order to comply with the NARUC USOA. Based on a cursory review of the supplemental data, it appears that the Utility may have already taken steps to convert its records to an accrual basis.

To ensure that the Utility adjusts its books in accordance with the Commission’s decision, Crooked Lake 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. In addition, the Utility should be required to establish and maintain its records using the accrual basis.

[1] See Order No. PSC-98-1247-FOF-SU, issued September 21, 1998, in Docket No. 961478-SU, In re: Application for grandfather certificate to operate a wastewater utility in Polk County by Crooked Lake Park Sewerage Company.

[2] In re: Application for transfer of majority organizational control of Crooked Lake Park Sewerage Co. in Polk County, to Glenbrook Properties, LLC, a Florida limited liability company.

[3] See Order No. PSC-07-0077-PAA-SU, issued January 29, 2007, in Docket No. 060406-SU, In re: Application for staff-assisted rate case in Polk County by Crooked Lake Park Sewerage Company.

[6] The prior owner operated the Utility during the first half of the test year from July 2012 through December 2012, and the new owner operated the Utility during the second half of the test year from January 2013 through June 2013.

[7] See Order No. PSC-14-0272-PAA-WS, issued May 29, 2014, in Docket No. 140006-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), F.S.

[9] See Order Nos. PSC-01-2511-PAA-WS, issued December 24, 2001, in Docket No. 010396-WS, In re: Application for staff-assisted rate case in Brevard County by Burkim Enterprises, Inc., PSC-01-1574-PAA-WS, issued July 30, 2001, in Docket No. 000584-WS, In re: Application for approval of staff-assisted rate case in Martin County by Laniger Enterprises of America, Inc., and PSC-14-0626-PAA-WU, issued October 29, 2014, in Docket No. 130265-WU, In re: Application for staff-assisted rate case in Charlotte County by Little Gasparilla Water Utility, Inc.

[10] See Order Nos. PSC-12-0533-PAA-WU, issued October 9, 2012, in Docket No. 110238-WU, In re: Application for staff-assisted rate case in Polk County by Sunrise Utilities, LLC.; PSC-12-0410-PAA-SU, issued August 13, 2012, in Docket No. 110165-SU, In re: Application for staff-assisted rate case in Highlands County by Utility Corporation of Florida, Inc.; PSC-11-0444-PAA-SU, issued October 7, 2011, in Docket No. 100471-SU, In re: Application for staff-assisted rate case in Marion County by S&L Utilities, Inc.; and PSC-14-0626-PAA-WU, issued October 29, 2014, in Docket No. 130265-WU, In re: Application for staff-assisted rate case in Charlotte County by Little Gasparilla Water Utility, Inc.

[11] See Order No. PSC-13-0611-PAA-WS, issued November 19, 2013, in Docket No. 130010-WS, In re: Application for increase in water rates in Lee County and wastewater rates in Pasco County by Ni Florida, LLC. Order No. PSC-14-0016-TRF-WU, issued January 6, 2014, in Docket No. 130251-WU, In re: Application for approval of miscellaneous service charges in Pasco County, by Crestridge Utility Corporation.

[12] See Order No. PSC-98-1247-FOF-SU, issued September 21, 1998, in Docket No. 961478-SU, In re: Application for grandfather certificate to operate a wastewater utility in Polk County by Crooked Lake Park Sewerage Company.


DATE:	February 19, 2015
TO:	Office of Commission Clerk (Stauffer)
FROM:	Division of Economics (Bruce, Daniel, Hudson) Division of Accounting and Finance (Cicchetti, Golden, Mouring, Springer) Division of Engineering (Lee, Lewis, Vickery) Office of the General Counsel (Tan, Teitzman)
RE:	Docket No. 130178-SU – Application for staff-assisted rate case in Polk County by Crooked Lake Park Sewerage Company.
AGENDA:	03/03/15 – Regular Agenda – Proposed Agency Action – Except Issue Nos. 9 and 12 – Interested Persons May Participate
COMMISSIONERS ASSIGNED:		All Commissioners
PREHEARING OFFICER:		Patronis
CRITICAL DATES:		05/26/15 (15-Month Statutory Date Waived Through 5/26/15)
SPECIAL INSTRUCTIONS:		None

