Discussion of Issues
Issue 1:
Is the quality of service provided by East Marion Utilities, LLC
satisfactory?
Recommendation:
Yes, the overall quality
of service provided by East Marion should be considered satisfactory.
(Matthews)
Staff
Analysis: Pursuant to
Rule 25-30.433(1), Florida Administrative Code (F.A.C.), in water and
wastewater rate cases, the Commission must determine the overall quality of
service provided by a utility, which is derived from evaluating 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 that the Commission 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
Staff’s
evaluation of East Marion’s water quality consisted of a review of the
Utility’s compliance with the DEP primary and secondary drinking water standards
and customer complaints regarding the water quality. Primary standards protect
public health, while secondary standards regulate contaminants that may impact
the taste, odor, and color of drinking water.
Staff
reviewed the most recent chemical analyses for East Marion’s system, conducted
on November 2, 2015, and all results complied with DEP primary and secondary
standards. Staff requested complaints against the system filed with the DEP for
the test year and four years prior. The DEP reported that it did not receive
any complaints regarding the quality of East Marion’s product during the period
requested. No complaints regarding the quality of East Marion’s product have
been filed with the Commission.
Based on
staff’s review, giving consideration to the Utility’s current compliance with
DEP standards, as well as the lack of customer complaints, the quality of East
Marion’s product should be considered satisfactory.
Operating Conditions of
the Utility’s Plant and Facilities
East
Marion’s water treatment system has one well rated at 250 gallons per minute
(gpm). The water treatment processing sequence is to pump raw water from the
aquifer, treat the water by injecting chlorine, pump it into a 6,000 gallon
hydropneumatic pressurizing tank, and then through the distribution system
which is composed of PVC pipe. Staff’s evaluation of East Marion’s facilities
included a review of the Utility’s compliance with DEP standards of operation.
For the water system, staff reviewed the Utility’s most recent DEP sanitary
survey reports. The DEP found no deficiencies and determined the system to be
in compliance with its rules and regulations.
East
Marion’s wastewater treatment plant (WWTP), which has a rating of 50,000
gallons per day (gpd), uses extended aeration to treat wastewater. Effluent is
disposed of through reuse to three rapid infiltration basins. DEP conducted an
inspection on July 21, 2016, and reported deficiencies including discharge
monitoring reports with missing, incomplete, or inconsistent data, a clarifier
and contact chamber surfaces covered with sludge, and an infiltration basin
containing excessive solids and vegetation. The operator subsequently resolved
each of these deficiencies by August 25, 2016. DEP’s compliance inspection
report dated August 31, 2016, states that the operator is now in compliance.
Staff has
not identified any issues or concerns with the operating condition of East
Marion’s water and wastewater treatment plants or its distribution and
collection systems. Therefore, the operating condition of East Marion’s plant
and facilities should be considered satisfactory.
The Utility’s Attempt to
Address Customer Satisfaction
The final component of the
overall quality of service that must be assessed is customer satisfaction. As
part of staff’s evaluation of customer satisfaction, staff held a customer
meeting on October 4, 2016, to receive customer comments concerning East
Marion’s quality of service. Four customers attended the meeting and all spoke.
Topics included the odor and taste of the water, brown rings caused by the
water, water pressure, and delays in a meter replacement.
The Utility was acquired by a new
owner on January 9, 2015, and the transfer was approved by Order
PSC-15-0576-PAA-WS.[5] The Utility
stated that, during periods of line flushing, the pressure of the water might
be low, as the lines are flushed weekly and the tank is flushed monthly in
order to maintain acceptable levels of color and odor. The new owner is working
with the Florida Rural Water Association to determine the best way to address
customer concerns relating to odor and taste through the addition of an
aeration tank and addressing insufficient turnover in the existing tank.
However, recovery for the aeration tank addition and replacement of the
existing tank are not being addressed in the instant case. Lastly, a customer
stated that her meter had not been replaced as promised. The customer’s meter
was replaced on October 25, 2016.
As stated above, staff requested
complaints filed against the system with DEP for the test year and the prior
four years. DEP responded on August 4, 2016, stating that no complaints have
been received in the five-year period. Finally, staff
reviewed the Commission’s complaint records for the test year and the prior
four years. No complaints were filed against the Utility during this period.
Therefore, staff recommends the Utility’s attempt to address customer
satisfaction should be considered satisfactory.
Conclusion
Based on staff’s analysis and
review described above, the overall quality of service provided by East Marion
should be considered satisfactory.
Issue 2:
Article I.
What are the used and useful (U&U)
percentages of East Marion Utilities, LLC’s water treatment plant (WTP),
wastewater treatment plant (WWTP) and distribution and collection systems?
