Discussion
of Issues
Issue 1:
Should the Commission approve Holiday Gardens
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 $136,693, which equates to a 1.02
percent increase over the approved Phase I revenue requirement. (Passett, Lee)
Staff Analysis:
By Order No. PSC-15-0588-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 $4,749. 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
Holiday Gardens permission to implement the Phase II rates once staff verified
that all pro forma was completed and documentation provided, Holiday Gardens
has requested recovery of additional capital improvement costs, which requires
Commission approval.
Phase II Pro Forma Items Addressed
in Order No. PSC-15-0588-PAA-WU
As required by Order No.
PSC-15-0588-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 $1,673, or $3,076 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
|
$196
|
$172
|
$0
|
$172
|
|
New Portable Meter
|
334
|
$565
|
$0
|
$0
|
$0
|
|
Replumb at Well #1 & #2
|
311
|
$3,600
|
$490
|
($368)
|
$122
|
|
Air Relief Valve at Well #1
|
311
|
$200
|
$0
|
$0
|
$0
|
|
Repaint at Well #1 & #2
|
304
|
$400
|
$1,844
|
($1,383)
|
$461
|
|
Roof at Well #1 & #2
|
304
|
$8,000
|
$1,890
|
($1,418)
|
$472
|
|
Flow Meter at Well #1
|
334
|
$1,500
|
$1,472
|
($1,104)
|
$368
|
|
Gate Valve at Well #2
|
311
|
$750
|
$107
|
($80)
|
$27
|
|
Air Compressor at Well #2
|
311
|
$1,500
|
$202
|
($152)
|
$50
|
|
Total
|
$16,711
|
$6,178
|
($4,505)
|
$1,673
|
*Sources:
Document Nos. 08633-16 and 07952-16
The Utility did not purchase the portable meter because it
was no longer needed. The extent of the work required for replumbing at well
numbers 2 and 4, and gate valve and air compressor upgrades at well number 2,
was reduced, which resulted in lower costs than estimated. The air relief valve
was included as part of the new well motor installation. For the repaint work,
the Utility added stucco at the pump houses which resulted in higher cost than
estimated. In addition, for the roof upgrades, the Utility was able to acquire
a lower cost than estimated. Staff has reviewed documentation showing the
completion of these projects and verified the invoices and receipts of all
completed items.
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 1-1 above, outlines staff’s recommended adjustments to UPIS and
retirements by plant account.
Additional Captial
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.
Table
1-2
Adjustments
for Additional Items
|
Description
|
Plant Account
|
UPIS (A)
|
Retirement (B)
|
Net Change in UPIS
|
|
Electrical Repair and Update for
Well #1
|
311
|
$4,080
|
($3,060)
|
$1,020
|
|
Electrical Repair and Update for
Well #2
|
311
|
$4,080
|
($3,060)
|
$1,020
|
|
Total
|
$8,160
|
($6,120)
|
$2,040
|
*Sources: Document Nos. 08633-16 and 07952-16
Staff has calculated the total UPIS amount for the Utility
based on Phase II pro forma items of $1,673 ($6,178-$4,505), and the additional
items of $2,040 ($8,160-$6,120), for a combined total of $3,713.
Tables 1-1 and 1-2 summarize the Phase II pro forma plant
items and associated costs. Staff’s net adjustment to the Phase II UPIS balance
is an increase of $3,713 and a decrease to Accumulated Depreciation of $9,779.
In addition, staff adjusted depreciation expense to reflect the pro forma
additions and retirements resulting in an increase of $233. Also, staff increased
Taxes Other Than Income by $62 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 $295 resulting in total operating
expenses of $130,981.
The Utility’s Phase II revenue requirement should be
$136,693, representing a 1.02 percent increase over the approved Phase I
revenue requirement. Staff notes that, even with the inclusion of the
additional items, the resulting revenue increase of 1.02 percent is lower than
the 1.18 percent increase previously approved by the Commission.
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.
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 1.07 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
1.07 percent ($1,383) over the Phase I revenue requirement ($135,310). The
calculation is as follows:
Table 2-1
Percentage Phase II Rate
Increase
|
|
|
Water
|
|
|
|
|
|
1.
|
Phase I Revenue Requirement
|
$135,310
|
|
|
|
|
|
2.
|
Less Miscellaneous Service Revenues
|
($5,886)
|
|
|
|
|
|
3.
|
Phase I Service Revenue Requirement
|
$129,424
|
|
|
|
|
|
4.
|
Phase II Revenue Increase
|
$1,383
|
|
|
|
|
|
5.
|
% Service Rate Increase (Line 4/Line 3)
|
1.07%
|
Staff recommends a Phase II rate increase of 1.07 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 Holiday
Gardens 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. Holiday Gardens 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. (Passett)
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.
Holiday Gardens 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 $925. 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.
