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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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October 20, 2016
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TO:
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Office of Commission Clerk (Stauffer)
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FROM:
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Division of Accounting and Finance (Norris,
Frank, Wolmers)
Division of Economics
(Bruce, Friedrich, Hudson, Johnson)
Division of Engineering
(P. Buys, Ellis, Graves, Knoblauch, Lee, Matthews)
Office of the General
Counsel (Trierweiler, Janjic, Taylor)
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RE:
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Docket No. 160101-WS – Application for
increase in water and wastewater rates in Charlotte, Highlands, Lake, Lee,
Marion, Orange, Pasco, Pinellas, Polk, and Seminole Counties by Utilities,
Inc. of Florida.
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AGENDA:
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11/01/16 – Regular Agenda – For
Issues 1-4, Decision on Suspension of Rates and Interim Rates – Participation
is at the discretion of the Commission. For Issue 5 – Proposed Agency Action
–Interested Persons May Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Brisé
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CRITICAL DATES:
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10/30/16 (60-Day Suspension Date Waived by Company to
11/1/16)
1/8/2017 (Petition for Waiver deemed approved if not granted
within 90 days of receipt)
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SPECIAL INSTRUCTIONS:
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None
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Case Background
Utilities, Inc.
of Florida (UIF or Utility) is a Class A utility providing water and wastewater
service to 27 systems in the following counties: Charlotte, Highlands, Lake,
Lee, Marion, Orange, Pasco, Pinellas, Polk, and Seminole. As the result of a
recent corporate reorganization and name change, UIF is the sole surviving
corporation that owns and operates the water and wastewater systems that are
the subject of this rate case application. UIF is a wholly-owned subsidiary of
Utilities, Inc. (UI).
In 2015, the
Utility recorded total company operating revenues of $13,336,372 and $15,094,296
for water and wastewater, respectively. UIF reported net operating income for
2015 of $1,682,158 for water and $3,222,388 for wastewater. In 2015, UIF had
34,022 and 32,524 respective water and wastewater customers for it combined
systems. The following table reflects the rate proceeding in which rates were
last established for UIF’s systems.
Last Proceedings Establishing Rates for UIF Systems
|
Former Utility Name
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Order
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Issuance Date
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Lake Placid
Utilities, Inc.
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PSC-14-0335-PAA-WS
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June 30, 2014
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Cypress Lakes
Utilities, Inc.
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PSC-14-0283-PAA-WS
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May 30, 2014
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Lake Utility
Services, Inc.
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PSC-11-0514-PAA-WS
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November 3, 2011
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Utilities, Inc.
of Pennbrooke
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PSC-12-0667-PAA-WS
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December 26, 2012
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Utilities, Inc.
of Eagle Ridge
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PSC-11-0587-PAA-SU
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December 21, 2011
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Labrador
Utilities, Inc.
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PSC-15-0208-PAA-WS
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May 26, 2015
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|
Mid-County
Services, Inc.
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PSC-12-0389-PAA-SU
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July 27, 2012
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Tierra Verde
Utilities, Inc.
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PSC-09-0372-PAA-SU
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May 27, 2009
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Utilities, Inc.
of Longwood
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PSC-10-0407-PAA-SU
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June 21, 2010
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Sanlando
Utilities Corporation
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PSC-15-0233-PAA-WS
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June 3, 2015
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Utilities Inc.,
of Florida (Marion and Seminole Counties)
|
PSC-16-0296-PAA-WS
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June 27, 2016
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Utilities Inc.,
of Florida (Orange, Pasco and Pinellas County)
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PSC-14-0025-PAA-WS
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January 10, 2014
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On November 2,
2015, Cypress Lake Utilities, Inc. (Cypress Lakes), Utilities, Inc. of Eagle
Ridge (Eagle Ridge), Utilities, Inc. of Florida (UIF-Marion, UIF-Pinellas,
UIF-Orange, UIF-Pasco, and UIF-Seminole), Labrador Utilities, Inc. (Labrador),
Lake Placid Utilities, Inc. (Lake Placid), Lake Utility Services, Inc. (LUSI),
Utilities, Inc. of Longwood (Longwood), Mid-County Services, Inc. (Mid-County),
Utilities, Inc. of Pennbrooke (Pennbrooke), Utilities Inc. of Sandalhaven
(Sandalhaven), Sanlando Utilities Corporation (Sanlando), and Tierra Verde
Utilities, Inc. (Tierra Verde) filed a joint application for acknowledgement of
corporate reorganization and approval of name change. By Order No. PSC-16-0143-FOF-WS,
issued April 12, 2016, the Commission acknowledged the corporate reorganization
and name change of UI’s 12 subsidiaries in Florida.
On December 30,
2015, the Utility requested a limited proceeding water rate increase for
UIF-Marion, UIF-Pasco, and UIF-Seminole. As the request was filed prior to the
Commission’s recognition of UIF’s corporate reorganization, the limited
proceeding applied only to the former Utilities Inc., of Florida systems and
did not include Longwood and Sanlando in Seminole County. Driving the limited
proceeding were (1) galvanized service line replacement costs in Marion County,
(2) the loss of irrigation customers, plant additions, and purchased water
costs in Pasco County, and (3) interconnection plant addition costs in Seminole
County. UIF requested to bifurcate its request for UIF-Pasco and ultimately,
deferred its requested Phase I increase to be addressed in the instant docket.
