Discussion
of Issues
Issue 1:
Should the
Commission approve Crestridge’s requested Phase II increase for pro forma items?
Recommendation:
Yes. The Commission should approve a Phase II
revenue requirement associated with pro forma and additional items. The Utility’s
Phase II revenue requirement is $188,170, which equates to a 2.81 percent
increase over the approved Phase I revenue requirement. (D. Smith, Lee)
Staff Analysis:
By Order No.
PSC-15-0592-PAA-WU, the Commission approved a list of pro forma items for Phase
II implementation. Based on the estimated costs and after adjusting for
retirements, the increase in the Utility Plant in Service (UPIS) balance was
found to be $10,370. The Order further required that implementation of the
Phase II rates was conditioned upon the Utility completing the pro forma items
within 12 months of the Order becoming final, and it submitting a copy of the
final invoices and payment documentation for staff’s review.
As stated in the Case Background,
while the Commission granted Crestridge permission to implement the Phase II
rates once staff verified that all pro forma was completed and documentation
provided, Crestridge has requested recovery of additional capital improvement
costs, which requires Commission approval.
Phase II Pro Forma Items Addressed in Order No.
PSC-15-0592-PAA-WU
As required by Order No.
PSC-15-0592-PAA-WU, the Utility submitted a copy of the final invoices and payment
documentation for implementation of the approved Phase II rates. Based on the
invoiced amounts shown in the table below, the adjustment to UPIS is $7,959, or
$2,411 less than the estimated cost for these items.
Table
1-1
Phase II Pro Forma Adjustments
|
Description
|
Plant Account
|
Estimated Cost (A)
|
Actual Cost (B)
|
Associated
Retirement (C)
|
Net Change in UPIS
|
|
New Computer and Printer
|
340
|
$264
|
$231
|
($0)
|
$231
|
|
New Portable Meter
|
334
|
$565
|
$0
|
($0)
|
$0
|
|
Check Valve at Well #2
|
311
|
$800
|
$771
|
($578)
|
$193
|
|
Replumb at Well #2
|
311
|
$1,800
|
$176
|
($132)
|
$44
|
|
Repaint at Well #2 & #4
|
304
|
$400
|
$2,585
|
($1,939)
|
$646
|
|
Roof at Well #2 & #4
|
304
|
$8,000
|
$2,835
|
($2,126)
|
$709
|
|
Air Relief Valve at Well #2
|
311
|
$200
|
$0
|
($0)
|
$0
|
|
Check Valve at Well #4
|
311
|
$800
|
$535
|
($401)
|
$134
|
|
Replumb at Well #4
|
311
|
$1,800
|
$1,079
|
($809)
|
$270
|
|
Gate Valve at Well #4
|
311
|
$1,500
|
$434
|
($326)
|
$108
|
|
Tank Replacement
|
330
|
$22,862
|
$22,496
|
($16,872)
|
$5,624
|
|
Total
|
$38,991
|
$31,142
|
($23,183)
|
$7,959
|
*Source: Document Nos. 08268-16 and 08634-16
The Utility did not purchase the
portable meter because it was no longer needed. The extent of the work required
for replumbing at well number 2 and the gate valve upgrade at well number 4 was
reduced and resulted in a lower cost than estimated. For the repaint work, the
Utility added stucco at the pump houses, which resulted in a higher cost than
estimated. The Utility was able to acquire the roof upgrades at a lower cost
than estimated. In addition, costs for the air relief valve were included as
part of the new well motor installation. Staff has reviewed documentation
showing the completion of these projects and verified the invoices and
receipts.
Commission practice is to use 75 percent of the cost of
the replacement as the retirement value when the original cost is not known.
Table 1-1 above outlines staff’s recommended adjustments to UPIS and
retirements by plant account.
