Discussion
of Issues
Issue 1:
Is the quality of service provided by Neighborhood
Utilities, Inc. satisfactory?
Recommendation:
Yes. In its previous rate case, Neighborhood’s
quality of service was deemed marginal due to its failure to provide routine
maintenance on plant facilities, problems related to maintaining chlorine
residuals, and customers not receiving boil water notices. The utility is in
compliance with Department of Environment Protection’s (DEP) chemical standards
and the last enforcement from DEP was a warning letter in 2009. Neighborhood
corrected all but one deficiency from its last DEP survey and requested pro
forma items to maintain its plant facilities and to correct the last
deficiency. The utility also corrected the issues with notifying customers of
boil water notices. Therefore, staff recommends that the overall quality of
service provided by Neighborhood should be considered satisfactory. (P. Buys)
Staff Analysis:
Pursuant
to Rule 25-30.433(1), Florida Administrative Code (F.A.C.), in water and
wastewater rate cases, the Commission shall determine the overall quality of
service provided by the utility, which is derived from evaluating three
separate components of the utility 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 the Commission to consider the extent to which the utility provides
water service that meets secondary water quality standards as established by
the DEP.
In its previous rate case,
Neighborhood’s quality of service was deemed marginal due to its failure to
provide routine maintenance on plant facilities, problems related to
maintaining chlorine residuals, and customers not receiving boil water notices.
On May 27, 2016, the Office of Public Counsel (OPC)
submitted a letter
outlining specific concerns regarding information in staff’s preliminary review
of Neighborhood’s requested increase (Staff Report). In its letter, OPC stated
that it believes that the utility continues to provide marginal quality of
service due to the deferral of maintenance on the plant and poor customer
service. Staff’s analysis outlined below gives consideration to the
Commission’s decision in Neighborhood’s previous rate case as well as the
concerns expressed by OPC.
Quality of the Utility's Product
Staff’s evaluation of Neighborhood’s product quality
consisted of a review of the utility’s compliance with the DEP primary and
secondary drinking water standards as well as a review of customer complaints.
Primary standards protect public health while secondary standards regulate
contaminants that may impact the taste, odor, and color of drinking water.
Staff reviewed chemical analyses of samples dated June 4,
2012, and June 17, 2015. All results comply with the DEP primary and secondary
water quality standards. These chemical analyses are performed every three
years, with the next scheduled analysis to be completed in 2018.
At the time of the Commission’s order in Neighborhood’s
previous rate case, the utility was in compliance with DEP rules and
regulations. The Commission did note however, that the utility was experiencing
sporadic compliance problems related to maintaining chlorine residuals at
points furthest from the water treatment plant. Staff reviewed DEP records to
determine if the compliance problems described in the utility’s last rate case
remained an issue, and staff did not find any issues of non-compliance since
its last rate case in 2010. Therefore, staff believes Neighborhood has taken
steps to address the issues identified in the last rate case such as replacing
the chlorine pump and supply feed lines.
Staff’s analysis also considered input from customers
regarding the quality of the utility’s product. Staff reviewed the Commission’s
complaint records since January 1, 2010, and found no quality of service
complaints filed against Neighborhood.
Staff also requested complaints against the utility filed
with the DEP since January 1, 2010. DEP responded with two complaints, one in
2015 and one in 2016. Both DEP complaints were made by the same individual, and
expressed concern regarding hydrogen sulfide odor due to low chlorine residual.
Neighborhood claimed that it had chlorine feed equipment problems at the
time of the customer’s complaint. Neighborhood’s chlorine levels did not fall
below DEP’s minimum requirements; however, they did fall to a level that
customers noticed a sulfur odor. In both instances, the utility
resolved/repaired the issues with the chlorine feed equipment within two days.
After each repair, the utility flushed the water lines to eliminate the sulfur
smell.
Last, staff reviewed customer complaints filed with the
utility since January 1, 2010. Staff identified 16 complaints made with the
utility concerning quality of service. The complaints addressed low pressure,
water quality, and the water smelling like sulfur. There were two complaints in
2011, three in 2012, four in 2013, two in 2014, one in 2015, and four in 2016.
Neighborhood responded to the complaints by testing water pressure, which was
at normal levels, and flushing and repairing the chlorine feed equipment.
Based on
staff’s review, giving consideration to the utility’s current compliance with
DEP standards, improvement since it last rate case, as well as the low number
of complaints over a period greater than 5 years,
the quality of Neighborhood’s product should be considered satisfactory.
Operating Condition of the Utility's Plant and Facilities
Neighborhood’s water treatment system has one well rated at 350 gallons per
minute (gpm). The raw water is treated with liquid chlorine for disinfection
purposes. The utility’s water system has three storage tanks totaling 62,000
gallons. The distribution system is a composite mix of PVC pipes of varying
sizes. Staff’s evaluation of Neighborhood’s facilities included a review
of the utility’s compliance standards of operation, as well as a site visit.
Neighborhood’s last two DEP Sanitary
Survey Reports, dated September 29, 2011, and January 24, 2014, each identified
multiple deficiencies. The most recent report identified the following
deficiencies, three of which are repeat deficiencies:
·
Well casings corroded
(repeat);
·
Aerator screens not
cleaned;
·
Tank inspections not
performed by licensed engineer;
·
Ground storage tank
corroded (repeat); and
·
No Operation &
Maintenance manual (repeat).
Neighborhood corrected four of the five deficiencies by
August 2014. The one deficiency that has not yet been corrected is the tank
inspection. The utility noted that it had not corrected this deficiency due to
insufficient funds from declining revenues. Neighborhood requested that the
tank inspection be included as a pro forma project. In the utility’s last rate
case, the Commission stated that the utility’s deferred maintenance to
its water treatment plant and distribution system had caused sporadic
substandard service to its customers.
The Commission further stated that the quality of the utility’s product and the
operating condition of the utility’s water plant were marginal based on the
utility’s failure to perform routine maintenance of its facilities.
In its May 27, 2016 letter, OPC stated
that the utility is still deferring maintenance, which is impacting the utility’s
quality of service. In its letter, OPC expressed its belief that the uncured
deficiency, the tank inspection identified by DEP, is an important deficiency.
OPC additionally stated that the numerous pro forma plant (Issue 3) and expense
(Issue 6) items requested appear to reflect neglected maintenance items. OPC’s
concerns regarding these items will be discussed in the respective issues below.
Staff agrees with OPC that the
deferral of maintenance can ultimately affect the quality of a utility’s
service and can result in additional costs. However, the utility corrected the majority
of deficiencies identified by DEP, and requested funds to cure the remaining
deficiency. Once the utility performs its tank inspection, it should be in
compliance with DEP requirements. DEP has neither issued a Consent Order
against the utility nor assessed any fines for failing to correct the
outstanding deficiency. For the reasons outlined above, staff recommends that
no financial adjustments be made to the utility’s return on equity (ROE) or
officer’s salaries to reflect the operating condition of Neighborhood’s
water treatment plant and facilities.
The
Utility’s Attempt to Address Customer Satisfaction
As part of staff’s evaluation of customer satisfaction,
staff held a customer meeting on May 18, 2016, to receive customer comments
concerning Neighborhood’s quality of service. Six customers attended the
meeting with three customers speaking. The concerns raised during the customer
meeting addressed customers not receiving boil water notices, estimated bills,
customer service, water quality, and broken equipment.
In Neighborhood’s previous rate case, several customers
expressed concern regarding how the utility delivered boil water notices. As a
result, the Commission Ordered the utility to provide the Commission with boil
water notices for a year after the Order was issued.
During that time, the utility did not have any boil water notices. Staff found
that the utility had a boil water notice in 2012, which was after the Commission-ordered
reporting period.
The Commission’s order also stated that hand delivered
notices often fall off mail boxes onto the ground, that some customers may
never become aware of the situation, and that follow-up notifications,
rescinding the boil water notices, rarely occurred. At the customer meeting, a
customer had an issue with not being promptly informed of service
interruptions. To this point, the utility responded that field personnel hand
deliver boil water notices to customers’ front door rather than their mailbox when
service interruptions are being investigated and repaired, which complies with
DEP requirements. The utility also made changes to its website to address these
customer concerns. Specifically, the utility now posts messages regarding boil
water notices and rescission notices, as well as messages when a service
interruption occurs and when it is fixed. Based on the utility’s response, it
appears the utility is actively taking steps to address concerns regarding boil
water notifications. Only one customer, in contrast to six in the prior case,
voiced concern on this issue.
In Neighborhood’s prior rate case, the Commission also
stated that customers shall have reasonable access to contact the utility
during normal business hours, as well as an emergency, after-hours contact. In
its letter to the Commission, OPC recommended that the utility should be
required to establish an emergency contact number for emergency situations.
However, the utility provided staff with a copy of a customer bill, which
contained the utility’s office and emergency contact numbers where customers
could easily locate the numbers. Staff believes this is a reasonable means of
providing the utility’s contact information.
One customer questioned if the utility’s service personnel
were qualified to perform the requisite utility services. Neighborhood contracts
with an outside company, U.S. Water, whose employees are qualified and properly
licensed to manage and operate the water systems and treatment facilities.
Another customer had concerns with broken meters. The
utility acknowledged the broken meters, noted its plans to replace the meters,
and confirmed that some usage for locations with broken meters was estimated.