As a result of the bifurcation, rate increases for UIF-Marion and UIF-Seminole
were addressed at the July 7, 2016 Commission Conference and UIF-Pasco was
addressed at the October 11, 2016 Commission Conference. At the time of filing
this recommendation, the Proposed Agency Action order for UIF-Pasco has not
been issued.
On August 31, 2016, UIF filed an application for approval
of interim and final water and wastewater rate increases. By letter dated
September 29, 2016, staff advised the Utility that its Minimum Filing
Requirements (MFRs) had several deficiencies. The deadline to correct those
deficiencies is October 31, 2016. To date, the official date of filing has not
been established for noticing purposes.
The Utility's application for increased final water and wastewater
rates is based on the historical 12-month period ended December 31, 2015, with
requested adjustments for pro forma projects. Additionally, the Utility
requested a single, consolidated rate structure. In approving interim rates
pursuant to Section 367.082, Florida Statutes (F.S.), it has been Commission
practice to use the Utility’s current rate structure at the time of the interim
rate request. For purposes of this recommendation, the analysis for each rate
structure will be referred to by the former utility name it belonged to prior
to the corporate reorganization.
UIF requested interim rates designed to generate
additional revenues of $414,691 for water operations and $803,024 for
wastewater operations. The Utility requested annual interim revenue increases
for Lake Placid, Tierra Verde, Sandalhaven, UIF-Marion, UIF-Pinellas,
UIF-Seminole (Water). However, by letter dated October 18, 2016, the Utility
formally withdrew its interim rate request for Sandalhaven due to reasons
discussed further in staff’s recommendation.
UIF did not request interim rate relief for Cypress Lakes,
LUSI, Labrador, Pennbrooke, Sanlando, Tierra Verde, Longwood, Eagle Ridge,
Mid-County, UIF-Orange, and UIF-Seminole (Wastewater). However, as discussed
later, staff conducted a review of all systems to identify any systems
potentially earning above its maximum return on equity.
In setting final rates, the current rate structure of each
system is also used for the collection of the final revenues. UIF requested
final rates designed to generate additional revenues of $2,721,001 for water
operations and $4,194,453 for wastewater operations.
The intervention of the Office of Public Counsel was
acknowledged by Order No. PSC-16-0189-PCO-WS, issued May 10, 2016, in this
docket.
On October 10, 2016, the Utility filed a petition for
variance of a specific provision from Rule 25-30.437(3), Florida Administrative
Code (F.A.C.). The portion of the rule from which the Utility is requesting
waiver addresses the requirement to provide additional detailed billing analyses
for each rate change period in the test year. Pursuant to Section 120.542, F.S.,
notice of the petition for waiver was published in the Florida Administrative Register
on October 11, 2016. No written comments
to the notice were received at the time of filing. The time for filing written
comments will expire on October 25, 2016. If any written response is filed by
October 25, staff will notify the Commissioners immediately and request to
modify its recommendation if appropriate. The 90-day statutory deadline for the
Commission to address the Utility’s request is January 8, 2017.
The original 60-day statutory deadline for the Commission
to suspend the Utility’s requested final rates and address its interim rate
request was October 30, 2016. However, by letter dated September 26, 2016, the
Utility agreed to extend the statutory time frame by which the Commission is
required to address the suspension of UIF’s final rates and its interim rate
request. This recommendation addresses the suspension of the Utility’s
requested final rates, and requested interim rates, and the petition for
variance of a specific provision from Rule 25-30.437(3), F.A.C. The Commission
has jurisdiction pursuant to Sections 367.081 and 367.082, F.S.
Discussion
of Issues
Issue 1:
Should the Utility's proposed final water and
wastewater rates be suspended?
Recommendation:
Yes. The Utility’s proposed final water and
wastewater rates should be suspended. (Norris)
Staff Analysis:
Section 367.081(6), F.S., provides that the rates
proposed by the Utility shall become effective within sixty days after filing
unless the Commission votes to withhold consent of implementation of the
requested rates. Further, the above referenced statute permits the proposed
final rates to go into effect, under bond, escrow, or corporate undertaking
eight months after filing unless final action has been taken by the Commission.
Staff has reviewed the filing and has considered the
proposed rates, the revenues thereby generated, and the information filed in
support of the rate application. Staff believes that it is reasonable and
necessary to require further amplification and explanation regarding this data,
and to require production of additional and/or corroborative data. This further
examination will include on-site inspections by staff accountants and
engineers. To date, staff has initiated an audit of UIF’s books and records, as
well as an audit of UI, the Utility’s parent, to examine allocated investment
and operating expenses. This combined audit is tentatively due on November 30,
2016. In addition, staff sent its first set of discovery on October 20, 2016. Further,
staff believes additional discovery requests will be necessary. Therefore, staff
recommends suspension of the Utility’s proposed rate increase to allow staff
and any intervenors sufficient time to adequately and thoroughly examine the appropriateness
of the Utility’s request for final rate relief.
Issue 2:
Should any interim revenue increase be approved?
