Discussion
of Issues
Issue 1:
Is the quality of service provided by Silver Lake
Utilities, Inc. satisfactory?
Recommendation:
Yes. The overall quality of service provided by
Silver Lake Utilities, Inc. should be considered satisfactory. (Hill)
Staff Analysis:
Pursuant
to Rule 25-30.433(1), Florida Administrative Code (F.A.C.), in water and
wastewater rate cases, the Commission must determine the overall quality of
service provided by a utility, which is derived from an evaluation of three
separate components of the utility’s operations. These components are: (1) the
quality of the utility’s product; (2) the operating conditions of the utility’s
plant and facilities; and (3) 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 Department of
Environmental Protection (DEP) and the county health department over the
preceding three-year period shall be considered. Additionally, Section
367.0812(1)(c), F.S., requires that the Commission consider the extent to which
the utility provides water service that meets secondary water quality standards
as established by the DEP.
Silver Lake’s service area is
located near Okeechobee, Florida, in Highlands and Glades Counties within the South
Florida Water Management District. The Utility’s water system
provides finished water that is obtained from 26 systems with 28 wells.
Quality of Utility's Product
Staff’s evaluation of Silver Lake’s water quality consisted
of a review of the Utility’s compliance with the DEP primary and secondary
drinking water standards and customer complaints regarding the water quality.
Primary standards protect public health, while secondary standards regulate
contaminants that may impact the taste, odor, and color of drinking water. Staff
also considered the Utility’s compliance with local health departments.
Staff reviewed the most recent chemical analyses for Silver
Lake’s systems that are regulated by the DEP (Brighton Ranch Office, Lake
Placid, and Buckhorn Housing). All results complied
with DEP standards. Additionally, Silver Lake is not currently under
citation by the Highlands County or Glades County health departments.
No complaints regarding the quality of Silver Lake’s
product have been filed with the Commission. Staff also requested complaints
against the system filed with the DEP for the test year and four years prior. The
DEP reported that it did not receive any complaints regarding the quality of
Silver Lake’s product during the period requested.
Based on staff’s review, giving consideration to the
Utility’s current compliance with DEP and county health department standards, as well as the lack of customer
complaints, the quality of Silver
Lake’s product should be considered satisfactory.
Operating Condition of the
Utility's Plant and Facilities
Staff’s evaluation of Silver Lake’s facilities included a
review of the Utility’s compliance standards of operation as well as a site
visit. Staff reviewed the Utility’s most recent DEP sanitary survey reports,
for Brighton Ranch Office, Lake Placid, and Buckhorn Housing. The DEP found no
deficiencies and determined that the system to be in compliance with its rules
and regulations. Currently, Silver Lake is not under citation by the Highlands
County or Glades County health departments. Staff did not identify any issues
or concerns during its February 11, 2016, site visit of the Utility. Therefore,
the operating condition of Silver Lake’s water treatment plants and facilities
should be considered satisfactory.
The Utility’s Attempt to Address Customer
Satisfaction
Staff reviewed the Commission's
complaint records from April 1, 2011, through July 12, 2016, and found no
complaints. Staff also requested copies of complaints filed with the Utility
during the test year and four years prior to the test year. Silver Lake
responded that no complaints had been filed during the test year and four years
prior to the test year.
Staff also requested complaints against the Utility filed with the DEP for the
test year and four years prior. The DEP did not indicate it had received any
complaints against Silver Lake during the time frame. A customer meeting was
held in the service territory on February 11, 2016. No customers attended the
meeting, and no customers have provided correspondence in this docket. Given
that there have been no customer complaints during staff’s period of review, the
Utility’s attempt to address customer satisfaction should be considered
satisfactory.
Conclusion
Based on the foregoing, the overall quality of service
provided by Silver Lake Utilities, Inc. should be considered satisfactory.
Issue 2:
What are the used and useful percentages (U&U)
of Silver Lake Utilities, Inc. water treatment plant and distribution system
and storage?
Recommendation:
Staff recommends that Silver Lake Utilities, Inc.’s
water treatment plant (WTP) should be considered 75.62 percent U&U and its
distribution systems should be considered 100 percent U&U. There appears to
be no excessive unaccounted for water (EUW), therefore, staff is not
recommending an adjustment be made to operating expenses for chemicals and
purchased power. (Hill)
Staff Analysis:
Silver Lake’s water system is served by 28 total
wells rated at a combined 856 gallons per minute (gpm). Water treatment varies
by system based on quality of the groundwater. Water is treated by chlorination
in 16 of the systems, by aeration in 5 of the systems, with a water softener in
3 of the systems, with a carbon filter in 3 of the systems, by ozone in 2 of
the systems, and via reverse osmosis provided on the customer’s side for 1
system. Eight of these systems are required to be permitted either by the DEP
or the SFWMD, and have a combined permitted capacity of 0.17 million gallons
per day (MGD). There are no fire hydrants served by the systems. Analysis of
the provided data indicates there has been no growth to the system in the past
five years.