The same customer addressed issues with broken and leaking service connections.
The utility believes that one reason for this issue is that customers drive
over and/or park on the meters and boxes. Neighborhood has requested to replace
the plastic meter boxes and lids in this customer’s subdivision with fiberglass
concrete boxes and lids. The request to replace meters is discussed more fully
in Issue 6.
The same customer also stated that customers “get a run
around” when calling the utility’s office. Neighborhood explained that when a
problem is reported to its office, the appropriate person investigates the
issue and determines the solution. The utility calls the customer back with a
report of its findings and repair plans. Neighborhood assures that emergency
problems are handled immediately, and confirmed the emergency telephone number,
as well as the office telephone number, are shown on every bill.
Neighborhood
provided customer contacts from January 1, 2010, through May 20, 2016. As shown
in Table 1-1, there were 163 customer contacts; 121 were related to billing
issues (high bills, payment arrangement, meter readings, and receiving no
bills); 16 were quality of service related complaints; and 26 were other issues
(equipment repair, leaks, and property damage). The utility investigated and
followed up with the customers in each instance, usually within one day.
Staff also requested complaints
against the utility with the DEP for the period of January 1, 2010, through
June 13, 2016. DEP responded with two complaints, one in 2015 and one in 2016.
Both complaints were made by the same individual, and expressed concern
regarding hydrogen sulfide odor due to low chlorine residual. These complaints
were discussed in the Quality of Utility Product section above.
Finally, staff reviewed the
Commission’s complaint records from January 1, 2010, through June 1, 2016, and
found seven complaints. All complaints concerned improper bills and were
resolved. Staff additionally adds that no customer correspondence has been
filed in the docket.
Table 1-1
Customer Contacts
|
Subject of Complaint
|
PSC's Records (CATS) (01/01/2010 - 06/01/2016)
|
Utility's Records (01/01/2010 - 05/20/2016)
|
DEP (01/01/2010 - 06/13/2016)
|
Customer Meeting*
|
|
Billing Related
|
7
|
121
|
|
2
|
|
Opposing Rate Increase
|
|
|
|
|
|
Quality of Service
|
|
16
|
2
|
2
|
|
Other**
|
|
26
|
|
|
|
Total
|
7
|
163
|
2
|
4
|
*Note: Customers spoke on multiple issues.
**Note: Other Includes: Equipment Repair,
Leaks, Property Damage, Illegal Usage
Source: Responses to staff data requests
Based on the utility’s responses to customer concerns
expressed at the customer meeting, complaints filed with the Commission, and
complaints filed with the DEP, staff believes the utility’s attempt to address
customer satisfaction should be considered satisfactory. Additionally, staff
believes the utility addressed the concerns outlined in the Commission’s prior
order.
Conclusion
Based on the discussion and review above, staff recommends
that the quality of the utility’s product, the condition of utility’s
facilities, and the utility’s attempt to address customer satisfaction be
considered satisfactory. Therefore, staff recommends the overall quality of
service be considered satisfactory.
Issue 2:
What is the used and useful percentage (U&U) of
Neighborhood Utilities, Inc.’s water treatment plant and distribution system?
Recommendation:
Neighborhood’s water treatment plant (WTP) and
distribution system should be considered 100 percent U&U. Additionally,
there appears to be no excessive unaccounted for water. Therefore, staff does
recommend no adjustment be made to operating expenses for chemicals and
purchased power. (P. Buys)
Staff Analysis:
Neighborhood’s water treatment system has one well rated at 350 gpm. The
raw water is treated with liquid chlorine for disinfection purposes. The
utility’s water system has three storage tanks totaling 62,000 gallons.
Neighborhood is also interconnected with JEA for emergency situations. There
are 24 fire hydrants located throughout the utility’s service area and its
distribution system is a composite mix of PVC pipes of varying sizes. In
the utility’s last rate case, the Commission determined that both the WTP and
distribution system were 100 percent U&U.[8]
Water Treatment Plant
and Distribution System Used & Useful
As noted above, both Neighborhood’s WTP and distribution
system were deemed 100 percent U&U during its previous rate case.[9] Since
the utility’s last rate case, there has been no change in circumstances.
Therefore, consistent with the Commission’s prior decision, staff recommends
that Neighborhood’s WTP and distribution system should be considered 100
percent U&U.
Excessive Unaccounted for
Water (EUW)
Pursuant to
Rule 25-30.4325, F.A.C., the calculation of U&U for a water treatment plant
must consider EUW. 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.[10]
Unaccounted for water is all water that is produced that is not sold, metered,
or accounted for in the records of the utility. 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 Rule additionally provides that to determine whether
adjustments to plant and operating expenses, such as purchased electrical power
and chemicals cost, 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 Monthly
Operating Reports that the utility files with the DEP indicate that the utility
treated 28,132,000 gallons during the test year. The utility’s annual reports
indicate that it purchased 361,000 gallons of water and used 180,000 gallons
for other uses during the test year. According to the staff audit report, the
utility sold 27,167,355 gallons of water for the test year. Based on the values
above, unaccounted for water is only 4 percent. Therefore, staff recommends no
adjustment be made to operating expenses for chemicals and purchase power due
to EUW.
Conclusion
Consistent with its prior rate case, Neighborhood’s WTP
and distribution system should be considered 100 percent U&U. Additionally,
since the utility’s unaccounted for water is only 4 percent, no adjustment
should be made to operating expenses for chemicals and purchased power.
Issue 3:
What is the appropriate average test year rate base for
Neighborhood?
Recommendation:
The appropriate average test year rate base is $160,840.
(L. Smith)
Staff Analysis:
Neighborhood’s rate base
was last established in its 2009 SARC by Order No. PSC-10-0024-PAA-WU.[11] The test
year ended June 30, 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)
The utility recorded UPIS of $646,773. The staff audit
identified several adjustments resulting in a net increase to UPIS of $21,591
to reflect the appropriate balances, Commission-ordered adjustments, and
additions that were not booked. These adjustments are shown on Table 3-1. Staff
also made an averaging adjustment to decrease UPIS by $188.
Table 3-1
Audit Adjustments
|
Acct.
|
Description
|
Adjustments
|
|
302
|
Franchise
|
($243)
|
|
304
|
Structures & Improvements
|
7,447
|
|
307
|
Wells & Springs
|
7,695
|
|
309
|
Supply Mains
|
1,680
|
|
311
|
Pumping Equip.
|
674
|
|
320
|
Water Treatment Equip.
|
1,242
|
|
330
|
Distribution Reservoirs
|
2,522
|
|
331
|
T&D Mains
|
(2,570)
|
|
333
|
Services
|
3,880
|
|
334
|
Meters & Meter Installations
|
(1,036)
|
|
335
|
Tools, Shop, & Garage Equip.
|
300
|
|
|
Total
Adjustments
|
$21,591
|
Source: Audit
Pro
Forma Plant
As shown in Table 3-2, staff made a net adjustment
increasing UPIS by $3,640 for pro forma plant addition items. On several
occasions, staff asked for bids and quotes for each pro forma project and was
only provided with one bid. The utility indicated that it had difficulty
finding companies or persons to provide quotes and perform the specific jobs.
During its site visit, staff observed the condition of the utility’s plant and
believes the pro forma projects are warranted. Although multiple bids were not
provided, staff believes these pro forma plant additions are prudent and
reasonable. Therefore, staff recommends an average UPIS balance of $671,816
($646,773 + $21,591 - $188 + $3,640). The details of each pro forma item are
discussed below.
Electric
Panel Repairs, including Water Level Controls Replacement
The utility
requested $14,250 to rewire and replace the electric panel. According to
Neighborhood, the electric panel does not work consistently. A 2016 U.S. Water proposal reflects that the existing
electrical panel should be replaced. The bid noted, “The existing panel is very
outdated and has had multiple problems.” This installation would require
special disposal as the existing electric panel contains mercury. The bid
includes a line item for “Materials and Labor to Complete Scope of Service.”
Also, the bid “as quoted represents labor, material, and project management
specific to items listed” in the description of the project. The retirement
associated with this project is $5,209.
High
Service Pump #1
The utility requested $3,977 to replace and upgrade a high service pump.
Neighborhood stated the pump upgrade to 450 gallons per minute will increase
fire flow capacity. U.S. Water provided a proposal to
perform work associated with this project. The proposal includes “Materials and
Labor to Complete Scope of Service” at $1,000. The proposal stated the utility
will supply the 20hp motor, seals, and gaskets. Neighborhood provided documentation
from the USA BlueBook that shows the
cost for the motor, seals, and gaskets at $2,977. The retirement associated
with this project is $2,271.
Pump
House Roof
Neighborhood
stated that the leaky roof is 33 years old and could cause problems with the
electric control panel. The proposal by Florida Residential to replace the pump
house roof is $945. The proposal includes removing existing shingles and felt
($120), replacing any wood rot that is needed (no price) and installing new
drip edge and shingles ($350). Materials are $400 and a Dump fee is $75. The retirement associated with this project is $347.
Check
Valve
The utility
requested $4,111 to replace a check valve at the water treatment plant.