Recommendation:
Yes, the Utility should be authorized to collect annual
water and wastewater revenues as indicated below.
|
Water Systems
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Adjusted Test Year
Revenues
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Revenue Increase
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% Increase
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Revenue Requirement
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Lake Placid
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$69,017
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$10,189
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14.76%
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$79,206
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UIF-Marion
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$161,079
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80,785
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50.15%
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241,864
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UIF-Pinellas
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$157,855
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14,309
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9.06%
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172,164
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UIF-Pasco
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$901,930
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56,674
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6.28%
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958,604
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UIF-Seminole
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$1,014,857
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186,352
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18.36%
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1,201,209
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Total
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$348,309
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$2,653,047
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Wastewater Systems
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Adjusted Test Year
Revenues
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Revenue Increase
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% Increase
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Revenue Requirement
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Lake Placid
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$72,314
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$638
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0.88%
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$72,952
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Tierra Verde
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$992,530
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69,084
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6.96%
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1,061,614
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UIF-Marion
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$47,826
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31,438
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65.73%
|
79,264
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UIF-Pasco
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$505,980
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108,280
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21.40%
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614,260
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Total
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$209,440
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$1,828,090
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In addition, seven systems appear to be earning above their
maximum return on equity (ROE). As such, revenues should be collected subject
to refund with interest, as shown below.
|
System
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Revenue Held
Subject
to Refund
|
Percentage
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UIF-Seminole-Wastewater
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($138,594)
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(16.61%)
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LUSI-Water
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(143,546)
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(2.63%)
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Labrador-Wastewater
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(134,838)
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(20.87%)
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Pennbrooke-Wastewater
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(47,924)
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(9.35%)
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Longwood-Wastewater
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(17,559)
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(2.18%)
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Eagle Ridge-Wastewater
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(24,112)
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(2.07%)
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Cypress Lakes-Water
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(24,335)
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(6.87%)
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Total
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($530,908)
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(Norris, Hudson,
Lee, Matthews)
Staff Analysis:
Pursuant to Section 367.082(1), F.S., the Commission
may authorize the collection of interim rates during any proceeding for a
change of rates upon petition from any party or its own motion, and in order to
establish a prima facie entitlement for interim relief, the Utility shall
demonstrate that it is earning outside the range of reasonableness on its rate
of return. Pursuant to Section 367.081(2)(a), F.S., in a proceeding for an
interim increase in rates, the Commission shall authorize, within 60 days of
the filing for such relief, the collection of rates sufficient to earn the
minimum of the range of rate of return.
UIF filed rate base, cost of capital, and operating
statements to support its requested interim water and wastewater increases. As
mentioned in the Case Background, staff conducted a review of the systems that
did not request interim rates in order to identify any systems potentially earning
above its maximum ROE. In order to review those systems that did not request an
interim increase, staff used the Utility’s supporting schedules in its MFRs.
Pursuant to Section 367.082(5)(b)1., F.S., the achieved
rate of return for interim purposes must be calculated by applying adjustments
consistent with those used in the Utility’s most recent rate proceeding and
annualizing any rate changes. Staff reviewed UIF's interim request, as well as
all orders that addressed the Utility’s most recent rate proceedings. Staff has
attached accounting schedules for each applicable system to illustrate staff's
recommended rate base, capital structure, and test year operating income
amounts. The rate base schedules are labeled as Schedule Nos. 1-A, 1-B, and 1-C.
The capital structure schedule is labeled Schedule No. 2. The operating income
schedules are labeled as Schedule Nos. 3-A, 3-B, and 3-C. Staff’s recommended adjustments are
discussed below.
Interim Rate Base
In the last rate case for many of the systems, the
Commission made certain adjustments related to the Phoenix Project, which is
the parent company’s accounting and billing software. In its filing, the
Utility made adjustments to accumulated depreciation and depreciation expense consistent
with the Commission’s vote which increased the average service life to 10
years. Staff believes these adjustments are appropriate for interim purposes in
the instant case. However, staff believes additional adjustments to rate base
are necessary for interim purposes.
Used & Useful
Pursuant to Section 367.082, F.S., the method for the used
and useful (U&U) calculation in a system’s last rate case must be used for
interim purposes. Staff reviewed the Utility's interim U&U calculations on
a per system basis. The review is based on previous Commission decisions and
available data of usage and capacity contained in UIF’s MFR Schedules.
Consistent with Commission practices, staff recommends no adjustments for all
water treatment and distribution systems as they have been determined to be 100
percent U&U by prior rate case orders, and the MFR Schedules show no
customer growth and change in capacity. For the same reason, staff recommends
no adjustments for all wastewater collection systems.
Staff recommends the following U&U adjustments for
wastewater treatment systems contained in the interim rate base. The Lake
Placid wastewater treatment plant should be considered 28.5 percent U&U
based on the prior rate case order, which is higher than the 20.8 percent based
on usage and capacity contained in MFR Schedule F-6. Similarly, the UIF-Marion
wastewater treatment plant should be considered 59 percent U&U based on the
prior rate case order.
Based on
the above calculations, staff recommends the adjustments indicated on the table
below.
Table
2-1
Interim – Used & Useful
Adjustments
|
System
|
Rate Base
|
Depreciation
Expense
|
Property Tax
|
|
Lake Placid-Wastewater
|
($24,425)
|
$0
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($757)
|
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UIF-Marion-Wastewater
|
($5,634)
|
($2,082)
|
($141)
|
Working Capital Allowance
Although UIF, post-consolidation, is classified a Class A
utility, working capital should be calculated for each system using the same
basis from the respective prior rate cases. The Utility correctly followed this
methodology in its MFRs. Pursuant to Rule 25-30.433(2), Florida Administrative
Code (F.A.C.), interim working capital for the former Class B and C utilities was
calculated using the formula method which is one-eighth of operation and
maintenance (O&M) expenses and Class A utilities used the balance sheet
approach.
