Recommendation

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Discussion of Issues

QUALITY OF SERVICE

Issue 1:

Is the quality of service provided by Sanlando satisfactory?

Recommendation:

Yes. Staff recommends that the quality of service provided by Sanlando, be considered satisfactory. The Utility is currently meeting all applicable DEP water and wastewater quality standards, and appears to be responsive to its customers and to the DEP. (Hill)

Staff Analysis:

Pursuant to Rule 25-30.433(1), Florida Administrative Code (F.A.C.), 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’s 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 Florida Department of Environmental Protection (DEP) and the county health department over the preceding three-year period shall be considered. In addition, input from the DEP and health department officials and customer comments or complaints will be considered.

Quality of Utility’s Product and Operating Conditions of the Utility’s Plant and Facilities

Sanlando’s service area is located in Seminole County, Florida. The raw water source is ground water, which is obtained from three water treatment plants (WTPs). The Des Pinar WTP has four wells, the Knollwood WTP has two wells, and the Wekiva WTP has five wells in the service area. The water at each well is treated via aeration, addition of liquid chlorine for disinfection, and addition of orthophosphate for corrosion control. Wastewater service is provided via influent screening, aeration, clarification, chemical feed, disinfection by chlorination, tertiary filtration, dechlorination, and aerobic digestion of residuals.

Staff reviewed the most recent chemical analyses for each WTP. The analyses dated March 7, 2013, for nitrites and nitrates, and April 22, 2014, for all other contaminants, showed all contaminants are below the Maximum Contaminant Level. Staff also reviewed the Utility’s DEP Sanitary Survey Report dated December 27, 2013. The report noted a deficiency with maintenance of a check valve and an air relief valve, and also mentions that these deficiencies had been corrected by January 9, 2014.

Staff reviewed the Utility’s DEP Wastewater Compliance Report for the Wekiva Wastewater Treatment plant (WWTP), dated July 9, 2014. This report noted an excess of total phosphorus in wastewater effluent for several months during the test year, and also reports that this noncompliance has been corrected once the public access reuse interconnect was completed in October 2013.

Staff also reviewed a DEP Consent Order dated April 7, 2015, addressing events occurring on November 23 and November 29, 2014. On November 23, 2014, a forcemain break caused an estimated 750,000 gallons of untreated wastewater to discharge to Sweetwater Creek. On November 29, 2014, a berm breach caused an estimated 1.0 million gallons of partially treated effluent to discharge into Sweetwater Creek and the surrounding wetlands. Additional discharge and daylighting (groundwater emerging above ground) from rapid infiltration basins (RIBs) was observed on December 2, 2014. DEP has ordered several corrective actions, and staff has confirmed with DEP that Sanlando has been responsive to this order.

Staff received correspondence from residents of neighboring West Lake Brantley, which is not in Sanlando’s service area, who were directly impacted by these events. Specifically, residents and news sources reported that untreated wastewater had been discharged onto residents’ properties, causing damage. Staff contacted DEP to obtain results of an inspection performed December 2, 2014, to investigate the claims made in the correspondence. DEP staff has reported that untreated wastewater did not discharge into the West Lake Brantley community, and that any sewage found in that area was likely due to septic systems affected by heavy rainfall. DEP reported that the daylighting of water from a RIB likely affected the West Lake Brantley residents, but noted that this was treated wastewater, suitable for discharge into RIBs. The Consent Order requires the Utility to re-rate the RIBs to prevent adverse effects on adjacent properties.

The Utility’s Attempt to Address Customer Satisfaction

Staff reviewed the Commission’s complaint records and there were zero complaints recorded during the test year. DEP reported that it had no complaints for Sanlando on file for the test year or prior four years. The Utility recorded 191 complaints during the test year, down from an average of 260 complaints in each of the four years prior to the test year. Approximately 30 percent of the test year complaints were related to leaks which were on the customer side of the meter and therefore not the responsibility of the Utility. The remaining concerns were varied and did not indicate a systemic problem with customer service. All complaints appeared to have been timely resolved. The Utility also resolved line blockages and sewer backups in a timely manner.

Staff held a customer meeting in Altamonte Springs, Florida on February 10, 2015. One customer of the Utility and one resident of West Lake Brantley, a neighborhood adjacent to the service territory, attended and provided comments. The customer’s comment was related to nitrogen discharge of the wastewater treatment plant. The customer was concerned that DEP may require homeowners to replace septic systems to lower nitrogen levels in the Wekiva River. Sanlando is selling reuse water to the city of Apopka in order to address this concern and reduce total nitrogen and nitrate discharge. The comment from the resident of neighboring West Lake Brantley was related to the unusual discharge events at the Wekiva WWTP that occurred on November 23 and November 29, 2014. This comment claims that these events led to flooding of the West Lake Brantley neighborhood with untreated sewage which caused property damage and pollution to the Wekiva River. Staff has investigated this concern as discussed above.

The Commission received three comments regarding this rate case. One of these comments concerned the November 23 and 29, 2014, events described above. Two of these comments objected to the rate increase based on the frequency of rate increases. One of the comments also indicated that Sanlando had not satisfied a water pressure complaint. The Utility has responded to this comment with results from a pressure recorder indicate that system pressure of above 50 pounds per square inch was maintained for the week of March 12–March 19, 2015, except for one incident when the plant emergency generator was engaged for maintenance purposes. The Utility also responded with potential causes for the problem on the customer’s side, and encouraged the customer to contact them if the problems persist. Based on the above, it appears the Utility has attempted to address its customer’s concerns.

Conclusion

Staff recommends that the quality of service provided by Sanlando, be considered satisfactory. The Utility is currently meeting all applicable DEP water and wastewater quality standards, and appears to be responsive to its customers and to the DEP.

RATE BASE

Issue 2:

Should the audit adjustments to rate base and operating expense to which the Utility and staff agree be made?

Recommendation:

Yes. Based on the audit adjustments agreed to by the Utility and staff, the following adjustments should be made to rate base and net operating income as set forth in staff’s analysis below. (Monroe)

Staff Analysis:

In its response to the staff audit reports of the Utility and affiliate transactions, Sanlando agreed to the audit adjustments as set forth in the tables below.

Table 2-1

Description of Audit Adjustments
Sanlando Audit Adjustments	Description of Adjustments
Audit Finding No. 3	Reflect Des Pinar Wastewater Plant Retirement
Audit Finding No. 4	Reflect Water Plant in Service General Retirements
Audit Finding No. 5	Reflect Water Plant in Service Meter Retirements
Audit Finding No. 6	Reflect Water Plant in Service Meter Additions
Audit Finding No. 7	Reflect Wastewater Plant in Service General Retirements
Audit Finding No. 8	Reflect Wastewater Plant in Service Pumping Equipment Retirement
Audit Finding No. 9	Reflect Wastewater Plant in Service T&D Equipment Retirement
Audit Finding No. 10	Reflect Wastewater Plant in Service T&D Transfers
Audit Finding No. 11	Wastewater Plant in Service Reimbursement
Audit Finding No. 12	Wastewater Plant in Service-Capital Project Addition
Audit Finding No. 13	Correction to Erroneous CIAC Retirements
Audit Finding No. 14	Remove Customer Deposits from Working Capital
Audit Finding No. 15	Reduce Sludge Hauling Expense-Change in Contract Rate and New Sludge Belt
Audit Finding No. 16	Reduce Wastewater Purchased Power and Increase Water Purchased Power
Sanlando Affiliate Audit Adjustments	Description of Adjustments
Audit Finding No. 1	Reflect Reduction in Transportation and Vehicle Costs
Audit Finding No. 4	Reflect Correct Allocated Plant, Accumulated Depreciation, Depreciation Expense
Audit Finding No. 5	Reflect Correct Allocations to Water and Wastewater Plant
Audit Finding No. 7	Reflect Correct Allocated Operations & Maintenance (O&M) Expense
Audit Finding No. 8	Reflect Correct Allocated Payroll, Benefits, and Taxes

Based on the audit adjustments agreed to by the Utility, staff recommends that the adjustments set forth in Tables 2-2 through 2-7 be made to rate base and net operating income.

Table 2-2

Adjustments to Water Rate Base

Water
Sanlando		Accum.		Amort.of	Working
Audit Adjustments	Plant	Depreciation	CIAC	CIAC	Capital
Finding No. 3	$733
Finding No. 4	($8,549)	$9,058
Finding No. 5	($152,645)	$166,861
Finding No. 6	($51,446)	($54,465)
Finding No. 12			$605,943	($4,741)
Finding No. 13			$708,364	($798,118)
Finding No. 14					$27,695
Adjustment Totals	($211,907)	$121,454	$1,314,307	($802,859)	$27,695

Table 2-3

Adjustments to Water Net Operating Income

Water
Sanlando	Depreciation	O&M	Amortization
Audit Adjustments	Expense	Expense	Expense
Finding No. 3	$978
Finding No. 4	($509)
Finding No. 5	($7,804)
Finding No. 6	($878)
Finding No. 12			$3,074
Finding No. 13			($164,256)
Finding No. 16		$5,020
Adjustment Totals	($8,213)	$5,020	($161,182)

Table 2-4

Adjustments to Wastewater Rate Base Wastewater
Sanlando		Accum.		Amort.of	Working
Audit Adjustments	Plant	Depreciation	CIAC	CIAC	Capital
Finding No. 3	($18,644)
Finding No. 7	($11,101)	$10,058
Finding No. 8	($49,415)	$55,496
Finding No. 9	($11,145)	$11,765
Finding No. 10	($9,480)	$3,950
Finding No. 11	($2,773)	$62
Finding No. 12	($8,606)	$67	($315,938)	$1,180
Finding No. 13			$384,502	($528,709)
Finding No. 14					$21,854
Adjustment Totals	($111,164)	$81,398	$68,564	($527,529)	$21,854

Table 2-5

Adjustments to Water Net Operating Income Wastewater
Sanlando	Depreciation	O&M	Amortization
Audit Adjustments	Expense	Expense	Expense
Finding No. 3	($16,194)
Finding No. 7	($851)
Finding No. 8	($2,878)
Finding No. 9	($619)
Finding No. 10	($527)
Finding No. 11	($62)
Finding No. 12	($67)		($2,845)
Finding No. 13			($136,400)
Finding No. 15		($23,197)
Finding No. 16		($7,220)
Adjustment Totals	($21,198)	($30,417)	($139,245)

Table 2-6

Adjustments to Water Rate Base and Net Operating Income Water
Sanlando Affiliate		Accum.	O&M Expense	Depreciation Expense	TOTI
Audit Adjustments	Plant	Depreciation
Finding No. 1	($224,456)	$242,299	($4,272)	($10,921)
Finding No. 4	($83,600)	$127,614		$7,393
Finding No. 5	($61,688)	$17,570
Finding No. 7			$10,107
Finding No. 8			($64,343)		($7,698)
Adjustment Totals	($369,744)	$387,483	($58,508)	($3,528)	($7,698)

Table 2-7

Adjustments to Wastewater Rate Base and Net Operating Income Wastewater
Sanlando Affiliate		Accum.	O&M Expense	Depreciation Expense	TOTI
Audit Adjustments	Plant	Depreciation
Finding No. 1	($177,147)	$191,230	($3,371)	($8,620)
Finding No. 4	($65,982)	$100,715		$5,384
Finding No. 5	$61,688	($17,570)
Finding No. 7			$7,949
Finding No. 8			$11,442		(6,017)
Adjustment Totals	($181,441)	$274,375	$16,020	($3,236)	($6,017)

Issue 3:

Should any adjustment be made to the Utility’s Project Phoenix Financial/Customer Care Billing System (Phoenix Project)?

Recommendation:

Yes. Adjustments should be made to reduce accumulated depreciation by $26,326 for water and $20,777 for wastewater and reduce depreciation expense by $26,326 for water and $20,777 for wastewater. In addition, consistent with the Commission’s previous decisions, Sanlando should be authorized to create a regulatory asset of $5,925. The annual amortization of the regulatory asset is $1,481 per year, or $832 for water and $649 for wastewater. (T. Brown)

Staff Analysis:

The purpose of the Phoenix Project is to improve accounting, customer service, customer billing, and financial and regulatory reporting functions of Utilities, Inc., (UI) and its subsidiaries. UI’s Phoenix Project became operational in December 2008. In the Miles Grant Water and Sewer Co. case, the Commission determined that recovery of Phoenix Project costs would be allocated on the basis of Equivalent Residential Connections (ERCs).[2] Beginning with the UI of Pennbrooke case, and in subsequent dockets, the Commission removed the ERCs of systems divested by UI from total company ERCs when calculating the net investment in the Phoenix Project.[3]

In the instant docket, UI allocated 7.90 percent of its costs to Sanlando based on the ratio of its ERCs to the total ERCs at the corporate level. According to UI, the total Phoenix Project costs for the test year are $23,176,439, of which the Utility calculated its allocated share to be $1,830,939.[4]

UI Generic Docket

In Docket No. 110153-SU, as part of a proposed settlement of Proposed Agency Action protests, UI, with the consent and support of OPC, petitioned the Commission to open a generic docket to address the protested issue relating to the Utility’s Phoenix Project.[5] These protested issues were subsequently addressed by Order No. PSC-14-0521-FOF-WS issued in Docket No. 120161-WS (UI Generic Docket).[6] In the UI Generic Docket, the Commission clarified its treatment of divestitures going forward; so that any adjustments related to UI divested systems were net of any UI acquisitions. The Commission also reiterated its position that the appropriate depreciable life for the Phoenix Project is ten years and that remaining depreciable life should be used in the calculation of depreciation expense.[7]

At the time the Phoenix Project was placed in service, UI had 296,950 total ERCs. The Utility filed an update of closed and pending acquisitions on February 13, 2015. As of that date, there were 297,085 ERCs.[8] According to the Utility, one acquisition closed on January 13, 2015, and several additional pending acquisitions are under contract pending approval by the Louisiana and New York regulatory authorities. Given these acquisitions, an adjustment to the investment is no longer necessary given that UI will exceed the level of total ERCs existing when the Phoenix Project was placed in service. As such, the adjustment identified in Affiliate Audit Finding No. 2 is no longer necessary.

Accordingly, staff believes the adjustment to accumulated depreciation and depreciation expense identified in Affiliate Audit Finding No. 3 should be revised to reflect the full investment of the Phoenix Project. Audit staff discovered that the Utility did not change the depreciable life for the Phoenix Project from eight to ten years as directed by Order No. PSC-10-0407-PAA-SU. Consistent with the Commission’s decision in the UI Generic Docket, adjustments should be made to decrease water and wastewater accumulated depreciation by $26,326 and $20,777, respectively. Water and wastewater depreciation expense should also be decreased by $26,326 and $20,777, respectively.

