Discussion
of Issues
Issue 1:
Is the quality of service provided by Ni Florida
satisfactory?
Recommendation:
Yes. Staff recommends that the condition of the
water distribution system and wastewater collection systems are satisfactory.
It also appears that the utility has attempted to address customers’ concerns.
Therefore, staff recommends that the overall quality of service for the Ni
Florida water and wastewater systems in Lee and Pasco Counties is satisfactory.
(Hill)
Staff Analysis:
Pursuant to Rule 25-30.433(1), Florida
Administrative Code (F.A.C.), in water and wastewater rate cases, the
Commission shall determine the overall quality of service provided by the utility.
This is derived from an evaluation of three separate components of the utility’s
operations. These components are: (1) the quality of the utility’s product; (2)
the operating conditions of the utility’s plant and facilities; and (3) the
utility’s attempt to address customer satisfaction. The Rule further states
that sanitary surveys, outstanding citations, violations, and consent orders on
file with the Department of Environmental Protection (DEP) and the county
health department over the preceding three-year period shall be considered.
Additionally, Section 367.0812(1)(c), F.S., requires the Commission to consider
the extent to which the utility provides water service that meets secondary
water quality standards as established by the DEP.
Quality of Utility’s Product and Operating Conditions of the
Utility’s Facilities
Ni Florida’s service areas are
located in Lee and Pasco Counties. Ni Florida’s water system is located in Lee
County. The Utility purchases all of the water it sells to customers from Lee
County Utilities. The Utility maintains and operates the distribution system
that delivers the treated water to its customers. Ni Florida’s wastewater
collection system is located in Pasco County. All wastewater is pumped to Pasco
County Utilities for treatment and disposal pursuant to an agreement made in
1990. Similar to its water system, Ni Florida maintains and operates its
wastewater collection system. Because Ni Florida does not have water or
wastewater treatment plants, its existing facilities are not inspected by DEP.
Staff notes however, that the Utility’s facility
operators maintain licenses issued by the DEP.
Staff
reviewed analyses of water samples dated December 15, 2015, and all results
were deemed satisfactory by the Lee County Health Department. Based on the
discussion above, staff believes that the quality of Ni Florida’s product and
the condition of its facilities are satisfactory at this time.
The Utility’s Attempt to Address Customer Satisfaction
In Ni Florida’s last rate case, the Commission determined
that the utility’s quality of service with regards to its wastewater system in
Pasco County was satisfactory. The Commission found the quality of service for
the utility’s water system, in Lee County, to be marginal based on the utility’s
responsiveness to customers. Based on the Commission’s prior decision and the
difference in the size of the customer base of Ni Florida’s two systems, staff
will analyze the utility’s attempt to address its water and wastewater customer
satisfaction separately.
Wastewater
Staff held a
customer meeting for Ni Florida’s wastewater customers on July 27, 2016, in New
Port Richey, Florida. No customers attended this meeting. Three wastewater
customers provided written comments to the Commission (docket correspondence)
expressing concern with the proposed rate increase.
In its MFRs
the utility provided customer complaints filed with the utility during the test
year and four years prior. The utility provided 31 complaints as well as the
utility’s resolution of each respective complaint. The majority of the
complaints dealt with billing issues. Many of these complaints were resolved by
the utility making an adjustment to the customer’s bill. All complaints filed
with the Commission were contained in the utility’s filing. Subsequent to the
test year, two complaints have been filed with the Commission, both of which
have been closed. Table 1-1 below summarizes the complaints considered and
reviewed by staff in evaluating the utility’s attempt to address its wastewater
customers’ concerns.
Table 1-1
Summary of Wastewater Complaints
|
Subject of Complaint
|
PSC’s Records (CATS)
|
Utility’s Records
|
Docket Correspondence
|
Customer Meeting
|
|
Billing Related
|
25
|
27
|
1
|
|
|
Opposing Rate
Increase
|
|
|
3
|
|
|
Quality of
Service
|
1
|
|
|
|
|
Other
|
4
|
4
|
|
|
|
Total*
|
30
|
31
|
3
|
0
|
* A customer may appear twice in this table if they made multiple
complaints.
Based on the small number of
complaints, considering more than 2,500 wastewater connections, it appears that
Ni Florida’s wastewater customers are satisfied with the service provided by
the utility. Additionally, it appears that the utility has adequately responded
to customers when a complaint was received. Therefore, staff believes that the
Ni Florida has satisfactorily attempted to address its wastewater customers’
concerns.
Water
As
previously stated, in Ni Florida’s last rate case the quality of the utility’s
water service was deemed marginal by the Commission. Commission Order No.
PSC-13-0611-PAA-WS, specifically states “it is clear from customer comments at
the service hearing and before this Commission that the Utility has continued
to fail to provide timely responses and service when problems do arise in Lee
County.” The Commission further stated that “[q]uality of service is totally
within the control of the Utility and there is no excuse for the Utility’s
continued failure to resolve billing and service problems both quickly and
politely.”
On August
30, 2016, the Office of Public Counsel (OPC)
submitted a letter[2] stating that it
believes that the customers continue to experience problems communicating with
the utility. Staff’s analysis outlined below gives consideration to the
Commission’s decision in Ni Florida’s previous rate case as well as the
concerns expressed by OPC.
A customer
meeting was held in Fort Myers, Florida, on July 28, 2016, for the customers of
Ni Florida’s water system. Eighty customers attended the meeting and seven
spoke. The concerns raised during the meeting included the amount of the rate
increase and the quality of the water. Two customers expressed concern
regarding the utility’s responsiveness to customer inquiries or requests and no
customers asserted that the utility was impolite. In addition to the customers
who spoke at the meeting, four customers have sent written comments to the
Commission. These four comments address similar concerns raised at the customer
meeting regarding the rate increase and the water quality.
In its
August 30, 2016, letter, OPC identified three events that it believes
demonstrates that the utility continues to have issues communicating with its
customers. First, in May 2016, Tamiami Village & RV Park (Park) asserted it
had sent a letter to the utility to coordinate future infrastructure work, and
that Ni Florida had not responded. In a letter[3]
responding to this specific allegation, the utility stated that, at the time
the Park contacted the utility, it had no infrastructure work to coordinate and
thus had not communicated with the Park.
Second, at
the customer meeting held on July 28, 2016, Park representatives stated that
they have never met the new utility contract operator and wished to do so
considering how much the Park works as a liaison between the customers and the
utility. OPC states that to date the utility had not made an effort to organize
such a meeting since. The utility responded that it had provided cell phone
numbers for the Chief Financial Officer of Ni America and the President of the
Utility Group of Florida, and that they had directed the contract operator to
stop by the Park office to introduce himself to the staff at the Park.
Third, OPC’s
letter notes that the utility was not responsive when Park representatives
attempted to reach it regarding flooding caused by a water main break. While
the break was subsequently found to be on Lee County Utilities’ system, the
Park was concerned about the contract operator’s lack of response. Ni Florida
responded that it assumed Lee County would respond to the affected customers.
The utility additionally stated that it would attempt to improve its
communication with customers in cases where the problem is outside of the
utility’s control.
In its MFRs,
the utility provided customer complaints filed with the utility during the test
year and four years prior. The utility provided six complaints as well as the
utility’s resolution of each respective complaint. All six complaints dealt
with billing issues. All complaints filed with the Commission were contained in
the utility’s filing and all have been closed. Table 1-2 below summarizes the
complaints considered and reviewed by staff in evaluating the utility’s attempt
to address its water customers’ concerns.
Table 1-2
Summary of Water Complaints
|
Subject of Complaint
|
PSC’s Records (CATS)
|
Utility’s Records
|
Docket Correspondence
|
Customer Meeting
|
|
Billing Related
|
6
|
6
|
|
|
|
Opposing Rate
Increase
|
|
|
3
|
3
|
|
Quality of
Water
|
|
|
1
|
2
|
|
Quality of
Service
|
|
|
1
|
2
|
|
Other
|
|
|
2
|
1
|
|
Total*
|
6
|
6
|
4
|
8
|
* A customer may appear twice in this table if they made multiple
complaints.
As
previously discussed, no customer input in the current docket has specified
that the utility’s customer service is impolite as was the circumstance in the
utility’s previous rate case. Furthermore, only one complaint has been filed
with Commission since the utility’s last rate case in 2013. Therefore, it is
reasonable to believe that customer satisfaction has improved since the last
rate case in which the utility’s quality of service was deemed marginal. Staff
last notes that, the overall number of complaints is minimal considering that
the utility serves more than 700 water connections. Based on this review, staff
believes that utility has improved the quality of its service to water
customers since its last rate case and the utility has satisfactorily attempted
to address its water customer’s concerns.
Summary
Staff recommends that the
condition of the water distribution system and wastewater collection systems
are satisfactory. It also appears that the utility has attempted to address
customers’ concerns. Therefore, staff recommends that the overall quality of
service for the Ni Florida water and wastewater systems in Lee and Pasco
Counties is satisfactory.
Issue 2:
Should the audit adjustments to which the utility and
staff agree be made?
Recommendation:
Yes. Based on the audit adjustments agreed to by the
utility and staff, increases of $6,568 and $3,634 should be made to wastewater contribution-in-aid-of
construction (CIAC) and deferred income taxes, respectively. Wastewater
operating expense should also be increased by $2,845 to reflect the appropriate
level of amortization expense. (Brown)
Staff Analysis:
In its response to staff’s
Ni Florida audit report and the audit of affiliate transactions, received
September 22, 2016, the utility agreed to the audit adjustments as set forth in
the table below.
Table 2-1
Ni Florida Audit
Adjustments
|
Audit
Finding
|
Description
of Adjustments
|
|
Audit Finding No. 4
|
This finding relates to the correction of the cost rate
for customer deposits. Audit staff found that the utility has been applying a
cost rate of 6% instead of 2% in the MFRs.
|
|
Audit Finding No. 6
|
This finding relates to
adjustments made to correct the number of customer bills for water and
wastewater and to take into account a four-year rate reduction in calculating
the annualized test year.
|
Source: Staff audit and utility responses to audit reports
Staff made the appropriate change
to the customer deposit cost rate as part of Issue 9 and is reflected in
Schedule No. 2. While the utility agreed to Audit Finding No. 6, staff notes
that a different adjustment to operating revenues is recommended in a
subsequent issue.
In addition to the specific
findings agreed to by Ni Florida, there were several other audit adjustments
that the utility did not explicitly address in its audit response. Staff
included discussion of those adjustments here because they were not objected to
in writing. Since Ni Florida took the time to file audit responses for 8 of the
12 audit findings, staff believes that if the utility had any issues or
concerns with the 4 audit findings below, they would have been included with
the other audit responses. As such, staff believes that the audit adjustments
as set forth in the table below should be considered uncontested for purposes
of this recommendation.
Table 2-2
Ni Florida Audit
Adjustments – No Utility Response
|
Audit Finding
|
Description of Adjustments
|
|
Aff. Audit Finding No. 4
|
This finding relates to the appropriate amount of debt
and the cost rate for debt to be included in cost of capital.
|
|
Audit Finding No. 2
|
This finding relates to the appropriate adjustment to
accumulated amortization of wastewater CIAC using the current composite rate.
|
|
Audit Finding No. 3
|
This finding relates to a $50,119 adjustment made to
wastewater working capital to correct a mathematical error, prepayments, and
accrued interest
|
|
Audit Finding No. 5
|
This finding relates to the removal of a deferred income
tax credit balance of $3,634 for wastewater from rate base. The amount is
still reflected in the capital structure schedule.
|
Source: Staff audit and utility responses to audit reports
In Affiliate Audit Finding No. 4, audit staff found that
the subsidiary included two long-term debts that were paid off during the test
year and recommended that they not be included in the utility’s cost of capital
calculations. However, the audit finding also noted that zero debt is reflected
from March 2015 to August 2015. Starting in September 2015, the parent
allocated a portion of its debt to Ni Florida in the amount $4,736,843 for
September, October, and November. This amount increased to $5,000,000 in December
2015. Staff believes the amounts included in the utility’s MFRs accurately
reflect the capital structure and are representative of the long-term debt on
the utility’s books during the historic test year. Using a 13-month average,
the utility has reflected when debt was paid off and included new debt as it
was incurred, including a several month period where the balance was zero. As
such, staff believes that no audit adjustment needs to be made.