Recommendation:
East Marion’s WTP should be
considered 100 percent U&U. The water distribution system should be considered
58.7 percent U&U. The WWTP should be considered 24.0 percent U&U. The
wastewater collection system should be considered 50.8 percent U&U. There
is no excessive unaccounted for water (EUW) and no excessive infiltration and
inflow (I&I). (Matthews)
Staff
Analysis:
East Marion’s water system
has one 6-inch diameter well rated at 250 gpm. Water from the well is treated
with chlorine and pumped into a 6,000 gallon hydropneumatic tank for
pressurization. The Utility has no fire hydrants in its system. The
distribution system consists of the following lengths and sizes of PVC pipe:
200 linear feet – 6 inch
8,450 linear
feet – 4 inch
1,675
linear feet – 2 inch
375 linear feet – 1.5 inch
East Marion’s WWTP is permitted
by the DEP for 50,000 gpd on an annual average daily flow basis. According to
the Utility, the wastewater collection system includes 35 manholes and 2 lift
stations. In addition, the wastewater collection system consists of the following
sized components:
9,880
linear feet – 6 inch gravity main
950 linear feet – 4 inch gravity main
950 linear feet – 3 inch gravity main
Excessive Unaccounted
for Water
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. Unaccounted for water is
all water that is produced that is not sold, metered, or accounted for in the
records of the Utility. The Rule provides that to determine whether adjustments
to plant and operating expenses, such as purchased electrical power and
chemical costs, are necessary, the Commission will consider relevant factors as
to the reason for the EUW, solutions implemented to correct the problem, or
whether a proposed solution is economically feasible. 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 monthly operating reports
filed by East Marion with DEP indicate an unaccounted for water value of less
than 10 percent. Therefore, there appears to be no EUW to be considered, and
staff recommends that no adjustments be made to operating expenses for
chemicals and purchased water due to EUW.
Infiltration
and Inflow
Rule 25-30.432, F.A.C., provides
that in determining the amount of U&U plant, the Commission will consider 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. The allowance for infiltration is 500 gpd per inch diameter pipe
per mile, and an additional 10 percent of water sold is allowed for inflow. In
addition, adjustments to operating expenses, such as chemical and electrical
costs, are considered necessary if excessive.
All wastewater collection systems
experience I&I. The convention noted above provides guidance for
determining whether the I&I experienced at a WWTP is excessive. After the
allowable I&I is determined, staff 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 customer 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.
Staff performed the calculations
to determine the allowable I&I and estimated amount of wastewater to be
treated and compared it to the actual total amount of wastewater treated by the
utility during the test year. The total wastewater treated does not exceed the
total wastewater allowed, therefore there is no excessive I&I.
Water Treatment Plant
Used and Useful
Pursuant to
Rule 25-30.4325(4), F.A.C., systems served by a single well are considered 100
percent U&U. East Marion has one well providing its water; therefore the
WTP is 100 percent U&U.
Wastewater Treatment
Plant Used and Useful
Pursuant to
Rule 25-30.432, F.A.C., the U&U analysis of the Utility’s WWTP is based on
the customer demand compared with the permitted plant capacity, with
consideration also given for growth over a 5-year statutory period and
excessive I&I. In its most recent rate case, the Utility’s WWTP was found
to be 7.5 percent U&U.[6] The
formula for calculating U&U for the wastewater treatment plant is (average
daily flow + growth – excessive I&I) / permitted plant capacity. The
average daily flow for East Marion is 12,000 gpd. The growth is calculated to
be 0 gpd. There is no excessive I&I. The permitted capacity of the plant is
50,000 gpd. Based upon staff’s analysis in the instant case, the WWTP is 24.0
percent U&U.
Water Distribution and
Wastewater Collection Systems
The analysis
of U&U for the water distribution system and wastewater collection system
is based on the number of test year connections compared to the capacity of the
system, with consideration given for growth over a 5-year statutory period. In
its most recent rate case, the Utility’s water distribution and wastewater
collection systems were both found to be 38.7 percent U&U.[7]
The formula
for calculating U&U for the water distribution system is (number of test
year connections + growth) / capacity of the system. East Marion had an average
number of 101.5 connections during the test year. Growth is obtained by the
product of customer growth for the last five years using regression analysis
and the statutory growth period. This calculation yields a growth of 0.7
gallons per minute. The capacity of the system is 179 equivalent residential
connections (ERCs).
The formula
for calculating U&U for the wastewater collection system is given by (test
year connections + growth) / capacity of the system. There were an average of
92 ERCs in the test year. Growth is calculated to be 0 ERCs per year. The
capacity of the system is 181 ERCs.