Creation of a Regulatory Asset or Liability

In addition to establishing the UI Generic Docket in Docket No. 110153-SU, the parties agreed, and the Commission subsequently ordered, that if there is an upward or downward adjustment to the previously approved revenue requirement for Utilities Inc., of Eagle Ridge resulting from a final Commission decision in the UI Generic Docket, the Utility should be authorized to create a regulatory asset or liability, and accrue interest on the regulatory assetor liability, at the 30-day commercial paper rate until the establishment of rates in Utilities Inc. of Eagle Ridge’s next rate proceeding.[9]^,[10],[11] The Commission also ordered that the regulatory asset or liability be amortized over four years. The Commission ordered this same treatment for other UI companies, including Sanlando.^{^[12]}

As stated previously, the Commission recently clarified its divestiture adjustment methodology when addressing Phoenix Project costs. The Commission found that adjustments for divestitures, net of any acquisitions, was a more appropriate methodology going forward for UI systems. As a result of the clarification, staff recalculated the computer maintenance expense, depreciation expense, and incremental return, as well as the revenue impact for each year since the implementation of rates in Sanlando’s last rate case (2013 through 2015). Because the current adjustment is less than the adjustment calculated by staff in the last rate case, a regulatory asset is required pursuant to the UI Generic Docket. Including interest, the revenue impact associated with the foregone return, computer maintenance expense, and depreciation expense is $5,925. The annual amortization of the regulatory asset is $1,481 per year, or $832 for water and $649 for wastewater.

Conclusion

Staff recommends that accumulated depreciation be reduced by $26,326 for water and $20,777 for wastewater. Depreciation expense should be reduced by $26,326 for water and $20,777 for wastewater. In addition, consistent with the Commission’s previous decisions, Sanlando should be authorized to create a regulatory asset of $5,925. The annual amortization of the regulatory asset is $1,481 per year, or $832 for water and $649 for wastewater. These amounts are also reflected in Schedule Nos. 1-C and 3-C.

Issue 4:

Should any further adjustments be made to test year rate base?

Recommendation:

Yes. Plant should be reduced by $112,706 for water and $27,535 for wastewater. Accumulated depreciation should be increased by $126,680 for water and $115,219 for wastewater. CIAC should be increased by $15,383 for water. Accumulated amortization of CIAC should be decreased by $17,836 for water and $24,862 for wastewater. Additionally, depreciation expense should be increased by $15,494 for water and $212,775 for wastewater. Amortization of CIAC should be increased for water and wastewater by $256,503 and $159,012, respectively. (Norris)

Staff Analysis:

Staff has reviewed the test year rate base components along with other support documentation. As such, staff believes further adjustments are necessary to the Utility’s rate base, as discussed below.

Sanlando Audit Finding Nos. 1 and 2

The staff audit report for Sanlando was filed on October 23, 2014. The Utility’s response to the audit was received on January 30, 2015. In its response, the Utility contested Audit Finding Nos. 1, 2, 17, and 18. Only Finding Nos. 1 and 2 will be discussed in this issue, while the other audit findings are addressed elsewhere in this recommendation.

In regard to Audit Finding No. 1, audit staff identified Commission Ordered Adjustments (COAs) from Order No. PSC-13-0085-PAA-WS that were incorrectly booked to the Utility’s general ledger on May 31, 2013. In addition to erroneous plant adjustments, the Utility used incorrect depreciation rates. Audit staff requested more information and an explanation of the adjustment schedules; however, the Utility did not respond to these requests in a timely manner. Although the Utility contested Audit Finding No. 1, it failed to provide an explanation as to why it disagreed. As such, audit staff calculated the effect of the COAs on the test year for the instant proceeding and compared the balance to the Utility’s filing. Based on this analysis, plant should be reduced by $112,706 for water and $27,535 for wastewater. Accumulated depreciation should be increased by $126,680 for water and $117,089 for wastewater. Corresponding adjustment should be made to increase depreciation expense by $46,010 for water and decrease depreciation expense by $656 for wastewater. In addition, contribution in aid of construction (CIAC) should be increased by $15,383 for water. Accumulated amortization of CIAC should be decreased by $17,836 for water and $24,862 for wastewater. Another corresponding adjustments should be made to decrease amortization of CIAC expense by $42,348 for water and increase amortization of CIAC by $12,364 for wastewater.

According to Audit Finding No. 2, the Utility booked corresponding COAs to depreciation expense and amortization of CIAC in the test year. For accounting purposes, the COAs should be treated as prior-period adjustments because they were adjustments to the Utility’s December 31, 2010, general ledger balances. COAs should not affect the current year’s operating expenses. The Utility did not provide an explanation as to why it disagreed with this audit finding either. As such, depreciation expense should be decreased by $30,516 for water and increased by $213,431 for wastewater. Amortization of CIAC expense should be increased by $298,851 for water and $146,648 for wastewater.

Conclusion

Based on the above adjustments to rate base, staff recommends that plant should be reduced by $112,706 for water and $27,535 for wastewater. Accumulated depreciation should be increased by $126,680 for water and $117,089 for wastewater. CIAC should be increased by $15,383 for water. Accumulated amortization of CIAC should be decreased by $17,836 for water and $24,862 for wastewater. Additionally, depreciation expense should be increased by $15,494 ($46,010 - $30,516) for water and $212,775 ($213,431 - $656) for wastewater. Amortization of CIAC should be increased for water and wastewater by $256,503 ($42,348 - $298,851) and $159,012 ($12,364 + $146,648), respectively.

Issue 5:

Should any adjustments be made to the Utility’s pro forma plant?

Recommendation:

Yes. Water plant should be increased by $37,029 and wastewater plant should be decreased by $59,420. Corresponding adjustments should be made to increase water and wastewater accumulated depreciation by $3,086 and $249,954, respectively. Depreciation expense should also be increased by $3,086 for water and decreased by $14,988 for wastewater. Additionally, pro forma property taxes should be increased by $527 for water and decreased by $6,532 for wastewater. (Graves, D. Buys)

Staff Analysis:

Section 367.081, F.S., provides that the Commission, in fixing rates, shall consider facilities to be constructed within a reasonable time in the future, to be Used and Useful (U&U) if such property is needed to serve current customers. Costs associated with each of the pro forma plant items discussed below have been or are projected to be incurred within two years of the test year. Section 367.081, F.S., additionally provides that the Commission shall approve rates for service which allow a utility to recover the full amount of environmental compliance costs.

Sanlando’s initial filing contained three pro forma plant additions. Subsequent to its filing, the Utility identified two additional pro forma plant items that it believes should be included in the current rate case. Staff reviewed the Utility’s filings and responses to data requests and recommends that several adjustments to the Utility’s desired pro forma plant additions, are necessary. Table 5-1 provides a summary of staff’s recommended pro forma plant additions.

Table 5-1

Staff Recommended Pro Forma Plant Additions
Pro Forma Plant Items	Initial MFR	Response from data request / Filing	Recommended Amount	Documentation
Wekiva Hunt Club WWTP EQ Tank and Headworks	$2,200,000	$2,185,225	$2,185,225	Bids/Invoices
Wekiva Hunt Club WWTP Electrical Improvements	$600,000	$257,478	$257,478	Bids/Invoices
Sanlando Collection System Improvements	$1,000,000	$973,127	$973,127	Bids/Invoices
Backhoe Replacement	Not Included	$74,241	$66,254	Invoice
Wekiva Hunt Club WWTP Air Header Replacement	Not Included	$38,634	$38,634	Invoice
Total	$3,800,000	$3,912,875	$3,520,817

Wekiva Hunt Club WWTP EQ Tank and Headworks Improvements

Sanlando’s MFRs included $2.2 million for the construction of a new equalization tank and headworks improvements at its Wekiva WWTP. Per Sanlando’s application to DEP, the planned equalization tank and headworks improvements will optimize operations by equalizing flows into the treatment system. Sanlando indicated that increases in peak demand and average day flow negatively impacts the ability to produce plant effluent that meets public access reuse water quality standards. Excess flows during peak periods will be diverted to the equalization tank reducing load variations experienced by the facility. During periods of low flow, surge pumps will pump flow to the WWTP. The headworks improvements include a new splitter box as well as a new mechanical screen that will prevent rags and debris from entering the equalization tank. On March 26, 2014, DEP authorized the construction and installation of the discussed components. This project is scheduled for completion by April 30, 2015.

Sanlando provided a bid tabulation consisting of five bids. Sanlando selected the lowest bid provided by Florida Environmental Construction, Inc. Sanlando’s costs also include design and permitting services provided by CPH Engineering. Staff has reviewed the bids as well as recent invoices and recommends that the Commission approve $2,185,225 for this project, which is a $14,775 reduction to the amount requested in the Utility’s MFRs. Corresponding adjustments should be made to reduce wastewater accumulated depreciation and depreciation expense by $919.

Wekiva WWTP Electrical Improvements

In its application, Sanlando included $600,000 to replace electrical components within the motor control center at its Wekiva WWTP. The Utility’s adjusted plant-in-service balance included a reduction of $450,000 for the corresponding retirement of the existing electrical components. Documentation provided by the Utility indicated that replacement parts for the existing electrical components are unavailable due to the age of the components, and the current configuration of the components is not ideal for maintenance or operation. The new equipment will be installed in a cooler location that allows for safe access for service and maintenance tasks. Staff believes that Sanlando has reasonably justified that the proposed electrical improvements will increase operational reliability. This project is scheduled for completion by June 1, 2015.

The Wekiva WWTP electrical improvements project was separated into a design element and a construction element. For the design element of the electrical improvement project Sanlando did not issue a request for proposals. Sanlando selected an engineering consultant (CPH Engineering) that the Utility has used in the past for various electrical improvement projects including the design of the Wekiva Hunt Club Water Treatment Plant. Additionally, the scope of work associated with the design element of the electrical improvement project amounts to a relatively small portion (5.5 percent) of the total project. Staff believes that the Utility’s decision to not solicit multiple bids is a reasonable approach based on the facts discussed above. Staff has reviewed the quote provided to Sanlando and believes $42,000 for the cost of the design element of the electrical improvement project is appropriate.

Regarding the construction element of the electrical improvements project, the Utility received three bids and accepted the lowest bid. Staff reviewed the bids and recent invoices and recommends $215,478 for the cost of the construction element of the electrical improvement project. In total, staff recommends that the Commission approve $257,478 for this project which is a reduction of $342,522 from the amount requested in the Utility’s MFRs. An additional adjustment should be made to reduce the retirement amount by $256,892 to $193,109. The net wastewater plant adjustment is a decrease of $85,631. Corresponding adjustments should be made to increase wastewater accumulated depreciation by $252,416 which equates to a reduction of $4,476 to the amount requested in the MFRs for the plant addition and an increase of $256,892 for the amount of the retirement adjustment. In addition, wastewater depreciation expense should be decreased by $12,526 which reflects a reduction of $4,476 to the amount requested in the MFRs for the plant addition and a decrease of $8,050 for the amount of the retirement adjustment.

Sanlando Collection System Improvements

During the third quarter of 2013, an inspection of Sanlando’s gravity collection system identified deficiencies that needed repair. In its application, Sanlando included $1 million for these repairs. Repairs included excavation and replacement of approximately 205 linear feet of vitrified clay pipe and the installation of cured in place pipe lining. This project was completed on September 30, 2014. Documents provided by the Utility indicated that completion of these repairs would reduce the infiltration of groundwater into the collection system which will result in reduced electric and chemical costs. The Utility indicated that reduced operating costs are not measurable at this time as the quantity of infiltration is based upon seasonal groundwater tables that vary according to weather patterns. Staff believes that the described project will improve the operation of Sanlando’s collection system. Staff notes that the Utility’s filing did not indicate excessive inflow and infiltration (I&I).

The Collection System Improvements project consists of two components which include lining and excavation. Four bids were provided for the lining component and three bids were provided for the excavation component. Sanlando accepted the lowest bid for each component and provided invoices totaling $534,677 and $438,450 for the lining and excavation components, respectively. Staff has reviewed the bids and resultant invoices and recommends that the Commission approve a total of $973,127 for the cost of the Collection System Improvements which is a reduction of $26,873 from the amount requested in the Utility’s MFRs. A corresponding adjustment should be made to reduce wastewater accumulated depreciation and depreciation expense by $6,125.

Backhoe Replacement

On February 6, 2015, Sanlando filed documentation indicating that it would be replacing its existing backhoe which is used to make repairs to the Utility’s distribution and collection systems. According to the filing, the backhoe has been in-service since 1990, and the cost for repairs exceeds its salvage value. During staff’s site visit, Utility representatives estimated repairs for the backhoe would cost between $15,000 and $20,000. Given that the age of the current back-hoe is more than twice the average service life (12 years) specified in Rule 25-30.140, F.A.C., staff recommends that replacement at this time is reasonable.

The Utility’s filing included three bids for a replacement backhoe. The Utility accepted the lowest bid of $74,241. The backhoe was delivered on February 13, 2015, and a receipt of payment was provided to staff. In response to a staff data request, the Utility stated that the salvage value of the backhoe is $4,500. The Utility also estimated that 95 percent of the time the backhoe would be used for service to Sanlando and the other 5 percent would be used for other Utilities, Inc., water and wastewater systems. Therefore, staff believes the original cost should be reduced by $4,500 for the salvage value of the old backhoe, plus a reduction of 5 percent, or $3,487, to account for the value of the backhoe not used by Sanlando. Staff recommends that the Commission approve $66,254 for the cost of the replacement backhoe and allocate the cost between water and wastewater based on ERCs. Accordingly, staff recommends that water and wastewater plant be increased by $37,029 and $29,225, respectively. Corresponding adjustments should also be made to increase water and wastewater accumulated depreciation, and depreciation expense, by $3,086 and $2,435, respectively.

Wekiva WWTP Air Header Replacement

On February 20, 2015, Sanlando filed documentation indicating that it would need to replace the air header pipe at its Wekiva WWTP and that it believed the related expense should be included in this rate case. According to Sanlando’s filing, Sanlando has made numerous repairs, without sustained success, to the existing air header pipe which was installed in 1973. The air header pipe is critical in the Wekiva WWTP’s conformance with its National Pollutant Discharge Elimination System operating permit. Sanlando’s filing included a signed proposal from Sunshine Building and Development identifying a total project cost of $38,634. The air header replacement was completed and placed in service on March 31, 2015. Staff recommends that the Commission approve $38,634 for this project. Corresponding adjustments should be made to increase wastewater accumulated depreciation and depreciation expense by $2,147.

Conclusion

Based on the above, staff recommends that water plant should be increased by $37,029 and wastewater plant should be decreased by $59,420. Corresponding adjustments should be made to increase water and wastewater accumulated depreciation by $3,086 and $249,954, respectively. Depreciation expense should also be increased by $3,086 for water and decreased by $14,988 for wastewater. Additionally, pro forma property taxes should be increased by $527 for water and decreased by $6,532 for wastewater.

Issue 6:

What are the Used and Useful percentages of the Utility’s water treatment plant, wastewater treatment plant, storage facilities, wastewater collection system, water distribution system, and reuse water system?