Water
Treatment Plant Used & Useful
The
capacity of each WTP is separately rated. Pursuant to Rule 25-30.4325(4),
F.A.C., a water treatment system with one well is 100 percent used and useful.
Twenty-four of the 26 systems have one well each, and therefore, should be
considered 100 percent used and useful. In calculating the Firm Reliable
Capacity (FRC) of a water system served by multiple wells, the pumping capacity
of the wells, excluding the largest well for those systems with more than one
well, is considered the FRC. The two systems with more than one well each are the
Brighton Ranch Office WTP and the Brighton Grove Office WTP.
The
U&U calculation for a WTP is ((Max Day - EUW + Fire Flow + Growth)/FRC).
Brighton Ranch Office WTP has an FRC of 25 gpm based on the smallest well. The
maximum daily usage for the test year was 4,300 gallons on April 28, 2014. It
does not appear that there was a line break or unusual occurrence on that day.
This results in a peak demand (Max Day) of 5.97 gpm ((4,300 / 1,440) * 2). There
is no EUW and there is no Fire Flow. The Growth in connections appears to be
zero. The resulting U&U calculation for Brighton Ranch Office is 23.9
percent ((5.97 + 0 + 0 + 0) / 25).
Silver
Lake’s Brighton Grove Office WTP has an FRC of 22 gpm based on the smallest
well. The peak hour demand is calculated as 7.7 gpm.
There is no EUW and there is no fire flow. The growth in connections appears to
be zero. The resulting U&U calculation for Brighton Grove Office is 35
percent ((7.7 + 0 + 0 + 0) / 22).
In its
letter dated April 11, 2016, OPC submitted that it would be more appropriate to
weigh the U&U percentages for these two systems based on their contribution
to the Utility Plant in Service (UPIS) balance. Staff agrees that a weighted
average using UPIS contribution is a reasonable method for calculating U&U
as it accounts for the investment associated with the individual plants. This
methodology differs from that used in the Staff Report, which used a weighted
average using ERC contribution and resulted in a U&U of 91 percent. The 24
single-well systems, which are considered 100 percent U&U, combined with the
Brighton Ranch Office U&U and the Brighton Grove Office U&U produce an
overall value of 75.62 percent U&U for water treatment plant. The
updated calculation is shown in Table 1 below.
Table 1 Summary of WTP U&U
|
System Name
|
U&U
|
UPIS Contribution*
|
UPIS U&U Contribution
|
|
Brighton Grove Office WTP
|
35.00%
|
$105,265.80
|
$36,843.03
|
|
Brighton Ranch Office WTP
|
23.90%
|
$236,097.80
|
$56,427.37
|
|
All other systems
|
100%
|
$676,436.00
|
$676,436.00
|
|
Overall Used and Useful
|
75.62%
|
$1,017,800.00
|
$769,706.40
|
Source:
Plant accounts, net of depreciation, per audit.
Excessive Unaccounted
for Water
Rule 25-30.4325, F.A.C., describes EUW as unaccounted for
water in excess of 10 percent of the amount produced. When establishing the
Rule, the Commission recognized that some uses of water are readily measurable
and others are not. Unaccounted for water is all water that is produced that is
not sold, metered or accounted for in the records of the Utility. The Rule
provides that to determine whether adjustments to plant and operating expenses,
such as purchased electrical power and chemical costs, are necessary, the
Commission will consider all relevant factors as to the reason for EUW,
solutions implemented to correct the problem, or whether a proposed solution is
economically feasible. The unaccounted for water is calculated by subtracting
both the gallons used for other purposes, such as flushing, and the gallons
sold to customers from the total gallons pumped for the test year.
The Monthly Operating Reports (MORs) that Silver Lake files
with DEP, and the operational records Silver Lake provides for non-DEP systems,
indicate an unaccounted for water value of 8 percent. Therefore, there appears
to be no EUW to be considered, and staff recommends that no adjustment be made
to operating expenses for chemicals and purchased power due to the EUW.
Distribution
System Used & Useful
There has
been no growth in Silver Lake’s service area in the past five years and there are
no plans for additional development in the immediate future; therefore,
pursuant to Rule 25-30.4325(4), F.A.C., the transmission and distribution lines
should be considered 100 percent U&U.
Conclusion
Staff
recommends that Silver Lake’s WTP should be considered 75.62 percent U&U
and its distribution systems should be considered 100 percent U&U. There
appears to be no EUW; therefore, staff is not recommending an adjustment be
made to operating expenses for chemicals and purchased power.
Issue 3:
What is the appropriate average test year rate base
for Silver Lake Utilities, Inc.?
Recommendation:
The appropriate average test year rate base for Silver
Lake Utilities, Inc. is $519,781. (Vogel)
Staff Analysis:
Order
No. PSC-07-0983-PAA-WS,[10] reflected
the development of the Muse Village project. However, this project has not yet
occurred. The test year ended March 31, 2015, was used for the instant case. A
summary of each rate base component and recommended adjustments are discussed
below.