In regard to Audit Finding No. 2, the utility amortized
wastewater CIAC using the composite rate from the previous rate case. Ni
Florida should have amortized CIAC based on the plant that it is related to,
which would require an updated composite rate. Audit staff calculated the
current composite rate and applied that rate to amortized CIAC for wastewater.
Based on the updated composite rate, the 13-month average accumulated
amortization of CIAC for wastewater should be increased by $6,568 and
amortization expense should be increased by $2,845.
Staff also reduced working capital by $50,119 in Issue 6
and removed the deferred income tax credit balance of $3,634 for wastewater
from rate base. Rule 25-30.433(3) F.A.C. states that a credit deferred tax
balance shall be included only in capital structure. As such, staff made the
appropriate adjustment.
Based on the audit adjustments
agreed to by the utility and staff above, staff recommends increasing
wastewater CIAC by $6,568 and decreasing deferred income taxes by $3,634.
Wastewater amortization expense should be reduced by $2,845.
Issue 3:
Should any audit adjustments contested by the
utility be made?
Recommendation:
Yes. Ni Florida’s test year Operations &
Maintenance (O&M) expenses should be reduced by $10,277 for water and
$39,742 for wastewater. Taxes other than income (TOTI) should be decreased by
$835 for water and $1,378 for wastewater. (Brown)
Staff Analysis:
Staff’s audit reports were released on August 12, 2016,[4] and the utility's
response was received on September 22, 2016. The following recommendation
addresses the contested audit adjustment and the appropriate adjustments that
should be made.
Affiliate
Audit Finding No. 1
The staff audit report noted non-utility expense
adjustments, allocated down, in the amount of $187 for water and $717 for
wastewater. These adjustments consisted of late payment fees, country club
membership fees, non-utility office expenses, non-supported expenses, and
outside the test year expenses. The utility did not specifically disagree with
these adjustments and staff believes that they are appropriate. In its response
to OPC’s concerns, Ni Florida also agreed to remove the cost of the country
club membership for the entire year. Membership fees for the year are $2,508
($209 per mo. x 12 months) and staff auditors had already removed approximately
$1,885 as part of their review. To calculate the additional adjustment
necessary, staff then allocated the difference, $623 ($2,508 - $1,885), to Ni
Florida. On an allocated basis, this represents a reduction of $11 to water and
$43 to wastewater. As such, staff believes that water and wastewater
miscellaneous expense should be reduced by $198 and $760, respectively.
Staff’s audit report also noted that adjustments to
Director and Officer Liability (DOL) Insurance were necessary. Audit staff
calculated a total annualized cost of $19,479 ($14,568 + $4,911). This amount
consisted of a six-year coverage in the amount of $4,911 ($29,464/6) and
$14,568 annually for a DOL policy. In the utility’s last rate case, the
Commission determined that the cost of DOL insurance benefits both the
ratepayers and the shareholders, and should be shared equally between them.[5] Using that
methodology, and the utility’s allocation percentages, the audit report
recommended DOL insurance costs of $173 for water and $665 for wastewater. The
resulting audit adjustments, $610 for water and $2,340 for wastewater, reflect
the allocation of the six-year coverage insurance and the removal of the shared
costs. The utility did not specifically disagree with these adjustments. Staff
agrees that the appropriate amount of DOL insurance is $173 for water and $665
for wastewater. Staff’s adjustments differ slightly from the audit since it is
being made to the amount included in the MFRs. According to the utility, the
MFRs included $851 and $3,267 for water and wastewater, respectively, for DOL
insurance.[6] As such,
staff recommends a reduction of $678 ($173 - $851) for water and $2,602 ($665 -
$3,267) for wastewater.
In addition, audit staff recommended the reclassification
of $390 to water and $13,195 to wastewater based on Ni America Operating, LLC's
books. The water adjustment consisted of $390 for legal expenses, while the
wastewater adjustments consisted of $3,900 for legal expenses and $9,295 for
transportation expenses. These particular adjustments were the only ones the utility
disagreed with in its response. The utility believes that this is effectively
what was done with these costs in the specific assignment of these costs in the
MFRs. Although these costs were recorded on the books of Ni America, they were
specifically assigned to Ni Florida’s water and wastewater systems. Staff
agrees with the utility that these assignments were adequately addressed in the
MFRs. As such, no reclassification is necessary.
Based on the above analysis, expense water should be
reduced by $876 ($198 + $678) and for wastewater should be reduced by
$3,362 ($760 + $2,602).
Affiliate
Audit Finding No. 2
Audit staff reviewed the descriptions of employee duties
and responsibilities and identified five employees who appeared to work only in
South Carolina or Texas. The total salaries and benefits for the employees that
work in South Carolina or Texas utilities according to their job descriptions
was $459,461 ($382,799 for salaries and $76,662 for benefits). In addition, 5
percent of another employee's salary was allocated to due diligence, which was
disallowed in the utility’s last rate case.[7]
In total, audit staff believed that corporate salaries and benefits were
overstated by $40,349.
The utility did not specifically disagree with the
adjustment related to due diligence, but objected to the removal of salaries
and benefits for two of the five employees identified in audit staff’s
adjustments. In regard to those two employees, Ni Florida argued the following:
Both of these employees perform corporate functions
and effectively do tasks for all utilities. These employees' payroll and
benefits should remain as an allocable expense.[8]
The
job descriptions for the contested positions at issue are included in Table
3-1, below:
Table 3-1
Title and Duties of Contested
Positions
|
Title
|
Duties
|
|
Senior
Analyst
|
Responsible for handling general accounting for the
South Carolina utilities owned by Ni America, prepares each of the utilities'
monthly financial statements in accordance with U.S. GAAP. Also responsible
for determining and reevaluating Equivalent Residential Customers (ERCs) for
each of the South Carolina utilities owned by Ni America.
|
|
Office
Manager
|
Responsible for managing the South Carolina office for
employees of Ni America. Orders supplies, coordinates mailroom activities,
assists with making bank deposits from the personnel posting payments, and
assists other employees as needed.
|
Source:
Audit workpaper 44-3.3
Staff believes that both positions should be removed. The
Senior Auditor position should be removed because the job duties provided above
clearly reflect work activity performed for Ni America’s South Carolina
utilities alone. Similarly, the Office Manager’s duties also reflect ties to Ni
America’s South Carolina operations and provide no clear indication of how the
position benefits Florida customers. Staff acknowledges that some of the office
manager’s duties may also overlap with services being provided through the
management services contract with utility Group of Florida, LLC. Additionally,
staff believes that the utility’s removal of salaries and benefits from overhead
for a similar position in Texas is a compelling reason to remove the salaries
and benefits associated with the South Carolina Office Manager here.[9]
In its audit response, Ni Florida indicated that it
identified one additional employee whose salary and benefits should be part of
the reduction since their duties are limited to South Carolina. Staff agrees
that it is appropriate to remove salaries and benefits for this employee as
well. Because this adjustment is specific to one employee and the salary
information is confidential, staff will not disclose salary and benefit
information here. Staff included the employee’s salary and benefits in the
reduction below.
In total, staff believes that allocated corporate salaries
and benefits were overstated by $63,297. Staff removed $13,086 from water and
$50,211 from wastewater.
Affiliate
Audit Finding No. 3
The affiliated audit recommended that depreciation expense
not be allocated to Ni Florida in the amount of $1,575 because the fixed assets
are not allocated to Ni Florida. The utility argued that this is likely the
result of a misunderstanding in the response given by Ni Florida when asked
about these assets. According to the utility, these assets are not allocated to
Ni Florida, because they reside on the books of Ni America. The utility added,
and staff agrees, that the assets in question support the corporate employees
of Ni America; therefore, the depreciation expense of these assets should be
allocated to Ni Florida, the same as is done with the payroll and benefits of
these employees. As such, staff does not believe the audit adjustment should be
included.
Audit
Finding No. 1
The utility began a construction project to provide
utility service to an outreach center (Rhodes Road Project) in 2015. In March
of the same year, the utility calculated the wastewater CIAC for this center
using a residential service tariff to calculate the CIAC amount because they do
not have an authorized general service tariff. Using this, the utility
calculated a CIAC requirement of $77,760, which the utility booked in March
2015 and reflected in their MFRs. The project was still in construction work in
progress (CWIP) at the end of 2015. The utility has not included CWIP in rate
base. As such, audit staff recommended removing this amount from CIAC and the
fall out amounts charged to Accumulated Amortization of CIAC and CIAC expense
pending completion of the project. Ni Florida did not agree with the audit
finding that the CIAC should be removed. The utility explained that in its rate
filing, Ni Florida included the Rhodes Road Project CWIP as a pro forma
addition to plant in service. As discussed in Issue 4, this project is
currently in service. Because the utility included the project in pro forma
plant and the project is now complete, staff believes that CIAC should remain
in rate base as reflected in the utility’s MFRs. As such, the audit adjustment
is not required.
Audit
Finding No. 7
Audit staff determined that O&M expenses should be
$240,935 and $1,524,366 for water and wastewater, respectively, representing
net increases of $2,425 for water and $8,853 for wastewater. As part of the
adjustment, auditors removed out of period expenses and pollution insurance,
added the current cost of a general liability insurance policy, and made
several reclassification adjustments. The utility only references the removal
of the pollution insurance in its audit response. Staff notes that the auditors
recommended the removal of the pollution insurance because Ni Florida was not
included when the policy was renewed. In its response, the utility explained
that it was inadvertently left off of the Ni Pacolet Milliken Utilities policy,
but has since been added. The utility provided support documentation, including
premium information, in response to Staff’s 4th Data Request, Question No. 5.[10] The
$6,000 premium associated with adding Ni Florida to the pollution insurance
policy should be allocated to water and wastewater and included in O&M.
This results in an increase of $574 to Account 659 for water and $2,106 to
Account 759 for wastewater. Staff believes that the following audit adjustments
are also appropriate:
- Increase insurance-general
liability by $3,111 and $12,001 for water and wastewater respectively, to
reflect current renewal policy premiums.
- Remove $126 from
wastewater materials and supplies for out of period costs.
- Remove $150 from
contractual services-testing for out of period costs.
As such, staff increased water and wastewater O&M by
$3,685 ($574 + $3,111) and $13,831 ($2,106 + 12,001 - $126 - $150),
respectively, for Audit Finding 7.
Audit
Finding No. 8
Staff’s audit report reduced water related Regulatory
Assessment Fees (RAF) by $835, and increased wastewater RAF fees by $582. Real
estate and property taxes were also reduced by $1,572 for wastewater and an
additional reduction of $388 was made to remove late fees. The only portion of
the audit finding that the utility appears to disagree, is with the portion
related to the Pasco County property tax discount for early payment. The utility
indicated that the bill was paid two months in advance and that Ni Florida
received a 2 percent discount. It is longstanding Commission practice to
recognize the maximum discount, whether the utility receives the discount or
not. As such, staff agrees with the auditors that the property tax expense
should reflect the maximum discount available. The maximum discount available
was on November 30, 2015 and property taxes should be reduced by $1,572. The utility
did not specifically address the RAF adjustment or the removal of the late
fees. As such, staff reduced RAFs for water by $835 and reduced the amount for
wastewater by $1,378 ($582 - $1,572 - $388).
Based on the audit adjustments
discussed above, staff recommends that the adjustments set forth in Table 3-2
be made.
Table 3-2
Recommended Contested Audit
Adjustments
|
Audit Finding
|
Water
|
Wastewater
|
|
Affiliate Audit Finding No. 1
|
($876)
|
($3,362)
|
|
Affiliate Audit Finding No. 2
|
(13,086)
|
(50,211)
|
|
Affiliate Audit Finding No. 3
|
0
|
0
|
|
Audit Finding No. 1
|
0
|
0
|
|
Audit Finding No. 7
|
3,685
|
13,831
|
|
Total O&M
|
($10,277)
|
($39,742)
|
|
Audit Finding No. 8
|
($835)
|
($1,378)
|
|
Total TOTI
|
($835)
|
($1,378)
|
Additional O&M adjustments are addressed in Issue 12.
Issue 4:
Should any adjustments be made to the utility's pro
forma plant additions and associated expenses?