Recommendation:

Consistent with the Utility’s last rate case, Sanlando’s water and wastewater treatment plants, storage facilities, water distribution and wastewater collection systems, and reuse facilities should continue to be considered 100 percent U&U. (Graves)

Staff Analysis:

As part of its MFRs, Sanlando provided U&U analyses, of its water and wastewater facilities, in accordance with Rule 25-30.4325, F.A.C., and Rule 25-30.432, F.A.C., respectively. For these analyses, the Utility relied on its records for the test year ended December 31, 2013. In its application, the Utility asserted that its water and wastewater treatment plants, storage facilities, water distribution and wastewater collection systems, and reuse facilities should all be considered 100 percent U&U.

In Sanlando’s last rate case, each of the previously mentioned items was determined to be 100 percent U&U. The Utility has not increased the capacity of its water treatment facilities, including storage, or its wastewater treatment facilities since its last rate case. Giving consideration to the Commission’s decisions in past rate cases, as well as information provided by the Utility in the current rate case, staff recommends the Utility’s water and wastewater treatment plants, storage facilities, water distribution and wastewater collection systems, and reuse facilities continue to be considered 100 percent U&U.

COST OF CAPITAL

Issue 9:

What is the appropriate return on equity?

Recommendation:

Based on the Commission leverage formula currently in effect, the appropriate return on equity (ROE) is 10.53 percent with an allowed range of plus or minus 100 basis points. (D. Buys)

Staff Analysis:

The ROE included in the Utility’s MFRs is 10.53 percent. Based on the current leverage formula in effect and an equity ratio of 47.34 percent, the appropriate ROE is 10.53 percent.[17] Staff recommends an allowed range of plus or minus 100 basis points be recognized for ratemaking purposes.

Issue 10:

What is the appropriate weighted average cost of capital including the proper components, amounts, and cost rates associated with the capital structure for the test year ended December 31, 2013?

Recommendation:

The appropriate weighted average cost of capital for the test year ended December 31, 2013 is 7.94 percent. (D. Buys)

Staff Analysis:

In its filing, Sanlando requested an overall cost of capital of 7.96 percent. Staff recommends two adjustments to the Utility’s capital components included in its capital structure.

First, the Utility included a cost rate of 6.00 percent for customer deposits. Pursuant to Rule 25-30.311, F.A.C., Customer Deposits, the minimum interest rate for residential customer deposits is 2.00 percent per annum. The Utility confirmed that its sister UI water and wastewater utilities use a 2.00 percent cost rate for customer deposits. Therefore, staff recommends that 2.00 percent is the appropriate cost rate for customer deposits. This adjustment results in the 2 basis point reduction in the overall cost of capital requested by the Utility.

Second, the Utility has requested to include pro forma plant additions in the instant docket. Pursuant to UI’s settlement agreement with the Office of Public Counsel and approved by the Commission by Order No. PSC-14-0044-FOF-WS, the Utility agreed to make adjustments to its capital structure as necessary to reflect the proper amount of deferred income taxes on pro forma plant additions.[18] Due to tax timing differences between the Internal Revenue Service and state regulatory depreciation, the additional plant investment caused changes to the balance of ADITs. Sanlando did not include in its filling an adjustment to its capital structure to reflect the proper amount of deferred income taxes on its pro forma plant additions.

In its response to Staff’s Fourth Data Request filed on March 16, 2014, the Utility provided its calculation of the deferred income taxes on pro forma plant additions. The Utility presented an adjustment to reduce deferred taxes by $12,340. Upon review of the Utility’s filing, staff determined the calculation included incorrect depreciation lives for some of the plant items and used an incorrect composite income tax rate. After making corrections to the Utility’s calculation, staff believes the appropriate amount of the adjustment is a reduction of $7,254.

Based upon the proper components, amounts, and cost rates associated with the capital structure for the test year ended December 31, 2013, including the aforementioned adjustments, staff recommends a weighted average cost of capital of 7.94 percent. Schedule No. 2 details staff’s recommended overall cost of capital.

Issue 11: What is the appropriate amount of test year revenues for the Utility’s water and wastewater systems?

Recommendation:

The appropriate test year revenues for Sanlando’s water and wastewater systems are $4,115,972 and $3,905,490, respectively. (Thompson)

Staff Analysis:

In its MFRs, Sanlando’s adjusted test year revenues were $4,168,755 for water and $3,935,620 for wastewater. The water revenues include $4,132,547 of service revenues and $36,208 of miscellaneous revenues. The wastewater revenues include $3,923,332 of service revenues and $12,288 of miscellaneous revenues.

In order to determine the appropriate test year service revenues, staff annualized test year revenues by applying the rates in effect as of August 26, 2014, to the appropriate billing determinants.^{^[19]} Accordingly, test year service revenues should be $4,082,495 for water and $3,893,622 for wastewater. This results in a decrease of $50,052 ($4,132,547 - $4,082,495) for water and $29,710 ($3,923,332 - $3,893,622) for wastewater test year service revenues. Staff also made adjustments to miscellaneous revenues for water and wastewater. The Utility improperly recorded $463 for water and $420 for wastewater as connection meter fees. In addition, the Utility recorded $2,268 of unsupported revenues to water miscellaneous service revenues. Therefore, staff decreased miscellaneous revenues by $2,731 ($2,268 + $463) and $420 for water and wastewater, respectively.

Further, in its letter dated February 18, 2015, the Office of Public Counsel raised a concern about the revenues received by the Utility’s parent company, Utilities, Inc. (UI), from HomeServe USA (HomeServe). HomeServe is an independent contractor that provides maintenance contracts to Sanlando’s customers. The Utility states that the revenues are booked at the UI level and are not allocated to the operating companies. OPC expressed the opinion that these revenues should be allocated to the utility systems. The Commission has previously concluded that the revenues are recorded below-the-line and, therefore, do not need to be included in test year revenues.^{^[20]}

Based on the above, the appropriate test year revenues for Sanlando’s water and wastewater systems, including miscellaneous revenues are $4,115,972 and $3,905,490, respectively. Test year revenues are shown on Schedule Nos. 3-A and 3-B.
Issue 12:

Should any adjustments be made to the Utility’s pro forma expense?

Recommendation:

Yes. Staff recommends the Commission approve $73,731 of pro forma wastewater expense for annual inspection activities. In addition, wastewater amortization expense should be increased by $2,298. (Graves, D. Buys)

Staff Analysis:

Staff has reviewed the Utility’s filings and recommends two adjustments to pro forma expense. Staff’s recommended adjustments are discussed below.

Annual Inspection Activities

On February 18, 2015, Sanlando provided a letter requesting costs associated with a program to inspect and clean 10 percent of its gravity collection system annually be included as pro forma expense in this rate case. The Utility estimated the cost of the program to be $83,684 based on a per linear foot estimate provided by American In-Line Inspection Inc. (American In-Line). Sanlando does not have a signed bid for the work to be performed in the future; rather, the Utility has indicated that it intends to solicit multiple bids each year in advance of its annual inspection activities.

Sanlando indicated that it would typically initiate an investigation of a portion of its collection system after analyzing wet and dry weather flow patterns in order to identify likely locations of excess I&I entering the system. In the fourth quarter of 2013 and the first quarter of 2014, following the identification of potential excess, American In-Line performed inspection and cleaning for Sanlando. Invoices indicate that American In-Line inspected and cleaned roughly 10 percent of the Utility’s gravity collection system at a cost of $73,731. Staff has reviewed the Utility’s filings and these costs do not appear to be included in the test year. Staff would note that the invoices as well as a signed bid indicate that American In-Line performed a lesser scope of work than that assumed in the Utility’s estimated cost.

In response to a staff data request, Sanlando indicated that the majority of the wastewater collection flow system is comprised of vitreous clay pipe installed prior to 1990, which by its age and nature, presents an elevated risk of pipe and gasket failure. Therefore, the Utility explained that an annual inspection program would be prudent in order to identify deficiencies before failures occur or the delivery of wastewater service to customers is impacted. Sanlando further asserted that the proposed program will provide multiple benefits that will improve the operation of the Utility’s wastewater facilities and reduce purchased power costs by maintaining pumping efficiency and reducing excess flow volume. Staff recommends that the Commission approve $73,731 of pro forma expense for the annual inspection activities discussed above. Staff’s recommended cost reflects the same scope of work performed by American In-Line in 2013 and 2014.

Wastewater Amortization Expense

On September 11, 2012, the Utility decommissioned and diverted all wastewater flows from its Des Pinar WWTP to its Wekiva WWTP. The demolition of the Des Pinar WWTP was completed in May 2014. Subsequently, the Utility requested to recover expenses of $11,490 for the demolition and removal of a steel tank and disconnection of all power and control circuits in preparation for the demolition of the wastewater treatment plant. Sanlando requested that the expense be amortized over five years pursuant to Rule 25-30.433(8), F.A.C., Rate Case Proceedings, which states, “Non-recurring expenses shall be amortized over a five-year period unless a shorter or longer period of time can be justified.” Staff reviewed the Utility’s request and verified that invoices in the amount requested have been provided and the expense is known and reasonable. Therefore, staff recommends that wastewater amortization expense be increased by $2,298.

Conclusion

Staff recommends the Commission approve $73,731 of pro forma wastewater expense for annual inspection activities. In addition, wastewater amortization expense should be increased by $2,298.

NET OPERATING INCOME

Issue 13:

Should any adjustment be made to the Utility’s salaries and wages expense?

Recommendation:

Yes. Salaries and wages expense should be decreased by the amounts included in Issue 2, Audit Adjustments Agreed to by the Utility and staff. In addition, Employee Pensions and Benefits expense should be further decreased by $5,794 and $4,573, for water and wastewater, respectively. (D. Buys)

Staff Analysis:

In its MFRs, the Utility reflected water and wastewater salaries and wages expense of $716,973 and $503,889, respectively. In the audit of UI affiliate transactions for Sanlando and Labrador Utilities, Inc. (Labrador), audit staff compared the most current annualized salaries and the allocated salaries, benefits, and payroll taxes for Sanlando to the total adjusted amounts in the Utility’s filing. Adjustments were made to reflect the variances between the amounts in the audited schedules and the amounts in the MFRs. The Utility agreed with the audit findings and the resulting adjustments to the expenses are reflected in Table 13-1, which are also shown in Issue 2.

Table 13-1

Audit Adjustments
	Water	Wastewater
Salaries and Wages	($49,932)	$22,519
Payroll Taxes	($7,698)	($6,017)
Pensions and Benefits	($14,411)	($11,077)
Total	($72,041)	$5,425

The schedules provided to the audit staff by the Utility contained the most recent salary expenses at the end of April 2014, plus an increase of 3 percent to reflect the Utility’s 2015 salaries and wages expense. Staff believes that the 3 percent increase for 2015 represents a pro forma expense that is outside of the test year and normally would be disallowed. The Commission, however, has previously allowed recovery of operation and maintenance (O&M) expenses that reflect increases associated with inflation, and recognized that reducing expenses back to the amount approved in the Utility’s last rate case would effectively remove an increase the Commission has already granted in prior index applications. The Commission approved index increases for Sanlando in 2012 and 2013 for a total O&M increase of approximately 4 percent. Disallowance of the 3 percent increase for 2015 would result in decreasing the Utility’s salaries and wages and payroll taxes expenses below the amount previously approved by the Commission through the index increases. Consequently, staff recommends no adjustment to salaries and payroll taxes other than the adjustment for the audit finding.

The audited Pensions and Benefits expense for Sanlando is $193,126 for water and $152,420 for wastewater, which represents an increase of 28 percent over the amounts approved in the Utility’s last rate case. These amounts also include a 3 percent increase to annualize the expense for 2015. Staff recommends that the 3 percent increase associated with the 2015 annualization be disallowed because it is outside the test year and is greater than the price index increase previously authorized by the Commission. The resulting expense is $187,332 for water and $147,847 for wastewater, or an increase of 16.18 percent over the amounts approved by the Commission in the last rate case. Therefore, staff recommends that Pensions and Benefits expense be reduced by $5,794 for water and $4,573 for wastewater.

Issue 14:

Should further adjustments be made to the Utility’s O&M expense?

Recommendation:

Yes. O&M expense should be increased by $34,060 for water and decreased by $91,693 for wastewater. (Monroe, Graves, T. Brown)

Staff Analysis:

Based on its review of test year O&M expense, staff recommends several adjustments to the Utility’s O&M expense as summarized below.

O&M Expense Allocation

In the Affiliate Audit for UI, the staff auditors examined O&M expense allocations for Sanlando. Staff auditors found that the Utility changed the methodology in which it allocated all but direct O&M expenses between water and wastewater. In prior rate cases, the Utility used test year-end ERC factors to allocate O&M expenses between water and wastewater in accordance with the Commission’s post-hearing decision in a sister utility’s 2002 docket.^{^[21]} However, in the instant filing, the expenses were allocated based on business units. As a result, the staff auditors recalculated O&M water and wastewater balances based on the practice in prior rate cases and recommended that O&M expense be increased by $45,660 for water and decreased by $42,875 for wastewater.

In its response to Affiliate Audit Finding No. 6, Sanlando disagreed with the finding and asserted that it is still using ERCs to allocate common plant and expenses and that there has been no change in its methodology. Although the Utility disagreed with Audit Finding No. 6, it failed to provide any calculations or documentation to refute the finding. Therefore, in accordance with the Commission’s post-hearing decision in Order No. PSC-03-1441-FOF-WS, staff recommends that Sanlando’s water and wastewater expenses be adjusted as indicated above.

Chemicals and Purchased Power

Sanlando’s MFRs indicated that the Utility had negative unaccounted for water (-2.88 percent or -63.603 million gallons) during the test year, meaning that the Utility sold more water than it pumped during 2013. In response to a staff data request, Sanlando indicated that its staff, on July 12, 2014, discovered that a normally closed emergency interconnection with Orange County Utilities was fully open thus allowing water to flow from one system to the other. Pressure data gathered by Sanlando field staff indicated that Orange County Utilities supplied water to the Sanlando water system for an unknown period of time terminating in July 2014. According to Sanlando’s 2012 and 2013 Annual Reports, gallons sold exceeded gallons pumped and unaccounted for water was negative. Therefore, staff believes that it is reasonable to assume that the valve was open for the entirety of the 2013 test year.

Sanlando believes that adjustments to its chemical and purchased power expenses should be made to reflect additional operating expenses to make up for the water no longer supplied through the Orange County Utilities interconnection. Staff agrees with the Utility that adjustments to O&M expense should be made.

Giving consideration to the age of its meters, Sanlando suggested that an unaccounted for water percentage of 2.78 percent is reasonable for making the requested adjustments. This equates to a 125 million gallon adjustment to Sanlando’s gallons pumped during the test year. Staff believes that a reasonable minimum for the proposed adjustment would be 63.60 million gallons, which is the difference between the water sold in the test year and the volume produced by Sanlando. Staff further believes that a reasonable maximum would be 339.9 million gallons, which results in the same unaccounted for percentage (10.91 percent) as calculated in Sanlando’s last rate case. Therefore, staff recommends that Sanlando’s proposed adjustment of 125 million gallons is reasonable based on data in the Utility’s last rate case and the test year.