Utility Plant in Service (UPIS)
Silver Lake recorded UPIS of $1,246,881. The commission
audit noted exceptions to the Utility’s UPIS balances. Commission audit staff
compiled all subsequent plant additions and retirements. Staff is recommending
decreasing UPIS by $57,525, to remove plant that is being held for future use
associated with the Muse Development. Staff is recommending increasing UPIS by
$4,400, to capitalize two plant additions ($1,805 + $2,595) that were
originally placed in Operation & Maintenance (O&M) expenses. Staff has
increased UPIS by $2,694, to include pro forma plant additions made after the
test year along with the appropriate retirements. Staff has also decreased UPIS
by $3,547, to include an averaging adjustment. Staff’s adjustments to UPIS
result in a net decrease of $53,978. Therefore, staff recommends that the
appropriate UPIS balance is $1,192,903.
The OPC raised concerns over the utility’s 2009 water
treatment plant acquisitions totaling $644,747. The utility explains in a May
27, 2016 response, that the Seminole Tribe of Florida once served two systems,
the Brighton Ranch and the Brighton Grove. The Seminole Tribe of Florida
decided to construct a new public water supply which drastically increased the
costs to Lykes Bros., Inc. for water service to these areas.
Other systems were acquired or constructed to expand the
utility’s territory, including one to “serve a new commercial/industrial
facility in Palmdale.” The 2009 acquisitions allow Silver Lake to lower costs
to all of these affected systems. Therefore, staff believes the 2009
acquisitions are prudent.
Land & Land Rights
Silver Lake did not record a test year land value. The Utility
does not own any land on which the plant operates and all land is used through
land lease contracts with Lykes Bros., Inc. approved by Order No.
PSC-07-0983-PAA-WS.
Based on staff’s review, no adjustments are necessary. Therefore, staff
recommends that the appropriate land balance is $0.
Non-Used and Useful (non-U&U)
Plant
As discussed in Issue 2, staff is recommending a U&U
adjustment. As a result of this adjustment, staff recommends an increase to
non-U&U plant of $184,555. Staff is also recommending a decrease for
non-U&U accumulated depreciation of $78,414. Therefore, staff recommends a
net increase of $106,141 to non-U&U plant.
Contributions In Aid of Construction
(CIAC)
Silver Lake did not record a CIAC balance for the test
year; however, it did include a CIAC account balance in its original certificate
2006 filing. This account includes all Transmission and Distribution lines.
Staff is recommending an increase to CIAC of $248,963, to include Transmission
and Distribution lines. Therefore, staff’s recommended CIAC balance is
$248,963.
Accumulated Depreciation
Silver Lake recorded a test year
accumulated depreciation balance of $484,818. Silver Lake used the depreciation
rates of a Class B utility because it expected to grow beyond that of a Class C;
however this growth has not yet occurred. Class B rates were being used before
the 2009 additions. However, at that time, Class C rates would be applied to
the new additions and the utility and their accounting firm believed it would
be easier to continue under Class B rates for all systems. In an email dated
June 30, 2011, Mr. Shoemaker states that Commission staff deemed the Class B
rates as acceptable. Staff believes the use of Class B depreciation rates is
acceptable for this utility and does not recommend the use of Class C
depreciation rates.
Staff recalculated accumulated
depreciation using the prescribed rates set forth in Rule 25-30.140, F.A.C.,
and depreciation associated with plant additions and retirements. Staff
increased accumulated depreciation by $6,724, to reflect the appropriate
accumulated depreciation. Staff also recommends increasing accumulated
depreciation by $639, to include pro forma plant and retirements associated
with the pro forma items requested by Silver Lake. Staff decreased accumulated
depreciation by $19,938, for an averaging adjustment. Staff’s total adjustments
to accumulated depreciation result in a net decrease of $12,575. Therefore,
staff recommends an accumulated depreciation balance of $472,244.
Accumulated Amortization
of CIAC
Silver Lake did not record
accumulated amortization of CIAC. As stated above, staff is recommending an
increase in CIAC for the Utility. To account for this increase, staff is
recommending an increase in accumulated amortization of CIAC in the amount of
$134,852. Therefore, staff’s recommended accumulated amortization of CIAC balance
is $134,852.
Working Capital Allowance
Working capital is defined as the short-term
investor-supplied funds that are necessary to meet operating expenses.
Consistent with Rule 25-30.433(2), F.A.C., staff used the one-eighth of the
O&M expense formula approach for calculating the working capital allowance.
Applying this formula, staff recommends a working capital allowance of $19,373
(based on O&M expense of $154,987/8).
Rate Base Summary
Based on the foregoing, staff recommends that the appropriate
average test year water rate base for Silver Lake is $519,781. Water rate base
is shown on Schedule No. 1-A, and the related adjustments are shown on Schedule
No. 1-B.
Issue 4:
What is the appropriate return on equity and overall rate
of return for Silver Lake Utilities, Inc.?