Neighborhood explained that the check valve will not shut after use which
results in water flowing back through the pump. This action could cause damage
to the pump and motor. The check valve has been temporarily isolated, and
service has been switched to another pump. The utility received a 2016 proposal
from U.S. Water to replace the valve. The bid includes material and labor to
complete the task. The retirement associated with
this project is $3,083.
Flushing
Valve
The utility
requested $4,700 to install a two-inch flushing valve at the corner of Rothbury
Drive South and Blair Road. A customer at this location complained about odors
and installing a flushing valve could help resolve this complaint. Neighborhood
reported that the nearest flushing source is a fire hydrant 450 feet away. U.S.
Water provided a proposal to complete this work. The proposal is to dig up and
install a new flushing valve on the existing 8-inch water main. There is no retirement associated with this project.
Meters
and Meter Box Retirements
As discussed in Issue 6, staff is
recommending a meter replacement program. Staff is also recommending replacing
50 meter boxes. The appropriate retirement associated with this project is
$13,433.
Table 3-2
Pro-Forma Plant Items
|
Project
|
Description
|
Amount
|
|
Electric Panel Repairs
|
Rewire and replace the electric panel
|
$14,250
|
|
Associated
Retirement
|
(5,209)
|
|
High Service Pump #1
|
Replace and upgrade a high service pump
|
3,977
|
|
Associated Retirement
|
(2,271)
|
|
Pump House Roof
|
Replace the pump house roof
|
945
|
|
Associated Retirement
|
(347)
|
|
Check Valve
|
Install new check valve
|
4,111
|
|
|
Associated
Retirement
|
(3,083)
|
|
Flushing Valve
|
Install a 2-inch flushing valve
|
4,700
|
|
Meter and Meter Boxes
|
Reflect meter and meter box retirements
|
(13,433)
|
|
|
Net Adjustment
|
$3,640
|
Source: Responses to staff data requests
Land & Land Rights
The utility recorded a test year land value of $1,000.
Staff did not make any adjustments to this account.
Accumulated Depreciation
Neighborhood recorded an
Accumulated Depreciation balance of $462,169 on its 2014 Annual Report. The
staff auditor calculated Accumulated Depreciation to be $459,458 as of June 30,
2015, resulting in a decrease of $2,711. This balance included Commission-ordered
adjustments that the utility did not make. Staff also made an averaging
adjustment to Accumulated Depreciation that resulted in a decrease of $10,320.
Further, staff made adjustments based on pro forma plant additions and
retirements resulting in a net decrease of $22,986. Staff’s
adjustments result in an Accumulated Depreciation balance of $426,152
($462,169 - $2,711 - $10,320 - $22,986).
Contributions In Aid of Construction
(CIAC)
Neighborhood
recorded a CIAC balance of $786,998 as of June 30, 2015. The utility was unable
to provide sufficient documentation to support this CIAC amount. As such, staff
believes it is necessary to impute CIAC pursuant to Rule 25-30.570, F.A.C.,
which states:
If
the amount of CIAC has not been recorded on the utility=s
books and the utility does not submit competent substantial evidence as to the
amount of CIAC, the amount of CIAC shall be imputed to be the amount of plant
costs charged to the cost of land sales for tax purposes if available, or the
proportion of the cost of the facilities and plant attributable to the water
transmission and distribution system and the sewage collection system.
Pursuant to this rule, staff
included $243,607 which is the balance in Account 331 T&D Mains. Staff also
recalculated the appropriate amount of meter installation fees and plant
capacity charges based on the utility’s tariff. This resulted in an increase to
CIAC of $39,402 for the meter installation fees and $421,465 for plant capacity
charges. Additionally, staff reduced CIAC by $421,465 to retire the plant
capacity fees that were fully amortized. Further, staff reduced CIAC by $13,433
to reflect meter retirements associated with pro forma meter replacements.
Therefore, staff recommends that the appropriate CIAC balance is $269,576
($243,607 + $39,402 + $421,465 - $421,465 - $13,433). This results in a net
decrease of $517,422 ($786,998 - $269,576).
Accumulated Amortization
of CIAC
The utility recorded Accumulated
Amortization of CIAC of $567,803 on its 2014 Annual Report. Staff recalculated
this amount based on the imputed balances for CIAC. Based on staff’s
calculations, the appropriate components of Accumulated Amortization of CIAC
are $145,438 for the T&D Mains, $33,357 for the Meter Installation Fees,
and $421,465 for the Plant Capacity Fees. Staff also reduced Accumulated
Amortization of CIAC by $421,465 to retire the fully amortized plant capacity
fees and $13,433 associated with pro forma meter retirements. Therefore, staff
recommends an Accumulated Amortization of CIAC balance of $165,362 ($145,438 +
$33,357 + $421,465 - $421,465 - $13,433). This results in a net decrease of
$402,441 ($567,803 - $165,362).
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
operation and maintenance expense formula approach for calculating the working
capital allowance. Applying this formula, staff recommends a working capital
allowance of $18,390.
Rate Base Summary
Based on the foregoing, staff
recommends that the appropriate average test year rate base is $160,840. Rate
base is shown on Schedule No. 1-A. The related adjustments are shown on
Schedule No. 1-B.
Issue 4:
What is the appropriate return on equity and overall
rate of return for Neighborhood?
Recommendation:
The appropriate return on equity (ROE) is 11.16
percent with a range of 10.16 percent to 12.16 percent. The appropriate overall
rate of return is 6.62 percent. (L. Smith)
Staff Analysis:
Neighborhood’s
test year capital structure reflected negative common equity of $622,743, customer
deposits of $7,995, and a long-term debt balance of $178,919. In accordance
with Commission practice, staff set the negative common equity to zero.
Staff increased customer deposits by $1,338 to reflect the amount on the
utility’s deposit log and decreased customer deposits by $1,783 to reflect an
averaging adjustment. This results in a net decrease of $445 in customer
deposits. Thus, staff recommends a customer deposit balance of $7,550 ($7,995 -
$445).
Staff
reduced long-term debt by $89,769 to remove two amounts on the utility’s books
that Neighborhood stated were already paid. Staff also reduced long-term debt
by $82,078 to remove two additional debts that were on the utility’s books. The
Utility President informed the audit staff that these debts were unenforceable.
Further, staff increased long-term debt by $95,068 to include two promissory
notes that were not on the utility’s books. Additionally, staff increased long-term
debt by $1,307 to reflect an averaging adjustment. Thus, staff recommends a
long-term debt balance of $103,447 ($178,919 - $89,769 - $82,078 + $95,068 +
$1,307).
Neighborhood’s capital structure has been reconciled with
staff’s recommended rate base. The appropriate ROE for the utility is 11.16
percent based upon the Commission-approved leverage formula currently in
effect.[13] Staff
recommends an ROE of 11.16 percent, with a range of 10.16 percent to 12.16
percent, and an overall rate of return of 6.62 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 5:
What are the appropriate test year revenues for
Neighborhood's water system?
Recommendation:
The appropriate test year revenues for
Neighborhood’s water system are $141,920. (Johnson, Hudson)
Staff Analysis:
Neighborhood recorded total
test year revenues of $135,972. The water revenues included $134,866 of service
revenues and $1,106 of miscellaneous revenues. Based on staff’s review of the utility’s
billing determinants and the service rates that were in effect during the test
year, staff determined test year service revenues should be $132,143. This
results in a decrease of $2,723 ($134,866-$132,143) to service revenues for
water.
On a contractual basis, U.S. Water provides disconnect and
reconnection services to Neighborhood. In order to recover its cost, the
utility charged customers $20, which is more than its tariff and not in
compliance with Commission Rules and Florida Statutes. As discussed in Issue
12, staff is recommending an increase to the utility’s existing miscellaneous
service charges, as well as adding a late payment charge. As a result,
miscellaneous revenues should be increased to reflect the incremental increase
of the miscellaneous service charges and the addition of a late payment charge.
Based on staff’s review of the number of miscellaneous service occurrences
during the test year and the utility’s recommended miscellaneous service
charges, staff determined miscellaneous revenues should be $9,777 on a going
forward basis. This results in an increase of $8,761 ($9,777-$1,106) to
miscellaneous revenues for water. Based on the above, staff recommends that the
appropriate test year revenues for Neighborhood’s water system are $141,920 ($132,143+$9,777).
Although the utility charged more than its approved
violation reconnection charge, staff does not believe the utility “willfully”
disregarded Commission rules or statutes. As outlined above, the disconnection
service is provided on a contractual basis and the utility was attempting to
pass the cost to the cost causer. As discussed in Issue 12, staff is
recommending violation reconnection charges of $30 and $32, for normal and
after hours, respectively, which are more than the utility’s tariff charges
($10 normal hours and $15 after hours), and an unauthorized charge of $20. The
purpose of these miscellaneous service charges is to place the cost burden on
the cost causers and not by the general body of ratepayers. The utility’s
existing violation reconnection charge results in subsidization from the
general body of ratepayers because it does not cover the costs associated with service
disconnections. Based on the above, staff believes no enforcement action is
warranted at this time. However, Neighborhood should be put on notice that, in
the future, it may be subject to a show cause proceeding by the Commission,
including penalties, if the utility charges amounts other than those approved
by the Commission.
Issue 6:
What is the appropriate test year operating expenses
for Neighborhood?