Based on the above, Sanlando requested an adjustment to increase water O&M expenses by $27,220 to account for increased chemicals and purchased power. Staff reviewed Sanlando’s calculation and believes that the Utility made an error by not multiplying the adjusted chemical consumption by the relevant per unit cost. Staff has corrected the error, and based on its calculation, staff recommends an increase of $28,207 ($7,417 to chemical expense and $20,793 to purchased power expense) for its water system.

Prior to the 2013 test year, Sanlando’s Des Pinar WWTP was taken out of service and flows were diverted to the Utility’s Wekiva WWTP. According to staff’s audit, the Utility asserted that any increase in annual operating expense at the Wekiva WWTP was offset by a corresponding decrease in annual operating expense due to the closure of the Des Pinar WWTP. Subsequently, in response to Staff’s Fourth Data Request, the Utility indicated there was one exception. According to Sanlando’s response, the Utility incurred $41,645 in chemical costs for the purchase of sodium aluminate that was used in the treatment process approximately 182 days in that year. Sanlando stated that, on a going forward basis, it expects DEP to drastically reduce the permitted loading rate on the percolation ponds. As a consequence, Sanlando anticipates that the discharge of Wekiva Plant’s effluent to surface waters will occur sporadically throughout the year thus impacting the use of sodium aluminate on a going forward basis. Sanlando estimated an increase of $83,290 in chemical expense associated with the anticipated DEP permit changes.

As discussed above, the basis for Sanlando’s estimated increase is an expected DEP permit change which the Utility describes as drastic. Staff understands that the anticipated changes may impact the Utility’s operations; however, staff believes that the uncertainty of the changes make it difficult to quantify the magnitude of the changes. Therefore, staff does not recommend that the Commission make the $83,290 increase in chemical expense as estimated by the Utility.

Computer Maintenance Expense

In several recent rate cases involving Sanlando’s sister companies, the Commission recognized the volatility of computer maintenance expense.[22] Due to this volatility, the Commission has routinely used a five-year average as an appropriate basis for ratemaking purposes, and excluded the portion of Phoenix Project IT maintenance charges associated with UI divested systems, consistent with the Commission’s treatment of the Phoenix Project costs per ERC at that time.^{^[23]}

A five-year average was initially calculated using the computer maintenance expense included in the Utility’s general ledger for 2009, 2010, 2011, 2012, and 2013. However, staff notes that the computer maintenance expense for 2010 is an anomaly when compared to the other years, as reflected in the following table. Staff believes that computer maintenance expense should be determined in a prospective manner for the Utility. In this docket, staff believes that computer maintenance expense should be based on a three-year average, using amounts from 2011, 2012, and 2013. This results in an average computer maintenance expense of $114,134, a reduction of $8,139 from the expense included in the Utility’s test year. Based on the three-year average, staff calculated a reduction of $4,549 for water and $3,590 for wastewater.

Table 14-1

Computer Maintenance Expense
Year	Expense
2009	$126,190
2010	$144,753
2011	$107,799
2012	$112,330
2013	$122,273

As mentioned previously in Issue 3, the Commission altered its treatment of divestitures, so that any adjustment related to UI divested systems was net of any UI acquisitions, and, based on 2015 total ERCs, a divesture adjustment is no longer necessary. Accordingly, an adjustment to computer maintenance expense related to divestitures is no longer necessary.

Contractual Services-Engineering

According to Audit Finding No. 17 of the Sanlando audit, costs associated with pro forma plant improvements were incorrectly recorded as O&M expenses. Audit staff discovered two invoices for engineering services associated with the Wekiva Surge Tank expansion, totaling $12,945, that were recorded as expenses in Account No. 731, contractual services-engineering. The Wekiva Surge Tank expansion is a pro forma plant improvement in the instant docket and these costs were included in staff’s recommended pro forma plant adjustment. The Utility disagreed with Audit Finding No. 17 but did not provide an explanation or justification as to why it disagreed. Therefore, staff recommends that $12,945 should be removed from contractual services-engineering expense.

Contractual Services-Other

According to audit staff’s work papers and the UI general ledger, the account for “Internet Supplier” expense included 13 monthly payments allocated to Sanlando. Staff believes that the second December payment of $13,943 is an out-of-period expense and should be removed. This results in a reduction of Sanlando allocated expenses by $1,101 (7.90 percent x $13,943). The removal of these costs result in a decrease to contractual services-other expense of $616 for water and $486 for wastewater.

A review of UI’s general ledger for “Other Outside Services” expense revealed a May entry for $18,225 that was for the review of the forecast for three utilities (Lake Utility Services, Inc., a Carolina utility, and a Louisiana utility). Staff believes these expenses should be a direct charge to those systems and the amount allocated to Sanlando should be removed. This results in a reduction of $1,440 (7.90 percent x $18,225) to Sanlando. The removal of these costs results in a further reduction to contractual services-other expense of $805 for water and $635 for wastewater.

Regulatory Commission Expense-Rate Case Amortization

In Sanlando’s last rate proceeding, the Commission approved annual amortization of rate case expense in the amount of $31,851 and $24,854 for water and wastewater, respectively.[24] In its MFRs, the Utility recorded test year rate case expense of $63,137 and $49,789, respectively, for water and wastewater. Consistent with the annual amortization amount approved in the Utility’s last rate case, staff recommends that test year rate case expense be reduced by $31,286 ($63,137 - $31,851) for water and $24,935 ($49,789 - $24,854) for wastewater.

Miscellaneous Expense

Staff reviewed the Affiliate Audit Work Papers 43-7.5 for miscellaneous expenses which showed that multiple payments totaling $46,259 were recorded for the Leadership Training Conference in Orlando, Florida, at the Rosen Conference Center. The expense of leadership training is not necessarily impermissible on its face; however, the failure to provide detailed expense support documentation warrants an adjustment in this instance. The Utility was put on notice that detailed support of this expense was required. Therefore, these costs should be disallowed consistent with the Commission decision in a prior rate case where similar costs were removed due to inadequate detailed expense support documentation.^{^[25]} Therefore, Sanlando’s expenses should be reduced by $3,654 (7.90 percent x $46,259). The removal of these costs result in a decrease to miscellaneous expense of $2,043 for water and $1,611 for wastewater.

The Affiliate Audit work papers for UI also indicated that office landscape and mowing allocations included in miscellaneous expense increased substantially from 2012 to 2013. A substantial amount of this increase was due to tree removal. Staff verified that this was a reccurring expense. To determine an amount that is more representative of the costs the Utility would normally incur, staff calculated a four-year average using the amounts recorded for 2010-2013. Based on a four-year average, the 2013 expenses for office landscape/mowing should be reduced by $11,574, with an allocation for Sanlando of $914. Miscellaneous expense for water and wastewater should be reduced by $511 and $403, respectively.

Staff’s final adjustment to miscellaneous expense is to decrease landscaping costs associated with the retirement of the Des Pinar WWTP. The Utility retired the Des Pinar WWTP since its last rate case; and therefore, O&M expenses associated with the land should be removed. Staff’s audit of Sanlando indicates $25,800 in landscape and lawn services for the test year. Approximately 9.94 acres of the 60.87 total acres of utility land contained three percolation ponds that will be reclassified as land held for future use. Since this land does not currently serve customers, expenses associated with its maintenance should be removed. Staff recommends a $4,213 ((9.94/60.87) x $25,800) reduction to miscellaneous expenses for wastewater to reflect the removal of landscape costs for the land associated with the retired portion of the Des Pinar WWTP.

Conclusion

Based on the adjustments above, staff recommends that O&M expenses be increased by $38,609 for water and decreased by $88,103 for wastewater, as shown in the following table.

Table 14-2

Summary of Further Adjustments to O&M Expense
		Water	Wastewater
1	Audit Finding No. 6	$45,660	($42,875)
2	Chemicals	7,417	0
3	Purchased Power	20,793	0
4	Computer Maintenance	(4,549)	(3,590)
5	Contractual Services-Engineering	0	(12,945)
6	Contractual Services - Other
7	Internet Supplier	(616)	(486)
8	Other Outside Services	(805)	(635)
9	Regulatory Commission Expense-Rate Case Amortization	(31,286)	(24,935)
10	Miscellaneous Expense -
11	Rosen Hotel	(2,043)	(1,611)
12	Office Landscaping/Mowing	(511)	(403)
13	Des Pinar Landscaping	0	(4,213)
14	Total	$34,060	($91,693)

Issue 15:

What is the appropriate amount of rate case expense?

Recommendation:

The appropriate amount of rate case expense is $180,942. This expense should be recovered over four years for an annual expense of $45,236. Therefore, annual rate case expense should be decreased by $6,449 for water and $5,090 for wastewater from the respective levels of expense included in the MFRs. (T. Brown, Norris)

Staff Analysis:

In its MFRs, Sanlando requested $227,100 for current rate case expense. Staff requested an update of the actual rate case expense incurred, with supporting documentation, as well as the estimated amount to complete the case. On February 2, 2015, the Utility submitted its last revised estimate of rate case expense, through completion of the PAA process, which totaled $173,912. A breakdown of the Utility’s requested rate case expense is as follows:

Table 15-1

Initial and Revised Rate Case Expense
	MFR B-10	Actual	Additional	Revised
	Estimated	Actual	Estimated	Total
Legal Fees	$53,000	$28,872	$15,465	$44,337
Accounting Consultant Fees	66,000	65,188	7,400	72,588
Engineering Consultant Fees	3,000	3,188	0	3,188
Water Service Corporation (WSC) In-house Fees	95,000	40,660	3,040	43,700
Filing Fee	4,000	0	4,000	4,000
WSC Travel	1,000	0	1,000	1,000
WSC FedEx/Misc.	100	0	100	100
Cust. Notices and Postage	5,000	0	5,000	5,000
Total	$227,100	$137,908	$36,005	$173,912

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

Legal Consultant Fees – Friedman & Friedman, P.A. (F&F)

The first adjustment to rate case expense relates to Sanlando’s legal fees. In its MFRs, the Utility included $53,000 in legal fees to complete the rate case. The Utility provided support documentation detailing this expense through December 10, 2014. The actual fees and costs totaled $28,872 with an estimated $15,465 to complete the rate case, totaling $44,337. Actual expenses included the $9,000 filing fee, of which $4,000 was also included under “Public Service Commission – Filing Fee.” Staff has left the filing fee as part of the legal fees and will remove the entry elsewhere in this issue to avoid double recovery of this fee.

According to invoices, the law firm of F&F identified and billed the Utility $245 related to the correction of MFR deficiencies. The Commission has previously disallowed rate case expense associated with correcting MFR deficiencies because of duplicate filing costs.[26] In addition to the deficiency expense identified by F&F, staff also found an entry in the October 1, 2014, invoice that referenced, in part, “Research and draft responses to Deficiency Letter and file same.” Staff believes that a portion of the 2.90 hours referenced in that invoice entry should also be removed. Since there were four broad activities included in that entry, staff believes that 0.725 hours (¼ of the time), or $254 ($350/hr. x 0.725), should be attributed to the deficiency and removed.

In a June 11, 2014, invoice entry, F&F noted 5.90 hours, or $2,065, for “Travel to Tallahassee for pre-filing meeting with PSC staff.” This same entry appears in F&F’s support documentation in Labrador rate case. While staff believes it is appropriate to split the shared costs, staff believes it should be split three ways instead of in half. UI and Commission staff discussed a sister utility, Mid-County Services, Inc., in addition to Sanlando and Labrador at that meeting. As such, the total cost of the pre-filing meeting, $4,130 ($2,065 + $2,065), should be divided among the three utilities. This results in a per utility cost of approximately $1,377. As such, $688 ($1,377 – $2,065) should be removed from F&F’s fees to reflect the revised division.

Adjustments to actual rate case expense should be made for the time associated with a missed customer notice mailing deadline. Staff believes that a total of 1.067 hours, or $373 ($350/hr. x 1.067 hrs.), should be removed due to the time required to redraft documents and reschedule the customer meeting that would have been unnecessary had the deadline been met.[27]^,[28] Accordingly, staff believes that $1,560 ($245 + $254 + $688 + $373) should be removed as duplicative and unreasonable rate case expense.

Additionally, staff recommends an adjustment to the estimated cost to complete this case. F&F’s estimate to complete included fees for 41 hours at $360/hr.[29] and additional costs totaling $705. Staff believes that most of the estimated hours to complete appear reasonable, except for 5.5 hours related to the customer meeting in Altamonte Springs and 15 hours requested to “prepare for and attend Agenda conference, discuss Agenda with client and staff.” Staff believes that 1.5 hours is appropriate for preparation and attendance at the customer meeting due to the brevity of the meeting and the proximity of F&F’s offices to the meeting site. According to the transcript, the customer meeting lasted less than 30 minutes, beginning at 6:07 p.m. and ending at 6:24 p.m.[30] Moreover, F&F’s offices are located approximately 10 miles away in Lake Mary. As such, 4 hours, or $1,440 ($360/hr. x 4 hrs.), related to the customer meeting should be removed. Attorney’s fees and costs associated with the Commission Conference should also be reduced due to the fact that the attorney is also handling a rate case for a Utilities, Inc., sister utility at the same Commission Conference.[31] As such, legal fees and costs associated with attending the Commission Conference should be shared by both Utilities. Accordingly, staff recommends that 7.5 hours, or $2,700 ($360/hr. x 7.5 hrs.), be removed from estimated rate case expense. In total, staff recommends that legal fees and costs shall be reduced by $5,700 ($1,560 + $1,440 + $2,700) to reflect these adjustments.

Accounting Consultant Fees – Milian, Swain & Associates (MS&A)

The second adjustment relates to MS&A’s actual and estimated fees of $72,588, which was comprised of $65,188 in actual costs and $7,400 in estimated fees to complete the rate case as of December 11, 2014.

In regard to MS&A’s actual expenses, staff reviewed the supporting documentation and found that approximately 351 hours were related to MFR preparation. Staff was concerned that the number of hours related to MFR preparation might be duplicative of the hours spent by WSC In-House employees on the same task. Staff asked the Utility to explain why the WSC In-House hours related to MFR preparation (190 hours) were not duplicative of the hours for MFR preparation and review that MS&A documented in its rate case expense support documentation.[32] In response to staff’s data request on the matter, the Utility responded by stating:

The WSC In-House hours related to MFR preparation are in no way duplicative of the hours Milian, Swain and Associates, Inc. spends on MFR preparation. The WSC In-House hours associated with the MFR preparation primarily entail gathering the company's raw data, project plans, invoices and a slew of other information and then translating those items into a usable format for Milian, Swain and Associates, Inc. to use in the preparation of the MFRs.[33]

Staff will address adjustments to WSC’s hours later in this issue. Given the Utility’s response above and the additional adjustments to WSC hours recommended later, staff believes no additional adjustments to MS&A’s actual expense are necessary.

