Discussion of
Issues
Issue 1:
Is the quality of service provided by Bocilla
satisfactory?
Recommendation:
Yes. Staff recommends that the quality of Bocilla’s
product and the condition of the water treatment facilities is satisfactory. It
appears that the Utility has attempted to address customers’ concerns.
Therefore, staff recommends that the overall quality of service for the Bocilla
water system in Charlotte County is satisfactory. (Hill)
Staff Analysis:
Pursuant to Rule 25-30.433(1), Florida
Administrative Code (F.A.C.), in water rate cases, the Commission shall
determine the overall quality of service provided by a Utility. This is derived
from an evaluation of three separate components of the Utility’s operations.
These components are the quality of the Utility’s product, the operational
conditions of the Utility’s plant and facilities, and the Utility’s attempt to
address customer satisfaction. Bocilla’s compliance with the Department of
Environmental Protection (DEP) regulations, and customer comments or complaints
received by the Commission, are also reviewed. The rule further states that
sanitary surveys, outstanding citations, violations, and consent orders on file
with DEP and the county health department over the preceding three-year period
shall be considered. Additionally, Section 367.0812(1), 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 DEP.
Quality of Utility’s Product
Bocilla’s service area is located in Charlotte County.
Bocilla purchases all of its water from the Englewood Water District (EWD). Staff’s
evaluation of Bocilla’s water quality consisted of a review of the Utility’s
compliance with DEP standards. On October 23, 2014, the Utility provided
affirmation to DEP that it removed its water treatment facility from service
and became a consecutive user.
As a consecutive water user,
Bocilla only maintains its distribution system and no longer operates supply
wells. As a consecutive system, the secondary standards of the Utility’s water
are not regulated by DEP. On December 12, 2016, DEP communicated to the Utility
that its bacteriological test results were satisfactory. During the test year
it was determined that nitrification issues were causing odor and color issues.
The Utility exercised extensive flushing to address the issue. The Utility also
worked with DEP and the Florida Rural Water Association to determine a cost
effective resolution to the nitrification issue. In order to address
nitrification as well as bio-film buildup in its system, Bocilla is installing a
chloramine feed system, which will be in-service by March 1, 2017.
Operating Conditions of the Utility’s Plant and
Facilities
On December 1, 2016, DEP
conducted a compliance evaluation inspection of Bocilla’s facilities. Based on
the information provided during the inspection, DEP determined that Bocilla’s
facilities were in compliance with DEP rules and regulations. Giving
consideration to DEP’s inspection results, staff recommends that the operating
conditions of Bocilla’s facilities are satisfactory. Staff performed a site
visit on October 4, 2016. During the visit, plant components appeared to be
well maintained, with the exception of some salt water corrosion on some
components identified by the Utility to be repaired or replaced, as described
in Issues 5 and 12.
The Utility’s Attempt to Address Customer
Satisfaction
In order to determine the Utility’s attempt to address
customer satisfaction, staff reviewed customer complaints and comments from
five sources: the Commission’s Consumer Activity Tracking System (CATS), complaints
filed with DEP, complaints filed with the Utility, complaints raised during the
customer meeting, and all correspondence submitted to the Commission Clerk
regarding this rate case. A summary of all complaints and comments received is
shown in Table 1-1 below.