Recommendation:
Yes. The appropriate amount of pro forma plant
additions net of retirements is $299,194 for wastewater. Ni Florida’s
wastewater pro forma plant should be increased by $32,306, accumulated
depreciation reduced by $44,844, depreciation expense reduced by $735, and
property taxes increased by $10,037. In addition, accumulated deferred income
taxes (ADITs) should be reduced by $596. (Hill, Brown)
Staff Analysis:
In its MFRs, Ni Florida
reflected two pro forma wastewater additions totaling $266,889, net of retirements.
The following table provides a breakdown of each pro forma plant addition.
Table 4-1
Ni Florida’s Pro Forma Projects
|
Pro Forma
Projects
|
Wastewater
|
|
Tower Dr. Collection System
Replacement Project
|
$729,262
|
|
Retirement for Tower Dr.
Replacement Project
|
(545,254)
|
|
ROPES – Rhodes Rd. Project (New
Service)
|
82,880
|
|
Net Addition
|
$266,888
|
Source: MFR Schedule No. A-3
Tower Drive Project
Ni Florida’s MFRs included $729,262 for the replacement of
wastewater collection lines to address inflow and infiltration along Tower
Drive. There is a corresponding $545,254 retirement associated with this work,
so the net impact on plant in service for this project is $184,008. On April
20, 2015, DEP authorized the construction and installation of the discussed
components. Ni Florida received final clearance from DEP on June 15, 2016, and
placed the project into service on September 30, 2016.
The utility
provided staff with four bids, ranging from approximately $646,000 to
$1,174,000, for the Tower Drive project. Bid information is provided below:
Table 4-2
Tower Drive
Bids
|
Bid Provider
|
Amount
|
|
Flave
A. Williams III Dozer Service, Inc.
|
$645,937[11]
|
|
Utility
Group of Florida, LLC
|
$710,872
|
|
JMJ
Site Development Inc.
|
$1,159,091
|
|
Environmental
Equipment Sales, Inc.
|
$1,173,430
|
Source: Response to Staff’s Second Data
Request
Ni Florida selected the bid
provided by Utility Group of Florida. While not the lowest bid, the Utility
Group of Florida bid did not contain the exclusions that the lowest bid
contained.
The utility included $729,262 in its MFRs for this pro
forma plant, and staff’s review of the actual expense totaled $854,860. Since
no original cost invoices were available, 75 percent of the cost of the
replacement was used as the retirement value by the utility and staff. This is
consistent with Commission practice.[12]
The utility calculated retirements at $545,254. Based on the actual cost of the
project, staff calculated retirements at $639,159. Staff
has reviewed the bids as well as recent invoices and recommends that the
Commission approve $854,860 for this project.
ROPES-Rhodes Road Project
Ni
Florida’s MFRs included $82,880 for a project to connect a new general service
customer at 7839 Rhodes Road. The utility has since submitted an invoice of
$613 for DEP certification and final testing, which brings the total for this
project to $83,493. The project was completed on April 26, 2016, has been
approved by DEP, and has been placed into service.
The utility provided a feasibility report for the Rhodes
Road project prepared by a professional engineer which estimated costs for this
project at $75,000. As mentioned previously, the utility included $82,880 in
its MFRs for the this pro forma project, and staff’s review of the actual
expense totaled $83,493. Staff believes that the difference between the
estimated cost and the actual cost of the project is likely a result of the
report being prepared in 2011. Staff notes that the final cost for the Rhodes
Road project included $6,500 for contingencies. It appears that these costs
were part of the billing for a fixed-amount, lump-sum project, which was
intended to be billed at 100 percent of the accepted bid. There were no
retirements associated with this project because it was new construction. Staff
recommends that the Commission approve $83,493 for
this project.
Conclusion
Staff made adjustments to reflect the difference between actual costs and
estimated pro forma plant. Staff’s adjustments to plant resulted in
corresponding flow-through adjustments to accumulated
depreciation, depreciation expense, property taxes, and accumulated
deferred income taxes (ADITs). Staff’s recommended adjustments, excluding
ADITs, are shown in the following tables.
Table 4-3
Plant
Adjustments
|
Pro
Forma Projects
|
MFR
Plant
|
Staff
Plant
|
Plant
Adj.
|
|
Tower Dr.
Collection System Replacement Project
|
$729,262
|
$854,860
|
$125,598
|
|
Retirement for
Tower Dr. Replacement Project
|
(545,254)
|
(639,159)
|
(93,905)
|
|
ROPES – Rhodes
Rd. Project (New Service)
|
82,880
|
83,493
|
613
|
|
Total
|
$266,888
|
$299,194
|
$32,306
|
Source: MFRs and responses to staff data
requests
Table 4-4
Additional Adjustments
|
Adjustment
|
MFR
|
Staff
|
Adj.
|
|
Accumulated
Depreciation
|
$545,254
|
$590,098
|
$44,844
|
|
Depreciation
Expense
|
14,287
|
13,552
|
($735)
|
|
Property Tax
|
$4,564
|
$14,601
|
$10,037
|
Source: MFRs and responses to staff data requests
Based on the information above, staff recommends that the
appropriate pro forma plant addition net of retirements is $299,194 for
wastewater. This results in an incremental decrease of $32,306 from the amounts
requested in the utility MFRs. Using the depreciable lives pursuant to Rule
25-30.140, F.A.C., corresponding adjustments should be made to reduce
accumulated depreciation by $44,844 for wastewater. Depreciation expense should
be reduced by $735 for wastewater. In addition, pro forma property taxes should
be increased by $10,037 for wastewater. Based on the additional pro forma plant
and changes in depreciation recommended above, an ADIT debit of $596 is
created. Staff has removed this amount in the capital structure shown in
Schedule No. 2.
Issue 5:
What are the used and useful (U&U) percentages
for Ni Florida's water and wastewater systems?
Recommendation:
Ni Florida’s water distribution system should be
considered 100 percent U&U and its wastewater collection system should be
considered 100 percent U&U. Staff
recommends that wastewater purchased power and purchased wastewater expenses
should be reduced by 1.81 percent for excessive I&I. No adjustment is
recommended for excessive unaccounted for water (EUW). (Hill)
Staff
Analysis:
Both Ni Florida’s water distribution and wastewater collection
systems were deemed 100 percent U&U during its previous rate case. 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 Ni Florida’s water distribution and wastewater collection systems should
be considered 100 percent U&U.
Infiltration and Inflow
(I&I)
Typically, infiltration results
from groundwater entering a wastewater collection system through broken or
defective pipes and joints; whereas, inflow results from water entering a
wastewater collection system through manholes or lift stations. By convention,
the allowance for infiltration is 500 gpd per inch diameter pipe per mile, and
an additional 10 percent of residential water billed is allowed for inflow.
Rule 25-30.432, F.A.C., provides that in determining the amount of U&U
plant, the Commission will consider I&I. Additionally, adjustments to
operating expenses such as chemical and electrical costs are also considered
necessary.
All wastewater collection systems
experience I&I. The conventions noted above provide guidance for
determining whether the I&I experienced at a wastewater treatment plant
(WWTP) is excessive. Staff calculates the allowable infiltration based on
system parameters and allowable inflow based on water sold to customers. The
sum of these amounts is the allowable I&I. Staff next calculates the
estimated amount of wastewater returned to the WWTP from customers. The
estimated return is determined by summing 80 percent of the water sold to
residential customers with 90 percent of the water sold to non-residential
customers. Adding the estimated return to the allowable I&I yields the
maximum amount of wastewater that should be treated by a WWTP without incurring
adjustments to operating expenses. If this amount exceeds the actual amount
treated, no adjustment is made. If it is less than the gallons treated, then
the difference is the excessive amount of I&I.
The utility has 133,669 feet of
8-inch collecting mains, 440 feet of 3-inch force mains, 21,043 feet of 4-inch
force mains, 38,303 feet of 6-inch force mains, 4,000 feet of 8-inch force
mains, and 3,810 feet of 12-inch force mains. Given these parameters and
performing the necessary conversions to express the result in gallons per year
(gpy), the allowance for infiltration is 50,546,347 gpy.
The utility’s records indicated
that it billed for 96,230,000 gallons of wastewater based on estimated return
rates of water usage during the test year. Thus, the allowance for inflow is 10
percent of that amount, or 9,623,000 gpy. Therefore, the total allowance for
inflow and infiltration is 60,169,347 gpy.
The utility reported the
wastewater customers had water usage during the test year of 149,727,000
gallons (80,153,000 residential, 37,605,000 multi-family, 31,969,000
non-residential). Estimating the residential return at 80 percent and the non-residential
return at 90 percent, the total estimated return to the WWTP is 96,230,000
gallons. Thus, the estimated maximum amount of wastewater that the WWTP should
treat, the estimated return plus the allowable I&I, is 156,399,347 gpy. Any
amount treated in excess of this amount is considered excessive I&I.
According to the staff audit, the
utility purchased 159,287,000 gallons of wastewater treatment during the test
year. This is greater than the estimated maximum amount allowable. Therefore,
the excessive I&I is 2,887,652 gpy. Expressed as a percentage of wastewater
treated, it is 1.81 percent. Thus, a 1.81 percent adjustment to wastewater
purchased power and purchased wastewater expenses should be made for excessive
I&I.
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.[13]
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.
According to
the MFRs, the utility purchased 21,460,000 gallons of water and used 1,500,000
gallons of water for other uses during the test year. According to the staff
audit report, the utility sold 18,083,140 gallons of water for the test year.
Based on the values above, unaccounted for water is 8.75 percent. Therefore,
staff recommends no adjustment be made to operating expenses for chemicals and
purchase power due to EUW.
Summary
Based on the analysis above,
staff recommends Ni Florida’s water distribution system should be considered
100 percent U&U and its wastewater collection system should be considered
100 percent U&U. Staff recommends that wastewater purchased power and
purchased wastewater expenses should be reduced by 1.81 percent for excessive
I&I. No adjustment is recommended for EUW.
Issue 6:
What is the appropriate working capital allowance?
Recommendation:
The
appropriate working capital allowance is $77,050 for water and $217,123 for
wastewater. As such, the working capital allowance should be decreased by
$4,534 for water and $65,795 for wastewater. (Brown)
Staff Analysis:
Rule 25-30.433(2), F.A.C., requires Class A
utilities to use the balance sheet approach to calculate the working capital
allowance. According to its filing, Ni Florida utilized the balance sheet
approach and calculated a total company working capital allowance of $364,502,
which was allocated to each of Ni Florida's systems based on ERCs as of
December 31, 2015. The balance sheet approach is essentially current assets
less current liabilities. As discussed in Issue 2, the utility agreed to audit
adjustments to decrease wastewater working capital by $50,119. Based on further
review, staff believes additional adjustments are necessary to address the
appropriate amounts for deferred rate case expense (DRCE) and current rate case
expense.
The utility included $60,448 in its working capital
calculation for DRCE. It is
Commission practice to include one-half of the approved amount of rate case
expense from prior cases that have not been fully amortized, as well as half of
the approved amount in the instant docket in working capital under the balance
sheet method.[14] In the utility's
last rate case, the Commission approved total rate case expense of $149,321 to
be amortized over four years.[15] Staff
believes that one-half of the prior Commission-approved rate case expense, or
$74,661, is the appropriate amount of DRCE to be included in working capital.
As such, DRCE should be increased by $14,213 ($74,661 - $60,448), $2,738 for
water and $11,475 for wastewater.
As addressed in a subsequent issue, staff is recommending
total rate case expense of $95,082. Consistent with Commission practice, the
allocation of one-half of the recommended rate case expense for the instant
case results in $9,984 for water and $37,557 for wastewater. This is a
reduction of $7,272 and $27,151 for water and wastewater respectively over the
amount of current rate case expense included in the MFRs.
Based on the
adjustments above, staff recommends a working capital allowance of $77,050 for
water and $217,123 for wastewater. This reflects decreases of $4,534 for water
and $65,795 for wastewater. These adjustments are illustrated in the Table
6-1 below.
Table 6-1
Working Capital
Adjustments
|
Description
|
Water
|
Wastewater
|
|
MFR Amount
|
$81,584
|
$282,918
|
|
Agreed Upon Audit Adjustments
|
0
|
(50,119)
|
|
DRCE Adjustments
|
2,738
|
11,475
|
|
Current RCE Adjustment
|
(7,272)
|
(27,151)
|
|
Staff Calculated WCA
|
$77,050
|
$217,123
|
|
Staff Working Capital Adjustment
|
($4,534)
|
($65,795)
|
Source:
MFRs, Audit Report for Ni Florida, LLC
Issue 7:
What is the appropriate rate base for the test year
ending December 31, 2015?