Additional Capital Improvement Items
As discussed in the Case Background, the Utility is
requesting additional capital improvements not previously approved for recovery
in its Phase II rates. The Utility is requesting these additional improvements
be considered in this proceeding in light of the necessity of the items and
coming in under budget for the approved Phase II projects. Staff believes it is
reasonable to consider the additional items in this proceeding because it will
reduce regulatory lag and rate case expense by mitigating the need for an
additional limited proceeding.
The following additional items
were originally filed as a limited proceeding
and combined into this proceeding. The Utility stated that, in its most recent
Department of Environmental Protection inspection, a leak in well number 2 was noted
as a deficiency. The Utility resolved the deficiency by replacing well number
2’s motor and pump. The Utility determined that it would also replace well
number 4’s motor and pump at the same time, because both units were in need of
replacement. In addition, the Utility believed that a single outage, requiring a
boiled water notice, to complete the repairs would minimize the inconvenience
to its customers. The Utility also claimed that, by upgrading both wells at
once, it saved its customers money on the bids for the electrical equipment. By
September 2016, the Utility had replaced the motors, the pumps, and the
electrical equipment in well numbers 2 and 4, which have in-service dates of
1975 and 1976 respectively. The Utility also upgraded its electrical equipment to
ensure that the new equipment was properly protected with efficient electrical
upgrades. Staff recommends that, given the age and the condition of the motors,
the pumps and the need for supporting electrical equipment for well numbers 2
and 4, the project is reasonable.
The Utility also completed
replumbing for well number 3 on September 6, 2016. This was done in order to
use well 3 as a back-up well to supply customers with water while upgrades were
being made to well number 2 and well number 4. For the replumb of well number
3, the Utility stated that the cost given was for the replacement of a failed
check valve and the original galvanized piping. The well has been out of
service since being struck by lightning in 2013; however, the Utility
eventually plans to return the well to service in the future. The Utility
intends to replace the destroyed tank, replumb from the new check valve to the
new tank, and update the electrical panels for well number 3 in order to return
the well to service. These improvements will be addressed in a future
proceeding. Staff recommends that, given the need for well number 3 as a
back-up water supply during the completion of the upgrades to the other wells,
as well as the Utility’s plans of returning well number 3 to service in the
future, the project was reasonable.
The Utility is requesting $29,673
for the total cost of the equipment and installation, including $21,042 for the
new motors and pumps, and $7,533 for the electrical equipment for well numbers
2 and 4, $898 for the well number 3 replumb, and $200 for well testing. Based
on the proposals for the motors, pumps, and electrical equipment for well
numbers 2 and 4, the Utility saved a total of $1,086. For the motors and pumps,
the Utility only sought one bid for each well. The Utility states that Pope’s
Water Systems, Inc., the company from which it sought a bid, is the original
well installer and has been servicing these wells since their in-service date.
The Utility also asserts that there is no other company in the area capable of
accurately completing this project. For these reasons, the Utility asserts that
it uses this company exclusively to ensure adequate functionality with the
wells. Staff notes that this company is not an affiliate or a subsidiary of the
Utility. For the electrical equipment, the Utility received two bids and
selected the lowest cost option. Given the age of the equipment to be replaced,
and the cost savings to customers by upgrading both wells at once, staff
recommends that these costs are reasonable and Crestridge should be allowed to
recover the costs at this time.
As stated above, for retirements, it is Commission
practice to use 75 percent of the cost of the replacement as the retirement
value when the original cost is not known. Table 1-2 outlines staff’s
recommended adjustments to UPIS and retirements by plant account.