Based on staff’s adjustments to water and wastewater
O&M expenses discussed below, staff made corresponding adjustments to
working capital for the systems using the formula method. Additionally, staff
made an adjustment for the systems using the balance sheet approach. Consistent
with Commission practice, one-half of the total rate case expense should be
included in working capital.
Although recent legislation has reversed this practice, these amounts were
approved by the Commission in dockets prior to this legislation. Thus, these
amounts are properly included in working capital. Staff adjusted the interim
working capital of the systems using the balance sheet approach to reflect
prior rate case expense. The following table shows all working capital adjustments
made by staff.
Table 2-2
Interim – Working Capital
Adjustments
|
System
|
Increase/(Decrease)
Adjustments
|
|
Lake Placid-Water
|
($5,073)
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Lake Placid-Wastewater
|
($5,153)
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Tierra Verde-Wastewater
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$135
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UIF-Marion -Water
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$560
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UIF-Marion -Wastewater
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$78
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UIF-Pinellas -Water
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$12,046
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UIF-Pasco -Water
|
$73,468
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UIF-Pasco -Wastewater
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$29,090
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UIF-Seminole -Water
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$66,199
|
Interim Cost of Capital
In its initial filing, the Utility requested separate
interim overall cost of capital rates for each water and wastewater system
based on each respective rate base. Pursuant to the provisions of the interim
statute, an interim decrease should be calculated using the maximum ROE limit,
and an interim increase should be calculated using the minimum ROE limit.
Staff’s only recommended adjustments are to the
consolidated capital structure shared by UIF-Marion, UIF-Orange, UIF-Pinellas,
UIF-Pasco, and UIF-Seminole. As originally filed, the Utility’s interim capital
structure was not consolidated across all five counties, and UIF did not
reflect any allocation of customer deposits, accumulated deferred income taxes,
or investment tax credits (ITCs) associated with UIF-Seminole’s wastewater
system. As such, staff consolidated the aforementioned balances for the five county
systems and increased customer deposits by $8,038, ITCs by $12,609, and ADITs
by $184,622 to account for UIF-Seminole’s wastewater system. Additionally, the
capital structure was reconciled to a rate base that did not include the rate
base of UIF-Seminole’s wastewater system.
Staff’s final adjustment was to lower the Utility’s cost
rate of long-term debt from 6.70 percent to 6.66 percent in order to remain
consistent with the Utility’s most recent case that shared the same test year.
The Utility’s proposed and staff’s recommended capital structure for each
system is reflected on Schedule No. 2 for UIF-Marion, UIF-Orange, UIF-Pinellas,
UIF-Pasco, and UIF-Seminole.
Interim Net Operating Income
Pursuant to Section 367.082(5)(b)1., F.S., the achieved
rate of return for interim purposes must be calculated by applying adjustments
consistent with adjustments made in the Utility’s most recent rate proceeding
and annualized for any rate changes. Based on staff’s review, several
adjustments are necessary for interim purposes as reflected on the respective
adjustments to operating income schedules.
Test Year Adjustments
The interim filing for UIF-Pasco made a test year
adjustment to decrease incorrectly booked chemical expense of $1,242 in its
final rate increase. However, the Utility did not include this test year
adjustment in its calculation of its interim rate increase. As such, staff
decreased chemicals expense by $1,242.
Adjustments Consistent with the Last Rate Case
Several adjustments to O&M expenses and taxes other
than income (TOTI) are necessary for interim purposes in order to be consistent
with the treatment in the Utility’s last rate case.
First, staff reduced salaries and wages expense for UIF-Marion
by $9,037 for water and $1,024 for wastewater to reflect benchmarking consistent
with its last rate case. Staff used UIF-Marion’s test year ratio of pensions
and benefits to salaries and applied it to the previously mentioned salary
adjustment in order to determine the corresponding adjustments for pensions and
benefits expense. The resulting adjustment was a decrease of $3,279 for water
and $371 for wastewater. A corresponding adjustment was also made to decrease
TOTI by $691 for water and $78 for wastewater to reflect payroll taxes
consistent with the salary adjustments.
Second, staff increased transportation expense for
UIF-Seminole (water) by $2,736 to reflect the 3-year average for transportation
expense consistent with its last rate case.
Third, staff adjusted bad debt expense for several systems
to reflect the 3-year average for bad debt expense consistent with the
treatment in each system’s last rate case. The resulting adjustments are
reflected in the following table.
Table 2-3
Interim – 3-Year Averaging
Adjustment to Bad Debt
|
System
|
Increase/(Decrease)
Adjustments
|
|
UIF–Marion -Water
|
($361)
|
|
UIF-Marion -Wastewater
|
$15
|
|
UIF-Pinellas -Water
|
($141)
|
|
UIF-Pasco -Water
|
$2,043
|
|
UIF-Pasco -Wastewater
|
($2,362)
|
|
UIF-Seminole -Water
|
($9,523)
|
Amortization of Rate
Case Expense
Staff recommends that for interim purposes, O&M
expenses should be adjusted by the difference between Commission-approved
annual amortization amount of rate case expense and the test year annual
amortization. The Commission found in the Utilities, Inc., generic docket “that
rate case expense associated with Docket No. 120161-WS shall be allocated to
each UI Florida subsidiary based on the ratio of each subsidiary’s ERCs to UI’s
total Florida ERCs as of December 31, 2013.” 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. Staff’s total amount of authorized rate case expense includes expense
associated with Docket No. 120161-WS, and the resulting adjustments are
reflected in the following table.