Based on
staff’s calculations, the water distribution system should be 58.7 percent
U&U and the wastewater collection system should be 50.8 percent U&U.
Conclusion
East Marion’s WTP should be
considered 100 percent U&U. The water distribution system should be
considered 58.7 percent U&U. The WWTP should be considered 24.0 percent
U&U. The wastewater collection system should be considered 50.8 percent U&U.
There is no EUW and no excessive I&I.
Issue 3:
What is the appropriate average test year water rate base and wastewater
rate base for East Marion Utilities, LLC?
Recommendation:
The
appropriate average test year water rate base for East Marion is $16,177 and
the average test year wastewater rate base is $12,257. (Vogel)
Staff
Analysis:
East Marion’s net book value was
last established in its 2015 transfer docket by Order No. PSC-15-0576-PAA-WS.[8] East
Marion’s owner, Michael Smallridge, owns and manages several Class C utilities
in Florida under the company FUS1. As of January 1, 2015, Mr. Smallridge has
been recording common costs on FUS1 books. These costs, which include salaries,
transportation, and office supplies, have been allocated among all of the
utilities they serve. All allocations are based on customer count. The test
year ended December 31, 2015, was used for the instant case. A summary of each
water and wastewater rate base component, and recommended adjustments are
discussed below.
Utility Plant in Service (UPIS)
The Utility recorded UPIS of $142,734 for water and
$482,102 for wastewater. East Marion has requested a new turbine water meter as
an addition to the current plant. Staff included this addition to water plant
along with retirements. Staff increased water plant in service by $894 for the
water meter and the retirements associated with the addition. Staff also
capitalized a major pump repair at the wastewater plant originally expensed to
Account 636 and 736. The expense was allocated to both water and wastewater.
Therefore, staff increased wastewater plant by $1,908 and decreased Account 636
and 736 by $954 each. Staff also reduced plant by $447 for water and $954 for
wastewater to reflect an averaging adjustment. Staff’s net adjustments increase
UPIS by $447 for water and $954 for wastewater. Therefore, staff recommends
that the appropriate UPIS balances are $143,181 for water and $483,056 for
wastewater.
UPIS - Allocated
The Utility did not record a balance in UPIS – Allocated
for water or wastewater. Due to the Utility’s relationship with FUS1, staff has
included allocated common plant from FUS1. Staff’s audit included total FUS1
balances for Office Furniture & Equipment, Transportation Equipment, and
Tools, Shop, and Garage Equipment of $21,770. After East Marion’s 5 percent
allocation (based on ERCs), staff increased UPIS – Allocated by $1,094, $547
for water and $547 for wastewater. Staff also included an averaging adjustment
of $24 for both water and wastewater. Therefore, staff recommends that the
appropriate UPIS - Allocated balances are $523 for water and $523 for
wastewater.
Land & Land Rights
The Utility did not record a test year land balance, as
the Utility leases the land. No adjustments are necessary; therefore, staff
recommends that Land & Land Rights balances remain $0.
Non-Used and Useful (non-U&U)
Plant
The Utility did not record a test year non-U&U plant
balance for water or wastewater. As discussed in Issue 2, the WTP should be
considered 100 percent U&U and the WWTP should be considered 24 percent
U&U. In addition, East Marion’s water distribution system should be
considered 58.7 percent U&U and wastewater collection system should be
considered 50.8 percent U&U.
Application of the U&U percentage to the average plant
balances and associated average accumulated depreciation balances results in increases
of $14,489 and $51,328 for water and wastewater non-U&U components,
respectively. Therefore, staff’s recommended non-U&U plant balances are
$14,489 for water and $51,328 for wastewater.
Contributions In Aid of Construction
(CIAC)
The Utility recorded CIAC balances of $39,700 for water
and $77,600 for wastewater. Commission audit staff found no additions in the
test year, and determined that no adjustments are necessary. Staff’s recommends
CIAC balances of $39,700 and $77,600 for water and wastewater, respectively.
Accumulated Depreciation
East Marion recorded a test year
accumulated depreciation balance of $99,112 for water and $390,285 for
wastewater. Staff recalculated accumulated depreciation using the prescribed rates
set forth in Rule 25-30.140, F.A.C., and increased water by $26 and decreased
wastewater by $11,787. Staff also decreased this account by $2,656 for the water
plant addition and associated retirement. Staff decreased this account by
$3,261 for water and $4,094 for wastewater to reflect the simple average. Staff’s
total adjustments to this account are a decrease of $5,891 for water and
$15,881 for wastewater. Staff’s adjustments to these
accounts result in accumulated depreciation balances of $93,221 for
water and $374,404 for wastewater.