Table 1-2
Adjustments for Additional
Items
|
Description
|
Plant Account
|
UPIS (A)
|
Retirement (B)
|
Net Change in UPIS
|
|
Well #2: New Motor and Pump
|
311
|
$11,091
|
($8,318)
|
$2,773
|
|
Well #2: Electrical
Equipment
|
311
|
$3,624
|
($2,718)
|
$906
|
|
Well #4: New Motor and Pump
|
311
|
$9,952
|
($7,464)
|
$2,488
|
|
Well #4: Electrical
Equipment
|
311
|
$3,909
|
($2,932)
|
$977
|
|
Well #3: Replumb
|
311
|
$898
|
($674)
|
$224
|
|
Well Testing
|
630
|
$200
|
($150)
|
$50
|
|
Total
|
($29,674)
|
($22,256)
|
$7,418
|
*Source:
Document Nos. 08268-16 and 08634-16
Staff’s net adjustment for Crestridge based on Phase II pro
forma items of $7,959, and additional items of $7,418, results in an increase
of $15,377 to UPIS and a corresponding decrease to Accumulated Depreciation of
$42,468. In addition, staff adjusted depreciation expense to reflect the pro forma
additions and retirements resulting in an increase of $771. Also, staff
increased Taxes Other Than Income by $231 to reflect Regulatory Assessment Fees
(RAFs) of 4.5 percent on the change in revenues. Staff’s total adjustment to
operating expenses, including additional RAFs, is $1,002, resulting in total
operating expenses of $176,792.
The Utility’s Phase II revenue requirement should be $188,170,
representing a 2.81 percent increase over the approved Phase I revenue
requirement. Although the additional items result in a higher recommended Phase
II revenue increase over the 2.04 percent previously approved by the
Commission, staff
believes that it is reasonable to consider the additional items in this
proceeding because it will reduce regulatory lag and rate case expense by
mitigating the need for an additional limited proceeding.
Phase II rate base is shown on Schedule No. 1-A. The
capital structure for Phase II is shown on Schedule No. 2. The revenue requirement
is shown on Schedule No. 3-A. The resulting rates are shown on Schedule No. 4.
Issue 2:
What is the appropriate rate structure and rates for
Phase II?
Recommendation:
The Phase II rate increase of 2.95 percent should be
applied as an across-the-board increase to the existing Phase I rates. The
rates, as shown on Schedule No. 4, should be effective for service rendered on
or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475(1), F.A.C. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. In addition,
the approved rates should not be implemented until staff has approved the
proposed customer notice and the notice has been received by the customers. The
Utility should provide proof of the date that the notice was given within 10
days of the date of the notice. (Johnson)
Staff Analysis:
The recommended Phase
II revenue, less miscellaneous service revenues, would result in an increase of
2.95 percent ($5,138) over the approved Phase I revenue requirement ($183,032).
The calculation is as follows:
Table 2-1
Percentage Phase II Rate
Increase
|
|
|
Water
|
|
|
|
|
|
1.
|
Phase I Revenue Requirement
|
$183,032
|
|
|
|
|
|
2.
|
Less Miscellaneous Service Revenues
|
($8,837)
|
|
|
|
|
|
3.
|
Phase I Service Revenue Requirement
|
$174,195
|
|
|
|
|
|
4.
|
Phase II Revenue Increase
|
$5,138
|
|
|
|
|
|
5.
|
% Service Rate Increase (Line 4/Line 3)
|
2.95%
|
Staff recommends a Phase II rate increase of 2.95 percent,
applied as an across-the-board increase to the existing Phase I rates. The
rates, as shown on Schedule No. 4, should be effective for service rendered on
or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475(1), F.A.C. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. In addition,
the approved rates should not be implemented until staff has approved the
proposed customer notice and the notice has been received by the customers. The
Utility should provide proof of the date that the notice was given within 10
days of the date of the notice.
Issue 3:
Should the recommended rates be approved for
Crestridge on a temporary basis, subject to refund with interest, in the event
of a protest filed by a party other than the Utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates for Phase II should be approved for the Utility on a
temporary basis, subject to refund, in the event of a protest filed by a party
other than the Utility. Crestridge should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition,
the temporary rates should not be implemented until staff has approved the
proposed notice, and the notice has been received by the customers. Prior to
implementation of any temporary rates, the Utility should provide appropriate
security. If the recommended rates are approved on a temporary basis, the rates
collected by the Utility should be subject to the refund provisions discussed
below in the staff analysis. In addition, after the increased rates are in
effect, pursuant to Rule 25-30.360(6), F.A.C., the Utility should file reports
with the Commission Clerk’s office no later than the 20th of each month
indicating the monthly and total amount of money subject to refund at the end
of the preceding month. The report filed should also indicate the status of the
security being used to guarantee repayment of any potential refund. (D. Smith)
Staff Analysis:
This recommendation proposes an increase in rates. A
timely protest might delay what may be a justified rate increase resulting in
an unrecoverable loss of revenue to the Utility. Therefore, pursuant to Section
367.0814(7), F.S., in the event of a protest filed by a party other than the Utility,
staff recommends that the recommended rates be approved as temporary rates.