Recommendation:
The appropriate amount of test year operating
expense for the utility is $176,221. (L. Smith, P. Buys, Johnson)
Staff Analysis:
Neighborhood
recorded operating expense of $157,952. The test year O&M expenses
have been reviewed, including invoices, canceled checks, and other supporting
documentation. Staff has made several adjustments to the utility's operating
expenses as summarized below.
Operation and Maintenance Expenses
Salaries
and Wages - Employees (601)
Neighborhood recorded Salaries and Wages - Employees
expense of $17,777. Staff increased this account by $223. This adjustment is to
reflect the actual Salaries and Wages expense paid by the utility. Staff used
Cedar Acres, Inc., a similarly-situated utility, for comparison purposes in
this case. Both are Class C utilities, have a President, an office manager, and
use contractors for meter reading, operating the utility, and various repairs.
In Docket No. 140217-WU, the Commission approved a combined amount (before
reductions for unsatisfactory Quality of Service) of $43,080 ($38,938 + $4,142)
for Salaries and Wages – Employees and Salaries and Wages – Officers.[14] This
equates to $135 ($43,080 / 319) per customer annually. In this case, the
combined recommended Salaries and Wages – Employees and Salaries and Wages –
Officers is $44,400 ($18,000 + $26,400), which equates to $101 ($44,400 / 441)
per customer. Given the similarities in duties and responsibilities for the
president and the office manager of each utility, staff believes this expense
is reasonable. Therefore, staff recommends Salaries and Wages - Employees
expense of $18,000 ($17,777 + $223).
Salaries
and Wages - Officers (603)
Neighborhood recorded Salaries and Wages - Officers
expense of $26,400. In the utility’s last rate case, the Commission approved an
expense of $24,000 for this account. Staff indexed this amount, using
Commission-approved index factors from 2010 to 2015, which resulted in an
amount of $26,178. Because the difference is only $222, and in light of the
analysis of total salaries above, staff believes the utility-recorded amount is
reasonable. Therefore, staff recommends Salaries and Wages expenses - Officers
expense of $26,400.
Purchased
Power (615)
Neighborhood recorded Purchased Power expense of $5,261.
Staff increased Purchased Power expense by $187 to reflect the actual amount
incurred. The utility did not record any Purchased Power expense related to
Neighborhood’s office. Staff used a Commission-approved amount ($1,572) for a
utility with a similarly-sized customer base and indexed that amount to 2015.[15] This
results in an increase to Purchased Power expense of $1,705. Therefore, staff
recommends Purchased Power expense of $7,153 ($5,261 + $187 + $1,705).
Chemicals (618)
The utility
recorded Chemicals expense of $5,339. Staff decreased Chemicals expense by $635
to remove a transaction that was outside the test year. Therefore, staff
recommends Chemicals expense of $4,704 ($5,339 - $635).
Contractual Services - Billing (630)
Neighborhood recorded Contractual
Services - Billing expense of $4,912. Staff reduced Contractual Services -
Billing expense by $1,123 to remove several bills that were outside the test
year. Therefore, staff recommends Contractual Services - Billing expense of
$3,789 ($4,912 - $1,123).
Contractual Services - Testing (635)
The utility recorded Contractual
Services - Testing expense of $2,632. Staff reduced Contractual Services -
Testing expense by $39 to remove unsupported expenses. Further, staff increased
Contractual Services - Testing expense by $485 to reflect an annualized amount
related to DEP required tri-annual contaminants testing that was not performed
during the test year. Therefore, staff recommends Contractual Services –
Testing expense of $3,078 ($2,632 - $39 + $485).
Contractual Services - Other (636)
Neighborhood recorded Contractual Services - Other expense
of $19,774. This amount includes the expense related to U.S. Water for
operating the system, meter reading and turn offs, as well as various repairs.
It also includes payment to Merchant Services for generating customer bills.
Staff has increased Contractual Services - Other expense by $1,560 to reflect
the cost of lawn maintenance. Consistent with Rule 25-30.433(8), F.A.C., staff
reduced this account by $2,685 to remove and amortize various non-recurring
repair expenses. Further, staff increased Contractual Services - Other expense
by $25,027 to reflect pro forma expenses as discussed and reflected in Table
6-1 below. Therefore, staff recommends Contractual Services – Other expense of
$43,676 ($19,774 + $1,560 - $2,685 + $25,027)
Pro
Forma Expenses
Neighborhood has requested several pro forma expense
items, which are summarized in Table 6-1. On several occasions, staff asked for
bids and quotes for each pro forma project and was only provided with one bid.
The utility indicated that it had difficulty finding companies or persons to
provide quotes and perform specific jobs. During its site visit, staff observed
the condition of the utility’s plant and believes the pro forma projects are
warranted. Although multiple bids were not provided, staff believes these pro
forma expenses are reasonable based on the analysis of each item below.
Pursuant to Rule 25-30.433(8), F.A.C., non-recurring expenses shall be
amortized over a 5-year period unless a shorter or longer period of time can be
justified.
Meter
Reading
As part of the pro forma adjustments, staff increased this
account by $6,092 to reflect the going-forward expense associated with meter
reading services through U.S. Water, a non-related, third party. The utility
submitted a quote from U.S. Water on June 1, 2016, that reflected meter reading
services for up to 500 meters for an annual amount of $16,200, or $3.06 per
meter per month. Since Neighborhood currently has 441 meters, and within a year
should have installed 60 touch read meters, staff reduced this amount to
reflect 381 meters. This reduction results in an annual amount of $12,344 (381
x $3.06 x 12), which represents an increase of $6,092 over the current
contract. In Docket No. 140217-WU, the Commission approved an amount equal to
$6.30 per meter read. Staff therefore believes $3.06 per meter read to be
reasonable. However, staff would note that the utility is currently seeking to
negotiate a lower contract amount with U.S. Water, as well as exploring
alternatives.
Tank
Inspection
Neighborhood
is requesting $3,850 for a tank inspection. The utility originally provide a
2014 quote from U.S. Water for $6,926. When staff asked for a current quote,
Neighborhood provided a 2016 proposal from American Tank Maintenance, LLC for
$3,850. The proposal includes tank cleaning,
inspections, and disinfection. The proposed inspection is a five-year
inspection required by DEP and is currently overdue by 18 months. DEP did note
this as a deficiency on the utility’s last sanitary survey. The utility has
indicated that the tank inspection has not been completed due to insufficient
revenues. The adjustment to O&M Expenses would be
$770 ($3,850 over five years).
Fire Hydrant Service
Neighborhood is requesting $5,400
for fire hydrant service. The 2016 proposal from
Bob’s Backflow and Plumbing Services states that the annual testing of the
hydrants would include inspecting, operating, flushing, and greasing the ports
of each hydrant. The proposal quoted $225 per hydrant. There are 24
hydrants in the distribution system. The adjustment
to O&M Expenses would be an increase of $2,700 ($225 per fire hydrant over
two years).
Valves
The utility
is requesting $3,650 to clean and exercise valves. Neighborhood received a 2016
proposal from U.S. Water who would locate, exercise, and cleanout all the
valves. The adjustment to O&M Expenses would be
an increase of $730 ($3,650 over five years).
Generator Switch Gear
The utility is requesting $2,181
to diagnosis and repair the generator switch gear. The utility reports that
currently the switch gear works intermittently and needs troubleshooting and
repair. Neighborhood received a 2016 quote from Premier Power Systems. Premier
Power Systems recommends its full major service, which includes oil, oil filter,
air filter, coolant filter, coolant system flush and refill, belts and hoses
replaced, diesel fuel tested cleaned and treated, full system test, and two
hour load bank test. The adjustment to O&M
Expenses would be $435 ($2,181 over five years).
Line Break
On January 12, 2016, U.S. Water repaired a line break. U.S. Water
located the line break on the water main through the woods “in the middle of a
swamp”. The utility provided an invoice from U.S. Water, dated February 15,
2016. The cost for location, labor, and materials is $4,147. The adjustment to O&M Expenses would be $829 ($4,147
over five years).
Meter Replacements
Neighborhood
is requesting $90,280 to replace approximately 441 meters. The estimated cost
for the meter replacement project is based on a 2016 U.S. Water proposal.
During the last rate case, the Commission approved pro forma expense to replace
40 meters per year at $5,255. Since then, Neighborhood has only replaced 57
meters. Neighborhood stated that water use and revenues have declined since the
last rate case; therefore, there were insufficient funds to pay for new meters.
Neighborhood stated that all the meters would be
replaced; even the 57 meters previously replaced due to the fact those meters
are not touch read meters. Staff recommends that funds for the meter
replacement program need to be collected in an escrow account at the rate of $12,360 ($206 per meter for 60 meters per year).
Staff believes the implementation of such an escrow program will provide extra
protection to the customers and ensure the completion of the meter replacement
program by the utility. The retirement associated
with this project is $9,270. The Commission approved a meter replacement plan
for Little Gasparilla Water Utility, Inc. in 2014. The meter replacement plan
equated to $249.15 per meter.
Meter Boxes and Lids Replacement
The utility
is requesting $5,550 to replace 50 meter boxes and lids at an estimated $111
per meter. Based upon a 2015 Ferguson Enterprises,
Inc. proposal submitted by Neighborhood, the cost breakdown is: meter boxes
$47, lids $34, and installation $30. Neighborhood would like to replace
the plastic boxes and lids with fiberglass concrete boxes and lids. This
replacement would take place in the Cherokee Cove subdivision only. Accordingly,
this cost should be amortized over five years, which equates to $1,110.