MS&A estimates that a total of 47 hours are needed to complete the case. According to MS&A’s summary, the consultant estimated the following:

Table 15-2

MS&A’s Estimated Hours to Complete Case
Est. Hours	Activity
11.5	Provide support to client – Responses to Staff’s Data Requests, including updates to Rate Case Expense.
2.5	Review Interim Order, test interim rates and consult with client.
11	Review audit, discuss issues with client
3	Review OPC interrogatories, researching and preparing response, discussion with client and legal and follow-up.
12	Review Staff recommendations, testing recommended revenue requirements and resulting rates, including suppression calculations, and discuss with client.
7	Review PAA Order, testing final approved revenue requirements and resulting final rates, including suppression calculations, and discuss with client.
47	Total

Staff believes the number of hours estimated for accounting consultant fees is excessive and unreasonable. MS&A has estimated 11.5 hours to respond to data request responses and provide updates to rate case expense. Only one additional data request was sent after MS&A’s summary was assembled and staff believes that any response would require minimal time from the accounting consultant. In fact, it is likely that these data requests would be more appropriately addressed by WSC In-House employees. Moreover, no additional updates to rate case expense were received from this consultant. As such, staff believes that a total of 5.75 hours should be sufficient to address any remaining tasks. Accordingly, staff recommends a reduction of 5.75 hours (5 hours for C. Yapp, 0.75 hours for D. Swain).

MS&A included 2.5 hours in connection with reviewing the Interim Order in this docket. Staff notes that the Interim Order was issued on October 22, 2014.[34] Staff believes that any review of the Interim Order would have taken place between the order’s issuance and the billed through date of December 11, 2014. As such, staff recommends a reduction of 2.5 hours (2 hours for C. Yapp, 0.5 hours for D. Swain).

Likewise, MS&A included 3 hours for reviewing OPC’s interrogatories, preparing responses, discussions with client, and any follow-up. OPC did not file any interrogatories in this proceeding. As such, 3 hours (2 hours for C. Yapp, 1 hour for D. Swain) should be removed from estimated rate case expense.

In addition, MS&A included 11 hours to review the audit and discuss issues with client. Staff notes that two audit reports were prepared in this docket: the Sanlando audit report (issued on October 23, 2014) and the UI affiliate transactions audit report (issued on November 6, 2014). Staff believes that the majority of MS&A’s audit review likely occurred between each audit’s issuance and the billed through date of December 11, 2014. However, staff recognizes that some additional review and discussion may have occurred outside of that period. Even though the Utility agreed with the majority of audit staff’s adjustments, staff believes that MS&A may have provided information or analysis prior to the Utility filing its audit responses.[35] Absent additional information, staff believes that a total of 5.5 hours should be sufficient to address any remaining audit-related tasks. Accordingly, staff recommends a reduction of 5.5 hours (5 hours for C. Yapp, 0.5 hours for D. Swain).

MS&A included an additional 19 hours to complete the case from the filing of staff recommendation to the completion of the PAA process. This consultant has worked with Sanlando, and other UI systems, on numerous dockets before this Commission through the years. The consultant’s familiarity with the Utility and this Commission led staff to believe that the request is excessive and unreasonable. Absent additional support, staff believes that a total of 9.5 hours is an ample amount of time to review staff’s recommendation and the Commission’s PAA Order, and consult with their client in the instant docket. Accordingly, staff recommends a reduction to audit related hours of 9.5 hours (8 hours for C. Yapp, 1.5 hours for D. Swain).

In summary, staff recommends reducing the associate accountant’s estimated hours to complete from 40 to 18, and the accounting firm partner’s estimated hours to complete from 7 to 2.75. As such, staff believes that an additional $3,300 (22 hrs. x $150/hr.) should be removed for C. Yapp and $850 (4.25 hrs. x $200/hr.) be removed for D. Swain. Accordingly, staff recommends that accounting consultant fees be reduced by $4,150 ($3,300 + $850).

Engineering Consultant Fees – M&R Consultants

The Utility included $3,000 in its MFRs for M&R Consultants to provide consulting services for engineering-related schedules and responses to staff’s data requests. The Utility provided support documentation detailing this expense through December 2014. The actual fees and costs totaled $3,188 with no additional estimated to complete the rate case. Staff believes the full amount of $3,188 to be reasonable and justified. Accordingly, no adjustment is necessary.

WSC In-House Staff Fees

The Commission has previously disallowed WSC in-house staff fees in several dockets involving the Utility’s sister companies.[36] However, the Commission subsequently allowed the inclusion of this expense for its sister companies, Utilities, Inc. of Florida and Cypress Lakes Utilities, Inc., based on the removal of employee salaries from the total salaries and wages balance prior to any allocation.[37] Based on its review of Sanlando’s confidential salary information, staff believes the Utility failed to adjust the test year salary and wage expense to exclude capitalized time spent on the instant docket.

In its MFRs, Sanlando originally estimated $95,000 in expense for in-house staff fees. The Utility provided updates of actual and estimated rate case expense through December 31, 2014. The Utility reflected $40,660 of actual expense for in-house staff and estimated expense to completion of $3,040, totaling $43,700. In support of the actual expense, the Utility also provided a breakdown of the work performed by each employee including hours and descriptions.

The total employee compensation reflected in the Utility’s confidential salary information did not include an adjustment that corresponded to the amount of in-house employee expense estimated by the Utility in its MFRs. The total employee compensation prior to any allocation reflected a full year of salaries and wages for each employee. Further, the Utility stated that in-house employees did not incur any overtime or bonuses for their work in the instant docket.

As such, staff believes the entire amount of WSC in-house staff fees should be removed from rate case expense. The job duties and descriptions of the in-house employees that comprise this expense include rate case related functions. Thus, this expense is appropriately reflected in the Utility’s salaries and wages expense. Therefore, staff recommends that the $43,700 related to in-house staff fees be removed from rate case expense.

Filing Fee

The Utility included $4,000 in its MFR Schedule B-10 for the filing fee. There was no other mention of the $4,000 filing fee in the Utility’s revised actual and estimate to complete. Staff notes that according to documentation provided by F&F, the actual filing fee of $9,000 was paid as part of the legal fees. As such, the filing fee is addressed in staff's legal fees recommendation above and should be removed from the filing fee line item.

WSC Travel Expense

In its MFRs, Sanlando estimated $1,000 for travel expenses. The Utility provided no support documentation for this expense, or a detailed estimate of the expense to completion. Furthermore, based on several previous UI rate cases, UI does not send a representative from its Illinois office to attend the Commission Conference for PAA rate cases. Therefore, staff recommends that $1,000 of rate case expense associated with WSC Travel Expense be removed.

WSC FedEx Expense

The final adjustment to the requested rate case expense relates to WSC expenses for FedEx and other miscellaneous costs. The Utility estimated $100 of FedEx and other miscellaneous costs in its initial filing, but did not provide any support of these expenses. Based on the lack of support documentation, staff recommends that rate case expense be decreased by $100.

Customer Notices and Postage

In its revised rate case expense schedule, Sanlando reflected estimated costs of $5,000 for customer noticing and postage. The Utility is responsible for sending out four notices: the interim notice, the initial notice, customer meeting notice, and notice of the final rate increase. No notices were combined in this docket. The Utility did not provide any invoices reflecting the actual cost associated with sending the interim notice, the initial notice, or the customer meeting notice.

The Commission has historically approved recovery of noticing and postage, despite the lack of support documentation, based on a standard methodology to estimate the total expense using the number of customers and the estimated per unit cost of envelopes, copies, and postage.^{^[38]} Had the Utility not missed the mailing deadline for the original customer meeting, there would have been a combined initial and customer meeting notice. Because of the missed notice, there were additional costs related to mailing separate notices that should be removed. As such, costs related to the number of envelopes used and postage required reflect those of a combined notice. The estimated cost of postage for the interim notice, initial notice, customer notice, and the final notice is approximately $12,099 (11,827 customers x $0.341 pre-sorted rate x 3 notices), the cost of copies is approximately $13,010 (11,827 customers x $0.10 per copy x 11 total pages), and the cost of envelopes is approximately $1,774 (11,827 customers x $0.05 x 3 notices). Based on these components, staff believes the total cost for these notices and postage is $26,883 ($12,099 + $13,010 + $1,774). As such, rate case expense should be increased by $21,883 ($26,883 - $5,000) to allow for adequate expenses related to mailing notices in accordance with Rule 25-22.0407, F.A.C.

Additional Rate Case Expense

In addition to the rate case expense provided by the Utility, the Commission found in the Utilities, Inc., generic docket “that rate case expense shall be allocated to each UI Florida subsidiary based on the ratio of each subsidiaries’ ERCs to UI’s total Florida ERCs as of December 31, 2013.”[39] The Order specified that each subsidiary would be allowed to recover its allocated portion of rate case expense over four years, pursuant to Section 367.0816, F.S. Recovery of this expense should be included as a separate line item within rate case expense as part of each subsidiaries’ next file and suspend rate case, limited proceeding, or staff-assisted rate case. Sanlando’s portion of rate case expense from that docket is $43,798, or $10,950 on an annual basis.[40]

Conclusion

Based upon the adjustments discussed above, staff recommends that Sanlando’s revised rate case expense of $173,912 be increased by $7,030, to reflect staff’s adjustments and the additional rate case expense allocated from Docket No. 120161-WS, for a total of $180,942. A breakdown of staff’s recommended rate case expense is as follows:

Table 15-3

Staff-Recommended Rate Case Expense
Description	MFR Estimated	Utility Revised Act.& Est.	Staff Adj.	Recom. Total
Legal Fees	$53,000	$44,337	($5,700)	$38,636
Accounting Consultant Fees	66,000	72,588	(4,150)	68,438
Engineering Consultant Fees	3,000	3,188	0	3,188
WSC In-House Fees	95,000	43,700	(43,700)	0
Filing Fee	4,000	4,000	(4,000)	0
WSC Travel	1,000	1,000	(1,000)	0
WSC FedEx/Misc.	100	100	(100)	0
Cust. Notices and Postage	5,000	5,000	21,883	26,883
Total	$227,100	$173,912	($36,768)	$137,144
Add’l RCE – Generic Dkt.				$43,798
Total w/Add’l RCE				$180,942

In its MFRs, the Utility requested total rate case expense of $227,100. When amortized over four years, this represents an annual expense of $56,775. Pursuant to Section 367.081(6), F.S., the recommended total rate case expense of $180,942 should be amortized over four years. This represents an annual expense of $45,236. Based on the above, staff recommends that rate case expense be decreased by $46,158 ($227,100 – $180,942). As a result, annual rate case expense should be decreased by $6,449 for water and $5,090 for wastewater from the respective levels of expense included in the MFRs

Issue 16:

Should further adjustments be made to taxes other than income?

Recommendation:

Yes. Property taxes should be increased by $449 for water and decreased by $1,868 for wastewater. In addition, Regulatory Assessment Fees (RAFs) should be increased by $1,927 for water and decreased by $869 for wastewater. (D. Buys)

Staff Analysis:

In its MFRs, Sanlando included water and wastewater property tax expense of $170,612 and $253,030, respectively, for the test year ended December 31, 2013. On February 11, 2015, the Utility filed with the Commission a letter requesting to include additional property tax expense of $63,371 in the instant rate case to recover the increase in property tax from 2013 to 2014. The total amount of property tax increased from $361,074 in 2013 to $424,446 in 2014. Staff compared the property tax assessments from 2013 and 2014 and believes the primary cause for the increase in property tax is an increase in the assessed value due to plant additions. The amount of property tax included in Sanlando’s MFRs includes adjustments for its pro forma plant additions. The total amount of property tax requested in the Utility’s MFRs is $423,642. Staff recommends that the property tax expense be increased by $804 ($424,446 - $423,642), or $449 for water and $355 for wastewater to account for the increase in property tax from 2013 to 2014.

In addition, a 9.94 acre parcel of land that contained three percolation ponds used in the Des Pinar WWTP is no longer used to provide service to customers since the Des Pinar WWTP was retired. The property taxes levied against this parcel was $2,223 in 2014, and should be removed from wastewater property tax expense. Therefore, staff recommends that property tax expense be decreased by $2,223 for wastewater.

In its MFRs, the Utility included water and wastewater regulatory assessment fees of $181,494, and $175,850, respectively, for the test year ended December 31, 2013. As part of staff’s audit of Sanlando, audit staff calculated the RAFs based on actual 2013 revenues and determined that water RAFs are understated by $1,927 and the wastewater RAFs are overstated by $869. The results are provided in Audit Finding No. 18 of the Auditor’s Report dated October 18, 2014. In its response to the findings in the Staff Audit Report, the Utility stated that it disagreed with the audit finding but did not provide a reason for its disagreement. Staff reviewed the Audit Report and recommends that water RAFs be increased by $1,927 and wastewater RAFs be decreased by $869.

Conclusion

Staff recommends that property taxes be increased by $449 for water and decreased by $1,868 for wastewater to reflect the known and measureable change to the Utility’s property taxes. In addition, RAFs should be increased by $1,927 for water and decreased by $869 for wastewater.

REVENUE REQUIREMENT

Issue 17:

What is the appropriate revenue requirement for the test year ended December 31, 2013?

Recommendation:

Staff recommends the following revenue requirement should be approved.

	Test Year Revenue	$ Increase/ (Decrease)	Revenue Requirement	% Increase/ (Decrease)
Water	$4,115,972	($250,461)	$3,865,511	(6.09%)
Wastewater	$3,905,490	$748,919	$4,654,409	19.18%

(D. Buys)

Staff Analysis:

In its filing, Sanlando requested revenue requirements to generate annual revenue of $4,823,551 for water and $4,473,063 for wastewater. These requested revenue requirements represent revenue increases of $654,796, or approximately 15.70 percent, for water, and $537,442, or approximately 13.66 percent, for wastewater.

Consistent with staff’s recommendations concerning rate base, cost of capital, and operating income issues, staff recommends approval of rates designed to generate a water revenue requirement of $3,865,511, and a wastewater revenue requirement of $4,654,409. Staff’s recommended water revenue requirement of $3,865,511 is $250,461 less than staff’s adjusted test year revenue of $4,654,409 or a decrease of 6.09 percent. Staff’s recommended wastewater revenue requirement exceeds staff’s adjusted test year revenue by $748,919, or 19.18 percent. These recommended pre-repression revenue requirements will allow the Utility the opportunity to recover its expenses and earn a 7.94 percent return on its investment in water and wastewater rate base.

RATE STRUCTURE AND RATES

Issue 18:

What are the appropriate rate structures and rates for Sanlando’s water and wastewater systems?

Recommendation: The recommended rate structures and monthly water and wastewater rates are shown on Schedule Nos. 4-A through 4-D, respectively. The Utility should file revised tariff sheets and a proposed customer notice to reflect the Commission-approved rates. The approved rates should be effective for service rendered on or after the stamped approval date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be implemented until staff has approved the proposed customer notice and the notice has been received by the customers. The Utility should provide proof of the date notice was given within ten days of the date of the notice. (Thompson)

Staff Analysis:

Water Rates

Sanlando is located in Seminole County within the St. Johns River Water Management District (SJRWMD). Although the Utility’s average residential consumption is relatively high, Sanlando’s water withdrawals are within the limits prescribed by its consumptive use permit. The Utility provides water service to approximately 10,172 customers. Only about 3 percent of the residential customer bills during the test year had zero gallons, indicating a non-seasonal customer base. The average residential water demand is 15,694 gallons per month. The average residential water demand, excluding zero gallon bills, is 15,154 gallons per month.