Crestridge should file revised tariff sheets and a proposed customer notice to
reflect the Commission-approved rates. The approved rates should be effective
for service rendered on or after the stamped approval date on the tariff sheet,
pursuant to Rule 25-30.475(1), F.A.C. In addition, the temporary rates should
not be implemented until staff has approved the proposed notice, and the notice
has been received by the customers. The recommended rates collected by the Utility
should be subject to the refund provisions discussed below.
The Utility should be authorized to collect the temporary
rates upon staff’s approval of an appropriate security for the potential refund
and the proposed customer notice. Security should be in the form of a bond or
letter of credit in the amount of $3,436. Alternatively, the Utility could
establish an escrow agreement with an independent financial institution.
If the Utility chooses a bond as security, the bond should
contain wording to the effect that it will be terminated only under the
following conditions:
1) The Commission approves
the rate increase; or
2) If the Commission denies the increase,
the Utility shall refund the amount collected that is attributable to the
increase.
If the Utility chooses a letter of credit as a security,
it should contain the following conditions:
1) The letter of credit is
irrevocable for the period it is in effect, and,
2) The letter of credit will be in effect
until a final Commission order is rendered, either approving or denying the
rate increase.
If security is provided through an escrow agreement, the
following conditions should be part of the agreement:
1) The Commission Clerk, or his or her
designee, must be a signatory to the escrow agreement; and,
2) No monies in the escrow account may be
withdrawn by the Utility without the prior written authorization of the Commission
Clerk, or his or her designee;
3) The
escrow account shall be an interest bearing account;
4) If a refund to the customers is
required, all interest earned by the escrow account shall be distributed to the
customers;
5) If a refund to the customers is not
required, the interest earned by the escrow account shall revert to the Utility;
6) All information on the escrow account
shall be available from the holder of the escrow account to a Commission
representative at all times;
7) The amount of revenue subject to refund
shall be deposited in the escrow account within seven days of receipt;
8) This escrow account is established by
the direction of the Florida Public Service Commission for the purpose(s) set
forth in its order requiring such account. Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972), escrow
accounts are not subject to garnishments;
9) The account must specify by whom and on whose behalf such
monies were paid.
In no instance should the maintenance and administrative
costs associated with the refund be borne by the customers. These costs are the
responsibility of, and should be borne by, the Utility. Irrespective of the
form of security chosen by the Utility, an account of all monies received as a
result of the rate increase should be maintained by the Utility. If a refund is
ultimately required, it should be paid with interest calculated pursuant to
Rule 25-30.360(4), F.A.C.
The Utility should maintain a record of the amount of the
bond, and the amount of revenues that are subject to refund. In addition, after
the increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the Utility
should file reports with the Commission Clerk’s office no later than the 20th
of each month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund.
Issue 4:
Should this docket be closed?
Recommendation:
No. Except for the granting of temporary rates in
the event of protest, which is final, if no person whose substantial interests
are affected by the proposed agency action files a protest within 21 days of
the issuance of the order, a consummating order will be issued. The docket
should remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the Utility and approved by staff. Once the
above actions are completed, this docket will be closed administratively.
(Corbari)
Staff Analysis:
Except for the granting of temporary rates in the
event of protest, which is final, if no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order will be issued. The docket should
remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the Utility and approved by staff. Once the
above actions are completed, this docket will be closed administratively.