Accumulated Depreciation
– Allocated
The Utility did not record a test
year water or wastewater balance for Accumulated Depreciation – Allocated.
Staff calculated accumulated depreciation for plant associated with FUS1’s
common plant that has been allocated to East Marion. Staff has included a new
balance of $20 for both water and wastewater. Staff also included an averaging
adjustment of $7 for each account. Therefore, staff’s adjustments to these
accounts result in Accumulated Depreciation – Allocated balances of $13 for
water and $13 for wastewater.
Accumulated Amortization
of CIAC
The Utility recorded test year
Accumulated Amortization of CIAC balances of $18,101 for water and $29,279 for
wastewater. Amortization of CIAC was recalculated by staff using composite
depreciation rates. Staff decreased this account by $286 for water and $421 for
wastewater. Also, staff decreased this account by $639 for water and $659 for
wastewater to reflect the simple average. Staff’s adjustments result in a
decrease of $925 for water and $1,080 for wastewater. Staff’s recommended
Accumulated Amortization of CIAC balances are $17,176 for water and $28,199 for
wastewater.
Working Capital Allowance
Working capital is defined as the short-term investor-supplied
funds that are necessary to meet operating expenses. Consistent with Rule
25-30.433(2), F.A.C., staff used the one-eighth of the operation and
maintenance (O&M) expense formula approach for calculating the working
capital allowance. Applying this formula, staff recommends a working capital
allowance of $2,721 for water (based on O&M expense of $21,766/8), and $3,824
for wastewater (based on O&M expense of $30,590/8).
Rate Base Summary
Based on the
foregoing, staff recommends that the appropriate average test year rate base for
water is $16,177 and the average test year rate base for wastewater is $12,257.
Water and wastewater rate bases are shown on Schedule Nos. 1-A and 1-B,
respectively. The related adjustments are shown on Schedule No. 1-C.
Issue 4:
What is the appropriate return on equity and overall rate of return
for East Marion Utilities, LLC?
Recommendation:
The appropriate return on equity (ROE) is 11.16 percent with a
range of 10.16 percent to 12.16 percent. The appropriate overall rate of return
is 5.49 percent. (Vogel)
Staff
Analysis:
According to staff’s audit, East Marion’s test year capital
structure reflected common equity of negative $172,102, long term debt of
$90,325, and customer deposits of $3,625.
Staff
increased common equity by $10,000 to reflect the down payment made by the
owner at the time of purchase. The retained earnings for the Utility are
negative $172,102. Since including negative equity would penalize the Utility’s
capital structure by understating the overall rate of return, staff adjusted
the total negative equity to zero. Adjusting negative equity to zero has been
Commission practice in similar cases.
The Utility’s capital structure was reconciled with staff’s recommended rate
base. The appropriate ROE for the Utility is 11.16 percent based upon the
Commission-approved leverage formula currently in effect.[10]
Staff recommends an ROE of 11.16 percent, with a range of 10.16 percent to 12.16
percent, and an overall rate of return of 5.49 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue
5: What are the appropriate
test year revenues for East Marion Utilities, LLC’s water and wastewater
systems?
Recommendation: The appropriate test year revenues for East
Marion’s water system and wastewater systems are $23,903 and $35,882,
respectively. (Bruce)
Staff
Analysis:
East Marion recorded total revenues of $23,718 for water and $34,144 for
wastewater. The water revenues included $23,213 of service revenues and $505 of
miscellaneous revenues. The wastewater revenues consisted of service revenues
only. During the test year, the Utility had a rate increase as a result of a
price index. Therefore, staff annualized test year revenues by applying the
rates in effect as of October 1, 2015, to the water and wastewater billing
determinants. Staff determined that service revenues should be $23,593 for
water and $35,572 for wastewater, which results in increases of $380 and $1,428
for water and wastewater, respectively.
Staff also made several
adjustments to miscellaneous revenues for water and wastewater. Staff increased
miscellaneous revenues by $75 for nonsufficient funds charges and $90 for two
initial connections, which the Utility did not appropriately record during the
test year. Staff decreased miscellaneous revenues by $30 to reflect credits
issued to six customers for duplicate late payment charges. In addition, staff
decreased miscellaneous revenues by $20 to remove convenience charges that were
collected. The Utility does not have an authorized tariff to charge customers
for using their credit or debit card to make a payment. However, as discussed
in Issue 10, staff is recommending approval of a convenience charge and refunds
for the collection of the unauthorized convenience charge. For the reasons
outlined above, the miscellaneous revenues should be $620
($505+$75+$90-$30-$20). As a result, staff increased miscellaneous revenues by
$115 ($620-$505). The Utility allocated all of the miscellaneous revenues to
the water system. Staff recommends that the miscellaneous revenues be equally
distributed between the water and wastewater systems.