Recommendation:
Consistent with staff’s other recommended
adjustments, the appropriate rate base for the test year ended December 31,
2015, is $340,468 for water and $3,964,854 for wastewater. (Brown)
Staff Analysis:
In its MFRs, the utility requested rate base of $345,002 for water and
$3,943,297 for wastewater. Based on staff’s recommended adjustments, the
appropriate rate base for the test year ended December 31, 2015, is $340,468 for
water and $3,964,854 for wastewater. Staff adjustments as recommended in the
preceding issues result in a $4,534 reduction to water rate base and a $21,557
increase to wastewater rate base. Staff’s recommended water and wastewater rate
bases are shown on Schedule Nos. 1-A and 1-B, respectively. The adjustments are
shown on Schedule No. 1-C.
Issue 8:
What is the appropriate return on equity?
Recommendation:
Based on the Commission leverage formula
currently in effect, the appropriate return on equity (ROE) is 9.56 percent
with an allowed range of plus or minus 100 basis points. (Brown)
Staff Analysis:
The utility requested an ROE of 9.27 percent. Based
on the current leverage formula in effect and an equity ratio of 76.92 percent,
the appropriate ROE is 9.56 percent. Staff recommends an allowed range of plus or minus 100 basis
points be recognized for ratemaking purposes.
Issue 9:
What is the appropriate weighted average cost of
capital including the proper components, amounts, and cost rates associated
with the capital structure?
Recommendation:
The appropriate weighted average cost of capital for
the test year ended December 31, 2015 is 8.11 percent. (Brown)
Staff Analysis:
In its filing,
Ni Florida requested an overall cost of capital of 8.15 percent. Staff
recommends several adjustments to the utility’s capital components included in
its capital structure.
First, the utility
included a cost rate of 6.00 percent for customer deposits. Pursuant to Rule
25-30.311, F.A.C., Customer Deposits, the minimum interest rate for residential
customer deposits is 2.00 percent per annum. Going forward, staff recommends
that 2.00 percent is the appropriate cost rate for customer deposits.
Second, the utility
has requested to include pro forma plant additions in the instant docket. Due
to tax timing differences between the Internal Revenue Service and state
regulatory depreciation, the additional plant investment caused changes to the
balance of accumulated deferred income taxes (ADITs). Ni Florida included in
its filling an adjustment to its capital structure to reflect the proper amount
of deferred income taxes on its pro forma plant additions. The amount of ADITs
included in Ni Florida’s capital structure was reduced by $596 based on staff’s
pro forma calculations.
Based upon the
proper components, amounts, and cost rates associated with the capital
structure for the test year ended December 31, 2015, including the
aforementioned adjustments, staff recommends a weighted average cost of capital
of 8.11 percent. Schedule No. 2 details staff’s recommended overall cost of
capital.
Issue
10:
Should any further adjustments be made to test year
revenues?
Recommendation:
Yes. Test year revenues for the Ni Florida’s water
system and wastewater systems should be increased by $159 and $10,075,
respectively. (Bruce)
Staff Analysis:
In its MFRs, Ni Florida’s
adjusted test year revenues were $243,169 for water and $1,929,738 for
wastewater. The water revenues include $236,812 of service revenues and $6,357
of miscellaneous revenues. The wastewater revenues include $1,875,982 of
service revenues and $53,756 of miscellaneous revenues. In review of the
utility’s adjusted test year billing data for water, staff found that the
utility understated the number of residential bills. Based on the audit, staff
made the adjustments to reflect the appropriate number of billing determinants.
Furthermore, the utility had a four year rate reduction that became effective
on November 20, 2015. Staff annualized test year revenues by applying the rates
in effect at the end of the test year to the adjusted billing determinants. Therefore,
the test year service revenues for water should be $218,090, which results in a
decrease of $18,721 ($236,812 - $218,090). For wastewater, staff found that the
utility overstated the number of residential bills during the test year. The
utility also did not provide any billing determinants for wastewater general
service 5/8” x 3/4” meter size. Staff made the necessary adjustments to reflect
the appropriate billing determinants, which results in an increase of $12,664.
The test year service revenues for wastewater should be $1,888,646 ($1,875,982
+ $12,664).
Staff also made adjustments to
miscellaneous revenues for water and wastewater. Staff found that the utility
understated the number of occurrences for late payments during the test year. Therefore,
staff increased miscellaneous revenues for water and wastewater revenues by
$159 and $123, respectively. Staff also increased wastewater miscellaneous
revenues to reflect the appropriate number of premises visits, which resulted
in an increase of $125. For wastewater, the utility did not record an initial
connection charge, which resulted in $27 increase. Furthermore, as discussed in
Issue 16, staff is recommending approval violation reconnection charge based on
a joint agreement with Pasco County. Therefore, staff imputed revenues of $9,800
[($125 – $27) x 100)] to reflect the additional miscellaneous revenues. For the
reasons outlined above, the miscellaneous revenues for water should be $6,516
($6,357 + 159) and $54,031 (53,756 + $123 + $125 + $27+ 9,800) for wastewater.
Based on the above, the appropriate test year revenues for Ni Florida’s water
and wastewater systems, including miscellaneous service revenues are $224,606
and $1,952,477. Table 10-1, represents a summary of staff’s adjustments for
test year revenues.
Table 10-1
Test Year Revenues
|
|
Water
|
Wastewater
|
|
Service Revenues
|
|
|
|
Utility Recorded Service Revenues
|
$236,812
|
$1,875,982
|
|
Staff’s Adjustment
|
($18,721)
|
$12,664
|
|
Total Service Revenues
|
$218,090
|
$1,888,646
|
|
|
|
|
|
Miscellaneous Revenues
|
|
|
|
Utility Recorded Miscellaneous Revenues
|
$6,357
|
$53,756
|
|
Staff’s Miscellaneous Revenue
Adjustments
|
$159
|
$10,075
|
|
Total Miscellaneous Revenues
|
$6,516
|
$63,831
|
|
Total Test Year Revenues
|
$ 224,606
|
$1,952,477
|
Source: Utility’s general ledger and
staff’s calculations
Issue 11:
What is the appropriate amount of current rate case
expense?
Recommendation:
The appropriate amount of rate case expense for the
instant case is $95,082. This expense should be recovered over four years for
an annual expense of $4,992 for water and $18,779 for wastewater. Thus, Ni
Florida’s requested annual rate case expense should be reduced by $3,636 for
water and $13,575 for wastewater from the respective levels of expense included
in the MFRs. (Brown)
Staff Analysis:
The utility included in its
MFRs an estimate of $163,928 for current rate case expense. Staff requested an
update of the actual rate case expense incurred, with supporting documentation,
as well as the estimated amount to complete the case. On September 1, 2016, the
utility submitted a revised estimate of rate case expense through completion of
the PAA process of $107,517 with $82,166 already incurred.[17]
The components of the estimated rate case expense are presented in the table
below:
Table 11-1
Estimated Rate Case Expense
|
|
MFR
Estimated
|
Actual
|
Additional
Estimated
|
Total
|
|
Legal Fees
|
$62,500
|
$41,599
|
$14,875
|
$56,474
|
|
Accounting Fees
|
70,000
|
35,000
|
0
|
35,000
|
|
Filing Fee
|
0
|
5,500
|
0
|
5,500
|
|
Customer Notices/FedEx
|
31,428
|
67
|
10,476
|
10,543
|
|
Total
|
$163,928
|
$82,166
|
$25,351
|
$107,517
|
Source:
MFR Schedule B-10 and responses to staff data requests
Pursuant to Section 367.081(7), F.S., the Commission shall
determine the reasonableness of rate case expenses and shall disallow all rate
case expenses determined to be unreasonable. Staff has examined the requested
actual expenses, supporting documentation, and estimated expenses as listed
above for the current rate case.
Legal Fees (Sundstrom & Mindlin,
LLP)
The utility included in its MFRs
$62,500 in legal fees to complete the rate case. The utility provided invoices
through July 31, 2016, showing legal expenses associated with the rate case
totaling $41,599 plus an additional $14,875 to complete this PAA rate case for
a total of $56,474 in legal fees.
According to the invoices provided, the law firm of
Sundstrom & Mindlin, LLP (Sundstrom) billed the utility approximately
$2,900 related to the correction of MFR deficiencies. Sundstrom believes that
it should be allowed to recover the expense associated with deficiency
correction because it is part of the “normal process,” and that “few rate
filings are accepted without revisions to correct for deficiencies.”[18] Staff
disagrees, noting that the Commission has previously disallowed rate case
expense associated with correcting MFR deficiencies because of duplicate filing
costs.[19]
Accordingly, staff believes that $2,891 (8.26 hours x $350/hour) should be
removed as duplicative and unreasonable rate case expense.
Based on its response to Staff’s Second Data Request,
Question 10, the utility appears to have spent approximately $74,000 in its
preparation and filing of the rate proceeding in Docket No. 150170-WS, and
believes that a portion of that expense should be included in the current
docket. In support, Sundstrom argues the following:
While the great majority of the costs related to this
proceeding are not relevant to the current rate case proceeding, most of the
costs related to legal services incurred during the three months prior rate
case filing are directly related to the information necessary in order to file
the current rate proceeding in Docket 160030-WS. The costs for drafting of
pleadings, organization of tariffs and exhibits which were the focus of the
three legal bills just prior to the filing were substantially similar to those
filed in the instant rate proceeding. As such, the utility believes that a
significant portion of the rate case expenses incurred for legal services in
those three months directly benefit the current rate proceeding. In an attempt
to estimate conservatively, the utility has allocated 50% of the cost of those
services as costs related to the current rate proceeding.[20]
Sundstrom included $8,203 of legal expense related to
Docket No. 150170-WS in the current docket. The utility withdrew its
application for an increase in rates in that docket on January 21, 2016 citing,
in part, the following factors: (1) the deficiencies noted by the Commission
Staff to the Application as originally filed; (2) recognition of the changes
that have occurred as a result of a change in ownership of the utility in 2015;
and (3) changes in status of capital improvements to the utility system.[21] Staff
adds that the utility’s decision to withdraw its 2015 rate case was on its own
motion, not at the Commission’s urging. As such, staff does not believe that
any expense related to Docket No. 150170-WS should be included in the current
docket. Accordingly, staff believes that $8,203 should be removed from current
rate case expense.
An adjustment to actual rate case expense should also be
made to remove a portion of travel expenses related to the customer meeting in
July. Support documentation provided by Sundstrom included approximately $218
for a meal attended by the attorney and five utility employees. Staff believes
that is inappropriate to include the cost of the meal as it relates to the five
utility employees, but the attorney’s portion of the meal should be allowed. It
is likely that the utility employees’ other travel related expenses were
submitted to the utility for reimbursement. If paid for individually, staff
believes that the meal expense would have also been submitted to the utility
for reimbursement, and not included in rate case expense. As such, staff
believes that 1/6th of the cost, or $36, should be included in rate
case expense. The remaining $181 should be removed from legal rate case expense.
Sundstrom’s estimate to complete the rate case includes
fees of $13,825 for responding to various commission documents and preparing
for and attending the agenda conference. The estimate to complete also included
costs of $1,050 for photocopies, postage, and other expenses. Since the
estimate to complete was submitted on September 1, 2016, staff sent two
additional data requests and the utility also responded to OPC’s issues and
concerns. As such, staff believes the full amount of the estimate to complete,
$14,875 ($13,825 + $1,050), is reasonable.
Based on the above, staff believes that the appropriate
amount of legal fees is $45,199 ($56,474 - $11,275).
Accounting
Fees (Tangibil)
Ni Florida included $70,000 in its MFRs for accounting
costs. The utility’s updated rate case expense reflected actual fees of $35,000
with no additional costs for the estimate to complete. In response to Staff’s
First Data Request, the utility attached an invoice from Tangibil for $35,000.
Based on the supporting documentation, Tangibil’s work is based on a lump sum
quote for preparation of the rate case MFRs and assistance in responding to
data requests and analyses. No additional invoices were received by staff
addressing work related to deficiency corrections or responding to additional
staff data requests. Staff notes that in the utility’s last rate case, Ni
Florida was allowed to recover $81,000 for accounting fees.[22]
As such, staff believes that the lump sum of $35,000 for preparation of the
MFRs and responding to staff’s data requests appears reasonable.