	CROOKED LAKE PARK SEWERAGE COMPANY		SCHEDULE NO. 1-A
	TEST YEAR ENDED 06/30/13				DOCKET NO. 130178-SU
	SCHEDULE OF WASTEWATER RATE BASE (PHASE I)
		BALANCE		STAFF		BALANCE
		PER		ADJUST.		PER
	DESCRIPTION	UTILITY		TO UTIL. BAL.		STAFF

1.	UTILITY PLANT IN SERVICE	$452,262		($63,873)		$388,389

2.	LAND & LAND RIGHTS	6,197		0		6,197

3.	NON-USED AND USEFUL COMPONENTS	0		0		0

4.	CIAC	(127,636)		(300)		(127,936)

5.	ACCUMULATED DEPRECIATION	(260,657)		(9,348)		(270,005)

6.	AMORTIZATION OF CIAC	117,782		10,154		127,936

7.	WORKING CAPITAL ALLOWANCE	0		14,723		14,723

8.	WASTEWATER RATE BASE	$187,948		($48,645)		$139,303

	CROOKED LAKE PARK SEWERAGE COMPANY SCHEDULE NO. 1-B
	TEST YEAR ENDED 06/30/13 DOCKET NO. 130178-SU
	ADJUSTMENTS TO RATE BASE (PHASE I) PAGE 1 of 2


	UTILITY PLANT IN SERVICE
1.	To restore 2006 SARC averaging adjustment.	$3,616
2.	To remove unsupported plant additions and retirements from 1/1/06 - 6/30/12.	(3,872)
3.	To remove an inappropriate acquisition adjustment for 7/1/12 - 6/30/13.	(77,500)
4.	To reflect 2012 plant addition of lift station pump to Acct. No. 370.	2,618
5.	To record 2012 retirement of lift station pump to Acct. No. 370.	(1,964)
6.	To reflect 2012 actual cost of new truck to Acct. No. 391.	(362)
7.	To reflect 2012 retirement of truck owned by prior utility owner to Acct. No. 391.	(24,984)
8.	To reclassify 2013 fence repairs from Acct. No. 736 to Acct. No. 354.	2,385
9.	To record 2013 fence retirement to Acct. No. 354.	(1,789)
10.	To reclassify 2013 WWTP lift station shed & pump roof repairs from expense Acct. No. 736 to Acct. No. 354.	1,991
11.	To record 2013 WWTP lift station shed & pump roof retirements to Acct. No. 354.	(1,493)
12.	To reclassify 2013 raising of lift station concrete pad from expense Acct. No. 736 to Acct. No. 360 (there are no retirements associated with this repair).	225
13.	To reclassify 2013 pump repairs from Acct. No. 736 to Acct. No. 370.	7,244
14.	To record 2013 pump retirement to Acct. No. 370.	(5,433)
15.	To reclassify 2013 chlorine pump repairs from Acct. No. 736 to Acct. No. 380.	780
16.	To record 2013 chlorine pump retirement to Acct. No. 380.	(585)
17.	To reclassify 2013 clarifier gear box repair from Acct. No. 736 to Acct. 380.	1,326
18.	To record 2013 clarifier gear box retirement to Acct. 380.	(995)
19.	To reflect pro forma 2013 truck purchase to Acct. No. 391 (there are no retirements associated with this addition).	34,514
20.	To reflect pro forma 2014 collection system repairs to Acct. No. 360.	5,709
21.	To reflect pro forma 2014 collection system repair retirements to Acct. No. 360.	(4,282)
22.	To reflect pro forma 2014 blower motor replacement to Acct. No. 380.	1,094
23.	To reflect pro forma 2014 blower motor replacement retirement to Acct. No. 380.	(820)
24.	To reflect an averaging adjustment.	(1,296)
	Total	($63,873)

	CIAC
	To restore 2006 SARC averaging adjustment.	($300)