Recommendation:
The appropriate return on equity (ROE) for Silver Lake is 10.58
percent, with a range of 9.58 percent to 11.58 percent, and the appropriate
overall rate of return is 6.54 percent. (Vogel)
Staff Analysis:
According to the Commission audit, Silver Lake’s test year capital
structure reflected common equity of $370,892 and long-term debt of $424,000.
Silver Lake’s capital structure has been reconciled with
staff’s recommended rate base. The appropriate ROE for the Utility is 10.58
percent based upon the Commission-approved leverage formula currently in
effect.[12] Staff
recommends an ROE of 10.58 percent, with a range of 9.58 percent to 11.58
percent, and an overall rate of return of 6.54 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 5:
What are the appropriate test year revenues for
Silver Lake Utilities, Inc. water system?
Recommendation:
The appropriate test year revenues for Silver Lake
Utilities, Inc.’s water system are $47,162. (Bruce)
Staff Analysis: Silver Lake recorded
total test year revenues of $43,397, which consists of only service revenues.
During the test year, Silver Lake charged its citrus division the utility’s
approved base facility charge for a 3” meter and $0.91 per 1,000 gallons for
raw water irrigation service. However, the utility’s tariff for raw water
irrigation service is designed for bulk raw water service and includes a fixed
base charge of $5,500 based on a minimum demand of 500,000 gallons per month,
in addition to the gallonage charge of $0.91 per 1,000 gallons. The general service potable water rate
includes a base facility charge based on meter size and a gallonage charge of
$3.79 per 1,000 gallons. Additionally, there was a discrepancy in the amount of
gallons billed and the amount of gallons sold in the billing analysis. Staff corrected
Silver Lake’s billing determinants, applied the rates that were in effect
during the test year, and determined that the service revenues should be
increased by $3,765. As discussed in Issue 8, on a going-forward basis, staff
is recommending a new tariff charge for non-bulk raw water customers. Based on
the above, staff recommends that the appropriate amount of test year revenues
for Silver Lake’s water system is $47,162.
Issue 6:
What is the
appropriate amount of operating expense for Silver Lake Utilities, Inc.?
Recommendation:
The appropriate amount of operating expense for
Silver Lake Utilities, Inc. is $201,132. (Vogel)
Staff Analysis:
Silver Lake Utilities,
Inc. recorded operating expense
of $201,343 for the test year ended March 31, 2015. Staff reviewed the test
year O&M expenses, including invoices, canceled checks, and other
supporting documentation, and made several adjustments to the Utility's
operating expenses as summarized below.
Operation and Maintenance Expenses
Purchased
Water (610)
Silver Lake recorded Purchased Water expense of $1,256.
This expense is related to the royalties required in the land lease contracts.
Staff increased this amount by $108, to include an invoice from December of the
test year. Therefore, staff recommends Purchased Water expense of $1,364.
Purchased
Power (615)
The Utility recorded Purchased Power expense of $6,364.
Staff increased this amount by $47, to include an invoice not previously
included. Staff also increased this account by $96, to reclassify invoices from
Account 618. Staff’s total adjustments result in an increase of $143.
Therefore, staff recommends Purchased Power expense of $6,507.
Chemicals
(618)
The Utility recorded Chemicals expense of $2,326. Staff
decreased this account by $96, to remove invoices reclassified to Account 615.
Staff increased this account by $113, to include an invoice not previously
included. Staff also decreased this account by $107, to remove an invoice not
supported. Staff’s adjustments result in a net decrease of $90 to Chemicals
expense. Therefore, staff recommends Chemicals expense of $2,236.
Materials and Supplies (620)
Silver Lake recorded Materials
and Supplies expense of $14,757. Staff recommends decreasing this account by
$1,805, to capitalize a plant addition into Account 331. Staff also recommends
decreasing this account by $2,595, to capitalize a plant addition into Account
336. Staff’s adjustments result in a decrease of $4,400 to Materials and
Supplies expense. The resulting recommended amount for Materials and Supplies
expense is $10,357.
Contractual Services - Management
(634)
Silver Lake recorded Contractual
Services – Management expense of $42,177. This expense includes both management
expense and office support for the Utility’s operations. OPC disagreed with
this account balance in its February 8, 2016 letter. Staff believes that due to
the physical size of the Utility’s service territory, 350,000 acres, and the
remote locations of many of the facilities, this expense is prudent and
necessary to operate the Utility. Staff recommends Contractual Services –
Management expense of $42,177.
Contractual Services - Testing (635)
Silver Lake recorded Contractual
Services – Testing expense of $6,346. Staff believes this expense is prudent
due to the large number of wells the Utility maintains. Staff recommends
Contractual Services – Testing expense of $6,346.
Contractual Services - Other (636)
The Utility recorded Contractual
Services – Other expense of $37,177. This expense includes all contractual
maintenance expenses for the Utility. OPC disagreed with this account balance
in its February 8, 2015 letter. Staff believes that due to the physical size of
the Utility’s service territory, 350,000 acres, and the remote locations of
many of the facilities, this expense is prudent and necessary to operate the Utility.