Filing Fee
The utility did not include a filing fee in its MFR
Schedule B-10, but did include the $5,500 filing fee as part of its updated
rate case expense. Staff verified that the amount was not already included in
the legal fees to avoid double recovery of this fee. Since the filing fee was
not included in legal fees, there is no double recovery of this fee, and should
be included in rate case expense.
Customer Notices, Printing, Shipping,
and FedEx
In its MFRs, Ni Florida included estimated costs of
$31,428 for printing and shipping. The utility provided a revised total for
final noticing which totaled $10,476 and $67 for FedEx expense. Ni Florida is
responsible for sending four notices: the interim notice, the initial notice,
customer meeting notice, and notice of the final rate increase. The initial
notice and the initial notice were combined in this docket. The Commission has
historically approved recovery of noticing and postage, despite the lack of
support documentation, based on a standard methodology to estimate the total
expense using the number of customers and the estimated per unit cost of
envelopes, copies, and postage.[23] In the
calculations that follow, staff used the actual number of pages of the interim
notice (two) and the combined initial and customer meeting notice (four), and
estimated that the final notice would be four pages.
Staff estimates the postage cost for the notices to be
approximately $4,938 (3,502 customers x $0.47 x 3 notices).[24]
Staff estimates envelope costs to be $525 (3,502 customers x $0.05 per envelope
x 3 notices) and copying costs to be $3,852 ($0.10 per copy x 38,522 pages).[25] The utility
also included $67 in FedEx expense which staff believes is reasonable. Based on
these components, the total cost for customer notices and postage is $9,382
($4,938 + $525 + $3,852 + $67). In the utility’s last rate case, Ni Florida was
allowed to recover $9,009 for customer notices and postage.[26]
Staff believes that its calculated expense is reflective of the actual
conditions in the instant docket while remaining comparable to the expense in
the 2013 rate case. As such, staff recommends that rate case expense be decreased
by $1,161 ($9,382 - $10,543) for customer mailings.
Conclusion
In summary, we find that the utility’s
revised rate case expense should be decreased by $12,436. The appropriate total rate case expense is
$95,082. A breakdown of rate case expense is as follows:
Table 11-2
Staff Recommended Rate Case Expense
|
|
MFR Estimated
|
Utility Revised
Actual & Est.
|
Staff
Adjustment
|
Recom.
Total
|
|
Legal Fees
|
$62,500
|
$56,474
|
($11,275)
|
$45,199
|
|
Accounting Fees
|
70,000
|
35,000
|
0
|
35,000
|
|
Filing Fee
|
0
|
5,500
|
0
|
5,500
|
|
Customer Notices/FedEx
|
31,428
|
10,543
|
(1,161)
|
9,382
|
|
Total Rate Case Expense
|
$163,928
|
$107,517
|
($12,436)
|
$95,082
|
|
Annual Amortization
|
$40,982
|
$26,879
|
($3,109)
|
$23,770
|
Source: MFR Schedule B-10 and
responses to staff data requests.
The recommended total rate case
expense should be amortized over four years, pursuant to Section 367.0816, F.S.
Based on the data provided by Ni Florida and the recommended adjustments
discussed above, staff recommends the appropriate amount of rate case expense
is $95,082. This expense should be recovered over four years for an annual
expense of $23,770.
The utility also included in its
MFRs prior rate case expense of $144,179. However, in the utility's last rate
case, the Commission approved total rate case expense of $149,321 to be
amortized over four years.[27] As such,
staff used the Commission-approved amount for prior rate case expense here.
When amortized over four years, total prior unamortized rate case expense
represents an annual expense of $37,330. Staff’s recommended total current rate
case expense and prior rate case expense total $244,403 ($95,082 + $149,321),
or $61,101 on an annual basis. As a result, annual rate case expense should be
decreased by $3,636 for water and $13,575 for wastewater from the respective
levels of expense included in the MFRs.
Issue 12:
Should additional adjustments be made to test year
O&M expenses?
Recommendation:
Yes. Based on adjustments set forth above, staff
recommends decreasing O&M expense by $20,724 for water and $136,054 for
wastewater. Adjustments to O&M expense are shown on Schedule No. 3-C.
(Brown)
Staff Analysis:
Staff has reviewed the test year O&M expenses
and examined invoices, canceled checks, and other supporting documentation. As
a result, staff is recommending several adjustments to the utility's operating
expenses, as summarized below.
Staff notes that in regard to purchased water and
wastewater contractual services-engineering, no adjustments were identified by
staff. There were also no audit findings pertaining to these issues. Several
other accounts had adjustments made as a result of an audit finding or due to
I&I, and are addressed in other issues. As such, they are identified in the
table below, but are not discussed within this issue.
Table 12-1
O&M Accounts Not Discussed in
Issue
|
Water
|
Wastewater
|
|
Acct. No.
|
Name
|
Acct. No.
|
Name
|
|
610
|
Purchased
Water
|
710
|
Purchased
Sewer Treatment
|
|
657
|
Insurance
– General Liability
|
715
|
Purchased
Power
|
|
659
|
Insurance
– Other
|
720
|
Materials
and Supplies
|
|
|
|
731
|
Contractual
Services - Engineering
|
|
|
|
735
|
Contractual
Services – Testing
|
|
|
|
757
|
Insurance
– General Liability
|
|
|
|
759
|
Insurance
– Other
|
Contractual
Services – Legal (633/733)
In its MFRs, Ni Florida
reflected an expense of $4,420 for contractual services-legal in the wastewater
test year. No legal expense was allocated to water in the MFRs. In its response
to Staff’s First Data Request, the utility provided support documentation for
the expense which indicated some costs were legitimately wastewater, additional
costs that should be shared between water and wastewater, and still others that
appear to relate only to water. Staff notes that $3,165 related to various activities
surrounding a four-year rate reduction in Docket No. 100149-WU,[28] a
docket that only addressed water rates in Lee County, were included in
wastewater’s legal expense. Staff believes that another $180 should be
allocated to water because the legal services were of a general utility nature,
and not system specific. As such staff believes that $3,345 ($3,165 + $180)
should be removed from contractual services-legal expense for wastewater. Staff
believes that the $3,165 related to the four-year rate reduction should be
amortized over four years, or $791 ($3,165/4 years) per year. The resulting
adjustment to contractual services-legal expense for water is an increase of
$971 ($180 + $791). Based on the discussion above, staff believes the
appropriate contractual services-legal expense for the test year should be $971
for water and $1,075 ($4,420 - $3,345) for wastewater.
Contractual
Services – Management Fees (634/734)
The utility included contractual services management
expense of $37,368 for water and $169,266 for wastewater. The utility provided
a copy of the most recent professional services contract with Utility Group of
Florida, LLC (UGF), as well as related invoices.[29]
This contract provides for the general management of Ni Florida’s facilities
and additions, which include, but are not limited to, all supervision, labor,
transportation, tools, equipment and operational consultants to operate and
maintain the facilities. In addition, UGF performs billing and collection
services per the utility's tariff and policies, maintains a customer service
office, reads meters once each month, and performs certain bookkeeping services
among other things.
In its response, the utility also included an addendum to
the original contract which amended the monthly amount from $3,000 to $3,300
per month. This amendment was executed in July 2010. The utility did not
provide a written amendment to the contract related to wastewater, but stated
in response to Staff’s First Data Request that “The contract in more recent
years is verbal and the amount has changed to $14,000/month.” This change took
place on January 1, 2013 according to the utility.
The utility provided invoices for water which indicated a
monthly professional services fee of $3,114, not $3,330 per month as the addendum
states. As such, staff believes that the amount included in the test year,
$37,368 ($3,114 x 12 months), is accurate and no adjustments are necessary.
Invoices supporting the $14,000 monthly wastewater management fee, which total
$168,000, were also provided. The documentation included an invoice for $1,266
for meter reading which staff believes should be removed. This amount does not
need to be reallocated as staff believes that meter reading is included in the
professional services contract. This will be addressed in additional detail in
Contractual Services – Other, below. As such, $1,266 should be removed from
wastewater contractual services - management fees.
Contractual
Services – Testing (635)
The utility included $8,193 for water testing. Accounting
and engineering staff reviewed the support documentation provided by the utility
in response to Staff’s First Data Request and believes the testing to be
appropriate. The only adjustment staff identified was the removal of $100 for
the annual operating license which staff believes should be reclassified to
Miscellaneous Expense (675).
Contractual
Services – Other (636/736)
In its MFRs, Ni Florida reflected water and wastewater
expense of $9,123 and $206,030, respectively, for contractual services-other in
the test year. In response to Staff’s First Data Request, the utility provided
support documentation for water. Within those documents, staff identified
$1,085 related to the preparation and mailing of four-year rate reduction
notices. Staff believes this portion of the expense is appropriate since it is
not typically included within a docket’s rate case expense. As such, the
expense should be amortized over four years, or $271 per year. This is
consistent with staff’s adjustments to other four-year reduction items
contained in this recommendation. As a result, contractual services-other for
water should be reduced by $814 ($1,085 - $271). Staff believes that no
additional adjustments to contractual services-other for water are necessary.
Support documentation was also provided for wastewater
contractual services-other which included $31,616 for billing and customer
service, $19,236 for contract labor, $728 for customer work orders, $24,924 for
Mission Unit monitoring, and $129,437 for other. Staff made no adjustments to
customer work orders. Staff will discuss each of the remaining categories in
more detail below.
Billing/Customer Service
The utility included $31,616 in wastewater contractual
services-other for billing and customer service. In response to Staff’s Fourth
Data Request, the utility requested that $4,014 had been included for “annual
software maintenance and updates” be removed since the expense was related to
Ni America Texas, LLC. Staff made the requested adjustment. Staff also believes
that additional adjustments related to postage, forms, and imaging are
necessary. According to support documentation, the utility incurred costs of
$12,105 for postage and $13,472 related to the imaging and mailing of monthly
bills. Staff believes that all of the costs related to monthly billing $25,577
($12,105 + $13,472) should be removed since the professional services contract
with UGF appears to already include them. In support, staff has included the
applicable portions of the professional services contract, which state, in
part:
2.02 METER
READING AND BILLING AND COLLECTIONS - FUGH shall perform billing and
collection services per the UTILITY's tariff and policies for the UTILITY's
water and wastewater services. FUGH shall bill each customer of the UTILITY
monthly in accordance with the UTILITY's approved rate structure.
and
3.11
POSTAGE - FUGH will pay for all billing postage. The compensation cited
in EXHIBIT "B" includes a Reserve Account to cover the cost of
postage expenditures.
Based on the sections of the professional services contract
provided above, staff believes that the monthly management fee includes the
very expenses that Ni Florida is seeking to recover here. When asked whether
the contract
included this activity, the utility gave the following response:
At times the operations contractor, Utility Group of
Florida, LLC, provides invoices for work done that Ni Florida personnel
determine are included in the contract. Alternatively, sometimes the operations
contractor provides invoices for work done that Ni Florida personnel determine
is not included in the contract. After careful review of these costs by both
the utility and the contractor it was determined that these costs were not
covered by the contract and as such were billed separately.[30]
The utility added that “The process is more substance over
form and based on each party's interpretation of the contract.”[31]
Staff believes that the contract is explicit in regard to
billing, postage, and meter reading (discussed in the following section).
Furthermore, if the contract has outlived its useful life and no longer reflects the parties current
relationship, then the parties should renegotiate the contract so that it is
reflective of the current situation. That has not happened in this instance.
Instead, staff must rely on the contract that was entered into between the
parties and executed in 2008. Other than the change to amount charged for the
monthly management fee, there are no other revisions to the contract. Ni
Florida stated in response to Staff’s Fourth Data Request that this is the
contract that the parties are still operating under.
As such, staff believes that the contract provides for the
creation of monthly bills as well as postage and that the monthly contractual
services management fee adequately compensates UGF for its services. If the
Commission approves the contractual services management fee for wastewater and
the expense requested for billing here, staff believes the utility would
essentially be allowed to recover those costs twice. Accordingly, staff recommends
the removal of $12,105 for postage and $13,472 related to imaging and mailing.
Accordingly, staff recommends a reduction of $29,591 ($4,014 - $12,105 -
$13,472) to billing and customer service.