	CROOKED LAKE PARK SEWERAGE COMPANY SCHEDULE NO. 1-B
	TEST YEAR ENDED 06/30/13 DOCKET NO. 130178-SU
	ADJUSTMENTS TO RATE BASE (PHASE I) PAGE 2 of 2

	ACCUMULATED DEPRECIATION
1.	To restore 2006 SARC averaging adjustment.	$3,529
2.	To reflect accumulated depreciation per Rule 25-30.140, F.A.C.	(1,916)
3.	To reflect an averaging adjustment.	(10,961)
	Total	($9,348)

	AMORTIZATION OF CIAC
1.	To restore 2006 SARC averaging adjustment.	$460
2.	To reflect amortization of CIAC based on composite rates.	9,694
	Total	$10,154

	WORKING CAPITAL ALLOWANCE
	To reflect 1/8 of test year O & M expenses.	$14,723

	CROOKED LAKE PARK SEWERAGE COMPANY							SCHEDULE NO. 2
	TEST YEAR ENDED 06/30/13							DOCKET NO. 130178-SU
	SCHEDULE OF CAPITAL STRUCTURE (PHASE I)
				BALANCE	PRO
			SPECIFIC	BEFORE	RATA	BALANCE	PERCENT
		PER	ADJUST-	PRO RATA	ADJUST-	PER	OF		WEIGHTED
	CAPITAL COMPONENT	UTILITY	MENTS	ADJUSTMENTS	MENTS	STAFF	TOTAL	COST	COST

1.	COMMON STOCK	$3,000	$0	$3,000
2.	RETAINED EARNINGS	(49,430)	0	(49,430)
3.	PAID IN CAPITAL	125,520	0	125,520
4.	OTHER COMMON EQUITY	0	0	0
	TOTAL COMMON EQUITY	$79,090	$0	$79,090	($39,328)	$39,762	28.54%	11.16%	3.19%


5.	LONG-TERM DEBT	$141,249	$56,744	$197,993	($98,452)	$99,541	71.46%	8.41%	6.01%
6.	SHORT-TERM DEBT	0	0	0	0	0	0.00%	0.00%	0.00%
7.	PREFERRED STOCK	0	0	0	0	0	0.00%	0.00%	0.00%
	TOTAL DEBT	$141,249	$56,744	$197,993	($98,452)	$99,541	71.46%

8.	CUSTOMER DEPOSITS	$0	0	$0	$0	$0	0.00%	2.00%	0.00%

9.	TOTAL	$220,339	$56,744	$277,083	($137,780)	$139,303	100.00%		9.19%

				RANGE OF REASONABLENESS			LOW	HIGH
				RETURN ON EQUITY			10.16%	12.16%
				OVERALL RATE OF RETURN			8.91%	9.48%

	CROOKED LAKE PARK SEWERAGE COMPANY				SCHEDULE NO. 3-A
	TEST YEAR ENDED 06/30/13				DOCKET NO. 130178-SU
	SCHEDULE OF WASTEWATER OPERATING INCOME (PHASE I)
				STAFF	ADJUST.
		TEST YEAR	STAFF	ADJUSTED	FOR	REVENUE
		PER UTILITY	ADJUSTMENTS	TEST YEAR	INCREASE	REQUIREMENT

1.	OPERATING REVENUES	$117,975	$25,325	$143,300	$23,983	$167,283
					16.74%
	OPERATING EXPENSES:
2.	OPERATION & MAINTENANCE	$132,836	($15,055)	$117,780	$0	$117,780

3.	DEPRECIATION (NET)	13,730	9,738	23,468	0	23,468

4.	AMORTIZATION	0	0	0	0	0

5.	TAXES OTHER THAN INCOME	4,315	7,832	12,147	1,079	13,226

6.	INCOME TAXES	0	0	0	0	0

7.	TOTAL OPERATING EXPENSES	$150,881	$2,515	$153,395	$1,079	$154,475

8.	OPERATING INCOME/(LOSS)	($32,906)		($10,095)		$12,809

9.	WASTEWATER RATE BASE	$187,948		$139,303		$139,303

10.	RATE OF RETURN	(17.51%)		(7.25%)		9.19%

	CROOKED LAKE PARK SEWERAGE COMPANY SCHEDULE NO. 3-B
	TEST YEAR ENDED 06/30/13 DOCKET NO. 130178-SU
	ADJUSTMENTS TO OPERATING INCOME (PHASE I) PAGE 1 of 3