Table 2-4
Interim – Adjustments to
Rate Case Expense
|
System
|
Increase/(Decrease)
Adjustments
|
|
Lake Placid-Water
|
($249)
|
|
Lake Placid-Wastewater
|
$115
|
|
Tierra Verde-Wastewater
|
$1,084
|
|
UIF-Marion -Water
|
$235
|
|
UIF-Marion -Wastewater
|
$33
|
|
UIF-Pinellas -Water
|
$5,992
|
|
UIF-Pasco -Water
|
$36,734
|
|
UIF-Pasco -Wastewater
|
$14,545
|
|
UIF-Seminole -Water
|
($35,977)
|
Excessive Unaccounted Water
In Lake Placid’s last rate case, the Commission determined
that the system had excessive unaccounted for water (EUW) of 1.9 percent. In
its MFRs for the instant case, the figure was calculated at 3.1 percent.
Following the same methodology used in the last rate case, staff recommends
applying the updated EUW percentage from the MFRs to the actual water treatment
expense for 2016. The resulting adjustment is a reduction of $109 to water O&M
expense for Lake Placid.
Inflow & Infiltration
In UIF-Pasco’s last rate case, the Commission determined
that its Orangewood and Buena Vista systems had no excessive infiltration and
inflow (I&I). In its MFRs submitted for the instant case, I&I was
calculated at 15.89 percent. Following the same methodology used in the last
rate case, staff recommends applying the updated I&I percentage from the
MFRs to the actual wastewater treatment expense for 2016. Staff applied the I&I
reduction to the proportionate expenses associated with the individual system.
The resulting adjustment is a reduction of $4,974 for UIF-Pasco (wastewater).
Earnings Analysis
In addition to the systems reflected in UIF’s interim
request, staff also reviewed UIF’s other PSC-regulated systems to determine
whether any of the systems were potentially earning above their maximum allowed
ROE. Staff reviewed all orders that addressed the Utility’s most recent rate
proceeding and made adjustments as discussed below. Based on this methodology,
there appears to be seven systems reflecting potential overearnings that
warrant additional review. Pursuant to Section 367.082(2)(b), F.S., in a proceeding
for an interim decrease in rates, the Commission shall authorize the continued
collection of the previously authorized rates; however, revenues collected
under those rates that are sufficient to reduce the achieved rate of return to
the maximum of the rate of return should be held subject to refund with
interest.
As part of its U&U analysis, staff reviewed wastewater
treatment systems not contained in the interim rate request for potential
overearnings evaluation and recommends the following adjustments. Based on
staff’s review, Labrador wastewater treatment plant should be considered 79.94
percent U&U based on the prior rate case order because MFR Schedule F-6
contains no usage and capacity data for U&U calculations. As such, staff
recommends a net non-U&U adjustment of $302,751 to reduce rate base.
Corresponding adjustments should also be made to reduce depreciation expense by
$14,899 and property taxes by $2,173.
Staff also reviewed EUW and I&I for the systems not
included in the interim rate request. In UIF-Seminole’s last rate case, the
Commission determined that its Ravenna Park system was determined to have 33.0
percent excessive I&I. In its MFRs submitted for the instant case, I&I
was calculated at 31.7 percent for this system. Following the same methodology
used in the last rate case, staff recommends applying the updated I&I
percentage from the MFRs to the actual wastewater treatment expense for 2016.
Staff applied the I&I reduction to the proportionate expenses associated
with the individual system. The resulting adjustment is a reduction of $29,122
for UIF-Seminole.
Additionally staff made further adjustments to reflect the
appropriate working capital, adjustments consistent with the last case, and the
appropriate amortization of rate case expense. These adjustments are consistent
with staff’s adjustments to the Utility’s interim request, as previously
discussed, and are reflected in the following tables.