Contract Labor
The utility included contract labor costs of $19,236 and
provided support documentation for the same. Staff believes that an adjustment
is necessary to remove $17,450 associated with meter reading since the
professional services contract with UGF already includes meter reading. Section
2.02(B) of the professional services contract states:
B. Meter Reading - FUGH shall read meters served by
the UTILITY once each month in compliance with UTILITY's rate order/tariff and
billing schedules.
Based on the meter reading section of the professional
services contract, and the discussion in billing and customer service above,
staff believes that the monthly management fee includes the meter reading
expense that Ni Florida is seeking to recover here. Staff believes that the
contract includes meter reading and that the monthly management fee adequately
compensates UGF. If the Commission approves the contractual services management
fee for wastewater and the expense requested for billing here, staff believes
the utility would essentially be allowed to recover those costs twice.
Accordingly staff recommends the removal of $17,450 for meter reading from
wastewater.
Mission Unit Monitoring
The utility included $24,924 for Mission Unit monitoring
and provided support documentation which included annual renewal invoices and
the customer service agreement.[32] These
costs relate to the monitoring of 42 lift stations in Pasco County. In response
to Staff’s Third Data Request, the utility requested pro forma consideration of
$3,380 related to monitoring services for 6 additional lift stations that are
being added in conjunction with the utility’s pro forma plant projects.[33] Based on
the support documentation provided, there is no duplication of costs since the
Rhodes Road project is for new service and the Tower Drive project had no
monitoring prior to the pro forma project. As such, staff believes it is
appropriate to add $3,880 to Mission Unit monitoring.
Other
The utility included $129,437 for other test year O&M
expenses. Most of the items included appear to be related to various wastewater
system repairs. The utility provided support documentation, from which staff
identified additional adjustment that it believes should be made.
Staff identified two charges, which total $5,341, to write
off amounts from a prior year. The invoices for these are for charges incurred
outside the test year and should not be included in test year expense. Four
charges which total $557 that were related to use tax on Aquafix purchases made
in 2014 should also be removed from test year expense. As such, staff believes
it is appropriate to remove $5,898 ($5,341 + $557) from test year expense.
Staff also identified $28,341 related to storm repair. The
utility said that the expense was due to severe weather in the wastewater
service territory over a two-week period. During this time, there was flooding,
power surges, and wind which caused damage and power outages in the area. This
in turn caused sanitary sewer overflows at several of the utility’s lift
stations and emergency situations. Ni Florida used vacuum trucks to haul sewer
flow to another location to avoid spill and used temporary pumps to pump sewer
flow around the lift station. According to the utility, the amount also
included spill cleanup work and disassembly of pumps and hoses. While severe
weather is expected in Florida, staff believes that these events were
extraordinary. As such, staff believes that these storms related costs should
be amortized over five years, or $5,668 ($28,341/5 years) per year. As a
result, staff is recommending a reduction of $22,672 ($28,341 - $5,668).
The utility included $17,851 for an audit of its
collection system. In response to OPC’s concerns, the utility stated that the
amount spent on the audit could be considered for amortization over a
three-year period, especially since Ni Florida’s plan is to conduct the a
similar audit every three years. As such, staff recommends amortizing this
expense over three years, or $5,950 ($17,851/3 years) per year. As a result,
staff is recommending a reduction of $11,901 ($17,851 - $5,950).
In addition, staff found additional meter reading charges
of $1,681 that should be removed. Staff does not believe that the argument
provided earlier in this recommendation regarding meter reading needs to be
repeated here. As such, staff recommends removing $1,681 for meter reading that
is included in the cost of the professional services contract. Accordingly,
staff recommends a reduction of $42,152 ($5,898 + $22,672 + $11,901 + $1,681).
Based
on the adjustments discussed above, the total reduction to wastewater
contractual services-other is $85,813 ($3,880 - $29,591 - $17,450 - $42,152).
Bad
Debt Expense (670/770)
On MFR Schedules B-5 and B-6, the utility recorded test
year bad debt expense of $1,110 for water and ($1,518) for wastewater. Ni
Florida adjusted its test year bad debt expense to $1,176 and $25,187 for water
and wastewater, respectively, to reflect bad debts at the three-year average.
The utility requested further bad debt expense increases of $421 for water and
$6,574 for wastewater in order to reflect the requested revenue increase at an
amount equal to 0.48 percent and 1.38 percent, respectively. This represents
total requested bad debt expense of $1,597 for water and $31,761 for
wastewater.
It is Commission practice to set bad debt expense using
the three-year average based on the premise that a 3-year average fairly
represented the expected bad debt expense. Overall, the basis for determining
bad debt expense has been whether the amount is representative of the bad debt
expense to be incurred by the utility. Using the utility’s annual reports,
staff calculated three-year average bad debt expense of $1,176 for water and
$25,189 for wastewater. Based on the calculations above, staff recommends that
the utility’s requested bad debt expense for water be reduced by $421 and
wastewater be reduced by $6,572.
Miscellaneous Expense (675/775)
The Utility included miscellaneous expense of $90,377 for
water and $323,700 for wastewater. It is comprised of the following amounts:
Table 12-2
Summary of Miscellaneous Expenses
|
Summary
|
Water
|
Wastewater
|
|
Allocated Corporate Overhead Costs
|
$75,932
|
$291,406
|
|
Direct Assignment:
|
|
|
|
Specifically Assigned Corp. Overhead - Legal
|
390
|
3,900
|
|
Specifically Assigned Corp. Overhead - Travel
|
0
|
9,296
|
|
Ni Florida, LLC Allocated Costs
|
435
|
1,669
|
|
Billing/Customer Service Expenses
|
10,668
|
0
|
|
Bank Fees
|
2,952
|
10,321
|
|
Telephone Expenses
|
0
|
7,107
|
|
Total
|
$90,377
|
$323,700
|
Source: MFRs
and responses to staff data requests
The utility recorded test year direct assignment expense
of $14,445 for water and $32,294 for wastewater. Staff believes that
adjustments to travel and billing/customer service are necessary. In the audit
workpapers, staff found several airline charges related to cabin upgrades and
change fees, which totaled $1,502. Staff does not believe the utility’s
customers should be responsible for these charges and they should be removed
from wastewater’s direct assignment expenses. Staff also believes that $10,668
included in direct assignment expenses for water billing should be removed. As
addressed elsewhere in this issue, staff believes that postage, imaging, and
mailing of monthly bills is included in the professional service contract. As
such, $10,668 should be removed from water direct assignments expenses. All
other direct assignment costs identified in Table 12-2 above, appear
appropriate based on the support documentation provided by the utility.
The largest portion of miscellaneous expense for both
water and wastewater is allocated corporate overhead costs. The utility
recorded test year allocated parent overhead of $75,932 for water and $291,406
for wastewater. The allocated overhead was recorded in the utility's
miscellaneous expense account based on equivalent residential connections
(ERC). In the utility’s last rate case, the Commission ordered the removal of
due diligence costs as well as the equity sponsor fee paid to Metalmark
Capital, LLC, and non-utility costs related to a possible sale of the utility.[34] Staff
notes that due diligence costs were removed in an audit adjustment in an
earlier issue. The equity sponsor fee and non-utility costs were excluded from
overhead allocation in the utility’s filing.
As discussed previously, in response to staff’s first data
request, the utility provided a contract for the management services of UGF.
The contract provides that the operator “shall perform billing and collection
services per the utility's tariff and policies for the utility’s water and
wastewater services.” It further states that the operator “shall bill each
customer of the utility monthly in accordance with the utility's approved rate
structure.” Additionally, the contract provides that the operator will provide
a customer service office where customers may pay their bills, apply for
service, obtain information, register complaints, and generally receive normal
and customary billing and collecting services. OPC questioned why Ni America is
allocating overhead costs that include these functions when the professional
services contract indicates that UGF is providing these services. OPC
identified five positions[35] included
in the allocation that appear to duplicate functions included in the professional
services contract. OPC argued that these salaries and the related benefits
should be removed from the test year expenses. OPC’s total of salaries and
bonuses related to these positions is $311,801, or $5,546 for water and $21,284
for wastewater on an allocated basis.
The utility argued that the professional services contract
lists some tasks to be performed under the contract, but the situation is more
substance over form. According to the utility, Ni Florida and UGF have
developed a working relationship of who should perform what tasks. This working
relationship has changed over the years, but remains a workable situation. The
employees in the South Carolina billing and customer service office perform
tasks related to all utilities, including Ni Florida, and should therefore
remain allocable to all utilities. The utility added that these employees
handle new customer applications, post all customer payments received by mail
or electronically, take customer service calls (shared with the Florida office),
initiate customer refund checks, balance and audit customer accounts at
month-end, and perform monthly billing of customers. The utility believes these
tasks are done for all utilities and the costs should remain allocable to all
utilities, including Ni Florida.
Based on the contract for professional services and the
position descriptions provided during the course of this docket, staff believes
many of the duties included as part of the allocated overhead costs are
duplicative of services performed by UGF. Absent additional information to the
contrary, staff believes the removal of all salaries and benefits related to
the five corporate positions is appropriate. Staff has already recommended the
removal of duplicative costs for meter reading and customer billing based on
the professional services contract. The removal of duplicative salaries and
benefits here is in keeping with those previous adjustments. As a result, staff
believes that it is appropriate to remove all of the expense related to the
five positions in order to address the overlap of duties between the allocated
positions and those provided in the professional services contract with UGF.
After allocation, staff calculated that $5,678 for water and $21,786 for
wastewater should be removed for salaries and benefits.[36]
Staff also identified one additional position, Vice
President of Capital Improvements, that should be removed. Staff notes that the
utility excluded the salaries and benefits for one of the Vice President of
Capital Improvements in its MFRs, but left a portion of the salary for the
second position. Staff believes that the portion related to the second position
should be removed as well.
This results in reductions of $341 for water and $1,309
for wastewater.
During the course of this rate case, the utility provided
general ledgers which indicated that Ni America paid $209,460 for consulting
services related to an ERC Project. According to the utility, the ERC Project
was set up to reconcile customers in South Carolina. In response to OPC’s
concerns and a staff data request, the utility agreed that the cost should not
be allocated to Ni Florida. Staff has removed the expense from the corporate
overhead allocation, which results in the reduction of $3,728 for water and
$14,306 for wastewater on an allocated basis.
Staff also made an adjustment to correct an error made in
calculating the allocable portion of miscellaneous expense in MFR Schedule
B-12. The utility calculated that Ni Florida's portion of allocable
miscellaneous expenses was $367,338. Staff calculated Ni Florida's portion of
allocable miscellaneous expenses to be $367,138. Staff reduced allocable
miscellaneous expense by $200, which resulted in a $45 reduction to water and a
$155 reduction to wastewater.
Finally, in the contractual services – testing
recommendation, staff reclassified $100 related to the annual operating license
which should be reclassified to miscellaneous expense. This reclassification
does not impact the overall adjustment to operations and maintenance expense,
just the individual balances for contractual services – testing and
miscellaneous expense. As such, it is not reflected in the adjustment
calculation below. Accordingly, staff recommends that miscellaneous expense be
reduced by $20,460 ($10,668 + $5,678 + $341 + $3,728 + $45) for water and
$39,058 ($1,502 + $21,786 + $1,309 + $14,306 + $155) for wastewater.
Summary
Based on adjustments set forth above, staff recommends
decreasing O&M expense by $20,724 for water and $136,054 for wastewater as
depicted below. Adjustments to O&M expense are shown on Schedule No. 3-C.
Table 12-3
Summary of Staff O&M Adjustments
|
Account
|
Staff Adj.
to Water
|
Staff Adj.
to Wastewater
|
|
Contractual Services – Legal (633/733)
|
$971
|
($3,345)
|
|
Contractual Services – Management Fees (634/734)
|
0
|
(1,266)
|
|
Contractual Services – Other (636/736)
|
(814)
|
(85,813)
|
|
Bad Debt Expenses (670/770)
|
(421)
|
(6,572)
|
|
Miscellaneous Expense (675/775)
|
(20,460)
|
(39,058)
|
|
Total
|
($20,724)
|
($136,054)
|
Issue 13:
What is the appropriate revenue requirement for the
test year ended in December 31, 2015?