	OPERATING REVENUES

1.	To reflect the appropriate test year service revenues.	$25,325


	OPERATION AND MAINTENANCE EXPENSES

1.	Salaries and Wages - Employees (701)
	a. To annualize office manager and maintenance employees’ salaries.	$6,415

2.	Employee Pensions and Benefits (704)
	a. To reflect office manager and maintenance employees’ benefits.	$1,895

3.	Sludge Removal Expense (711)
	a. To reflect annual sludge removal expense.	$7,862

4.	Purchased Power (715)
	a. To reflect appropriate purchased power expense.	$132

5.	Chemicals (718)
	a. To remove unsupported chemicals expense.	($610)
	b. To remove affiliate surcharge.	(62)
	c. To reflect annual chemicals expense.	(402)
	Subtotal	($1,074)

6.	Materials and Supplies (720)
	a. To remove affiliate surcharge.	($70)

7.	Contractual Services - Billing (730)
	a. To reflect appropriate annual billing expense.	$1,152

8.	Contractual Services - Professional (731)
	a. To reflect annual accounting services expense.	$5,920
	b. To reflect 5-year amortization of non-recurring accounting services.	20
	c. To reflect pro forma 5-year amortization of non-recurring legal services.	998
	Subtotal	$6,938

9.	Contractual Services - Other (736)
	a. To reverse an unsupported adjusting journal entry to reclassify 2013 capital improvements.	$35,151
	b. To remove unsupported contractual services expense.	(5,941)
	c. To remove non-utility contractual services repairs.	(197)
	d. To reclassify and capitalize fence repairs to Acct. No. 354.	(2,385)
	e. To reclassify and capitalize roof repairs to Acct. No. 354.	(1,991)
	f. To reclassify and capitalize raising lift station concrete pad to Acct. No. 360.	(225)
	g. To reclassify and capitalize lift station pump repairs to Acct. No. 370.	(7,244)
	h. To reclassify and capitalize chlorine pump repairs to Acct. No. 380.	(780)
	i. To reclassify and capitalize clarifier gear box repair to Acct. No. 380.	(1,326)

CROOKED LAKE PARK SEWERAGE COMPANY		SCHEDULE NO. 3-C
TEST YEAR ENDED 06/30/13		DOCKET NO. 130178-SU
ANALYSIS OF WASTEWATER OPERATION AND MAINTENANCE EXPENSE (PHASE I)
	TOTAL	STAFF	TOTAL
	PER	ADJUST-	PER
	UTILITY*	MENTS	STAFF
(701) SALARIES AND WAGES - EMPLOYEES	$19,741	$6,415	$26,156
(703) SALARIES AND WAGES - OFFICERS	0	0	0
(704) EMPLOYEE PENSIONS AND BENEFITS	0	1,895	1,895
(710) PURCHASED SEWAGE TREATMENT	0	0	0
(711) SLUDGE REMOVAL EXPENSE	2,220	7,862	10,082
(715) PURCHASED POWER	8,935	132	9,067
(716) FUEL FOR POWER PRODUCTION	0	0	0
(718) CHEMICALS	4,793	(1,074)	3,719
(720) MATERIALS AND SUPPLIES	2,252	(70)	2,182
(730) CONTRACTUAL SERVICES - BILLING	5,757	1,152	6,909
(731) CONTRACTUAL SERVICES - PROFESSIONAL	630	6,938	7,568
(735) CONTRACTUAL SERVICES - TESTING	0	0	0
(736) CONTRACTUAL SERVICES - OTHER	32,764	(5,922)	26,842
(740) RENTS	0	0	0
(750) TRANSPORTATION EXPENSE	5,475	(1,972)	3,503
(755) INSURANCE EXPENSE	14,747	(1,402)	13,345
(765) REGULATORY COMMISSION EXPENSES	6,132	(5,361)	771
(770) BAD DEBT EXPENSE	22,710	(19,056)	3,654
(775) MISCELLANEOUS EXPENSES	6,679	(4,592)	2,087