The Utility’s current water system rate structure for residential customers consists of a base facility charge (BFC) and four-tier inclining block rate structure. The rate blocks are: (1) 0-6,000 gallons; (2) 6,001-10,000 gallons; (3) 10,001-15,000 gallons; and (4) all usage in excess of 15,000 gallons per month. General service customers are billed a BFC and uniform gallonage charge. The private fire protection customers are billed one-twelfth of the approved BFC, pursuant to Rule 25-30.465, F.A.C.

Staff performed an analysis of the Utility’s billing data in order to evaluate the appropriate rate structure for the residential water 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; (3) establish the appropriate non-discretionary usage threshold for restricting repression; and (4) implement, where appropriate, water conserving rate structures consistent with Commission practice.

Revenue Allocation

In the Utility’s last three rate cases, a portion of the wastewater revenue requirement was allocated to the water system, pursuant to Section 367.0817(3), F.S., which provides that a utility may recover the cost of providing reuse to water, wastewater, and reuse customers.^{^[41]} In those prior cases, several criteria were considered in determining the amount of revenues associated with the cost of the Utility’s reuse system to allocate to the water system in order to design an aggressive conservation oriented rate structure to help mitigate the high average residential water demand.

Consistent with the prior rate cases, staff recommends that a portion of the wastewater revenue requirement be allocated to the water system. At a minimum, sufficient revenues should be allocated to the water system from the wastewater revenue requirement to avoid a reduction to the Utility’s existing water rates. While Schedule 3-A indicates a 6.09 percent revenue reduction for the water system, it should be noted that the test year revenues were based on water rates that included the $625,000 allocation of wastewater revenues to the water revenue requirement approved in the Utility’s last rate case. If $625,000 of the current wastewater revenue requirement is allocated to the water system, the resulting increases to the water and wastewater revenue requirements would be 9.17 percent and 3.18 percent, respectively.

Determining the additional costs the utility incurred in treating wastewater to reuse standards is difficult because the treatment process includes assets and operating expenses that are needed whether or not the wastewater is treated to reuse standards. Filters, storage facilities, and reuse transmission and distribution facilities, as well as additional chemicals, electricity, and operator time are necessary to treat the wastewater and deliver it to reuse customers. Staff believes that $625,000 is representative of the costs associated with treating the Utility’s wastewater to reuse standards. Therefore, due to the Utility’s high average monthly consumption per residential customer, low rates, and the need to send stronger price signals to achieve conservation, staff recommends that $625,000 of the wastewater system revenue requirement be shifted to the water system.

Water Rate Structure

Currently, the Utility’s BFC generates approximately 24 percent of the total water revenues. In order to design a rate structure that continues to promote water conservation, the current BFC should remain the same and all of the revenue increase should be allocated to the gallonage charges. As a result, approximately 21.6 percent of the staff recommended revenue requirement would be allocated to the BFC.

In addition, staff recommends that the current four-tier gallonage charge for residential water customers be changed to a three-tier gallonage charge. While the first tier is typically designed to reflect the non-discretionary residential demand based on average household size, the Utility’s service area is very diverse, making it difficult to identify the average non-discretionary demand. Therefore, staff recommends that the first tier include 6,000 gallons, consistent with the current rate structure. Approximately 37 percent of the residential customer bills during the test year reflected less than 6,000 gallons per month. In order to design a rate structure that reflects a more significant rate increase for demand in excess of the first 6,000 gallons of water per month, staff recommends that the current second and third tiers be collapsed into a single second tier that includes 6,001 to 15,000 gallons. The resulting third tier would include demand in excess of 15,000 gallons per month. Approximately 36 percent of the residential customer bills during the test year exceeded 15,000 gallons per month. The second and third tier gallonage charges should be 1.5 and 2.5 times the first tier gallonage charge, respectively. This rate structure has the effect of minimizing the price increase for those residential customers whose monthly consumption is 6,000 gallons or less. General service customers should be billed a BFC and uniform gallonage charge.

Based on a recommended revenue shift of $625,000 from the wastewater system and the resulting revenue increase for water customers of approximately 9.1 percent, the residential consumption can be expected to decline by 72,498,000 gallons resulting in anticipated average residential demand of 15,054 gallons per month or a 6 percent reduction in total residential consumption. This results in reductions of $10,769 for purchased power, $40 for purchased water, $4,270 for chemicals, and $710 for RAFs to reflect the anticipated repression. The post repression revenue requirement will be $4,441,245.

Private Fire Protection

Although the Utility’s approved tariff for private fire protection reflects monthly billing, the current charge is billed annually. The Utility stated that the annual billing provides a convenience for the customer in that they only have to pay for the service once a year. Staff believes it is reasonable to bill this customer type on an annual basis. Staff therefore, recommends that the private fire protection service continue to be billed annually based on one-twelfth of the approved BFC, pursuant to Rule 25-30.465, F.A.C.

Water Summary

Staff recommends that $625,000 of the wastewater revenue requirement be shifted to the water system, resulting in a 9.1 percent increase in the water revenue requirement over the test year revenues. In addition, a BFC based on 21.6 percent of the water revenue requirement should be approved. A three-tier gallonage charge should be approved for residential water customers based on anticipated repression of 6 percent. A uniform gallonage charge should be approved for general service water customers. Furthermore, private fire protection customers should be billed annually based on one-twelfth of the approved BFC for the appropriate meter size. Staff’s recommended rate structure and rates are shown on Schedule Nos. 4-A and 4-B.

Wastewater Rates

Sanlando provides wastewater service to approximately 8,428 customers. The Utility also provides reuse service to several bulk and residential customers. Currently, the residential wastewater rate structure consists of a BFC for all meter sizes and a uniform gallonage charge with a 10,000 gallon cap per month. 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. In addition, the Utility provides bulk wastewater service to Seminole County for approximately 1,379 units that receive water service from the County. Sanlando bills the County a flat rate per unit.

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.

Wastewater Rate Structure

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. Staff recommends a continuation of the current BFC and uniform gallonage charge rate structure for the wastewater system, with the BFC based on an allocation of 50 percent of the wastewater revenue requirement less the $625,000 revenue shift to the water revenue requirement. The monthly residential wastewater gallonage cap for billed consumption should continue at 10,000 gallons and the general service gallonage charge should be 1.2 times greater than the residential gallonage charge consistent with Commission practice.

Based on the expected reduction in water demand described above, staff recommends that a repression adjustment also be made for wastewater. Because wastewater rates are calculated based on customers’ water demand, if those customers’ water demand is expected to decline, then the billing determinants used to calculate wastewater rates should also be adjusted. Therefore, staff recommends a repression adjustment be made to calculate wastewater rates. Based on the billing analysis for the wastewater system, staff recommends a repression adjustment of 12,754,333 gallons to reflect the anticipated reduction in water demand used to calculate wastewater rates. This results in a 1.76 percent reduction in total residential consumption and corresponding reductions of $8,007 for purchased power, $2,972 for chemicals, $2,203 for sludge removal, and $593 for RAFs to reflect the anticipated repression, which results in a post repression revenue requirement of $3,986,610. The residential wastewater gallonage cap of 10,000 gallons should remain unchanged and the general service gallonage charge should be 1.2 times greater than the residential gallonage charge, consistent with Commission practice.

Seminole County

In a letter dated August 20, 2014, Seminole County expressed a desire to change from a flat rate per unit to metered rates based on wastewater flows. In a subsequent letter the County estimated that it pays nearly four times the charges for wastewater than it would pay if it were charged a bulk volumetric rate. In order for Sanlando to bill based on wastewater flows, Seminole County would need to install wastewater flow meters. Alternatively, staff considered whether the Utility would be able to bill the County based on those customers’ water demand. The Utility stated that it is unaware if Seminole County would be willing to provide the water demand data on a monthly basis or if there would be a cost associated with doing so. The County provided staff with 12 months of usage data for their water customers who receive wastewater service through the County’s bulk service agreement with Sanlando.

During the test year, the County was billed $446,038 for bulk wastewater service. The County believes that a rate restructuring should result in the County paying approximately $300,000 per year less for bulk wastewater service. Based on staff’s review of the water demand information provided by the County, staff determined the approximate demand that the County’s customers place on the wastewater system. In order to generate the appropriate revenues needed to recover the costs associated with the County’s demand on the wastewater system, the gallonage charge portion of the rate structure would be higher than a gallonage charge based on wastewater flows.

Therefore, staff recommends a continuation of the flat rate per unit for the County; however, staff recommends that the flat rate be adjusted to reflect current average demand for the residential and general service customers based on information provided to staff in this docket. As a result, the County would be billed approximately $384,843 per year, assuming the number of County wastewater customers remains constant. Staff also recommends a separate flat rate for the residential and general service customers based on the average water demand of the respective customer class.

Reuse

The Utility provides reuse at no charge to several bulk reuse customers. In addition, the Utility provides reuse to approximately 100 residential customers. The current reuse rate for those residential customers includes a BFC of $4.50 and a gallonage charge of $.45 per 1,000. Reuse rates are typically market based rather than cost based. This provides an incentive to encourage customers to use the reuse. In addition, there are cost savings associated with providing reuse to customers rather than treating the wastewater further in order to dispose of it in percolation ponds or through spray irrigation. Staff conducted a review of reuse rates charged throughout Seminole County and determined that the Utility’s current rates are relatively low compared to other reuse rates in the County. Therefore, staff recommends an across-the-board increase of 3.18 percent to current reuse rates commensurate with the overall recommended increase in wastewater rates.

Wastewater Summary

Staff recommends that $625,000 of the wastewater revenue requirement be shifted to the water system, resulting in a 3.18 percent increase in the wastewater revenue requirement over the test year revenues. In addition, a BFC based on 50 percent of the resulting revenue requirement and a uniform gallonage charge should be approved. The residential wastewater monthly gallonage cap should continue at 10,000 gallons and the general service gallonage charge should be set at 1.2 greater than the residential gallonage charge. Furthermore, an across-the-board increase of 3.18 percent should be approved for the reuse customers. Staff’s recommended rate structure and rates are shown on Schedule Nos. 4-C and 4-D.

Conclusion

Based on the foregoing, the recommended rate structures and monthly water and wastewater rates are shown on Schedule Nos. 4-A through 4-D. The Utility should file revised tariff sheets and a proposed customer notice to reflect the Commission-approved rates. The approved rates should be effective for service rendered on or after the stamped approval date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be implemented until staff has approved the proposed customer notice and the notice has been received by the customers. The Utility should provide proof of the date notice was given within ten days of the date of the notice.

OTHER ISSUES

Issue 19:

In determining whether any portion of the interim water and wastewater revenue increase granted should be refunded, how should the refund be calculated, and what is the amount of the refund, if any?

Recommendation:

The proper refund amount should be calculated by using the same data used to establish final rates, excluding rate case expense and other items not in effect during the interim period. The total net difference between the combined water and wastewater interim revenue requirements granted and the combined interim collection period revenue should be used because of the reallocation of wastewater revenues. No refund is required because the total interim collection period revenue requirement calculated is greater than the total interim revenue requirement granted. (D. Buys)

Staff Analysis:

The Commission authorized Sanlando to collect interim water rates, subject to refund, pursuant to Section 367.082, F.S. The approved interim revenue requirement for water of $4,270,819 represented an increase of $102,527 or 2.46 percent. The Utility did not request an interim revenue increase for wastewater.

According to Section 367.082, F.S., any refund should be calculated to reduce the rate of return of the Utility during the pendency of the proceeding to the same level within the range of the newly authorized rate of return. Adjustments made in the rate case test period that do not relate to the period that interim rates are in effect should be removed. Rate case expense is an example of an adjustment which is recovered only after final rates are established.

In this proceeding, the test period for establishment of interim and final rates is the 12-month period ended December 31, 2013. Sanlando’s approved interim rates did not include any provisions for pro forma or projected operating expenses or plant. The interim increase was designed to allow recovery of actual interest expense, and the lower limit of the last authorized range for equity earnings.

To establish the proper refund amount, staff calculated adjusted interim period revenue requirements utilizing the same data used to establish final rates. Rate case expense was excluded because this item is prospective in nature and did not occur during the interim collection period. Using the principles discussed above, the interim test year revenue requirements of $4,270,819 for water and $3,935,620 for wastewater, granted in Order PSC-14-0591-PCO-WS, issued October 22, 2014, are greater than the final revenue requirement for water by 9.88 percent and less than the final revenue requirement for wastewater by 18.05 percent. This would result in a 9.88 percent water refund and no refund for wastewater.

However, as stated in Issue 18, staff is recommending that wastewater revenues of $625,000 related to the Utility’s reuse system be shifted and reallocated to the water system. Because of the reallocation of these revenues, staff recommends using Sanlando’s total company revenue requirement for determining whether an interim refund is warranted. This methodology is consistent with the Commission’s decision in the Utility’s last two rate cases.^{^[42]} No refund is required because the total interim collection period revenue requirement calculated is greater than the total interim revenue requirement granted.

Issue 20:

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

Recommendation:

The water and wastewater rates should be reduced as shown on Schedule Nos. 4-A and 4-B, to remove rate case expense grossed-up for regulatory assessment fees and amortized over a four-year period. The decrease in rates should become effective immediately following the expiration of the four-year rate case expense recovery period, pursuant to Section 367.0816, F.S. Sanlando should be required to file revised tariffs and a proposed customer notice setting forth the lower rates and the reason for the reduction no later than one month prior to the actual date of the required rate reduction. If the Utility files this reduction in conjunction with a price index or pass-through rate adjustment, separate data should be filed for the price index and/or pass-through increase or decrease and the reduction in the rates due to the amortized rate case expense. (Thompson, T. Brown)

Staff Analysis:

Section 367.0816, F.S., requires that the rates be reduced immediately following the expiration of the four-year amortization period by the amount of the rate case expense previously included in rates. The reduction will reflect the removal of revenue associated with the amortization of rate case expense, the associated return in working capital, and the gross-up for RAFs. The total reduction is $30,361 for water and $23,962 for wastewater. Using Sanlando’s current revenue, expenses, capital structure and customer base, the reduction in revenue will result in the rate decreases as shown on Schedule Nos. 4-B and 4-D.

The Utility should be required to file revised tariff sheets no later than one month prior to the actual date of the required rate reduction. Sanlando should also be required to file a proposed customer notice setting forth the lower rates and the reason for the reduction. If the Utility files this reduction in conjunction with a price index or pass-through rate adjustment, separate data should be filed for the price index and/or pass-through increase or decrease, and the reduction in the rates due to the amortized rate case expense.

Issue 21: Should the Utility be required to provide proof, within 90 days of an effective order finalizing this docket, that it has adjusted its books for all the applicable National Association of Regulatory Utility Commissioners (NARUC) Uniform System of Accounts (USOA) associated with the Commission approved adjustments?