Based on the above, the
appropriate test year revenues for East Marion’s water and wastewater system,
including miscellaneous service revenues are $23,903 ($23,593+$310) for water
and $35,882 ($35,572+$310) for wastewater.
Issue 6: What is the appropriate amount of
operating expense for East Marion Utilities, LLC?
Recommendation:
The appropriate amount of operating expense for East
Marion is $28,447 for water and $39,033 for wastewater. (Vogel)
Staff Analysis: East
Marion recorded operating expense of $34,401 for water and $48,884 for
wastewater for the test year ended December 31, 2015. The test year O&M
expenses have been reviewed, including invoices, canceled checks, and other
supporting documentation. Staff also included an allocated portion of FUS1’s
operating expenses for the test year ending December 31, 2015. Staff made
several adjustments to the Utility's operating expenses as summarized below.
Salaries and Wages – Employees
(601/701)
East Marion recorded salaries and wages – employees
expense of $4,246 for water and $4,246 for wastewater. Staff decreased this
expense by $60 for both water and wastewater to remove a payroll markup. Staff
increased this expense by $225 for both water and wastewater to reclassify salary
expense from Account 636 and 736. Staff also decreased this expense by $315 for
both water and wastewater to reflect the appropriate payroll tax for the test
year. Staff reallocated these accounts based on an audit response to a related
utility in Docket No. 160143-WU.
This audit response detailed FUS1’s new customer counts based on ERCs including
an accurate listing of utilities managed by FUS1. Based on the updated
allocations, staff increased this account by $450 for water and $450 for
wastewater.
Staff received a compensation survey completed by OCBOA
Consulting, LLC (OCBOA) regarding the salaries of FUS1 employees. The Utility
requested an increase in salaries based on the survey and also requested a new
part time position to handle customer billing. Staff analyzed the results of
the compensation survey and properly allocated the salary adjustments for East
Marion. Staff’s analysis of salaries is detailed below.
Although the compensation study provided by OCBOA was
thorough in its analysis of FUS1 positions and responsibilities for each
employee, staff believes the compensations study’s need determination calculation
for a part time customer billing position is inaccurate. The total number of FUS1
customers has in fact decreased since 2015 from 2,267 customers to 1,961
customers. However, staff spoke with customers of FUS1 and believes that a
part-time customer billing position would increase the level of customer
service for FUS1 systems. The Utility requested $8.10 per hour for the
part-time position. However, staff believes the responsibilities of the
position, including customer billing and cut-off noticing, warrant more than
minimum wage. Similar positions, for example, Part-Time Senior Clerk employed
by the state of Florida, has a base salary of $10.35 per hour. Therefore, staff
believes a salary of $10 per hour is more appropriate. Staff agrees that the
reclassification of two positions to include Office Manager and Operations
Supervisor is reasonable based on the roles those employees now have in the
company. In addition, staff determined that a Maintenance Technician, an
employee of FUS1 should not be allocated to East Marion, as he works solely on
other systems. Therefore, with the adjustments to positions and allocations and
the increases in salaries based on the compensation study, a decrease in total
employee salaries for East Marion is appropriate. The compensation study was
used by the Utility as a basis for a request to increase salaries for FUS1.
Table 6-1 shows the requested amounts for each position, as well as staff’s
recommended salaries for East Marion.
Table 6-1
Adjustments
made to Salaries and Wages – Employees
|
Title
|
Requested
|
Current
|
Current Allocated
|
Recommended
|
Recommended Allocated
|
|
Chief Financial Off.
|
$55,500
|
$53,040
|
$2,664
|
$54,366
|
$2,731
|
|
Oper. Supervisor
|
39,000
|
33,488
|
1,682
|
39,000
|
1,959
|
|
Maintenance Tech
|
37,900
|
33,488
|
1,682
|
0
|
0
|
|
Office Manager
|
39,500
|
37,440
|
1,881
|
39,500
|
1,984
|
|
Cust. Serv. Rep.
|
34,000
|
30,160
|
1,515
|
34,000
|
1,708
|
|
Part-time Billing
|
8,424
|
0
|
0
|
10,400
|
522
|
|
Total
|
$214,324
|
$187,616
|
$9,424
|
$177,266
|
$8,904
|
Source: Compensation Survey from OCBOA
Staff believes the salary levels are appropriate and
necessary for East Marion. Therefore, staff recommends a salaries and wages –
employees expense of $8,904 for East Marion, to be allocated $4,452 to water
expense and $4,452 to wastewater expense.