	$132,836	($15,055)	$117,780

CROOKED LAKE SEWERAGE COMPANY SCHEDULE NO. 4-A TEST YEAR ENDED 6/30/13 DOCKET NO. 130178-SU STAFF’S RECOMMENDED AND ALTERNATIVE WASTEWATER RATE STRUCTURES AND RATES
Test Year Rate Structure and Rates		Recommended Rate Structure and Rates
Monthly BFC/uniform kgals charge BFC generated from current rates = 52%		Monthly BFC/uniform kgals charge BFC = 50%
BFC	$15.46	BFC	$16.47
per 1 kgal	$3.06	per 1 kgal	$4.54
(8 kgal cap)		(6 kgal cap)
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$15.46	0	$16.47
1	$18.52	1	$21.01
2	$21.58	2	$25.55
3	$24.64	3	$30.09
4	$27.70	4	$34.63
5	$30.76	5	$39.17
6	$33.82	6	$43.71
8	$39.94	8	$43.71
Alternative 1 Rate Structure and Rates		Alternative 2 Rate Structure and Rates
Monthly BFC/uniform kgals charge BFC = 55%		Monthly BFC/uniform kgals charge BFC =50%
BFC	$18.12	BFC	$16.47
per 1 kgal	$4.08	per 1 kgal	$4.25
(6 kgal cap)		(8 kgal cap)
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$18.12	0	$16.47
1	$22.20	1	$20.72
2	$26.28	2	$24.97
3	$30.36	3	$29.22
4	$34.44	4	$33.47
5	$38.52	5	$37.72
6	$42.60	6	$41.97
8	$42.60	8	$41.97

CROOKED LAKE PARK SEWERAGE COMPANY			SCHEDULE NO. 4-B
TEST YEAR ENDED JUNE 30, 2013		DOCKET NO. 130178-SU
MONTHLY WASTEWATER RATES (PHASE I)

	UTILITY	STAFF	4 YEAR
	CURRENT	RECOMMENDED	RATE
	RATES	RATES	REDUCTION
Residential Service
Base Facility Charge for All Meter Sizes	$15.46	$16.47	$0.06

Charge per 1,000 gallons - Residential
8,000 gallon cap	$3.06
6,000 gallon cap		$4.54	$0.02

General Service
Base Facility Charge by Meter Size
5/8"X3/4"	$15.46	$16.47	$0.06
3/4"	$23.19	$24.71	$0.10
1"	$38.65	$41.18	$0.16
1-1/2"	$77.30	$82.35	$0.32
2"	$123.68	$131.76	$0.51
3"	$247.36	$263.52	$1.03
4"	$386.50	$411.75	$1.61
6"	$773.00	$823.50	$3.21

Charge per 1,000 gallons - General Service	$3.67	$5.45	$0.02

Bulk Service
College Park	$1,546.00	$1,647.00*	$6.42

Charge per 1,000 gallons - Bulk
800,000 gallon cap	$3.06
600,000 gallon cap		$4.54	$0.02

Typical Residential 5/8" x 3/4" Meter Bill Comparison
3,000 Gallons	$24.64	$30.09
6,000 Gallons	$33.82	$43.71
8,000 Gallons	$39.94	$43.71
*Staff’s recommended BFC is based on 100 ERCs

	CROOKED LAKE PARK SEWERAGE COMPANY		SCHEDULE NO. 5-A
	TEST YEAR ENDED 06/30/13				DOCKET NO. 130178-SU
	SCHEDULE OF WASTEWATER RATE BASE (PHASE II)
		BALANCE		STAFF		BALANCE
		PER		ADJUST.		PER
	DESCRIPTION	UTILITY		TO UTIL. BAL.		STAFF