Recommendation: Yes. To ensure that the Utility adjusts its books in accordance with the Commission’s decision, Sanlando should provide proof, within 90 days of the final order in this docket, that the adjustments to all the applicable NARUC USOA accounts have been made to the Utility’s books and records. The Utility’s support documentation should include a list, by issue, of all rate base and cost of capital Commission-ordered adjustments and a reference to where the corresponding bookkeeping entries can be found in the general ledger that is provided. (Frank)

Staff Analysis: To ensure that the Utility adjusts its books in accordance with the Commission’s decision, Sanlando should provide proof, within 90 days of the final order in this docket that the adjustments to all the applicable NARUC USOA accounts have been made to the Utility’s books and records.

The Utility’s support documentation should include a list, by issue, of all rate base and cost of capital Commission-ordered adjustments and a reference to where the corresponding bookkeeping entries can be found in the general ledger that is provided. All support documentation should follow the guidelines set forth in Rule 25-30.450, F.A.C., which states:

In each instance, the utility must be able to support any schedule submitted, as well as any adjustments or allocations relied on by the utility. The work sheets, etc., supporting the schedules and data submitted must be organized in a systematic and rational manner so as to enable Commission personnel to verify the schedules in an expedient manner and minimum amount of time. The supporting work sheets, etc., shall list all reference sources necessary to enable Commission personnel to trace to original source of entry into the financial and accounting system and, in addition, verify amounts to the appropriate schedules.

Issue 22:

Should this docket be closed?

Recommendation:

No. If no person whose substantial interests are affected by the proposed agency action files a protest within 21 days of the issuance of the order, a consummating order should be issued. The docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the Utility and approved by staff. Once these actions are complete, this docket should be closed administratively. (Young)

Staff Analysis:

If no person whose substantial interests are affected by the proposed agency action files a protest within 21 days of the issuance of the order, a consummating order should be issued. The docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the Utility and approved by staff. Once these actions are complete, this docket should be closed administratively.

[1] Order No. PSC-13-0085-PAA-WS, issued February 14, 2013, in Docket No. 110257-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation.

[2] Order No. PSC-08-0812-PAA-WS, issued December 16, 2008, in Docket No. 070695-WS, In re: Application for increase in water and wastewater rates in Martin County by Miles Grant Water and Sewer Company.

[3] Order No. PSC-10-0400-PAA-WS, issued June 18, 2010, in Docket No. 090392-WS, In re: Application for increase in water and wastewater rates in Lake County by Utilities, Inc. of Pennbrooke.

[4] Audit Control No. 14-197-4-1, Work Paper No. 22-4.6.1, in Docket No. 140060-WS.

[5] Order No. PSC-12-0346-FOF-SU, issued July 5, 2012, in Docket No. 110153-SU, In re: Application for increase in wastewater rates in Lee County by Utilities, Inc. of Eagle Ridge.

[6] Order No. PSC-14-0521-FOF-WS, issued September 30, 2014, in Docket No. 120161-WS, In re: Analysis of Utilities, Inc.'s financial accounting and customer service computer system.

[8] Document No. 00959-15, filed February 13, 2015.

[10] An example of a regulatory liability would be the deferral of past overearnings to future periods.

[11] A regulatory asset typically involves a cost incurred by a regulated utility that would normally be expensed currently but for an action by the regulator or legislature to defer the cost as an asset to the balance sheet. This allows a utility to amortize the regulatory asset over a period greater than one year. For example, unamortized rate case expense in the water and wastewater industry is a regulatory asset. Normally, the costs of a rate case would be expensed when incurred. However, Section 367.0816, F.S., requires that water and wastewater utilities amortize rate case expense over a four-year period, thus creating a regulatory asset. The Commission’s approval to defer entitled revenues and amortize the recovery of those revenues over a period greater than one year can also create a regulatory asset.

[12] Order Nos. PSC-14-0025-PAA-WS, issued January 10, 2014, in Docket No. 120209-WS, In. re: Application for increase in water and wastewater rates in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida; PSC-13-0085-PAA-WS, issued February 14, 2013, in Docket No. 110257-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation; and PSC-12-0667-PAA-WS, issued December 26, 2012, in Docket No. 120037-WS, In re: Application for increase in water and wastewater rates in Lake County by Utilities, Inc. of Pennbrooke.

[13] Order No. PSC-14-0521-FOF-WS, issued September 30, 2014, in Docket No. 120161-WS, In re: Analysis of Utilities, Inc.'s financial accounting and customer service computer system.

[15] Order No. PSC-13-0085-PAA-WS, issued February 14, 2013, in Docket No. 110257-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation.

[16] Order Nos. PSC-09-0057-FOF-SU, issued January 27, 2009, in Docket No. 070293-SU, In re: Application for increase in wastewater rates in Monroe County by K W Resort Utilities Corp.; PSC-04-0369-AS-EI, issued April 6, 2004, in Docket No. 030438-EI, In re: Petition for rate increase by Florida Public Utilities Company; and PSC-010326-FOF-SU, issued February 6,2001, in Docket No. 991643-SU, In re: Application for increase in wastewater rates in Seven Springs System in Pasco County by Aloha Utilities, Inc.

[17] 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.

[19] The Utility had a Four Year Rate Reduction that became effective August 26, 2014.

[20] Order No. PSC-09-0385-FOF-WS, issued May 29, 2009, in Docket No. 080121-WS, In re: Application for increase in water and wastewater rates in Alachua, Brevard, DeSoto, Highlands, Lake, Lee, Marion, Orange, Palm Beach, Pasco, Polk, Putnam, Seminole, Sumter, Volusia, and Washington Counties by Aqua Utilities Florida, Inc.

[21] Order No. PSC-03-1440-FOF-WS, issued December 22, 2003, in Docket No. 020071-WS, In re: Application for rate increase in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida.

[22] Order Nos. PSC-14-0335-PAA-WS, issued June 30, 2014, in Docket No. 130243-WS, In re: Application for staff-assisted rate case in Highlands County by Lake Placid Utilities Inc.; PSC-14-0283-PAA-WS, issued May 30, 2014, in Docket No. 130212-WS, In re: Application for increase in water/wastewater rates in Polk County by Cypress Lakes Utilities, Inc.; PSC-14-0025-PAA-WS, issued January 10, 2014, in Docket No. 120209-WS, In re: Application for increase in water and wastewater rates in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida.

[23] Order Nos. PSC-12-0667-PAA-WS, issued December 26, 2012, in Docket No. 120667-WS, In re: Application for increase in water and wastewater rates in Lake County by Utilities, Inc. of Pennbrooke; PSC-12-0206-PAA-WS, issued April 17, 2012, in Docket No. 110264-WS, In re: Application for increase in water and wastewater rates in Pasco County by Labrador Utilities, Inc.; and PSC-14-0025-PAA-WS, issued January 10, 2014, in Docket No. 120209-WS, In re: Application for increase in water and wastewater rates in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida.

[24] Order No. PSC-14-0283-PAA-WS, issued May 30, 2014, in Docket No. 130212-WS, In re: Application for increase in water and wastewater rates in Polk County by Cypress Lakes, Inc.

[26] Order Nos. PSC-05-0624-PAA-WS, issued June 7, 2005, in Docket No. 040450-WS, In re: Application for rate increase in Martin County by Indiantown Company, Inc.; and PSC-01-0326-FOF-SU, issued February 6, 2001, in Docket No. 991643-SU, In re: Application for increase in wastewater rates in Seven Springs System in Pasco County by Aloha Utilities, Inc.

[27] Support documentation provided by F&F indicated that on December 3, 2014, 0.90 hours, or $315 ($350/hr. x 0.90 hours), were spent on various tasks related to the missed mailing deadline. On December 10, 2014, three activities, totaling 0.50 hours are noted, with one of the activities labeled “Review affidavit and initial Customer Notice and draft Notice of Filing.” As such, staff believes that 1/3 of the time, or 0.167 hrs., should be removed. These adjustments total 1.067 hours.

[28] F&F’s Work-In-Progress indicated 0.90 hours on December 3, 2014, related to the missed customer notice deadline. One-third of the 0.50 hours on December 10, 2014, also appears to be related to the missed deadline. As such, staff believes 0.167 hours (0.50 hrs./3) should be removed from actual expenses. Document No. 00226-15.

[29] Beginning January 1, 2015, the hourly rate increased based upon the application of the Price Index since hourly rates were last adjusted. This results in a new hourly rate of $360.

[30] Document No. 01172-15, Customer Meeting Transcript from February 10, 2015.

[31] Docket No. 140135-WS, In re: Application for increase in water/wastewater rates in Pasco County by Labrador Utilities, Inc.

[32] Based on the itemized descriptions of rate case work performed by WSC employees, approximately 16 hours of various MFR preparation are recorded for Patrick Flynn. Darrien Pitts’ hours reflected approximately 124 for preparation of MFR schedules A, B, D, and E, and an additional 50 hours for the preparation of the chemical and transportation schedules.

[33] Document No. 01439-15, filed March 16, 2015.

[34] Order No. PSC-14-0591-PCO-WS, issued October 22, 2014.

[35] The Utility accepted 14 of the 18 findings in the Audit Report of Sanlando Utilities, Corporation and 5 of the 8 findings in the Audit of Affiliate Transactions Report. Document No. 00712-15, filed February 2, 2015.

[36] Order Nos. PSC-13-0085-PAA-WS, issued February 14, 2013, in Docket No. 110257-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation; PSC-12-0667-PAA-WS, issued December 21, 2012, in Docket No. 120037-WS, In re: Application for increase in water and wastewater rates in Lake County by Utilities, Inc. of Pennbrooke; PSC-12-0206-PAA-WS, issued April 19, 2012, in Docket No. 110264-WS, In re: Application for increase in water and wastewater rates in Pasco County by Labrador Utilities, Inc.; and PSC-11-0587-PAA-SU, issued December 21, 2011, in Docket No. 110153-SU, In re: Application for increase in wastewater rates in Lee County by Utilities, Inc. of Eagle Ridge.

[37] Order Nos. PSC-14-0025-PAA-WS, issued January 10, 2014, in Docket No. 120209-WS, In re: Application for increase in water and wastewater rates in Marion, Orange, Pasco, Pinellas, and Seminole Counties by Utilities, Inc. of Florida; and PSC-14-0283-PAA-WS, issued May 30, 2014, in Docket No. 130212-WS, In re: Application for increase in water and wastewater rates in Polk County by Cypress Lakes Utilities, Inc.

[41] Order No. PSC-13-0085-PAA-WS, issued February 14, 2013, in Docket No. 110257-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation; Order No. PSC-10-0423-PAA-WS, issued July 1, 2010, in Docket No. 090402-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation; and Order No. PSC-07-0535-AS-WS, issued June 26, 2007, in Docket No. 060258-WS, In re: Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corp.

[42] Order No. PSC-13-0085-PAA-WS, pp. 29-30 and Order No. PSC-10-0423-PAA-WS, pp. 30-31.


DATE:	April 23, 2015
TO:	Office of Commission Clerk (Stauffer)
FROM:	Division of Engineering (Graves, Hill, King) Division of Accounting and Finance (T. Brown, D. Buys, Cicchetti, Fletcher, Frank, Monroe, Norris, Vogel) Division of Economics (Thompson) Office of the General Counsel (Young)
RE:	Docket No. 140060-WS – Application for increase in water and wastewater rates in Seminole County by Sanlando Utilities Corporation.
AGENDA:	05/05/15 – Regular Agenda – Proposed Agency Action, except for Issues 20 and 21 - Interested Persons May Participate
COMMISSIONERS ASSIGNED:		All Commissioners
PREHEARING OFFICER:		Patronis
CRITICAL DATES:		5-Month Effective Date Waived Through 05/05/15
SPECIAL INSTRUCTIONS:		None

	Sanlando Utilities Corporation				Schedule No. 1-A
	Schedule of Water Rate Base				Docket No. 140060-WS
	Test Year Ended 12/31/13
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year

1	Plant in Service	$26,039,977	($1,497,684)	$24,542,293	($657,328)	$23,884,965

2	Land and Land Rights	97,286	(18)	97,268	0	97,268

3	Accumulated Depreciation	(15,022,215)	1,146,809	(13,875,406)	352,845	(13,522,561)

4	CIAC	(11,147,950)	(463)	(11,148,413)	1,298,924	(9,849,489)

5	Amortization of CIAC	8,755,443	0	8,755,443	(820,695)	7,934,748

6	Construction Work in Progress	174,744	(174,744)	0	0	0

7	Working Capital Allowance	0	164,019	164,019	47,237	211,256

8	Rate Base	$8,897,285	($362,081)	$8,535,204	$220,983	$8,756,187

	Sanlando Utilities Corporation				Schedule No. 1-B
	Schedule of Wastewater Rate Base				Docket No. 140060-WS
	Test Year Ended 12/31/13
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted
	Description	Utility	ments	Per Utility	ments	Test Year

1	Plant in Service	$27,282,234	$4,818,824	$32,101,058	($379,560)	$31,721,498

2	Land and Land Rights	203,894	-14	203,880	0	203,880

3	Accumulated Depreciation	(15,335,542)	(948,640)	(16,284,182)	11,377	(16,272,805)

4	CIAC	(11,976,178)	(420)	(11,976,598)	68,564	(11,908,034)

5	Amortization of CIAC	10,603,129	0	10,603,129	(552,391)	10,050,738

6	Construction Work in Progress	1,792,058	(1,792,058)	0	0	0

7	Working Capital Allowance	0	215,575	215,575	40,312	255,887

8	Rate Base	$12,569,595	$2,293,267	$14,862,862	($811,698)	$14,051,164

	Sanlando Utilities Corporation	Schedule No. 1-C
	Adjustments to Rate Base	Docket No. 140060-WS
	Test Year Ended 12/31/13

	Explanation	Water	Wastewater


	Plant In Service
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	($581,651)	($292,605)
2	Reflect appropriate adjustments for Phoenix Project. (Issue 3)	0	0
3	Test year plant adjustments (Issue 4)	(112,706)	(27,535)
4	Reflect the appropriate pro forma plant. (Issue 5)	37,029	(59,420)
	Total	($657,328)	($379,560)

	Accumulated Depreciation
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	$508,937	$355,773
2	Reflect appropriate adjustments for Pheonix Project. (Issue 3)	(26,326)	20,777
3	Test year plant adjustments. (Issue 4)	(126,680)	(115,219)
4	Reflect the appropriate pro forma accumulated depreciation. (Issue 5)	(3,086)	(249,954)
	Total	$352,845	$11,377

	CIAC
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	$1,314,307	$68,564
2	Test year plant adjustments. (Issue 4)	(15,383)	0
	Total	$1,298,924	$68,564

	Accumulated Amortization of CIAC
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	($802,859)	($527,529)
2	Test year plant adjustments. (Issue 4)	(17,836)	(24,862)
	Total	($820,695)	($552,391)