Staff decreased this account by $720, to amortize the non-recurring expense of
$900 over a five year period. The resulting recommended amount for Contractual
Services – Other expense is $36,457.
Rent of Buildings and Property (640)
Silver Lake recorded Rental of
Buildings and Property expense of $44,095, which includes the land lease
contracts for twenty-five well sites and office space. OPC does not believe
this expense is reasonable. However, in Order No. PSC-07-0717-FOF-WS,[13] the
Commission approved these contracts as prudent. Staff does not believe any
adjustment should be made to this account at this time, and staff recommends
Rental of Buildings and Property expense of $44,095.
Regulatory Commission Expense (665)
The Utility recorded no Regulatory
Commission expense for the test year. By Rule 25-30.0407, F.A.C., the Utility
is required to mail notices of the customer meeting and notices of final rates
in this case to its customers. For these notices, staff estimated $59 for
postage expense, $44 for printing expense, and $6 for envelopes. These amounts
result in $109 for postage, printing notices, and envelopes. Additionally, Silver
Lake paid a $1,000 rate case filing fee and received legal counsel from Mr.
Martin Friedman throughout the course of this case. Staff recommends including
these legal fees in the amount of $9,051. Based on the above, staff recommends a
total rate case expense of $10,160, which amortized over four years is $2,540
annually. Staff recommends Regulatory Commission expense of $2,540.
Miscellaneous Expense (675)
Silver Lake recorded Miscellaneous
expense of $2,908 for the test year. Staff does not believe any adjustments
should be made to this account at this time, and staff recommends Miscellaneous
Expense of $2,908.
Operation and
Maintenance Expenses Summary
Based on the above adjustments,
staff recommends that the O&M expenses are $154,987. Staff’s recommended
adjustments to O&M expense are shown on Schedule No. 3-A.
Depreciation Expense
(Net of Amortization of CIAC)
Silver Lake recorded Depreciation expense during the test year of
$40,778. Staff recalculated Depreciation expense using the prescribed
rates set forth in Rule 25-30.140, F.A.C.
As a result, staff decreased Depreciation expense by $130, to reflect the
appropriate Depreciation expense. Also, staff decreased Depreciation expense by
$7,242, to reflect the non-U&U portion of Depreciation expense. Staff’s
total adjustments to Depreciation expense result in a decrease of $7,372.
Therefore, staff recommends Depreciation expense of $33,406.
Taxes Other Than Income
(TOTI)
Silver Lake recorded a TOTI
balance of $3,159. Staff increased TOTI by $1,109, to reflect the appropriate
test year property taxes. Staff also increased TOTI by $143, to reflect the
appropriate Regulatory Assessment Fees. Staff increased TOTI by $41, to include
the property tax for the new pro forma plant addition. Lastly, staff decreased
TOTI by $171 to reflect the non-U&U portion of TOTI. Staff’s adjustments
result in an increase of $1,122.
In addition,
as discussed in Issue 7, revenues were increased by $187,964, to reflect the
change in revenue required to cover expenses and allow the recommended return
on investment. As a result, TOTI should be increased by $8,458 to reflect RAFs
of 4.5 percent on the change in revenues. Therefore, staff recommends TOTI of
$12,739 ($3,159 + $1,122 + $8,458).
Operating Expenses
Summary
The application of staff=s
recommended adjustments to Silver Lake’s test year operating expenses results
in operating expenses of $201,132. Operating expenses are shown on Schedule No.
3-A, and the related adjustments are shown on Schedule Nos. 3-B and 3-C.
Issue 7:
What is the appropriate revenue requirement for
Silver Lake Utilities, Inc.?
Recommendation:
The appropriate revenue requirement for Silver Lake
Utilities, Inc. is $235,126, resulting in an annual increase of $187,964 (398.55
percent). (Vogel)
Staff Analysis:
Silver
Lake Utilities, Inc. should be allowed an annual increase of $187,964 (398.55
percent), which will allow the Utility the opportunity to recover its expenses
and earn a 6.54 percent return on its water system. The calculation is shown in
Table 7-1 below.
Table 7-1
Water Revenue
Requirement
|
Adjusted Rate Base
|
|
$519,781
|
|
Rate of Return
|
|
x 6.54%
|
|
Return on Rate Base
|
|
$33,994
|
|
Adjusted O&M Expense
|
|
154,987
|
|
Depreciation Expense (Net)
|
|
33,406
|
|
Taxes Other Than Income
|
|
4,281
|
|
Test Year RAFs
|
|
8,458
|
|
Revenue Requirement
|
|
$235,126
|
|
Less Adjusted Test Year Revenues
|
|
47,162
|
|
Annual Increase
|
|
$187,964
|
|
Percent Increase
|
|
398.55%
|
Silver Lake Utilities, Inc. is
100 percent owned by Lykes Bros. Inc. and currently serves 62 customers, all
but one of these customers are affiliated with Lykes Bros. Inc. and the
customer bills are paid by the divisions of the parent company. The only
customer not directly affiliated with Lykes Bros. Inc. is Brighton Baptist
Church. In a response to a staff data request, filed March 1, 2016, Silver Lake
stated, “the church pays their monthly bill and, upon receipt, Lykes makes a
monthly donation to the church in the amount of the bill.” Staff believes an
increase will not negatively affect any ratepayers not affiliated with Lykes
Bros. Inc. and compensatory rates should be approved.