Recommendation:
Staff recommends the following revenue
requirement be approved.
|
|
Test Year Revenue
|
$ Increase/
(Decrease)
|
Revenue Requirement
|
% Increase/
(Decrease)
|
|
Water
|
$224,606
|
$65,265
|
$289,872
|
29.06%
|
|
Wastewater
|
$1,952,477
|
$311,050
|
$2,263,527
|
15.93%
|
(Brown)
Staff Analysis:
In
its filing, Ni Florida requested revenue requirements to generate annual
revenue of $322,091 for water and $2,404,738 for wastewater. These requested
revenue requirements represent revenue increases of $87,150, or approximately
39 percent, for water, and $475,000, or approximately 24.60 percent, for
wastewater.
Consistent
with staff’s recommendations concerning rate base, cost of capital, and
operating income issues, staff recommends approval of rates designed to
generate a water revenue requirement of $289,872, and a wastewater revenue
requirement of $2,263,527. Staff’s recommended water revenue requirement
exceeds staff’s adjusted test year revenue by $65,265, or 29.06 percent. Staff’s
recommended wastewater revenue requirement exceeds staff’s adjusted test year
revenue by $311,050, or 15.93 percent. These recommended pre-repression revenue
requirements will allow the utility the opportunity to recover its expenses and
earn a 8.11 percent return on its investment in water and wastewater rate base.
Issue 14:
What are the appropriate rate structures and rates
for Ni Florida's water and wastewater systems?
Recommendation:
The recommended rate structures and monthly water
and wastewater rates are shown on Nos. 4-A and 4-B. The utility should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheet pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The utility should provide proof of
the date notice was given within 10 days of the date of the notice. (Bruce)
Staff Analysis:
Water
Rates
Ni Florida’s water system is located in Lee County within
the South Florida Water Management District. The utility buys bulk water from
Lee County and resells the water to a mobile home and RV park. Approximately 30
percent of the residential customer bills during the test year had zero gallons
during the test year, indicating a seasonal customer base. The average
residential water demand was 1,442 gallons per month. The average water demand
excluding zero gallon bills is 2,056 per month. The utility’s current rate
structure consists of a base facility charge (BFC) and three-tier inclining block
rate structure. The rate blocks are (1) 0-3,000 gallons; (2) 3,001-6,000
gallons; and (3) all usage in excess of 6,000 gallons per month. The RV park’s
rate structure consists of a BFC based on 104.76 equivalent residential
connections (ERC), which was approved in a settlement in Docket No. 050819-WU. All
other general service customers are billed based on a BFC and gallonage charge.
In addition, the utility has a per incident charge for private fire protection.
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.
The utility’s proposed BFC
allocation is 59.31 percent. Typically, the Commission allocates no greater
than 40 percent of the water revenue to the BFC. However, when the utility’s
customer base is seasonal, it has been the Commission’s practice to allocate
greater than 40 percent of the revenue requirement to the BFC to address
revenue stability. Due to the low monthly average consumption and seasonal
customer base, staff believes that it is appropriate to allocate 55 percent of
the water revenue to the BFC for revenue stability purposes.
The average persons per household
served by the water system is two; therefore, based on the number of person per
household, 50 gallons per day per persons, and the number of days per month,
the non-discretionary usage threshold should be 3,000 gallons per month. Staff
recommends a traditional BFC and gallonage charge rate structure with separate
gallonage charges for discretionary and non-discretionary usage for residential
water customers.
Furthermore, staff evaluated whether the BFC
for the RV park should be based on the existing water demand the RV park places
on the water system or the 104.76 ERCs approved in a settlement. The RV park
has a three-inch meter; the BFC for a general service three-inch meter is
typically 16 times the 5/8” x 3/4” meter size BFC. During the test year, the RV
park used 1,537,000 gallons of water. Compared with the average residential
water demand of 1,442 gallons per month, the RV park demand represents
approximately 89 ERCs (1,537,000/1,442/12). Therefore, staff recommends a BFC
based on 89 ERCs for the RV park and a uniform gallonage charge. All other general
service customers should be billed a BFC based on a meter size and uniform
gallonage charge. The private fire protection charge is obsolete and there are
no customers. Therefore, the private fire protection charge should be
discontinued. Table 14-1, contains staff’s recommended rate structure and rates
and alternative rate structure, which includes varying BFC allocations and rate
blocks.
On the following page, although
provided as alternatives, staff is not in support of alternative one because of
the very seasonal customer base coupled with a very low average consumption, the percentage increase in price at average
consumption and below puts the utility at a risk of a revenue shortfall. For
alternative two, staff is not opposed to this alternative because the BFC
allocation provides revenue stability in regards to the very seasonal customer
base.
Table 14-1
Staff’s Recommended and
Alternative Water Rate Structures and Rates
|
|
Staff
|
|
|
|
Rates at
|
Recommended
|
Alternative
|
Alternative
|
|
Time of
|
Rates
|
I
|
II
|
|
Filing
|
(55% BFC)
|
(50% BFC)
|
(59% BFC)
|
|
Residential
|
|
|
|
|
|
5/8” x
3/4” Meter Size
|
$12.64
|
$15.10
|
$13.72
|
$16.20
|
|
|
|
|
|
|
|
Charge per 1,000 gallons –
Residential
|
|
|
|
|
|
|
|
|
|
|
|
0-3,000 gallons
|
$4.47
|
|
|
|
|
3,001-6,000 gallons
|
$5.66
|
|
|
|
|
Over 6,000 gallons
|
$7.88
|
|
|
|
|
|
|
|
|
|
|
0-3,000 gallons
|
|
$7.05
|
$7.83
|
$6.42
|
|
Over 3,000 gallons
|
|
$7.88
|
$8.95
|
$7.06
|
|
|
|
|
|
|
|
Charge Per 1,000 gallons-
General Service
|
$4.81
|
$7.15
|
$7.96
|
$6.62
|
|
|
|
|
|
|
|
Typical
Residential 5/8" x 3/4" Meter Bill Comparison
|
|
|
2,000 Gallons
|
$21.58
|
$29.20
|
$37.21
|
$29.04
|
|
6,000 Gallons
|
$43.03
|
$59.89
|
$64.06
|
$56.64
|
|
8,000 Gallons
|
$58.79
|
$75.65
|
$81.96
|
$70.76
|
Source:
Current tariff and staff’s calculations
Wastewater
Rates
Ni Florida’s wastewater system is located in Pasco County.
The utility purchases bulk wastewater treatment from Pasco County. Ni Florida
provides service to residential and general service customers. The general
service customers include a mobile home park classified as a bulk customer,
which is provided service via a four-inch meter. Approximately 27 percent of
the residential customers’ bills during the test year had zero gallons, which
indicates a seasonal customer base. The average water demand for wastewater
customers was 2,812 gallons per month. The average wastewater demand excluding
zero gallon bills is 3,841 per month. The utility’s wastewater system rate
structure consists of a uniform BFC for all meter sizes and a gallonage charge
with a 8,000 gallon cap for residential customers. General service customers are
billed a BFC by meter size and a gallonage charge that is 1.2 times higher than
the residential gallonage charge.
Staff performed an analysis of
the utility’s billing data to evaluate various BFC cost recovery percentages
and gallonage caps for the residential customers. The goal of the evaluation
was to select the rate design parameters that: (1) produce the recommended
revenue requirement; (2) equitably distribute cost recovery among the utility’s
customers; and (3) implement a gallonage cap that considers approximately the
amount of water that may return to the wastewater system.
The
utility’s proposed BFC allocation is 39.81 percent. Typically, the Commission’s
practice is to set the BFC allocation to at least 50 percent due to the capital
intensive nature of wastewater plants. As mentioned earlier, the customer base
is seasonal; therefore, 50 percent of the wastewater revenue should be
allocated to the BFC. Based on staff’s review of the billing analysis, 84
percent of the residential gallons are captured at the 6,000 gallon consumption
level. Approximately 95 percent of the residential water gallons are included
at the 8,000 gallons consumption level. The wastewater gallonage cap recognizes
that not all water used by the residential customers is returned to the
wastewater system It is Commission practice to set the wastewater cap at
approximately 80 percent of residential water sold. Therefore, staff recommends
a residential gallonage cap of 6,000 gallons per month.
Furthermore, staff evaluated
whether a BFC for the mobile home park should be based on a four-inch meter (25
ERCs). The mobile home park consists of 475 manufactured homes, a clubhouse,
and a pool. During the test year, the water demand for the mobile home park was
37,605,000. The average water demand for the bulk customer is 6,597 gallons. Compared
with the average residential water demand of 2,812 gallons per month, the
mobile home park demand represents approximately 1,114 ERCs
(37,605,000/2,812/12). However, the average water demand also includes the
clubhouse, pool and irrigation of common areas. Staff recognizes that not all
water demand will return to the wastewater system. As result, staff believes it
is appropriate to assign an ERC of .8 to each of the manufactured homes behind
the meter pursuant to Rule 25-30.055 (1)(a) which states that a mobile home
should be .8 ERC. Therefore, staff recommends that the rate structure for the
mobile home be based on 380 ERCS (475 x .8 ERC) for the BFC and the residential
gallonage charge with a 6,000 gallon cap per ERC.
In addition, staff evaluated
whether a BFC for the condominiums, a gated vacation community, should be based
on a six-inch meter (50 ERCs). The condominiums consist of 333 units, a
clubhouse, and pools. The water demand for the condominium was 6,796,000. The
average water demand is 1,701 gallons. Compared with the average residential
water demand 2,812 gallons per month, the condominiums demand represents
approximately 201 ERCs (6,796,000/2,812/12). Therefore, staff recommends a BFC
based on 201 ERCs for the condominiums
and a uniform gallonage charge. All other general service customers should be
billed a BFC based on a meter size and uniform gallonage charge. Staff also
recommends that general service gallonage charge be 1.2 times greater than the
residential gallonage charge which is consistent with Commission practice.
On the following page, although staff provided alternatives, staff is
not in support of alternative one because of the highly seasonal customer base
coupled with a very low average consumption For alternative two, staff is not opposed to this
alternative because the BFC allocation provides revenue stability in regards to
the very seasonal customer base.
Table 14-2
Staff’s Recommended and
Alternative Wastewater Rate Structures and Rates
|
|
|
Staff
|
|
|
|
Rates at
|
Recommended
|
Alternative
|
Alternative
|
|
Time of
|
Rates
|
I
|
II
|
|
|
Filing
|
(50% BFC)
|
(45% BFC)
|
(55% BFC)
|
|
Residential
|
|
|
|
|
|
Base Facility
Charge
|
$20.95
|
$26.03
|
$23.43
|
$28.64
|
|
|
|
|
|
|
|
Charge per 1,000 gallons
|
|
|
|
|
|
8,000 gallon cap
|
$6.87
|
N/A
|
N/A
|
N/A
|
|
6,000 gallon cap
|
N/A
|
$6.90
|
$7.59
|
$6.21
|
|
|
|
|
|
|
|
Typical
Residential 5/8" x 3/4" Meter Bill Comparison
|
|
|
|
2,000 Gallons
|
$34.69
|
$39.83
|
$38.61
|
$41.06
|
|
6,000 Gallons
|
$62.17
|
$67.43
|
$68.97
|
$65.90
|
|
8,000 Gallons
|
$75.91
|
$67.43
|
$68.97
|
$65.90
|
|
|
|
|
|
|
Summary
The recommended rate structure
and rates are shown on Schedule Nos. 4-A and 4-B. 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 15:
What is the appropriate amount by which rates should
be reduced four years after the established effective date to reflect the
removal of the amortized rate case expense as required by Sections 367.0816,
Florida Statutes?
Recommendation:
The water and wastewater rates should be reduced as
shown on Schedule Nos. 4-A and 4-B, to remove rate case expense grossed-up for
RAFs and amortized over a four-year period. The decrease in rates should become
effective immediately following the expiration of the four-year rate case
expense recovery period, pursuant to Section 367.0816, F.S., Ni Florida 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. (Brown, Bruce)
Staff Analysis:
Section 367.0816, F.S.,
requires that the rates be reduced immediately following the expiration of the
four-year period by the amount of the rate case expense previously included in
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 $6,075 for water and $22,853
for wastewater.
The water and wastewater rates should be reduced as shown
on Schedule Nos. 4-A and 4-B to remove rate case expense grossed-up for RAFs
and amortized over a four-year period. The decrease in rates should become
effective immediately following the expiration of the four-year rate case
expense recovery period, pursuant to Section 367.0816, F.S. Ni Florida 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 16:
Should the Commission approve Ni Florida’s proposed
rates for reconnection and meter re-reads based on a contract with Pasco County?