Salaries and Wages – Officers
(603/703)
East Marion recorded salaries and wages – officers expense
of $2,154 for water and $2,154 for wastewater. Staff decreased this expense by
$654 for both water and wastewater to remove the salary expense of the former
owner.
The compensation survey completed by OCBOA Consulting, LLC
(OCBOA) also included a salary recommendation for FUS1’s president. The Utility
requested an increase in salary based on the survey. Staff has analyzed the
results of the compensation survey and properly allocated those expenses for
East Marion.
The current salary for the president is $60,000, as
approved in a SARC for a sister utility in Docket No. 120269-WU.
The compensation study states, “[t]he maximum average salary range was used for
evaluating officers and executive level employees that have obtained and
perform the advanced skills required for the respective position.” The owner
requested a salary of $93,800, which is the maximum salary in the compensation
study. In the instant case, staff considered the last approved salary, along
with information regarding the president’s duties, and his level of advanced
skills obtained since his salary was last approved. In Docket No. 120269-WU,
the requested salary for the president was $60,000, which at the time was below
the average salary range. Since that time, the president has taken steps to
increase his expertise in the industry. Staff believes a more appropriate
salary level falls between the minimum and mid average salary range which, in
the 2015 AWWA Compensation Survey, equates to a salary level of $70,023. This
salary level provides the president with an increase that staff believes is
appropriate. East Marion’s allocated portion of president salary results in an
increase of $259 for water and $259 for wastewater.
Staff’s net adjustments result in a decrease of $395 for
water and $395 for wastewater. Therefore, staff recommends a salaries and wages
– officers expense of $1,759 for water and $1,759 for wastewater.
Employee Pensions and Benefits
(604/704)
East Marion recorded employee pensions and benefits
expense of $0 for water and $0 for wastewater. Staff increased this expense by
$512 for both water and wastewater to include the appropriate amount of benefit
expense for the test year. Staff also increased this expense by $54 for water
and $54 for wastewater to reflect the updated allocations for East Marion from
FUS1. Staff’s adjustments result in an increase of $566 for water and $566 for
wastewater. Therefore, staff is recommending employee pensions and benefits
expense of $566 for water and $566 for wastewater.
Purchased Power (615/715)
The Utility recorded purchased power expense of $1,267 for
water and $5,158 for wastewater. Staff has increased these expense accounts by
$205 for water and $56 for wastewater to reflect the appropriate Utility
expense for the test year. Staff also decreased these expenses by $406 for
water and $376 for wastewater, to reflect proper allocation of East Marion’s
systems from FUS1. Staff also removed late fees of $28 for wastewater. Staff’s
net adjustments result in a decrease of $201 for water and $348 for wastewater.
Therefore, staff recommends purchased power expense of $1,066 and $4,810 for
water and wastewater, respectively.
Chemicals (618/718)
East Marion recorded chemicals
expense of $1,189 for water and $1,189 for wastewater. Staff decreased water
expense by $347 and increased wastewater expense by $347 to properly allocate
the test year expenses to the correct plant. Staff’s total adjustments result
in a decrease of $347 for water and an increase of $347 for wastewater. Therefore,
staff recommends chemicals expense of $842 for water and $1,536 for wastewater.
Materials & Supplies
(620/720)
The Utility recorded materials
& supplies expense of $826 for water and $808 for wastewater. Staff decreased
these accounts by $68 for both water and wastewater, to remove purchases
outside of the test year. Staff also decreased these accounts by $132 for water
and $91 for wastewater to remove items not related to the Utility. To reflect
the new allocations to East Marion from FUS1, staff increased water expense by
$62 and wastewater expense by $64. Staff also decreased these account by $43
for both water and wastewater to reclassify these amounts to Account 650 and
750, transportation expense. Staff’s total adjustments result in decreases of
$181 for water and $138 for wastewater. Therefore, staff recommends materials
& supplies expense of $645 for water and $670 for wastewater.
Contractual Services -
Professional (631/731)
East Marion recorded contractual
services – professional expense of $266 for water and $66 for wastewater. Staff
decreased water expense by $100 and increased wastewater expense by $100 to
properly allocate these expenses between systems. Staff also removed $66 from
both water and wastewater relating to expenses from a lawsuit. Staff’s total
adjustments result in a decrease of $166 for water and an increase of $34 for
wastewater. Therefore, staff recommends contractual services – professional
expense of $100 for water and $100 for wastewater.