The total
pro forma expenses recommended by staff are as follows:
Table 6-1
Pro-Forma Expenses Items
|
Project
|
Description
|
Amount
|
|
Meter Reading
|
To reflect going-forward meter reading expense
|
$6,092
|
|
Tank Inspection
|
To inspect storage tank per DEP requirements
|
770
|
|
Fire Hydrant Service
|
To annually test and service fire hydrants
|
2,700
|
|
Valves
|
To clean and exercise the valves
|
730
|
|
Generator Switch Repair
|
To replace switch in generator
|
435
|
|
Line Break Repair
|
To repair line break
|
829
|
|
Meter Replacement
|
To replace 60 meters per year
|
12,360
|
|
Meter Boxes
|
To replace 50 meter boxes
|
1,110
|
|
|
Total
|
$25,027
|
Source: Responses
to staff data requests
Rental
of Building/Property (640)
Neighborhood did not record any Rental of
Building/Property expense. The utility is currently using an office, with no
lease agreement, free of charge. The business that originally provided the
office space to Neighborhood has since been sold and the utility has been asked
to move out of the space. Based on a recent telephone discussion, the Utility’s
President informed staff that he has not signed a lease because Neighborhood
does not currently have the money. In addition, the President stated that he is
awaiting the outcome of this rate case before signing a lease.
The utility has submitted a quote, from a non-related,
third party for an 800 square foot office at $13.50 per square foot, on a
yearly basis. This equates to an annual rent expense of $10,800. Prior to the
customer meeting, staff performed an analysis of 11 suitably-sized office
spaces in the Jacksonville area. Specifically, in an effort to test the
reasonableness of this quote, staff used a commercial real estate website to
calculate an average annual per square foot price of $14.64. Staff’s analysis
resulted in an amount of $11,715 (800 x $14.64).
Further, staff notes that in the utility’s last rate case,
the Commission approved rent expense in the amount of $8,222. Staff indexed
this amount from 2010 to 2015, using Commission approved index factors,
resulting in an amount of $8,968.
Staff believes that rent expense is a necessary cost of
providing service that should be included in the revenue requirement. Based on
staff’s analysis of average annual office rentals in the Jacksonville area and
the indexed amount from the previous rate case, staff believes the utility’s
quote from the non-related, third party is reasonable. Therefore, staff
recommends Rental of Building expense of $10,800.
Transportation
Expense (650)
Neighborhood recorded Transportation expense of $6,746.
The main vehicle used by Neighborhood is a 1998 Honda Accord. The title to this
vehicle is in the name of the spouse of the Utility’s President. There are no
lease payments associated with this vehicle. The utility pays for all gas and
maintenance on the vehicle. In addition to the Honda Accord, the utility
occasionally uses a 2001 Lexus that is also the personal vehicle of the Utility
President. There are no lease payments associated with this vehicle either,
however the utility pays for the gasoline in exchange for the use of that
vehicle. Staff increased Transportation expense by $632 to reflect supported
expenses. Staff also reduced this account by $2,411 to remove a non-utility
payment. Therefore, staff recommends Transportation expense of $4,967 ($6,746 +
$632 - $2,411).
Insurance
Expense (655)
The utility
recorded Insurance expense of $4,164. Staff increased this expense by $1,344 to
reflect actual expenses that are supported by documentation. Staff also reduced
this account by $3,346 to remove payments for a life insurance policy on
Neighborhood’s President. According to the NARUC Uniform System of Accounts,
these payments should be recorded below the line. Therefore, staff recommends
Insurance expense of $2,162 ($4,164 + $1,344 - $3,346).
Regulatory
Commission Expense (665)
The utility did not record any Regulatory Commission expense. By
Rule 25-22.0407, F.A.C., Neighborhood is required to mail notices of the
customer meeting and notices of final rates in this case to its customers. For
these notices, staff has estimated $431 for postage, $308 for printing, and $44
for envelopes. Additionally, the utility paid a $1,000 rate case filing fee.
Based on the above, staff recommends that the total rate case expense is
$1,783, which amortized over four years results in a Regulatory Commission
expense of $446 ($1,783 / 4).
Bad
Debt (670)
Neighborhood recorded Bad Debt
expense of $387. However, this amount was removed by the auditors due to lack
of support. To establish an appropriate amount of Bad Debt expense for the test
year, staff calculated a 3-year average using annual reports filed for the
years 2013, 2014, and 2015. The 3-year average is consistent with Commission
practice.[17] Using the
3-year average, staff recommends a decrease of $71. Therefore, staff recommends
Bad Debt expense of $316 ($387 - $71).
Miscellaneous Expense (675)
The utility recorded
Miscellaneous expense of $32,085. Staff decreased Miscellaneous expense by
$11,795 to remove expenses that were outside the test year. Staff also
decreased Miscellaneous expense by $7,895 to remove expenses that had no
supporting documentation. Staff increased Miscellaneous expense by $5,032 to
include expenses that were not recorded on Neighborhood’s books. Staff
decreased this account by $128 to reclassify and capitalize expenses to UPIS.
Further, staff reduced this account by $897 to reflect the going-forward cost
of telephone service. Finally, staff reduced this account by $2,307 to remove
non-utility expenses. Therefore, staff recommends Miscellaneous expense of
$14,095 ($32,085 - $11,795 - $7,895 + $5,032 - $128 - $897 - $2,307).
Operation and
Maintenance Expenses Summary
Based on the above, staff
recommends that O&M expenses are $147,120. Staff would note that the total
O&M expense per customer in this case is $334. Using the 2014 Annual
Reports, staff performed an analysis of Class C utilities and calculated that
the average O&M expenses, indexed to 2016, were $331 per customer.
Therefore, staff believes the recommended O&M expenses to be reasonable.
Staff’s recommended adjustments to O&M expenses are shown on Schedule Nos. 3-B
and 3-C.
Depreciation Expense
The utility recorded Depreciation expense of $13,390 for the
test year. Staff auditors recalculated Depreciation expense using the
prescribed rates set forth in Rule 25-30.140, F.A.C. and found that
Depreciation expense was understated by $9,422. Staff also increased
Depreciation expense by $849 associated with pro forma plant additions. Based
on the above, staff recommends a test year Depreciation expense of $23,661
($13,390 + $9,422 + $849).
CIAC Amortization
Expense
Neighborhood did not record any
CIAC Amortization expense for the test year. Staff calculated CIAC Amortization
expense for the test year to be $9,118. Staff decreased this expense by $1,179
to reflect retirements related to pro forma meter installations. Based on staff’s calculations, the utility’s
CIAC Amortization expense is $7,938 ($9,118 - $1,179).
Taxes Other Than Income
(TOTI)
Neighborhood recorded TOTI of
$11,550. Staff reduced this amount by $195 to reflect the appropriate test year
property taxes. Staff increased TOTI by $2,023 to reflect RAFs associated with
the revenue increase. It should be also noted that although it is not included
in the revenue requirement, the utility applies ten percent and five percent to
customer’s bills for a public service tax and a right of way tax for Duval
County. The public service tax and right of way tax are self-reporting, which
means it is the utility’s responsibility to report and pay the county tax
collector. Staff is therefore recommending TOTI of $13,378 ($11,550 - $195 +
$2,023).
Income Tax
The utility did not record any
income tax expense for the test year. Neighborhood has shown a net loss for the
last several years in its annual reports and income tax returns. This tax loss
carry forward is in excess of the income tax provision on a going-forward
basis, and is expected to continue to be so for at least the next 10 years. In
this instance, it is Commission practice to allow no provision for income tax.[18]
Therefore, staff recommends no income tax provision for the utility.
Operating Expenses
Summary
The application of staff=s
recommended adjustments to Neighborhood’s test year operating expenses result
in operating expenses of $176,221. Operating expenses are shown on Schedule
Nos. 3-A. The related adjustments are shown on Schedule No. 3-B.
Issue 7:
What is the appropriate revenue requirement?
Recommendation:
The appropriate revenue requirement is $186,869,
resulting in an annual increase of $44,949 (or 31.67 percent). (L. Smith)
Staff Analysis:
Neighborhood should be
allowed an annual increase of $44,949 (or 31.67 percent). This will allow the utility
the opportunity to recover its expenses and earn a 6.62 percent return on its
water system. The calculations are shown in Table 7-1.
|
Table
7-1
Revenue
Requirement
|
|
Adjusted Rate Base
|
|
$160,840
|
|
Rate of Return
|
|
6.62%
|
|
Return on Rate Base
|
|
$10,648
|
|
Adjusted O&M Expense
|
|
147,120
|
|
Depreciation Expense (Net)
|
|
15,723
|
|
Taxes Other Than Income
|
|
13,378
|
|
Income Taxes
|
|
0
|
|
Revenue Requirement
|
|
$186,869
|
|
Less Adjusted Test Year Revenues
|
|
(141,920)
|
|
Annual Increase
|
|
$44,949
|
|
Percent Increase
|
|
31.67%
|
Source: Staff’s calculation
Issue 8:
What are the appropriate rate structure and rates
for Neighborhood's water system?