	Working Capital
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	$27,695	$21,854
2	Reflect appropriate adjustments for Pheonix Project. (Issue 3)	2,496	1,948
3	Reflect appropriate working capital allowance per Rule 25-30.433, F.A.C. (Issue 7)	17,046	16,510
	Total	$47,237	$40,312

	Sanlando Utilities Corporation							Schedule No. 2
	Capital Structure-Simple Average							Docket No. 140060-WS
	Test Year Ended 12/31/13
			Specific	Subtotal	Prorata	Capital
		Total	Adjust-	Adjusted	Adjust-	Reconciled		Cost	Weighted
	Description	Capital	ments	Capital	ments	to Rate Base	Ratio	Rate	Cost
Per Utility
1	Long-term Debt	$180,000,000	$0	$180,000,000	($168,894,856)	$11,105,144	47.46%	6.64%	3.15%
2	Short-term Debt	9,315,385	0	9,315,385	(8,740,943)	574,442	2.46%	2.82%	0.07%
3	Preferred Stock	0	0	0	0	0	0.00%	0.00%	0.00%
4	Common Equity	170,208,617	0	170,208,617	(159,708,965)	10,499,652	44.87%	10.53%	4.73%
5	Customer Deposits	49,549	0	49,549	0	49,549	0.21%	6.00%	0.01%
6	Deferred Income Taxes	1,169,279	0	1,169,279	0	1,169,279	5.00%	0.00%	0.00%
7	Total Capital	$360,742,830	$0	$360,742,830	($337,344,764)	$23,398,066	100.00%		7.96%

Per Staff
8	Long-term Debt	$180,000,000	$0	$180,000,000	($169,190,737)	$10,809,263	47.41%	6.64%	3.15%
9	Short-term Debt	9,315,385	0	9,315,385	(8,755,983)	559,402	2.45%	2.82%	0.07%
10	Preferred Stock	0	0	0	0	0	0.00%	0.00%	0.00%
11	Common Equity	170,208,617	0	170,208,617	(159,987,341)	10,221,276	44.83%	10.53%	4.72%
12	Customer Deposits	49,549	0	49,549	0	49,549	0.22%	2.00%	0.00%
13	Deferred Income Taxes	1,169,279	(7,254)	1,162,025	0	1,162,025	5.10%	0.00%	0.00%
14	Total Capital	$360,742,830	($7,254)	$360,735,576	($337,934,061)	$22,801,515	100.00%		7.94%

							LOW	HIGH
					RETURN ON EQUITY		9.53%	11.53%
					OVERALL RATE OF RETURN		7.49%	8.39%

	Sanlando Utilities Corporation					Schedule No. 3-A
	Statement of Water Operations					Docket No. 140060-WS
	Test Year Ended 12/31/13
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted	Revenue	Revenue
	Description	Utility	ments	Per Utility	ments	Test Year	Increase	Requirement

1	Operating Revenues:	$4,076,016	$747,535	$4,823,551	($707,579)	$4,115,972	($250,461)	$3,865,511
							-6.09%
	Operating Expenses
2	Operation & Maintenance	$2,054,858	$12,890	$2,067,748	($31,670)	$2,036,078	$0	$2,036,078

3	Depreciation	911,369	(3,903)	907,466	(19,487)	887,979	0	887,979

4	Amortization	0	0	0	(416,853)	(416,853)	0	(416,853)

5	Taxes Other Than Income	478,042	(16,637)	461,405	(36,636)	424,769	(11,271)	413,499

6	Income Taxes	380,867	36,995	417,862	(78,464)	339,398	(90,007)	249,390

7	Total Operating Expense	3,825,136	29,345	3,854,481	(583,110)	3,271,371	(101,278)	3,170,093

8	Operating Income	$250,880	$718,190	$969,070	($124,469)	$844,601	($149,183)	$695,419

9	Rate Base	$8,897,285		$8,535,204		$8,756,187		$8,756,187

10	Rate of Return	2.82%		11.35%		9.65%		7.94%

	Sanlando Utilities Corporation						Schedule No. 3-B
	Statement of Wastewater Operations						Docket No. 140060-WS
	Test Year Ended 12/31/13
		Test Year	Utility	Adjusted	Staff	Staff
		Per	Adjust-	Test Year	Adjust-	Adjusted	Revenue	Revenue
	Description	Utility	ments	Per Utility	ments	Test Year	Increase	Requirement

1	Operating Revenues:	$3,888,457	$584,605	$4,473,062	($567,572)	$3,905,490	$748,919	$4,654,409
							19.18%
	Operating Expenses
2	Operation & Maintenance	$2,009,026	$9,667	$2,018,693	($42,022)	$1,976,671	$0	$1,976,671

3	Depreciation	538,829	257,934	796,763	152,576	949,339	0	949,339

4	Amortization	0	0	0	(295,310)	(295,310)	0	(295,310)

5	Taxes Other Than Income	384,902	129,786	514,688	(40,827)	473,861	33,701	507,562

6	Income Taxes	39	249,466	249,505	(118,442)	131,063	269,136	400,200

7	Total Operating Expense	2,932,796	646,853	3,579,649	(344,025)	3,235,624	302,838	3,538,462

8	Operating Income	$955,661	($62,248)	$893,413	($223,547)	$669,866	$446,081	$1,115,947

9	Rate Base	$12,569,595		$14,862,862		$14,051,164		$14,051,164

10	Rate of Return	7.60%		6.01%		4.77%		7.94%

	Sanlando Utilities Corporation	Schedule No. 3-C
	Adjustment to Operating Income	Docket No. 140060-WS
	Test Year Ended 12/31/13

	Explanation	Water	Wastewater


	Operating Revenues
1	Remove requested final revenue increase	($654,796)	($537,442)
2	To reflect the appropriate amount of annualized revenues.	(52,783)	(30,130)
	Total	($707,579)	($567,572)

	Operation and Maintenance Expense
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	($53,488)	($14,397)
2	Reflect appropriate amount for Salaries, Wages, Pensions and Benefits. (Issue 13)	(5,794)	(4,573)
3	Reflect appropriate amount of operating expense. (Issue 14)	34,060	(91,693)
4	Reflect pro forma operating expense. (Issue 12)	0	73,731
5	Reflect the appropriate rate case expense. (Issue 15)	(6,449)	(5,090)
	Total	($31,670)	($42,022)

	Depreciation Expense
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	($11,741)	($24,434)
2	Reflect appropriate depreciation expense for Project Phoenix. (Issue 3)	(26,326)	(20,777)
3	Reflect appropriate test year plant adjustments. (Issue 4)	15,494	212,775
4	Reflect corresponding adjustments for pro forma plant. (Issue 5)	3,086	(14,988)
	Total	($19,487)	$152,576

	Amortization - Other Expense
1	Reflect audit adjustments agreed to by Utility and staff. (Issue 2)	($161,182)	($139,245)
2	Reflect revenue impact of regulatory asset for Project Phoenix (Issue 3)	832	649
3	Reflect appropriate test year plant adjustments. (Issue 4)	(256,503)	(159,012)
4	Reflect additional pr0 forma cost to retire Des Pinar WWTP. (Issue 5)	0	2,298
	Total	($416,853)	($295,310)

	Taxes Other Than Income
1	RAFs on revenue adjustments above.	($31,841)	($25,541)
2	Reflect audit adjustments agreed to by Utility and staff for payroll taxes. (Issue 2)	(7,698)	(6,017)
3	Reflect the appropriate pro forma property taxes. (Issue 5)	527	(6,532)
4	Reflect increase in property taxes for 2014. (Issue 16)	449	(1,868)
5	Audit Finding 18 - reflect appropriate amount of RAFs. (Issue 16)	1,927	(869)
	Total	($36,636)	($40,827)

SANLANDO UTILITIES CORPORATION STAFF’S RECOMMENDED AND ALTERNATIVE WATER RATE STRUCTURES AND RATES
Test Year Rate Structure and Rates		Recommended Rate Structure and Rates
Monthly BFC/4-Tier Inclining Block Rate Structure BFC generated from current rates = 24%		$625,000 Revenue Shift Monthly BFC/3-Tier Inclining Block Rate Structure BFC = 21.6%
BFC	$4.45	BFC	$4.45
0-6 kgals	$0.88	0-6 kgals	$0.93
6-10 kgals	$0.96	6-15 kgals	$1.39
10-15 kgals	$1.44	15+ kgals	$2.32
15+ kgals	$1.91
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$4.45	0	$4.45
6	$9.73	6	$10.03
10	$13.57	10	$15.59
15	$20.77	15	$22.54
20	$30.32	20	$34.14
30	$44.97	30	$57.34
Alternative 1 Rate Structure and Rates		Alternative 2 Rate Structure and Rates
$550,000 Revenue Shift Monthly BFC/3-Tier Inclining Block Rate Structure BFC = 21.92%		$650,000 Revenue Shift Monthly BFC/3-Tier Inclining Block Rate Structure BFC =21.5%
BFC	$4.45	BFC	$4.45
0-6 kgals	$0.89	0-6 kgals	$0.94
6-15 kgals	$1.34	6-15 kgals	$1.41
15+ kgals	$2.24	15+ kgals	$2.34
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$4.45	0	$4.45
6	$9.79	6	$10.09
10	$15.15	10	$15.73
15	$21.85	15	$22.78
20	$33.05	20	$34.48
30	$54.59	30	$57.88

SANLANDO UTILITIES CORPORATION			SCHEDULE NO. 4-B
MONTHLY WATER RATES			DOCKET NO. 140060-WS
TEST YEAR ENDED DECEMBER 31, 2013

	UTILITY	COMMISSION	UTILITY	STAFF	4 YEAR
	CURRENT	APPROVED	REQUESTED	RECOMMENDED	RATE
	RATES (1)	INTERIM	FINAL	RATES	REDUCTION
Residential, Bulk, and General Service
Base Facility Charge by Meter Size:
5/8"X3/4"	$4.45	$4.56	$5.20	$4.45	$0.09
3/4"	$6.69	$6.86	$7.80	$6.68	$0.13
1"	$11.14	$11.42	$13.00	$11.13	$0.22
1-1/2"	$22.29	$22.84	$26.00	$22.25	$0.44
2"	$36.66	$37.57	$41.60	$35.60	$0.70
3"	$71.31	$73.08	$78.00	$71.20	$1.39
4"	$111.43	$114.19	$130.00	$111.25	$2.18
6"	$222.85	$228.38	$260.00	$222.50	$4.36
8"	$401.60	$411.56	$416.00	$356.00	$6.97

Charge per 1,000 Gallons - Residential
0-6,000 Gallons	$0.88	$0.90	$1.03	$0.93	$.02
6,001-10,000 Gallons	$0.96	$0.98	$1.12	$1.39	$.03
10,001-15,000 Gallons	$1.44	$1.48	$1.67	$1.59	$.03
Over 15,000 Gallons	$1.91	$1.96	$2.22	$2.32	$.05

Charge per 1,000 Gallons - Bulk,
and General Service	$1.41	$1.44	$1.64	$1.60	$0.03

Private Fire Protection
1-1/2"	$1.86	$1.91	$2.17	$1.85	$0.04
2"	$2.97	$3.04	$3.46	$2.97	$0.06
4"	$9.28	$9.51	$10.83	$9.27	$0.18
6"	$18.58	$19.04	$21.67	$18.54	$0.36
8"	$33.47	$34.30	$39.00	$29.67	$0.58

Typical Residential 5/8" x 3/4" Meter Bill Comparison
6,000 Gallons	$9.73	$9.96	$11.38	$10.03
15,000 Gallons	$20.77	$21.28	$24.21	$22.54
20,000 Gallons	$30.32	$31.08	$35.31	$34.14

SANLANDO UTILITIES CORPORATION STAFF’S RECOMMENDED AND ALTERNATIVE WASTEWATER RATE STRUCTURES AND RATES
Test Year Rate Structure and Rates		Recommended Rate Structure and Rates
Monthly BFC/Uniform Gallonage Rate Structure BFC generated from current rates = 49.93%		$625,000 Revenue Shift Monthly BFC/Uniform Gallonage Rate Structure BFC = 50%
BFC	$12.45	BFC	$14.61
Per kgal	$1.99	Per kgal	$1.92
(10 kgal cap)		(10 kgal cap)
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$12.45	0	$14.61
1	$14.44	1	$16.53
3	$18.42	3	$20.37
6	$24.39	6	$26.13
8	$28.37	8	$29.97
10	$32.35	10	$33.81
Alternative 1 Rate Structure and Rates		Alternative 2 Rate Structure and Rates
$550,000 Revenue Shift Monthly BFC/Uniform Gallonage Rate Structure BFC = 50%		$650,000 Revenue Shift Monthly BFC/Uniform Gallonage Rate Structure BFC =50%
BFC	$14.88	BFC	$14.52
Per kgal	$1.88	Per kgal	$1.93
(10 kgal cap)		(10 kgal cap)
Typical Monthly Bills		Typical Monthly Bills
Consumption (kgals)		Consumption (kgals)
0	$14.88	0	$14.52
1	$16.76	1	$16.45
3	$20.52	3	$20.31
6	$26.16	6	$26.10
8	$29.92	8	$29.96
10	$33.68	10	$33.82

SANLANDO UTILITIES CORPORATION		SCHEDULE NO. 4-D
MONTHLY WASTEWATER RATES		DOCKET NO. 140060-WS
TEST YEAR ENDED DECEMBER 31, 2013

	UTILITY	UTILITY	STAFF	4 YEAR
	CURRENT	REQUESTED	RECOMMENDED	RATE
	RATES (1)	FINAL	RATES	REDUCTION
Residential
Base Facility Charge - All Meter Sizes	$12.45	$14.21	$14.61	$2.48

Charge per 1,000 Gallons	$1.99	$2.27	$1.92	$0.33
*10,000 gallon cap

Flat Rate	$26.35	$30.06	$21.57	$3.66

Residential Reuse
Base Facility Charge - All Meter Sizes	$4.50	$5.13	$4.64	$0.79

Charge per 1,000 Gallons	$0.45	$0.51	$0.46	$0.08

General Service
Base Facility Charge by Meter Size:
5/8"X3/4"	$12.45	$14.21	$14.61	$2.48
3/4"	$18.70	$21.32	$21.92	$3.72
1"	$31.15	$35.53	$36.53	$6.19
1-1/2"	$62.28	$71.05	$73.05	$12.39
2"	$99.67	$113.68	$116.88	$19.82
3"	$199.33	$213.15	$233.76	$39.64
4"	$311.45	$355.25	$365.25	$61.94
6"	$622.89	$710.50	$730.50	$123.88
8"	$1,121.97	$1,136.80	$1,168.80	$198.20

Charge per 1,000 Gallons	$2.38	$2.71	$2.30	$0.39

Flat Rate	$26.35	$30.06	$25.79	$4.37

Typical Residential 5/8" x 3/4" Meter Bill Comparison
6,000 Gallons	$24.39	$27.83	$26.13
10,000 Gallons	$32.35	$36.91	$33.81
15,000 Gallons	$32.35	$36.91	$33.81