Contractual Services - Testing
(635/735)
East Marion recorded contractual services
– testing expense of $928 for water and $928 for wastewater. Staff increased
water expense by $928 and decreased wastewater expense by $928 to properly
allocate the expense to the water plant. Staff’s total adjustments result in an
increase of $928 for water and a decrease of $928 for wastewater. Therefore,
staff recommends contractual services – testing expense of $1,856 for water and
$0 for wastewater.
Contractual Services -
Other (636/736)
East Marion recorded contractual services
– other expense of $10,755 for water and $8,801 for wastewater. Staff
recommends the following adjustments to contractual services – other.
Table 6-2
Adjustments made to Contractual Services - Other
|
|
Adjustment
Description
|
Water
|
Wastewater
|
|
1.
|
To remove expenses outside the test year.
|
($98)
|
($98)
|
|
2.
|
To properly allocate expenses between systems.
|
(1,779)
|
1,757
|
|
3.
|
To remove an additional mowing bill.
|
(225)
|
0
|
|
4.
|
To include an unrecorded bill.
|
230
|
345
|
|
5.
|
To remove a major pump repair and capitalize the project.
|
(954)
|
(954)
|
|
6.
|
To amortize non-recurring tree trimming expense.
|
(420)
|
(420)
|
|
7.
|
To amortize non-recurring tank cleaning.
|
(1,440)
|
0
|
|
8.
|
To reclassify salary expense to Accounts 601 and 701.
|
(225)
|
(225)
|
|
9.
|
To remove items not related to the Utility.
|
(160)
|
(141)
|
|
10.
|
To reflect the new allocations for East Marion from FUS1.
|
2
|
2
|
|
|
Total
|
($5,069)
|
$266
|
Source: Utility Records and Audit Control
No. 15-362-4-1
Based on the adjustments shown
above, staff’s net adjustment is a decrease of $5,069 to water and an increase
of $266 to wastewater. Staff recommends contractual services – other expense of
$5,686 for water and $9,067 for wastewater.
Rent Expense (640/740)
East Marion recorded rent expense
of $5,857 for water and $2,395 for wastewater. Rent expense is based on the requested
land lease for the Utility. Staff believes that the requested rent expense is
not reasonable for this Utility. In this Utility’s previous rate case, (Order
No. PSC-02-1168-PAA-WS) the
Commission found that, “an annual lease amount of $7,200 is not reasonable.” Therefore,
staff decreased rent expense by $5,448 for water and $2,043 for wastewater. The
commission found that the maximum lease amount should be the annual rate of
return and original cost of the land when placed in service. The Commission
approved an annual land lease of $405 for water and $582 for wastewater.
Staff believes the land lease
amount should be increased from the last approved amount by an index factor,
which is common practice in land lease agreements, including the lease provided.
Staff used the United States Bureau of Labor Statistics’ Consumer Price Index
to increase the land lease amount by $138 for water expense and $199 for
wastewater expense. Staff believes these amounts are fair, just, and reasonable
to both the land owner and customers.
FUS1 also recorded rent expense
to be allocated to East Marion of $409 for water and $352 for wastewater for
office space. Staff decreased water rent expense by $27 and increased
wastewater rent expense by $30 to reflect the appropriate allocated expenses
from FUS1. Staff has also increased these accounts by $40 for water expense and
wastewater expense to reflect the updated allocations to East Marion. Staff’s
net adjustments result in a decrease of water rent expense by $4,892 and a
decrease of wastewater expense by $1,192. Staff recommends a water rent expense
of $965 and a wastewater rent expense of $1,203
Transportation Expense
(650/750)
East Marion recorded transportation
expense of $512 for water and $446 for wastewater. Staff decreased this account
by $33 for water and increased this account by $33 for wastewater to properly
allocate this expense between plants. Staff decreased both accounts by $100 to
remove a truck loan not related to this Utility. Staff increased this account
by $114 for both water and wastewater to properly allocate vehicle insurance
expense from FUS1. Staff increased these accounts $57 for water expense and $57
for wastewater expense to reflect the updated allocations to East Marion from
FUS1. Staff also increased this expense by $43 for both water and wastewater to
reclassify expenses from Account 620 and 720. Staff’s total adjustments result
in an increase of $81 for water and $147 for wastewater. Therefore, staff’s
recommended transportation expense is $593 for water and $593 for wastewater.
Insurance Expense (655/755)
East Marion recorded insurance expense of $1,671 for water
and $1,639 for wastewater for the test year. Staff increased this expense by
$21 for both water and wastewater to reflect the appropriate test year expense.
Staff decreased this expense by $705 for water and $673 for wastewater to
appropriately adjust and reclassify health insurance premiums from FUS1 to
Accounts 604 and 704. Staff’s net adjustments decrease insurance expense for
water by $684 and for wastewater by $652. Therefore, staff recommends insurance
expense for the test year of $987 for water and $987 for wastewater.