Recommendation:
The recommended rate structure and monthly water
rates 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 sheet pursuant to Rule 25-30.475(1), F.A.C.
In addition, the approved rates should not be implemented until staff has
approved the proposed customer notice and the notice has been received by the
customers. The utility should provide proof of the date notice was given within
10 days of the date of the notice. (Johnson, Hudson)
Staff Analysis:
Neighborhood is located in
Duval County within the SJRWMD and provides water service to approximately 437
residential and 4 general service customers. Approximately one 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 5,065 gallons per month.
The utility’s current water system rate structure for residential customers consists
of a base facility charge (BFC) and a three-tier inclining block rate structure.
The rate blocks are: (1) 0-6,000 gallons; (2) 6,001-12,000 gallons; and (3) all
usage in excess of 12,000 gallons per month. The general service rate structure
includes a BFC based on meter size and a uniform gallonage charge.
Staff performed an analysis of
the utility’s billing data in order to evaluate the appropriate rate structure
for the residential water customers. The goal of the evaluation was to select
the rate design parameters that: (1) produce the recommended revenue
requirement; (2) equitably distribute cost recovery among the utility’s
customers; (3) establish the appropriate non-discretionary usage threshold for
restricting repression; and (4) implement, where appropriate, water conserving
rate structures consistent with Commission practice.
Currently, the utility’s BFC generates approximately 43
percent of the test year revenues. In order to design gallonage charges that
will send the appropriate pricing signals to target non-discretionary usage,
staff believes 30 percent of the revenue requirement should be recovered
through the BFC. At the 30 percent BFC allocation, the percentage increase in price
increases as consumption increases, which is one of the rate design goals. In
addition, the average number of people per household served by the water system
is three; therefore, based on the number of persons per household, 50 gallons
per day per person, and the number of days per month, the non-discretionary usage
threshold should be 5,000 gallons per month instead of 6,000 gallons. Staff
recommends shifting the third tier to 10,000 gallons and over, rather than
12,000 gallons and over, to provide a greater pricing signal for usage in
excess of 10,000 gallons per month. Staff recommends a BFC and a three-tier
gallonage charge rate structure, which includes a gallonage charge for
non-discretionary usage for residential water customers. The rate tiers should
be: (1) 0-5,000 gallons (non-discretionary); (2) 5,001-10,000 gallons; and (3)
all usage in excess of 10,000 gallons per month. Staff recommends a BFC and
uniform gallonage charge rate structure for general service water customers.
Further, based on the recommended revenue increase of
approximately 31.7 percent, the residential consumption can be expected to
decline by 1,537,000 gallons resulting in anticipated average residential
demand of 4,771 gallons per month. Staff recommends a 5.8 percent reduction in
total test year residential gallons for rate setting purposes and corresponding
reductions of $405 for purchased power, $266 for chemical expense, and $32 for
RAFs to reflect the anticipated repression. These adjustments result in a post
repression revenue requirement of $176,390. Table 8-1 contains staff’s recommended
rate structure and rates and alternative rate structure, which includes varying
BFC allocations and rate blocks. Although provided as alternatives, staff is
not in support of alternative one because the percentage increase in price
decreases as consumption increases, which is contrary to setting the
conservation-oriented rate structure. For alternative two, the across-the-board
increase does not allow for an adjustment for repression, which could put the
utility at a revenue shortfall.
Table 8-1
Staff’s Recommended and
Alternative Water Rate Structures and Rates
|
RATES AT
TIME OF
FILING
|
STAFF
RECOMMENDED
RATES
(30% BFC)
|
ALTERNATIVE
I
(40% BFC)
|
ALTERNATIVE II
(Across-the-board to existing rates)
(43% BFC)
|
|
Residential
|
|
|
|
|
|
5/8” x
3/4” Meter Size
|
$9.17
|
$8.46
|
$11.29
|
$12.29
|
|
|
|
|
|
|
|
Charge per 1,000
gallons
|
|
|
|
|
|
0-6,000 gallons
|
$2.40
|
|
|
$3.22
|
|
6,001 – 12,000 gallons
|
$3.60
|
|
|
$4.82
|
|
Over 12,000 gallons
|
$4.80
|
|
|
$6.43
|
|
|
|
|
|
|
|
0 – 5,000 gallons
|
|
$4.35
|
$3.73
|
|
|
5,001 – 10,000 gallons
|
|
$5.35
|
$4.36
|
|
|
Over 10,000 gallons
|
|
$8.02
|
$6.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 Gallons
|
$21.17
|
$30.21
|
$29.94
|
$28.39
|
|
10,000 Gallons
|
$37.97
|
$56.96
|
$51.74
|
$50.89
|
|
12,000 Gallons
|
$52.37
|
$84.01
|
$64.82
|
$60.53
|
|
|
|
|
|
Source: Current tariff and staff’s
calculations
The recommended rate structure and monthly water rates 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 sheet pursuant to Rule 25-30.475(1), F.A.C. In addition, the
approved rates should not be implemented until staff has approved the proposed
customer notice and the notice has been received by the customers. The utility
should provide proof of the date notice was given within 10 days of the date of
the notice.
Issue 9:
What is the appropriate amount by which rates should
be reduced in four years after the published effective date to reflect the
removal of the amortized rate case expense as required by Section 367.0816
F.S.?
Recommendation:
The water rates should be reduced to remove rate case
expense grossed-up for RAFs and amortized over a four-year period, as shown on
Schedule No. 4-A. 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. Neighborhood 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. (Johnson,
Hudson, L. Smith)
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. This results in a reduction of $471.
Neighborhood’s water rates should be reduced to remove
rate case expense grossed-up for RAFs and amortized over a four-year period, as
shown on Schedule No. 4-A. 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. Neighborhood 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 10:
Should the recommended rates be approved for the utility
on a temporary basis, subject to refund with interest, in the event of a
protest filed by a party other than the utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates should be approved for the utility on a temporary basis,
subject to refund with interest, in the event of a protest filed by a party
other than the utility. Neighborhood should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition,
the temporary rates should not be implemented until staff has approved the
proposed notice, and the notice has been received by the customers. Prior to
implementation of any temporary rates, the utility should provide appropriate
security. If the recommended rates are approved on a temporary basis, the rates
collected by the utility should be subject to the refund provisions discussed
below in the staff analysis. In addition, after the increased rates are in
effect, pursuant to Rule 25-30.360(6), F.A.C., the utility should file reports
with the Commission’s Office of Commission Clerk no later than the 20th of each
month indicating the monthly and total amount of money subject to refund at the
end of the preceding month. The report filed should also indicate the status of
the security being used to guarantee repayment of any potential refund. (L.
Smith)
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 the utility, staff recommends that the recommended
rates be approved as temporary rates. Neighborhood 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 $29,966. Alternatively, the utility could establish an escrow
agreement with an independent financial institution.
If the utility chooses a bond as security,
the bond should contain wording to the effect that it will be terminated only
under the following conditions:
1)
The Commission approves the rate increase; or,
2)
If the Commission denies the increase, the utility
shall refund the amount collected that is attributable to the increase.
If the utility chooses a letter
of credit as a security, it should contain the following conditions:
1) The
letter of credit is irrevocable for the period it is in effect, and,
2) The letter of credit will be
in effect until a final Commission Order is rendered, either approving or
denying the rate increase.
If security is provided through
an escrow agreement, the following conditions should be part of the agreement:
1) The Commission Clerk, or his
or her designee, must be a signatory to the escrow agreement; and,
2) No monies in the escrow
account may be withdrawn by the utility without the prior written authorization
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 20th
of each month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund.
Issue 11:
What are the appropriate amount, terms, and
conditions for the escrow account established for the meter replacement
program?
Recommendation:
The utility should be required to escrow $1,030
every month. The appropriate terms and conditions of the escrow account are set
forth below in the Staff Analysis Section. (L. Smith, P. Buys)
Staff Analysis:
As discussed in Issue 6, staff is recommending a
meter replacement program for the utility. The meter replacement program
includes replacing 60 meters per year, resulting in a total annual cost of
$12,360. Staff believes that in order to assure that the meters are replaced
and the customers are protected, $1,030 should be escrowed monthly. Further, in
order for approval of funds to be released, the utility must submit support
documentation of installation of meters and associated costs. The meter
replacement program is expected to be completed within eight years.
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; and,
2) No monies in the escrow account may be
withdrawn by the utility without the prior written authorization 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.
Neighborhood should maintain a record of the amount escrowed,
and the amount of revenues that are subject to refund.
Issue 12:
Should Neighborhood's miscellaneous service charges be
revised?
Recommendation:
Yes. Neighborhood’s miscellaneous service charges
should be revised. The charges should be effective on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the
approved charges should not be implemented until staff has approved the
proposed customer notice and the notice has been received by the customers. The
utility should provide proof of the date notice was given within 10 days of the
date of the notice. (Johnson, Hudson)
Staff Analysis:
Neighborhood’s current initial connection, normal reconnection, premises visit, and
violation reconnection charges were last established on September 28, 1984.[19] Section 367.091,
F.S., authorizes the Commission to establish, increase, or change a rate or
charge other than monthly rates or service availability charges. The utility’s
request to revise its miscellaneous charges was accompanied by its reason for
requesting the charge, as well as the cost justification required by Section
367.091(6), F.S.