OPC has voiced concerns about the
level of revenues based on the amount of customers currently served by the Utility
and the possibility of overearnings if the Utility expanded. Silver Lake planned
a large development in its service area when it filed for its certificates in
2006. Since 2006, Silver Lake did not experience the anticipated large growth
and all but one of its current customers is affiliated with the Utility’s
parent company as mentioned above.
In response to data requests, Silver Lake stated that it does
not plan to expand in the immediate future, as the Muse Village development is
currently on hold. Due to the Utility’s current operating loss of $150,210,
staff recommends compensatory rates be approved. Any expansion or overearning
concerns would be detected and addressed when the Utility files its required
annual reports.
Issue 8:
What is the appropriate rate structure and rates for
Silver Lake Utilities, Inc. water system?
Recommendation: The
recommended rate structure and monthly water rates for Silver Lake Utilities,
Inc. are shown on Schedule No. 4. 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 sheets pursuant to Rule 25-30.475(1), F.A.C. In
addition, the approved rates should not be implemented until staff has approved
the proposed customer notice and the notice has been received by the customers.
Silver Lake Utilities, Inc. should provide proof of the date notice was given
within 10 days of the date of the notice. (Bruce)
Staff Analysis:
Water Rates
Silver Lake’s service territory
is located in the SFWMD. The majority of the property in the Utility’s service
territory is owned by Lykes Bros Inc. The property is used primarily for cattle
ranching, citrus, timber, sugar cane production, and employee housing. The Utility
provides water only service to 39 residential, 23 general service customers, as
well as a raw water irrigation customer.
Staff’s analysis of the Utility’s
billing data indicates that approximately 1 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 5,378 gallons per month.
Currently, the water system rate structure for residential customers consists
of a base facility charge (BFC) and a two-tier inclining block rate structure.
The rate blocks are: (1) 0-5,000 gallons and (2) all usage in excess of 5,000
gallons per month. General service customers are billed a BFC based on meter
size and a uniform gallonage charge. Silver Lake’s existing BFC generates
approximately 47 percent of the Utility’s water revenues. Silver Lake does not
have an approved tariff for non-bulk raw water irrigation service. Silver Lake
has tariffed rates for bulk raw water and bulk treated water; however, it does
not have any current customers for these services.
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; and 3) implement, where appropriate, water conserving rate
structures consistent with Commission practice.
As discussed in Issue 7, the
recommended revenue requirement increase for Silver Lake is 398.55 percent.
When there is such a significant increase in revenues, staff would typically
recommend a repression adjustment. However, in this instance, the customers’
bills are paid by the owner of the Utility rather than the customers. Since the
customers do not pay for their water service, there would be no pricing signals
sent to the customers for conservation efforts. As a result, staff believes it
is appropriate to keep the existing rate structure for residential customers
and no alternative rate structures have been provided. General service and
irrigation rates should be designed to include a BFC and uniform gallonage
charge. The raw water irrigation service gallonage charge should be designed to
recognize the reduction in cost associated with chemicals and electricity.
Silver Lake’s existing rates for
bulk treated and raw water services, which were approved in the original
certificate docket, were designed based on dedicated facilities with minimum
take or pay rates. As previously discussed, the Utility does not currently have
bulk customers and those facilities have not been constructed. Staff recommends
that the existing bulk potable and raw water service rate be continued. The
rates should be reevaluated in the Utility’s subsequent rate case.
Summary
For the reasons outlined above,
staff recommends continuation of the existing water system rate structure for
residential customers, which consists of a BFC and a two-tier inclining block
rate structure. The rate blocks are: (1) 0-5,000 gallons and (2) all usage in
excess of 5,000 gallons per month. Staff recommends that general service and
raw water irrigation customers be billed based on a BFC and a uniform gallonage
charge. Staff recommends that the raw water irrigation gallonage charge should
exclude the cost of chemicals and electricity. The existing bulk potable and raw
water rates should be continued.
The recommended rate structure and monthly water
rates for Silver Lake Utilities, Inc. are shown on Schedule No. 4. 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 sheets pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. Silver Lake Utilities, Inc. should
provide proof of the date notice was given within 10 days of the date of the
notice.
Issue 9:
Should Silver Lake Utilities, Inc. existing service
availability charges be revised, and if so, what are the appropriate charges?