1.	UTILITY PLANT IN SERVICE	$388,389		$426,530		$814,919

2.	LAND & LAND RIGHTS	6,197		0		6,197

3.	NON-USED AND USEFUL COMPONENTS	0		0		0

4.	CIAC	(127,936)		0		(127,936)

5.	ACCUMULATED DEPRECIATION	(270,005)		35,036		(234,969)

6.	AMORTIZATION OF CIAC	127,936		0		127,936

7.	WORKING CAPITAL ALLOWANCE	14,723		0		14,723

8.	WASTEWATER RATE BASE	$139,303		$461,566		$600,869

	CROOKED LAKE PARK SEWERAGE COMPANY SCHEDULE NO. 5-B
	TEST YEAR ENDED 06/30/13 DOCKET NO. 130178-SU
	ADJUSTMENTS TO RATE BASE (PHASE II)


	UTILITY PLANT IN SERVICE
1.	To reflect pro forma construction of surge tank, digester tank, and sludge bed to Acct. No. 380.	$359,612
2.	To reflect pro forma collection system mapping and cleaning to Acct. No. 361.	50,000
3.	To reflect pro forma replacement of electrical control panel to Acct. No. 360.	6,050
4.	To reflect retirement of electrical control panel to Acct. No. 360.	(4,538)
5.	To reflect pro forma plant repair/replacement of force main to Acct. No. 360.	61,622
6.	To reflect retirement of force main to Acct. No. 360.	(46,217)
	Total	$426,530

	ACCUMULATED DEPRECIATION
1.	To reflect retirement of electrical control panel and force main.	$50,754
2.	To reflect pro forma accumulated depreciation per Rule 25-30.140, F.A.C.	(15,718)
	Total	$35,036

	CROOKED LAKE PARK SEWERAGE COMPANY							SCHEDULE NO. 6
	TEST YEAR ENDED 06/30/13							DOCKET NO. 130178-SU
	SCHEDULE OF CAPITAL STRUCTURE (PHASE II)
				BALANCE	PRO
			SPECIFIC	BEFORE	RATA	BALANCE	PERCENT
		PER	ADJUST-	PRO RATA	ADJUST-	PER	OF		WEIGHTED
	CAPITAL COMPONENT	UTILITY	MENTS	ADJUSTMENTS	MENTS	STAFF	TOTAL	COST	COST

1.	COMMON STOCK	$3,000	$0	$3,000
2.	RETAINED EARNINGS	(49,430)	0	(49,430)
3.	PAID IN CAPITAL	125,520	0	125,520
4.	OTHER COMMON EQUITY	0	0	0
	TOTAL COMMON EQUITY	$79,090	$0	$79,090	($16,093)	$62,997	10.48%	11.16%	1.17%


5.	LONG-TERM DEBT	$197,993	$477,284	$675,277	($137,405)	$537,872	89.52%	9.53%	8.53%
6.	SHORT-TERM DEBT	0	0	0	0	0	0.00%	0.00%	0.00%
7.	PREFERRED STOCK	0	0	0	0	0	0.00%	0.00%	0.00%
	TOTAL DEBT	$197,933	$477,284	$675,277	($137,405)	$537,872	89.52%

8.	CUSTOMER DEPOSITS	$0	$0	$0	$0	$0	0.00%	2.00%	0.00%

9.	TOTAL	$277,083	$477,284	$754,367	($153,498)	$600,869	100.00%		9.70%

				RANGE OF REASONABLENESS			LOW	HIGH
				RETURN ON EQUITY			10.16%	12.16%
				OVERALL RATE OF RETURN			9.60%	9.81%

	CROOKED LAKE PARK SEWERAGE COMPANY				SCHEDULE NO. 7-A
	TEST YEAR ENDED 06/30/13				DOCKET NO. 130178-SU
	SCHEDULE OF WASTEWATER OPERATING INCOME (PHASE II)
				STAFF	ADJUST.
		TEST YEAR	STAFF	ADJUSTED	FOR	REVENUE
		PER UTILITY	ADJUSTMENTS	TEST YEAR	INCREASE	REQUIREMENT