Regulatory Commission
Expense (665/765)
East Marion did not record
regulatory commission expense for the test year. By Rule 25-30.0407, F.A.C., a
utility is required to mail notices of the customer meeting and notices of
final rates in this case to its customers. For these notices, staff has
estimated $97 for postage expense, $72 for printing expense, and $10 for
envelopes. These amounts result in $179 for postage, printing notices, and
envelopes. Additionally, the Utility paid a $1,000 rate case filing fee. Based
on the above, staff recommends that total rate case expense is $1,179, which
amortized over four years is $294 annually. Therefore, staff recommends regulatory
commission expense of $147 for water and $147 for wastewater.
Miscellaneous Expense (675/775)
East Marion recorded miscellaneous expense
of $1,678 for water and $1,277 for wastewater. Staff decreased these expenses
by $16 for both water and wastewater to remove overdraft fees. Staff also
decreased water expense by $70 and increased wastewater expense by $70 to
properly allocate expenses between systems. Staff also increased both water and
wastewater expense accounts by $338 to reflect the appropriate amount of Utility
expense from FUS1. Staff increased these accounts by $172 for water expense and
$172 for wastewater expense to reflect the updated allocations to East Marion
from FUS1. Staff’s total adjustments increase water expense by $424 and
wastewater expense by $564. Therefore, staff recommends miscellaneous expense
of $2,102 for water and $1,841 for wastewater.
Operation and
Maintenance Expenses Summary
Based on the
above adjustments, staff recommends that the O&M expense balances are
$21,766 for water and $30,590 for wastewater. Staff’s recommended adjustments
to O&M expense are shown on Schedule Nos. 3-A through 3-E.
Depreciation Expense
(Net of Amortization of CIAC)
East Marion recorded depreciation expense of $4,616 for water
and $19,975 for wastewater during the test year. Staff recalculated depreciation
expense using the prescribed rates set forth in Rule 25-30.140, F.A.C. Staff decreased depreciation
expense by $15 for water and $11,787 for wastewater, which includes removing
expense for fully depreciated accounts to reflect the appropriate depreciation
expense. Staff also calculated depreciation expense for the plant additions and
retirements the Utility requested. These additions result in an increase of $26
for water. Staff included depreciation expense for the pump repair that is
being capitalized; this adjustment results in an increase in wastewater
depreciation expense of $64. Also, staff decreased depreciation expense by $1,254
for water and $4,468 for wastewater to reflect the non-U&U portion of the
test year depreciation expense. East Marion recorded amortization of CIAC
expense as $1,564 for water and $3,057 for wastewater during the test year. Staff
also recalculated amortization of CIAC expense and increased these accounts by
$286 for water and $1,739 for wastewater to reflect the appropriate amount of
this expense. Staff increased both water and wastewater accounts by $86 to
include depreciation expense for allocated plant from FUS1. Staff’s net
adjustments are decreases of $871 to water and $14,366 to wastewater, resulting
in a net depreciation expense of $2,181 ($4,616 – $1,564 - $871) for water and
$2,552 ($19,975 – $3,057 - $14,366) for wastewater.
Taxes Other Than Income
(TOTI)
East Marion did not record a TOTI
balance for water or wastewater. Staff calculated the Utility’s property taxes
using updated rates and increased this account $784 for water and $784 for
wastewater. Staff also included property tax expense for the plant additions
resulting in an increase of $14 to water and $30 for wastewater. Staff
increased this account to include payroll taxes of $447 for both water and
wastewater. Staff increased this account by $1,076 for water and $1,615 for
wastewater to reflect the appropriate test year Regulatory Assessment Fees (RAFs)
based on adjusted test year revenues. Staff also included decreases of $252 for
water and $466 for wastewater to include non-used and useful property tax. Staff’s
net adjustments are increases of $2,069 for water and $2,410 for wastewater.
In addition, as discussed in
Issue 8, revenues have been increased by $4,492 for water and $2,859 for
wastewater to reflect the change in revenue required to cover expenses and
allow the recommended operating margin. As a result, TOTI should be increased
by $202 for water and $129 for wastewater to reflect RAFs of 4.5 percent on the
change in revenues. Therefore, staff recommends TOTI of $2,271 and $2,539 for
water and wastewater, respectively.
Operating Expenses
Summary
The
application of staff=s
recommended adjustments to East Marion’s test year operating expenses results
in operating expenses of $26,218 for water and $35,682 for wastewater.
Operating expenses are shown on Schedule Nos. 3-A and 3-B. The related
adjustments are shown on Schedule Nos. 3-C, 3-D, and 3-E.