Table 2-5
Earnings Analysis – Working
Capital Adjustments
|
System
|
Increase/(Decrease)
Adjustment
|
|
UIF-Seminole -Wastewater
|
$35,160
|
|
Labrador-Wastewater
|
($84,050)
|
|
LUSI-Water
|
$134,551
|
|
Pennbrooke-Wastewater
|
$1,216
|
|
Longwood-Wastewater
|
$48,223
|
|
Eagle Ridge-Wastewater
|
($112,824)
|
|
Cypress Lakes-Water
|
($820)
|
Table 2-6
Earnings Analysis – Additional
Adjustments Consistent with Last Rate Case
|
System
|
Methodology
Description
|
Expense Account
|
Increase/(Decrease)
Adjustments
|
|
UIF-Seminole -Wastewater
|
3-yr average
|
Transportation
Expense
|
$1,373
|
|
Labrador-Wastewater
|
Lease adjusted
based on rate of return
|
Rental Expense
|
($15,618)
|
Table 2-7
Earnings Analysis – Benchmarking
Adjustments to Salaries & Wages Additional
|
System
|
Salaries &
Wages Expense-Employees/Officers
|
Pensions &
Benefits Expense
|
Payroll Tax
|
|
Pennbrooke-Wastewater
|
$1,166
|
$403
|
$89
|
|
Longwood-Wastewater
|
($18,950)
|
($5,392)
|
($1,450)
|
Table 2-8
Earnings Analysis – 3-Year
Averaging Adjustment to Bad Debt
|
System
|
Increase/(Decrease)
Adjustment
|
|
UIF-Seminole -Wastewater
|
$86
|
|
LUSI-Water
|
$5,245
|
|
Pennbrooke-Wastewater
|
$2
|
|
Longwood-Wastewater
|
($1,534)
|
|
Eagle Ridge-Wastewater
|
($654)
|
Table 2-9
Earnings Analysis – Adjustments
to Rate Case Expense
|
System
|
Increase/(Decrease)
Adjustments
|
|
UIF-Seminole -Wastewater
|
($19,983)
|
|
LUSI-Water
|
$67,275
|
|
Labrador-Wastewater
|
($5,836)
|
|
Pennbrooke-Wastewater
|
$625
|
|
Longwood-Wastewater
|
$899
|
|
Eagle Ridge-Wastewater
|
$6,898
|
|
Cypress Lakes-Water
|
($2,972)
|
Revenue Requirement
Staff has recommended revenue requirements consistent with
the calculations required by the interim statute and Commission practice. For
those systems that appear to be underearning, the revenue requirements were
determined using the minimum ROE limit. Consistent with the interim statute,
for those systems that appear to be overearning, staff used the maximum ROE
limit. Based on the above adjustments, staff’s recommended interim rate of
return resulted in a revenue requirement that exceeded what UIF requested. In
such circumstances, it has been Commission practice to limit the revenue
requirement to the level requested by a utility.
Consistent with Commission practice, staff limited the revenue requirements of
Tierra Verde, UIF-Pinellas, and UIF-Pasco (both water and wastewater) to the
level requested by the Utility.
Based upon recovery of actual operating expenses for the
year ended December 31, 2015, staff recommends that the appropriate combined
interim revenue requirements are $2,653,047 and $1,828,090, respectively for
the Utility’s water and wastewater systems. This results in interim increase in
annual revenues of $348,309 for the water systems and $209,440 for the
wastewater systems. For systems that appear to be earning above their maximum
ROE, staff recommends that revenues totaling $530,908 should be collected
subject to refund with interest and each system should continue collecting
current rates. The following tables show the revenue requirement and interim
increase in annual revenues for each respective system.
Table 2-10
Interim Revenue Requirement
– Water Systems
|
Water Systems
|
Adjusted Test Year
Revenues
|
Revenue Increase
|
% Increase
|
Revenue Requirement
|
|
Lake Placid
|
$69,017
|
$10,189
|
14.76%
|
$79,206
|
|
UIF-Marion
|
$161,079
|
80,785
|
50.15%
|
241,864
|
|
UIF-Pinellas
|
$157,855
|
14,309
|
9.06%
|
172,164
|
|
UIF-Pasco
|
$901,930
|
56,674
|
6.28%
|
958,604
|
|
UIF-Seminole
|
$1,014,857
|
186,352
|
18.36%
|
1,201,209
|
|
Total
|
|
$348,309
|
|
$2,653,047
|
Table 2-11
Interim Revenue Requirement
– Wastewater Systems
|
Wastewater Systems
|
Adjusted Test Year
Revenues
|
Revenue Increase
|
% Increase
|
Revenue Requirement
|
|
Lake Placid
|
$72,314
|
$638
|
0.88%
|
$72,952
|
|
Tierra Verde
|
$992,530
|
69,084
|
6.96%
|
1,061,614
|
|
UIF-Marion
|
$47,826
|
31,438
|
65.73%
|
79,264
|
|
UIF-Pasco
|
$505,980
|
108,280
|
21.40%
|
614,260
|
|
Total
|
|
$209,440
|
|
$1,828,090
|
Table 2-12
Earnings Analysis
|
System
|
Revenue Held
Subject
to Refund
|
Percentage
|
|
UIF-Seminole-Wastewater
|
($138,594)
|
(16.61%)
|
|
LUSI-Water
|
(143,546)
|
(2.63%)
|
|
Labrador-Wastewater
|
(134,838)
|
(20.87%)
|
|
Pennbrooke-Wastewater
|
(47,924)
|
(9.35%)
|
|
Longwood-Wastewater
|
(17,559)
|
(2.18%)
|
|
Eagle Ridge-Wastewater
|
(24,112)
|
(2.07%)
|
|
Cypress Lakes-Water
|
(24,335)
|
(6.87%)
|
|
Total
|
($530,908)
|
|
Issue 3:
What are the appropriate interim water and
wastewater rates?