1.	OPERATING REVENUES	$167,283	$0	$167,283	$70,370	$237,653
					42.07%
	OPERATING EXPENSES:
2.	OPERATION & MAINTENANCE	$117,780	0	$117,780	$0	$117,780

3.	DEPRECIATION (NET)	23,468	15,718	39,186	0	39,186

4.	AMORTIZATION	0	0	0	0	0

5.	TAXES OTHER THAN INCOME	13,226	5,984	19,210	3,167	22,377

6.	INCOME TAXES	0	0	0	0	0

7.	TOTAL OPERATING EXPENSES	$154,476	$21,701	$176,177	$3,167	$179,343

8.	OPERATING INCOME/(LOSS)	$12,809		($8,893)		$58,310

9.	WASTEWATER RATE BASE	$139,303		$600,869		$600,869

10.	RATE OF RETURN	9.19%		(1.48%)		9.70%

CROOKED LAKE PARK SEWERAGE COMPANY		SCHEDULE NO. 7-C
TEST YEAR ENDED 06/30/13		DOCKET NO. 130178-SU
ANALYSIS OF WASTEWATER OPERATION AND MAINTENANCE EXPENSE (PHASE II)
	TOTAL	STAFF	TOTAL
	PER	ADJUST-	PER
	UTILITY	MENTS	STAFF
(701) SALARIES AND WAGES - EMPLOYEES	$26,156	$0	$26,156
(703) SALARIES AND WAGES - OFFICERS	0	0	0
(704) EMPLOYEE PENSIONS AND BENEFITS	1,895	0	1,895
(710) PURCHASED SEWAGE TREATMENT	0	0	0
(711) SLUDGE REMOVAL EXPENSE	10,082	0	10,082
(715) PURCHASED POWER	9,067	0	9,067
(716) FUEL FOR POWER PRODUCTION	0	0	0
(718) CHEMICALS	3,719	0	3,719
(720) MATERIALS AND SUPPLIES	2,182	0	2,182
(730) CONTRACTUAL SERVICES - BILLING	6,909	0	6,909
(731) CONTRACTUAL SERVICES - PROFESSIONAL	7,568	0	7,568
(735) CONTRACTUAL SERVICES - TESTING	0	0	0
(736) CONTRACTUAL SERVICES - OTHER	26,842	0	26,842
(740) RENTS	0	0	0
(750) TRANSPORTATION EXPENSE	3,503	0	3,503
(755) INSURANCE EXPENSE	13,345	0	13,345
(765) REGULATORY COMMISSION EXPENSES	771	0	771
(770) BAD DEBT EXPENSE	3,654	0	3,654
(775) MISCELLANEOUS EXPENSES	2,087	0	2,087

	$117,780	$0	$117,780

CROOKED LAKE SEWERAGE COMPANY		SCHEDULE NO. 8
TEST YEAR ENDED JUNE 13, 2013	DOCKET NO. 130178-SU
MONTHLY WASTEWATER RATES (PHASE II)
	STAFF		STAFF
	RECOMMENDED		RECOMMENDED
	PHASE I RATES		PHASE II RATES
Residential Service
Base Facility Charge for All Meter Sizes	$16.47		$23.40

Charge per 1,000 gallons- Residential
6,000 gallon cap	$4.54		$6.45

General Service
Base Facility Charge by Meter Size
5/8"X3/4"	$16.47		$23.40
3/4"	$24.71		$35.10
1"	$41.18		$58.50
1-1/2"	$82.35		$117.00
2"	$131.76		$187.20
3"	$263.52		$374.40
4"	$411.75		$585.00
6"	$823.50		$1,170.00

Charge per 1,000 Gallons -General Service	$5.45		$7.74

Bulk Service
College Park (100 ERCs)	$1,647.00		$2,340.00

Charge per 1,000 gallons - Bulk
600,000 gallon cap	$4.54		$6.45


Typical Residential 5/8" x 3/4" Meter Bill Comparison
3,000 Gallons	$30.09		$42.75
6,000 Gallons	$43.71		$62.10
8,000 Gallons	$43.71		$62.10