Recommendation:
Yes. Staff recommends that Ni Florida’s proposed
violation reconnection charge of $125.00 and $187.50 during normal business
hours and after hours, respectively, and a $20.00 meter re-read based on a
contract with Pasco County should be approved. (Bruce)
Staff Analysis: Ni Florida provides wastewater-only service for its customers in Pasco
County. The water service is provided by two utilities: Hudson Water Works and
Pasco County. In the past, the utility experienced a high level of bad debt
expense due to uncollectable accounts. Ni Florida does not have the ability to
disconnect water service when a customer is delinquent in paying for wastewater
service. In the last rate case, the Commission approved pro forma additions for
the installation of elder valves, which are lockable, disconnection, cleanout
devices consisting of a special tee and plunger that is used to stop all flow
from the customer’s property to the wastewater system. As in the past, the Ni
Florida currently has customers with large outstanding balances.
Ni Florida believes that customer service and billing issues
can be better addressed through a joint agreement. Such agreement will
eliminate the need for Ni Florida to install elder valves to shut off a
customer’s service for non-payment and will provide meter reading and violation
reconnection services for their wastewater-only customers within the Pasco
County service area. Pursuant to Pasco County’s Contract (agreement), Sections
3.1-3.2 state that Pasco County will disconnect water service for a delinquent
account within five days of a written notice from Ni Florida. Pasco County will
assess Ni Florida its current prevailing charge of $125.00 (normal hours) and $187.50
(after-hours) for shut-off and restoration services, which is a violation
reconnection charge pursuant to Rule 25-30.460, F.A.C. As result, Ni Florida requested
to increase its normal reconnection and violation reconnection charges to
$125.00 and $187.50 for normal hours and after-hours, respectively. The agreement
addresses reconnections only in terms of reconnecting service after a
disconnection. Therefore, staff does not believe it is appropriate to increase
the normal reconnection charge.
In addition, Pasco County provides meter reading for Ni
Florida’s wastewater billing. Pursuant to Section 2.2 of the agreement, Pasco County
will perform a meter re-read, at the request of Ni Florida, if there is a discrepancy
in the billing. The cost of meter re-read is $20 if the meter reading is
correct and no charge if the initial reading is determined to be incorrect. Therefore,
Ni Florida requested to implement a meter re-read at $20. Staff believes this
agreement is reasonable remedy for handling delinquent accounts and meter
re-reads on going-forward basis.
Based on the above, staff recommends that Ni Florida’s
proposed violation reconnection charge of $125.00 and $187.50 during normal
business hours and after hours, respectively, and a $20.00 meter re-read based
on a contract with Pasco County should be approved.
Issue 17: What are
the appropriate customer deposits for Ni Florida's water and wastewater
systems?
Recommendation:
The appropriate initial customer deposits should be $51
and $91 for the residential 5/8 inch x 3/4 inch meter size for water and
wastewater, respectively. 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 and wastewater. The approved initial
customer deposits should be effective for connections made on or after the
stamped approval date on the tariff sheets, pursuant to Rule 25-30.475, F.A.C. The
utility should be required to collect the approved deposits until authorized to
change them by the Commission in a subsequent proceeding. (Bruce)
Staff Analysis:
Rule 25-30.311,
F.A.C., provides 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.
An initial customer deposit ensures that the cost of providing service is
recovered from the cost causer. Historically, the Commission has set initial
customer deposits equal to two times the average estimated bill.[39] Currently, the
utility’s initial deposits for residential and general service are $40 for 5/8
x 3/4 inch meter size, $50 for 1 inch meter size, and $60 for 1 1/2 inch meter
size for water. For wastewater, the current initial customer deposit for the
5/8 x 3/4 inch meter size is $72 and two times the average estimated bill for
the general service meter sizes. Based on the staff recommended water rates and
post repression average residential demand, the appropriate initial customer
deposit should be $51 to reflect an average residential customer bill for two
months. The appropriate initial customer deposit for wastewater should be $91 to
reflect an average residential customer bill for two months.
Staff recommends the appropriate
initial customer deposits should be $51 and $91 for the residential 5/8 inch x
3/4 inch meter size for water and wastewater, respectively. 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 and
wastewater. The approved initial customer deposits should be effective for
services rendered or connections made on or after the stamped approval date on
the tariff sheets, pursuant to Rule 25-30.475, F.A.C. The utility should be
required to collect the approved deposits until authorized to change them by
the Commission in a subsequent proceeding.
Issue 18:
Should Ni Florida's existing service availability
charges be revised, and if so, what are the appropriate charges?
Recommendation:
Yes. Ni Florida’s existing wastewater service
availability charges should be revised. For the wastewater system, a main extension
charge of $1,405 per ERC and a plant capacity charge of $2,500 per ERC should
be approved. The recommended service availability charges should be based on an
estimated 173 gallons per day per ERC of treated wastewater demand. For water,
the utility should continue to not have service availability charges. The
approved service availability 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. (Bruce)
Staff Analysis:
In its filing, the utility did not propose to
change its service availability charges. The utility does not currently have
any service availability charges for its water system. In Docket No. 830558-WS,
the Commission determined that no service availability charges were appropriate
because the CIAC level was appropriate and the utility’s service area was
nearly built out.
The current service availability charges for wastewater were last approved in
Docket No. 020254-SU,[41] which
consists of a system capacity charge of $2,400.
A system capacity charge is a
single service availability charge that includes the cost of both plant and
lines. For a utility that receives donated lines from a developer, an
individual customer connecting to those lines should only be responsible for a
service availability charge that reflects plant costs. Therefore, separate
charges are typically developed to reflect the customer’s share of plant costs
(plant capacity charges) and the cost of lines in lieu of donated lines (main extension
charges). Rule 25-30.580, F.A.C., establishes guidelines for designing service
availability charges. Pursuant to the rule, the maximum amount of
contributions-in-aid-of construction (CIAC), net of amortization, should not
exceed 75 percent of the total original cost, net of accumulated depreciation,
of the Utility’s facilities and plant when the facilities and plant are at
their designed capacity. The minimum amount of CIAC should not be less than the
percentage of such facilities and plant that is represented by the water
transmission and distribution system and sewage collection systems.
The current contribution levels
are zero percent and 30.51 percent for water and wastewater, respectively.
Current policy for water requires developers to donate or contribute the lines
and facilities necessary to serve customers in service territory that the
utility does not have facilities. In Docket No. 830558-WS, the Commission
imputed CIAC for the cost of the lines. Ni Florida’s CIAC for water is fully
amortized. Therefore, staff believes a main extension charge is not appropriate
for the water system. In addition, for the water system, the service territory
is approximately 97 percent built out and historically, customers have not paid
service availability charges. As result, staff does not believe it is
appropriate to impose a charge on the remaining three percent. As result, staff
recommends that the water system continues with no service availability charges
and its existing policy that requires the developers to donate or contribute
the lines and facilities necessary to serve customers in service territory that
the utility does not have facilities. Below is the discussion in regards to the
appropriate wastewater service availability charges.
Main Extension Charge
Ni Florida’s current service
availability policy for wastewater requires that the utility installs all of
the facilities necessary to provide sewer service to a property. The customers
must pay their pro rata share of the cost of the wastewater collection system
which is installed by the utility. The cost of the sewage collection system is
$5,339,566 and the lines have a design capacity of 3,800 ERCs. Based on the
historical cost of the existing sewage collection systems, staff recommends a
charge of $1,405 per ERC for the wastewater system.
Staff’s recommended main
extension charges for wastewater, is consistent with the guidelines in Rule
25-30.580, F.A.C., which require that, at a minimum, the cost of the utility’s
lines should be contributed. Staff’s recommended main extension charge
wastewater will allow the utility to recover a portion of its investment wastewater
collection system from future connections consistent with Rule 25-30.580 (2),
F.A.C. In addition, the service availability policy for wastewater service
should be revised to allow either donated lines or a main extension charge from
new connections.
Plant Capacity Charge
Staff reviewed the contribution
level of the wastewater system and found that the contribution level is less
than the 75 percent maximum guideline provided in Rule 25-30.580, F.A.C. The
minimum amount of CIAC should not be less than the percentage of such
facilities and plant that is represented by wastewater collection systems.
Based on staff’s review, increasing the contribution level to 75 percent, for
wastewater, creates a relatively high plant capacity charge. For wastewater,
the minimum contribution level is 56.42 percent and the current contribution
level is 30.51 percent. As a result, staff recommends a plant capacity charge
of $2,500, which would allow the utility to be at a 57 percent contribution
level at build out.
Based on the above, Ni Florida’s existing wastewater
service availability charges should be revised. For the wastewater system, a
main extension charge of $1,405 per ERC and a plant capacity charge of $2,500
per ERC should be approved. The recommended service availability charges should
be based on an estimated 173 gallons per day per ERC of treated wastewater
demand.For water, the utility should continue to not have service availability
charges. The approved service availability 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.
Table 18-1
Current and Recommended
Service Availability Charges
|
|
Wastewater
|
|
|
Current Charge
|
Recommended Charge
|
|
Main Extension Charge
|
$0
|
$1,405
|
|
Plant Capacity Charge
|
$0
|
$2,500
|
|
System Capacity Charge
|
$2,400
|
$0
|
Issue 19:
In determining whether any portion of the interim
water and wastewater revenue increase granted should be refunded, how should
the refund be calculated, and what is the amount of the refund, if any
Recommendation:
The appropriate refund amount should be calculated
by using the same data used to establish final rates, excluding rate case
expense and other items not in effect during the interim period. The revised
revenue requirements for the interim collection period should be compared to
the amount of interim revenues granted. This results in a refund of 8.44
percent for water and 0.92 percent for wastewater. The refund should be made
with interest in accordance with Rule 25-30.360(4), F.A.C. The Utility should
be required to submit proper refund reports pursuant to Rule 25-30.360(7),
F.A.C. The Utility should treat any unclaimed refunds as Contributions in Aid
of Construction (CIAC) pursuant to Rule 25-30.360(8), F.A.C. Further, the
letter of credit should be released upon staff’s verification that the required
refunds have been made. (Brown)
Staff Analysis:
By
Order No. PSC-16-0249-PCO-WS, issued June 29, 2016, the Commission approved an
interim revenue requirement of $310,891 for water and $2,264,770 for
wastewater, subject to refund. The approved interim revenue requirements represented
an increase of 38.98 percent for water and 17.21 percent for wastewater.
According to Section 367.082,
F.S., any refund should be calculated to reduce the rate of return of the utility
during the pendency of the proceeding to the same level within the range of the
newly authorized rate of return. Adjustments made in the rate case test period
that do not relate to the period interim rates in effect should be removed.
Rate case expense is an example of an adjustment which is recovered only after
final rates are established.
In this proceeding, the test
period for establishment of interim and final rates is the 12-month period,
which ended December 31, 2015. Ni Florida’s approved interim rates did not
include any provisions for pro forma operating expenses or plant. The interim
increase was designed to allow recovery of actual interest costs, and the lower
limit of the last authorized range of return on equity. To establish the proper
refund amount, staff calculated revised interim revenue requirements utilizing
the same data used to establish final rates. Rate case expense was excluded
because this item is prospective in nature and did not occur during the interim
collection period.
Using the principles discussed
above, staff calculated an adjusted interim revenue requirements of $284,644
for water and $2,243,863 for wastewater. The adjusted water interim revenue
requirement of $284,644 is lower than the interim revenue requirement of $310,891,
resulting in a refund of 8.44 percent. The adjusted wastewater interim revenue
requirement of $2,243,863 is lower than the interim revenue requirement of
$2,264,770, resulting in a refund of 0.92 percent. As such, the letter of
credit for Ni Florida’s funds should be released upon staff’s verification that
the required refunds have been made.
Issue 20:
Should
the utility be required to notify, 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. Ni Florida 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. (Brown)
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. Ni Florida 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 21:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. The docket should
remain open for staff’s verification that the outstanding Phase I pro forma
items have been completed, 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. (Mapp)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. The docket should
remain open for staff’s verification that the outstanding Phase I pro forma
items have been completed, 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 applicable NARUC USOA primary
accounts have been made.