Recommendation:
The
service rates for UIF in effect as of December 31, 2015, should be increased as
shown below to generate the recommended revenue increase for the interim period.
|
System
|
% Rate Increase
|
|
Lake Placid-Water
|
14.81%
|
|
Tierra Verde-Wastewater
|
6.96%
|
|
UIF-Marion -Water
|
50.88%
|
|
UIF-Marion -Wastewater
|
66.14%
|
|
UIF-Pinellas -Water
|
9.14%
|
|
UIF-Pasco -Water
|
6.38%
|
|
UIF-Pasco -Wastewater
|
21.49%
|
|
UIF-Seminole -Water
|
18.67%
|
The rates, as shown on Schedule Nos. 4-A and 4-B, 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. The Utility should file revised tariff sheets
and a proposed customer notice to reflect the Commission-approved rates. In addition, the approved rates should not be
implemented until the required security has been filed, staff has approved the
proposed customer notice, and the notice has been received by the
customers. The Utility should provide
proof of the date notice was given within 10 days of the date of the notice. (Bruce,
Friedrich, Hudson, Johnson)
Staff Analysis:
Staff recommends that interim service rates for UIF
be designed to allow the Utility the opportunity to generate additional annual
operating revenues as shown below. The
test year revenues were adjusted to annualize the rate in effect at the end of
the test year. To determine the
appropriate increase to apply to the service rates, miscellaneous revenues
should be removed from the adjusted test year revenues. The calculations are as
follows:
Table 3
Percentage Increase Less
Miscellaneous Revenues
|
System
|
Adjusted Test Year
Revenues
|
Miscellaneous
Revenues
|
Revenues –
Miscellaneous Revenue
|
Revenue
Increase
|
% Rate Increase
|
|
Lake Placid-Water
|
$69,017
|
$231
|
$68,786
|
$10,189
|
14.81%
|
|
Lake Placid-Wastewater
|
$72,314
|
$210
|
$72,104
|
$638
|
.88%
|
|
Tierra Verde-Wastewater
|
$992,530
|
$0
|
$992,530
|
$69,084
|
6.96%
|
|
UIF-Marion -Water
|
$161,079
|
$2,295
|
$158,784
|
$80,785
|
50.88%
|
|
UIF-Marion -Wastewater
|
$47,826
|
$295
|
$47,531
|
$31,438
|
66.14%
|
|
UIF-Pinellas -Water
|
$157,855
|
$1,248
|
$156,607
|
$14,309
|
9.14%
|
|
UIF-Pasco -Water
|
$901,930
|
$14,317
|
$887,613
|
$56,674
|
6.38%
|
|
UIF-Pasco -Wastewater
|
$505,980
|
$2,166
|
$503,814
|
$108,280
|
21.49%
|
|
UIF-Seminole -Water
|
$1,014,857
|
$16,487
|
$998,370
|
$186,352
|
18.67%
|
Consistent with Commission practice for interim rates, the
above percentage increases should be applied as an across-the-board increase to
the service rates in effect as of December 31, 2015, in each respective county.
Due to an increase of less than one percent, staff recommends that Lake
Placid’s wastewater rates remain the same for interim purposes. While staff has identified seven systems that
may have exceeded their maximum allowed ROE, staff is not recommending a change
in rates at this time. However, as mentioned in Issue 2, staff has recommended
amounts to be held subject to refund for these systems. The rates, as shown on
Schedule Nos. 4-A and 4-B, 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. The Utility should file revised tariff sheets and a proposed customer
notice to reflect the Commission-approved rates. In addition, the approved
rates should not be implemented until the required security has been filed,
staff has approved the proposed customer notice, and the notice has been
received by the customers. The Utility should provide proof of the date notice
was given within 10 days of the date of the notice.
Issue 4:
What is the appropriate security to guarantee the
interim increase?
Recommendation:
A cumulative corporate undertaking is acceptable
contingent upon receipt of the written guarantee of the parent company,
Utilities, Inc. (UI or company), and written confirmation that the cumulative
outstanding guarantees on behalf of UI-owned utilities in other states will not
exceed $2 million (inclusive of all Florida utilities). UI should be required
to file a corporate undertaking on behalf of its subsidiaries to guarantee any
potential refunds of revenues collected under interim conditions. UI’s guaranteed
amount subject to refund should be $759,084. Pursuant to Rule 25-30.360(6),
F.A.C., the Utility should provide a report by the 20th of each month
indicating the monthly and total revenue collected subject to refund. Should a
refund be required, the refund should be with interest and in accordance with
Rule 25-30.360, F.A.C. (Frank, Norris, Wolmers)
Staff Analysis:
Pursuant to Section 367.082, F.S., revenues
collected under interim rates shall be placed under bond, escrow, letter of
credit, or corporate undertaking subject to refund with interest at a rate
ordered by the Commission. As recommended in Issue 2, the total interim
increase is $557,749, with an additional $530,908 being held subject to refund
due to potential overearnings. In accordance with Rule 25-30.360, F.A.C., staff
calculated the potential refund of revenues and interest collected under interim
conditions to be $726,848. This amount is based on an estimated eight months of
revenue being collected from staff’s recommended interim rates over the
Utility’s current authorized rates shown on Schedule No. 4.
Utilities, Inc. of Florida is a wholly-owned subsidiary of
UI, which provides all investor capital to its subsidiaries. Based on the
amount subject to refund, the incremental increase in UI’s corporate
undertaking is $726,848. A corporate undertaking request for Pasco County, in
Docket No. 150269-WS, for the amount of $32,236 is still pending. Including
this amount and the current corporate undertaking request of $726,848 the total
cumulative outstanding guarantee is $759,084 subject to refund.