Recommendation: No. The appropriate
service availability charges are the Silver Lake Utilities, Inc.’s existing
charges for the water system. (Bruce)
Staff Analysis: Silver
Lake’s existing service availability charges were last
established in Docket No. 060726-WS[14]. The main extension charge is $4,406 per equivalent residential
connection (ERC). The plant capacity charge for water is $2,200 per ERC. Silver
Lake also has approved bulk raw water and bulk treated water plant capacity
charges of $875 and $3,750 per ERC, respectively.
Rule 25-30.580, F.A.C., establishes guidelines for designing service
availability charges. Pursuant to the rule, the maximum amount of
contributions-in-aid-of construction (CIAC), net of amortization, should not
exceed 75 percent of the total original cost, net of accumulated depreciation,
of the Utility’s facilities and plant when the facilities and plant are at
their designed capacity. The minimum amount of CIAC should not be less than the
percentage of such facilities and plant that is represented by the water
transmission and distribution system at design capacity. Staff determined that
the Utility’s existing contribution level is 16 percent; however, the Utility’s
facilities are not at their design capacity. Staff believes the existing
service availability charges are sufficient, within the guidelines of Rule
25-30.580, F.A.C., and recommends they remain unchanged at this time.
Issue 10:
What are the Utility’s appropriate initial customer
deposits for Silver Lake Utilities, Inc. water service?
Recommendation: The appropriate
initial water customer deposit should be $378 for the residential 5/8” x 3/4”
meter size. The initial customer deposits for all other residential meter sizes
and all general service meter sizes should be two times the average estimated
bill for water service. The wastewater initial customer deposit should remain
unchanged. The approved customer deposits should be effective for connections
made on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475, F.A.C. Silver Lake Utilities, Inc. should be required to charge
the approved charges until authorized to change them by the Commission in a
subsequent proceeding. (Bruce)
Staff Analysis:
Rule
25-30.311, F.A.C., contains the criteria for collecting, administering, and
refunding customer deposits. Customer deposits are designed to minimize the
exposure of bad debt expense for the Utility and, ultimately, the general body
of ratepayers. Historically, the Commission has set initial customer deposits
equal to two times the average estimated bill.[15] Currently, the initial water customer deposit
is $76 for 5/8” x 3/4" meter size and two times the average estimated bill
for all other meters sizes. Based on the recommended water rates, the
appropriate initial customer deposit for water should be $378 for a residential
customer with a 5/8” x 3/4” meter to reflect an average residential customer
bill for two months.
Staff recommends the appropriate initial water
customer deposit should be $378 for the residential 5/8” x 3/4” meter size. The
initial customer deposits for all other residential meter sizes and all general
service meter sizes should be two times the average estimated bill for water
service. The wastewater initial customer deposit should remain unchanged. The
approved customer deposits should be effective for connections made on or after
the stamped approval date on the tariff sheets pursuant to Rule 25-30.475,
F.A.C. Silver Lake Utilities, Inc. should be required to charge the approved
charges until authorized to change them by the Commission in a subsequent
proceeding.
Issue 11:
What is the appropriate amount by which Silver Lake
Utilities, Inc.’s rates should be reduced in four years after the published
effective date to reflect the removal of the amortized rate case expense as
required by Section 367.0816, F.S.?
Recommendation:
Silver Lake Utilities, Inc.’s water rates should be
reduced as shown on Schedule No. 4, 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.,
Silver Lake 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. (Bruce, Vogel)
Staff Analysis:
Section 367.0816, F.S., requires
that the rates be reduced immediately following the expiration of the four-year
period by the amount of the rate case expense previously included in rates. The
reduction will reflect the removal of revenue associated with the amortization
of rate case expense, the associated return in working capital, and the
gross-up for RAFs. The total recommended reduction is $2,682.
The water rates should be reduced as shown on Schedule No.
4 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., Silver Lake 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.
Issue 12:
Should the recommended rates be approved for Silver
Lake Utilities, Inc. on a temporary basis, subject to refund with interest, in
the event of a protest filed by a party other than the Utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates should be approved for Silver Lake Utilities, Inc. on a
temporary basis, subject to refund with interest, in the event of a protest
filed by a party other than the Utility. Silver Lake should file revised tariff
sheets and a proposed customer notice to reflect the Commission-approved rates.
The approved rates should be effective for service rendered on, or after, the
stamped approval date on the tariff sheet, pursuant to Rule 25-30.475(1),
F.A.C. In addition, the temporary rates should not be implemented until staff
has approved the proposed notice, and the notice has been received by the
customers. Prior to implementation of any temporary rates, Silver Lake should
provide appropriate security. If the recommended rates are approved on a
temporary basis, the rates collected by Silver Lake should be subject to the refund
provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the
Utility should file reports with the Commission’s Office of Commission Clerk,
no later than the twentieth of each month, indicating the monthly and total
amount of money subject to refund at the end of the preceding month. The report
filed should also indicate the status of the security being used to guarantee
repayment of any potential refund. (Vogel)
Staff Analysis:
This recommendation
proposes an increase in water rates. A timely protest might delay what may be a
justified rate increase resulting in an unrecoverable loss of revenue to the
Utility. Therefore, pursuant to Section 367.0814(7), F.S., in the event of a protest
filed by a party other than Silver Lake, staff recommends that the recommended
rates be approved as temporary rates. Silver Lake should file revised tariff sheets and a proposed
customer notice to reflect the Commission-approved rates. The approved rates
should be effective for service rendered on or after the stamped approval date
on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition, the
temporary rates should not be implemented until staff has approved the proposed
notice, and the notice has been received by the customers. The recommended
rates collected by the Utility should be subject to the refund provisions
discussed below.