Initial Connection Charge
Currently, the utility’s
initial connection charges are $10 and $15 for normal and after hours,
respectively. The initial connection charge is levied for service initiation at
a location where service did not exist previously. The utility representative
makes one trip when performing the service of an initial connection. Based on
labor and transportation to and from the service territory, staff recommends
initial connection charges of $19 and $21 for normal and after hours, respectively.
Staff’s calculation is shown below.
Table 11-1
Initial
Connection Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After Hours Cost
|
|
Labor (Administrative)
($8.65/hr
x1/4 hr)
|
$2.16
|
Labor (Administrative)
($8.65/hr x1/4 hr)
|
$2.16
|
|
Labor (Field)
($12.69/hr x 1/3 hr)
|
$4.23
|
Labor (Field)
($19.03/hr x1/3hr)
|
$6.34
|
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
|
Total
|
$19.35
|
Total
|
$21.46
|
Source:
Utility’s cost justification documentation
Normal
Reconnection Charge
The utility’s normal
reconnection charges are $10 and $15 for normal and after hours, respectively. The
normal reconnection charge is levied for the transfer of service to a new
customer account at a previously served location or reconnection of service
subsequent to a customer requested disconnection. A normal reconnection
requires two trips, which includes one to turn service on and the other to turn
service off at a later date.
Based on labor and
transportation to and from the service territory, staff recommends that the
normal reconnection charges should be $34 and $38 for normal and after hours,
respectively for water service. Staff’s calculations are shown below.
Table
11-2
Normal Reconnection
Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After Hours Cost
|
|
Labor (Administrative)
($8.65/hr x1/4 hr)
|
$2.16
|
Labor (Administrative)
($8.65/hr x1/4 hr)
|
$2.16
|
|
Labor (Field)
($12.69/hr x 1/4 hr x 2)
|
$6.35
|
Labor (Field)
($19.03/hr x 1/4 hr x 2)
|
$9.52
|
|
Transportation
($.54/mile x 24 miles-to/from x
2)
|
$25.92
|
Transportation
($.54/mile x 24 miles-to/from x
2)
|
$25.92
|
|
Total
|
$34.43
|
Total
|
$37.60
|
Source: Utility’s cost justification documentation
Violation
Reconnection Charge
The utility’s existing violation reconnection charges are $10 and $15
for normal and after hours, respectively. The violation reconnection charge is
levied prior to reconnection of an existing customer after discontinuance of
service for cause. The service performed for violation reconnection requires
two trips, which includes one trip to turn off service and a subsequent trip to
turn on service once the violation has been remedied. Neighborhood has
contracted with U.S. Water for turn-offs when there is a violation. U.S.
Water’s first billed hour is for one to five turn-offs and an additional charge
for fuel. The same billing methodology would apply for turn-ons, as well. The
utility averages approximately 20 turn-offs per request made for turn-offs.
However, the utility may not be able to avoid having only one turn-on at any
given time. In order to minimize the cost of turn-ons, the utility has opted to
perform this service when a violation has been remedied. Based on labor and
transportation to and from the service territory, staff recommends water
violation reconnection charges of $30 and $32 for normal and after hours,
respectively, based on the cost to turnoff service by U.S. Water and the
average cost to restore service either during normal business hours or after
hours by the utility. Staff’s calculations for the water violation reconnection
charges are shown below.
Table 11-3
Violation
Reconnection Charge Calculation – Turn Off
|
Activity
|
Normal and After
Hours Cost
|
|
Labor – (Administrative -
utility)
($8.65/hr x1/4hr)
|
$2.16
|
|
Labor – (outside contractor)
|
$11.58
|
|
Transportation (outside
contractor)
|
$.62
|
|
Total
|
$14.36
|
Source: Utility’s cost justification
documentation
Table 11-4
Violation
Reconnection Charge Calculation – Turn On
|
Activity
|
Normal Hours Cost
|
Activity
|
After Hours Cost
|
|
Labor (Field)
($12.69/hr x 1/4 hr)
|
$3.17
|
Labor (Field)
($19.03/hr x 1/4 hr)
|
$4.76
|
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
|
Total
|
$16.13
|
Total
|
$17.72
|
Source: Utility’s cost
justification documentation
Premises
Visit Charge
The utility’s existing premises visit charge is $8 during regular
business hours. The premises visit charge is levied when a service
representative visits a premises at the customer’s request for complaint
resolution and the problem is found to be the customer’s responsibility. In
addition, the premises visit can be levied when a service representative visits
a premises for the purpose of discontinuing service for nonpayment of a due and
collectible bill and does not discontinue service because the customer pays the
service representative or otherwise makes satisfactory arrangements to pay the
bill. A premises visit requires one trip. Based on labor and transportation to
and from the service territory, staff recommends premises visit charges of $19
and $21 for normal and after hours. Staff’s calculations are shown below.
Table 11-5
Premises
Visit Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After Hours Cost
|
|
Labor (Administrative)
($8.65/hr x1/4hr)
|
$2.16
|
Labor (Administrative)
($8.65/hr x1/4hr)
|
$2.16
|
|
Labor (Field)
($12.69/hr x 1/3 hr)
|
$4.23
|
Labor (Field)
($19.03/hr x 1/3 hr)
|
$6.34
|
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
Transportation
($.54/mile x 24 miles-to/from)
|
$12.96
|
|
Total
|
$19.35
|
Total
|
$21.46
|
Source:
Utility’s cost justification documentation
Table
11-6
Summary of Staff’s
Recommended Miscellaneous Service Charges
|
Miscellaneous Service Charges
|
During Hours
|
After Hours
|
|
Initial Connection Charge
|
$19
|
$21
|
|
Normal Reconnection Charge
|
$34
|
$38
|
|
Violation Reconnection Charge
|
$30
|
$32
|
|
Premises Visit Charge (in lieu of Disconnection)
|
$19
|
$21
|
Source:
Staff’s recommended charges
Summary
Neighborhood’s miscellaneous service charges should be
revised. The charges should be effective on or after the stamped approval date
on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the approved
charges should not be implemented until staff has approved the proposed
customer notice and the notice has been received by the customers. The utility
should provide proof of the date notice was given within 10 days of the date of
the notice.
Issue 13:
Should Neighborhood's request to implement a late
payment charge be approved?
Recommendation:
Yes. Neighborhood’s request to implement a late
payment charge should be approved. Neighborhood should be allowed to implement
a late payment charge of $4.30. Neighborhood should be required to file a
proposed customer notice to reflect the Commission-approved charge. The
approved charge should be effective for services rendered on or after the
stamped approval date on the tariff sheet pursuant to Rule 25-30.475(1), F.A.C.
In addition, the approved charge should not be implemented until staff has
approved the proposed customer notice. The utility should provide proof of the
date notice was given no less than ten days after the date of the notice. (Johnson)
Staff Analysis:
Section 367.091(6), F.S., authorizes the Commission
to establish, increase, or change a rate or charge other than monthly rates or
service availability charges. The utility is requesting a $5.00 late payment
charge to recover the cost of supplies and labor associated with processing
late payment notices. The utility’s request for a late payment charge was
accompanied by its reason for requesting the charge, as well as the cost
justification required by Section 367.091(6), F.S.
The utility indicated that approximately 35 percent or 150
(35% x 430) of Neighborhood’s bills are delinquent on a monthly basis. The
utility indicated that it processes six late payment charges an hour.
Neighborhood’s cost justification included labor cost of $4.17, which was based
on salary of $25 per hour. However, staff determined that the appropriate
combine labor for the clerical and administrative employees is $21 per hour.
Based on the labor and six late payment notices per hour, staff determined
labor cost of $3.50 ($21/6). Neighborhood provided a cost justification for a
late payment charge of $4.93. The cost basis for the utility’s requested and
staff’s recommended late payment charge, including labor, is shown below.
Staff’s recommended charge has been rounded to the nearest tenth.
Table 12-1
Late Payment Charge Calculation
|
|
Utility’s Proposed
|
Staff Recommended
|
|
Labor
|
$4.17
|
$3.50
|
|
Printing
|
0.20
|
0.20
|
|
Postage
|
0.56
|
0.56
|
|
Total
|
$4.93
|
$4.26
|
Source: Utility cost justification and
staff’s calculation
Based on staff’s research, since the late 1990s, the
Commission has approved late payment charges ranging from $2.00 to $7.00.[20] The purpose of this charge is not only to
provide an incentive for customers to make timely payment, thereby reducing the
number of delinquent accounts, but also to place the cost burden of processing
delinquent accounts solely upon those who are cost causers. Based on the above,
staff recommends that Neighborhood’s request to implement a late payment charge
should be approved. Neighborhood should be allowed to implement a late payment
charge of $4.30. Neighborhood should be required to file a proposed customer
notice to reflect the Commission-approved charge. The approved charge should be
effective for services rendered on or after the stamped approval date on the
tariff sheet pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved
charge should not be implemented until staff has approved the proposed customer
notice. The utility should provide proof of the date notice was given no less
than ten days after the date of the notice.
Issue 14:
Should Neighborhood be authorized to collect
Non-Sufficient Funds Charges (NSF)?