The criteria for a corporate undertaking include
sufficient liquidity, ownership equity, profitability, and interest coverage to
guarantee any potential refund. Staff reviewed UI’s 2013, 2014, and 2015
financial statements to determine if the company can support a corporate
undertaking on behalf of its subsidiary. In its 2013 financial statements, UI
reported an insufficient working capital amount, an inadequate current ratio,
and an inadequate interest coverage ratio. In 2014, UI reported insufficient
working capital and an inadequate current ratio. However, the interest coverage
ratio was adequate. In 2015, UI working capital, current ratio, and interest
coverage ratio were adequate. In addition, UI reported adequate ownership
equity and achieved adequate profitability over the 3-year review period.
Based on staff’s review of the financial reports submitted
by UI, staff believes UI has adequate resources to support a corporate
undertaking in the amount requested. Based on this analysis, staff recommends
that a cumulative corporate undertaking of $759,084 is acceptable contingent
upon receipt of the written guarantee of UI and written confirmation that the
cumulative outstanding guarantees on behalf of UI-owned utilities in other
states will not exceed $2 million (inclusive of all Florida utilities).
The brief financial analysis above is only appropriate for
deciding if UI can support a corporate undertaking in the amount proposed and
should not be considered a finding regarding staff’s position on other issues
in this proceeding.
Pursuant to Rule 25-30.360(6), F.A.C., the Utility should
provide a report by the 20th day of each month indicating the monthly and total
revenue collected subject to refund. Should a refund be required, the refund
should be with interest and undertaken in accordance with Rule 25-30.360,
F.A.C.
In no instance should maintenance and administrative costs
associated with any refund be borne by the customers. Such costs are the
responsibility of, and should be borne by, the Utility.
Issue 5:
Should the Commission grant the Utility's Petition
for Waiver or Variance of Schedule E-14, of Commission Form PSC/AFD 19-W
(11/93), as incorporated by reference in Rule 25.30-437, F.A.C.?
Recommendation:
Yes. The Commission should grant UIF’s Petition for
Waiver of the Rule. (Treirweiler)
Staff Analysis:
Compliance with Schedule E-14, of Commission Form
PSC/AFD 19-W (11/93), as incorporated by reference in Rule 25-30.437, F.A.C.,
would require the Utility to create billing analyses throughout the test year
that capture the data for each class of service by meter size and reflect all rate changes throughout the test
year. Each billing analysis must show the bills, gallons and rates. The goal is
to provide the Commission with the data to create an annualized test year.
Instead, the Utility provided the rates in effect for each system at the end of
the test year period.
UIF asserts that its prior submission of annualized
billing analyses from the test year obviates the requirement for the additional
documents. UIF estimates that compliance would require an unnecessary creation
of an additional 700-900 billing analyses. UIF asserts that it would require
extensive time and it would incur inordinate costs to comply. UIF further
asserts that it has already produced sufficient data required by staff to fully
examine and evaluate UIF’s proposed general rate increase. UIF’s failure to
provide separate billing analyses under Schedule E-14 that coincided with each
period of rate change during the test year resulted in deficiency number 5(e)1,
in the Commission’s September 29, 2016 Deficiency Letter.
UIF is asserting that production of these additional
documents would result in a substantial hardship as defined in Section 120.542(2),
F.S. In the instant case, these detailed rate change billing analyses would not
provide any additional useful data that would facilitate the Commission’s
review of UIF’s rate request. The application of this specific MFR requirement
would lead to an unreasonable, unfair, and unintended result. The purpose of
this specific MFR requirement has already been achieved through the billing
analysis schedules already filed by UIF in this docket.
UIF has been authorized by Office of Public Counsel to
represent that: “OPC does not oppose UIF’s request for rule waiver as to
deficiency 5(e)1 identified on the September 29, 2016 MFR deficiency letter.”
Section 120.542(2), F.S., authorizes the Commission to
grant variances or waivers to the requirements of its rules where the person
subject to the rules has demonstrated that the underlying purpose of the
statute has been or will be achieved by other means, and strict application of
the rules would cause the person substantial hardship or would violate
principles of fairness. "Substantial hardship" as defined in this
section may include a demonstrated economic, technological, legal, or other
type of hardship to the person requesting the variance or waiver.
Section 367.081, F. S., provides that the Commission shall
fix rates which are just, reasonable, compensatory and not unfairly
discriminatory. The underlying purpose for gathering the information required
by Rule 25-30.437, F.A.C., is to provide sufficient information for the
Commission to set appropriate rates for a utility. The Utility has provided the
information in its MFRs that will permit the staff and parties to examine
revenues for the test year period. The information the Utility is seeking to
waive is not necessary for that determination. Therefore, the underlying
purpose of the statute can still be met if the waiver is granted. Further,
staff believes the Utility has sufficiently alleged hardship should it be
required to comply with the rule.
Staff therefore recommends that the Commission grant the
waiver of the rule. By granting this waiver, UIF will avoid incurring a
substantial hardship without adversely impacting the Commission’s ability to
determine the annualized adjustment for the test year.
Issue 6:
Should this docket be closed?
Recommendation:
The docket should remain open pending the
Commission’s final action on the Utility’s requested rate increase. (Trierweiler)
Staff Analysis:
The docket should remain open pending the
Commission’s final action on the Utility’s requested rate increase. With
respect to Issue 5, a Consummating Order should be issued unless a person whose
substantial interests are affected by the Commission’s decision files a protest
within 21 days of the issuance of the proposed agency action portion of the
order.