The Utility should be authorized
to collect the temporary rates upon staff’s approval of an appropriate security
for the potential refund and the proposed customer notice. Security should be
in the form of a bond or letter of credit in the amount of $125,618.
Alternatively, Silver Lake could establish an escrow agreement with an
independent financial institution.
If the Utility chooses a bond as
security, the bond should contain wording to the effect that it will be
terminated only under the following conditions:
1)
The Commission approves the rate increase; or
2)
If the Commission denies the increase, the Utility shall
refund the amount collected that is attributable to the increase.
If the Utility chooses a letter
of credit as a security, it should contain the following conditions:
1) The
letter of credit is irrevocable for the period it is in effect.
2) The letter of credit will be
in effect until a final Commission order is rendered, either approving or
denying the rate increase.
If security is provided through
an escrow agreement, the following conditions should be part of the agreement:
1) The
Commission Clerk, or his or her designee, must be a signatory to the escrow
agreement.
2) No
monies in the escrow account may be withdrawn by the Utility without the
express approval of the Commission Clerk, or his or her designee.
3) The
escrow account shall be an interest bearing account.
4) If
a refund to the customers is required, all interest earned by the escrow
account shall be distributed to the customers.
5) If
a refund to the customers is not required, the interest earned by the escrow
account shall revert to the Utility.
6) All
information on the escrow account shall be available from the holder of the
escrow account to a Commission representative at all times.
7) The
amount of revenue subject to refund shall be deposited in the escrow account
within seven days of receipt.
8) This
escrow account is established by the direction of the Florida Public Service
Commission for the purpose(s) set forth in its order requiring such account.
Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972), escrow
accounts are not subject to garnishments.
9) The
account must specify by whom and on whose behalf such monies were paid.
In no instance should the
maintenance and administrative costs associated with the refund be borne by the
customers. These costs are the responsibility of, and should be borne by, the
Utility. Irrespective of the form of security chosen by the Utility, an account
of all monies received as a result of the rate increase should be maintained by
the Utility. If a refund is ultimately required, it should be paid with
interest calculated pursuant to Rule 25-30.360(4), F.A.C.
The Utility should maintain a record of the amount of the security, and the amount of
revenues that are subject to refund. In addition, after the increased rates are
in effect, pursuant to Rule 25-30.360(6), F.A.C., the Utility should file
reports with the Commission’s Office of Commission Clerk, no later than the
twentieth of each month, indicating the monthly and total amount of money
subject to refund at the end of the preceding month. The report filed should
also indicate the status of the security being used to guarantee repayment of
any potential refund.
Issue 13:
Should Silver Lake Utilities, Inc. be required to
notify the Commission 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. Silver Lake Utilities, Inc. should be required
to notify the Commission, in writing, that it has adjusted its books in
accordance with the Commission's decision. The Utility should submit a letter
within 90 days of the final order in this docket, confirming that the
adjustments to all the applicable NARUC USOA accounts have been made to the Utility’s
books and records. In the event the Utility needs additional time to complete
the adjustments, notice should be provided within seven days prior to deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days. (Vogel)
Staff Analysis:
The Utility should be required to notify the
Commission, in writing that it has adjusted its books in accordance with the
Commission's decision. The Utility should submit a letter within 90 days of the
final order in this docket, confirming that the adjustments to all the applicable
NARUC USOA accounts have been made to the Utility’s books and records. In the
event the Utility needs additional time to complete the adjustments, notice
should be provided within seven days prior to deadline. Upon providing good
cause, staff should be given administrative authority to grant an extension of
up to 60 days.
Issue 14:
Should this docket be closed?
Recommendation:
No. Except for the granting of temporary rates in the
event of protest, the four year rate reduction, and proof of adjustment of
books and records, which are final actions, 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 Silver Lake and approved by
staff, and Silver Lake has provided staff with proof that the adjustments for
all the applicable NARUC USOA primary accounts have been made. Once these
actions are complete, this docket should be closed administratively. (Corbari)
Staff Analysis:
Except for the granting of temporary rates in the event of
protest, the four year rate reduction, and proof of adjustment of books and
records, which are final actions, 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 Silver Lake and approved by staff, and
Silver Lake has provided staff with proof that the adjustments for all the
applicable NARUC USOA primary accounts have been made. Once these actions are
complete, this docket should be closed administratively.