Recommendation:
Yes. Neighborhood should be authorized to collect
NSF charges. Staff recommends that Neighborhood revise its tariffs to reflect
the NSF charges currently set forth in Section 68.065, F.S. The NSF charges
should be effective on or after the stamped approval date on the tariff sheets
pursuant to Rule 25-30.475(1), F.A.C. Furthermore, the charges should not be
implemented until staff has approved the proposed customer notice. The utility
should provide proof of the date the notice was given within 10 days of the
date of the notice. (Johnson, Hudson)
Staff Analysis:
Section 367.091, F.S., requires rates, charges, and customer
service policies to be approved by the Commission. The Commission has authority
to establish, increase, or change a rate or charge. Staff believes that Neighborhood
should be authorized to collect NSF charges consistent with Section 68.065,
F.S., which allows for the assessment of charges for the collection of
worthless checks, drafts, or orders of payment. As currently set forth in
Section 68.065(2), F.S., the following NSF charges may be assessed:
(1) $25,
if the face value does not exceed $50,
(2) $30, if the face value exceeds
$50 but does not exceed $300,
(3) $40, if the face value exceeds
$300,
(4) or five percent of the face
amount of the check, whichever is greater.
Approval of
NSF charges is consistent with prior Commission decisions.[21]
Furthermore, NSF charges place the cost on the cost-causer, rather than
requiring that the costs associated with the return of the NSF checks be spread
across the general body of ratepayers. As such, Neighborhood should be
authorized to collect NSF charges for its water system. Staff recommends that Neighborhood
revise its tariff sheet to reflect the NSF charges currently set forth in
Section 68.065, F.S. The NSF charges should be effective on or after the
stamped approval date on the tariff sheet pursuant to Rule 25-30.475(1), F.A.C.
Furthermore, the NSF charges should not be implemented until staff has approved
the proposed customer notice. The utility should provide proof of the date the
notice was given within 10 days of the date of the notice.
Issue 15:
What are the appropriate initial customer deposits
for Neighborhood's water service?
Recommendation:
The appropriate water initial customer deposit
should be $58 for the residential 5/8” x 3/4” meter size based on staff’s
recommended rates. 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 approved initial
customer deposits should be effective for connections made on or after the
stamped approval date on the tariff sheet pursuant to Rule 25-30.475, F.A.C. In
addition, the utility should refund those deposits that have met the
refund requirements of Rule 25-30.311(5), F.A.C., within 60 days of the
issuance of a consummating order in this matter. The utility should file a
refund report within 30 days of the completion of the customer deposit refunds.
Neighborhood should be on notice that it may be subject to a show cause
proceeding by the Commission, including penalties, if customer deposits are not
refunded pursuant to Commission rules. (Johnson, Hudson)
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.
[22] Currently, the utility’s initial customer
deposits for residential and general service are $39 for 5/8” x 3/4”, $54 for
one inch, $78 for the one and one half inch, and $108 for two inch and over
meter sizes. Based on the staff recommended water rates and post repression
average residential demand, the appropriate initial customer deposit should be $58
for water to reflect an average residential customer bill for two months.
Pursuant to Rule 25-30.311(5), F.A.C., after a customer has
established a satisfactory payment record and has had continuous service for a
period of 23 months, the utility shall refund the residential customer’s
deposit. The utility applies interest and refunds deposits in January of each
year if the rule requirement has been met in the prior year. The utility is
currently holding 35 deposits of customers who have met the requirement of the
Rule. However, based the utility’s existing policy, the deposit will not be
refunded until January of 2017.
Rule 25-30.311(4)(b), F.A.C., requires that deposit
interest shall be simple interest in all cases and settlement shall be made
annually. Staff does not believe it is appropriate to only refund customer
deposits annually when the rule requirement has been met prior utility’s to
January of each year. Neighborhood should refund the customer deposits
consistent with the rule requirement. The refund should be made within 60 days
of a consummating order being issued in this matter. It should be noted that
Neighborhood should be on notice that it may be subject to a show cause
proceeding by the Commission, including penalties, if customers deposits are
not refunded pursuant to Commission rules.
Staff recommends that the
appropriate water initial customer deposit should be $58 for the residential
5/8” x 3/4” meter size based on staff’s recommended rates. 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 approved initial customer deposits should be effective
for connections made on or after the stamped approval date on the tariff sheet pursuant
to Rule 25-30.475, F.A.C. The utility should refund those deposits that
have met the requirement pursuant to Rule 25-30.311(5), F.A.C., within 60 days
of the issuance of a consummating order in this matter. The utility should file
a refund report within in 30 days of the completion of the customer deposit
refunds.
Issue 16:
What are the appropriate meter installation charges?
Recommendation:
The appropriate meter installation charges of $206
for the 5/8” x 3/4" meters and all other meter sizes should be at actual
cost. The meter installation charge may only be collected from new connections
to the utility’s water system. The approved meter installation charges should
be effective for service rendered on or after the stamped approval date of the
tariff pursuant to Rule 25-30.475, F.A.C. (Hudson)
Staff Analysis:
A meter installation charge
is designed to recover the cost of the meter and the installation. Neighborhood’s current meter installation charges were approved on September 28,
1984.[23] The meter installation charges are $90
for the 5/8” x 3/4” meter, $110.00 for the 1” meter, $202 for the 1 1/2” meter,
$338 for the 2” meter, and actual cost for meter sizes over 2”. As discussed in
Issue 3, staff is recommending approval of a meter replacement program to
replace existing meters with remote read meters. Based on the cost
justification provided for the meter replacement program, staff believes it
appropriate to update the utility’s existing meter installation charges. Staff believes
the requested meter installation charge is reasonable.
Based on the above, the appropriate meter installation
charges of $206 for the 5/8” x 3/4 meters and all other meter sizes should be
at actual cost. The meter installation charge may only be collected from new
connections to the utility’s water system. The approved meter installation
charges should be effective for service rendered on or after the stamped
approval date of the tariff pursuant to Rule 25-30.475, F.A.C.
Issue 17:
What is the appropriate manner in which the utility
should handle estimated bills?
Recommendation:
The utility should handle estimated bills in the
manner prescribed in Rule 25-30.335, F.A.C. The utility should submit a sample
bill displaying the appropriate designation for estimated bills within 30 days
of the consummating order. In addition, Neighborhood should be put on notice
that, in the future, it may be subject to a show cause proceeding by the
Commission, including penalties for failure to comply with Rule 25-30.335,
F.A.C. (Hudson)
Staff Analysis:
As discussed previously, in the utility’s last rate
case, the Commission approved pro forma for the replacement of meters. However,
according to the utility, due to declining revenues the utility was unable to
maintain its meter replacement program. As a result, the utility estimates
demand for those meters which are inoperable or unreadable. Staff received
copies of a customer’s bills, which a designation of “E” when the bill was
estimated. Pursuant to Rule 25-30.335(2), F.A.C., if the utility estimates a
bill, the bill statement shall prominently show the word “Estimated” on the
face of the bill. In addition, the utility is obligated to timely correct any
problems within the utility’s control causing the need to estimate bills. Further,
in no event shall a utility provide an estimated bill to any one customer more
than four times in any 12-month period due to circumstances that are within the
utility’s control and service obligations.
Although the utility had a designation of “E” and not
“Estimated” on the customer bill, staff does not believe the utility “willfully”
disregarded Commission rules or statutes. The utility estimates approximately
20 percent of its bills of which 5 percent is due to inoperable or unreadable
meters. Until the inoperable or unreadable meters are replaced, the utility
will continue to have estimated bills. When undertaking the meter replacement
program, the utility should prioritize the replacement such that those meters
that are inoperable or unreadable are replaced first in order to avoid
noncompliance with the Rule. Staff believes the utility is proactive in its
efforts to resolve the estimated bill issue because of its request for the
meter replacements. Based on the above, staff believes no enforcement action is
warranted at this time. However, Neighborhood should be put on notice that, in
the future, it may be subject to a show cause proceeding by the Commission,
including penalties, if the utility fails to comply with Rule 25-30.335, F.A.C.
Based on the above, the utility should handle estimated
bills in the manner prescribed in Rule 25-30.335, F.A.C. The utility should
submit a sample bill displaying the appropriate designation for estimated bills
within 30 days of the consummating order. In addition, Neighborhood should be
put on notice that, in the future, it may be subject to a show cause proceeding
by the Commission, including penalties for failure to comply with Rule
25-30.335, F.A.C.
Issue 18:
Should the utility 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. The utility should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission's decision. Neighborhood 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. (L. Smith)
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. Neighborhood 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 19:
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 adjustments 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 will be issued. The
docket should remain open for staff’s verification that the revised tariff
sheets and customer notice have been filed by the utility and approved by
staff, and the Utility has provided staff with proof that the adjustments for
all the applicable NARUC USOA primary accounts have been made. Also, the docket
should remain open to allow staff to verify that the customer deposits have
been properly refunded. Once the above actions are completed this docket will
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 adjustments 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 will be issued 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
will be issued. The docket should remain open for staff’s verification that the
revised tariff sheets and customer notice have been filed by the utility and
approved by staff, and the utility has provided staff with proof that the
adjustments for all the applicable NARUC USOA primary accounts have been made.
Also, the docket should remain open to allow staff to verify that the customer
deposits have been properly refunded. Once the above actions are completed this
docket will be closed administratively.