Table 1-1
Number of Complaints by
Source
|
Subject of Complaint
|
PSC’s Records (CATS) (test year and 4 prior years)
|
Utility’s Records (test year and 4 prior years)
|
DEP (test year and 4 prior years)
|
Docket Correspondence
|
Customer Meeting
|
|
Billing Related
|
2
|
|
|
|
1
|
|
Opposing Rate Increase
|
|
|
|
6
|
7
|
|
Water Quality
|
|
1
|
|
2
|
5
|
|
Quality of Service
|
|
|
|
1
|
4
|
|
Boil Water Notice
|
|
|
|
3
|
4
|
|
Water Pressure
|
|
|
|
4
|
1
|
|
Total*
|
2
|
1
|
0
|
7
|
9
|
* A complaint may appear twice in this table if it meets
multiple categories
Staff reviewed the Commission’s
complaint records from January 1, 2011, through December 31, 2015, and found two
complaints. Based on staff’s review, both complaints were related to billing
and both complaints have been closed. Staff also requested complaints against
the Utility filed with DEP for the 2015 test year and four years prior. DEP
indicated that it has not received any complaints against the Utility during
the requested time frame. The Utility recorded one complaint for this
time period regarding its quality of service. The one complaint addressed the
color of the water. As previously addressed, the Utility is installing a chloramine
feed system to address color and odor issues. Based on the records of the
Utility and the Commission, it appears that the Utility has responded in a
timely manner to each of these complaints.
A customer meeting was held in Englewood, Florida, on
October 5, 2016. Approximately thirty of the Utility’s customers attended the
meeting and nine spoke. The subjects of the complaints included (1) billing
issues, (2) affordability of the rate increase, (3) water quality/odor/color,
(4) responsiveness of the Utility, (5) the boil water notice procedure, and (6)
insufficient water pressure. As previously addressed, the Utility is installing
a chloramine feed system to address color and odor issues. Regarding the
customer complaints about the Utility’s boil water notice, staff has reviewed
the Utility’s boil water notice procedure and believes that it is in compliance
with Section 381.0062(2)(j), F.S. The Utility provided records of previously
distributed boil water notices which fit these requirements. Regarding water
pressure concerns, the Utility stated that, outside of low pressure events
related to damage to the system, its pressure is maintained using its pressure
boost station. The Utility also provided a certified fire flow report which
indicates adequate pressure for fire protection.
Staff believes that the Utility’s attempts to address
customer satisfaction should be considered satisfactory. Staff’s conclusion is
based on the low number of complaints received by the Commission, DEP, and the
Utility as well as the Utility’s responsiveness to customer concerns.
Conclusion
Based on review of DEP records, staff recommends that the quality of
Bocilla’s product and the condition of its facilities is satisfactory. Additionally,
it appears that the Utility has attempted to address customers’ concerns.
Therefore, staff recommends that the overall quality of service for the Bocilla
water system in Charlotte County is satisfactory.
Issue 2:
Should the audit adjustments to rate base to which
the Utility and staff agree be made?
Recommendation:
Yes. Accumulated amortization of Contributions-in-aid-of-Construction
(CIAC) should be decreased by $44,625, and CIAC amortization expense should be
decreased by $3,538. Further, Operations and Maintenance (O&M) expense
should be decreased by $2,271. (Frank, Hill)
Staff Analysis:
·
In its response to the staff audit report
of the Utility, Bocilla agreed to the audit adjustments as set forth in Tables
2-1 and 2-2 below.
Table 2-1
Description of Audit Adjustments
|
Audit Adjustments
|
Description of
Adjustments
|
|
Finding 6
|
Reflect appropriate accumulated amortization of CIAC.
|
|
Finding 8
|
Reclassify certain amounts and remove unsupported &
out-of-period costs.
|
Source: Staff Audit
Based on the audit adjustments
agreed to by the Utility, staff recommends that the adjustments set forth in
Table 2-2 be made to rate base and net operating income.
Table
2-2
Adjustments to Rate Base and Net
Operating Income (NOI)
|
Audit Adjustments
|
Accum. Amort.
of CIAC
|
O&M Expense
|
CIAC Amort.
Expense
|
|
Finding 6
|
($44,625)
|
|
$3,538
|
|
Finding 8
|
|
($2,271)
|
|
Source: Staff Audit and Utility’s Response to Audit
Issue 3:
Should the full amount of the original cost study
provided by the Utility be accepted as a factor in determining Utility Plant in
Service?
Recommendation:
No. Staff recommends that the original cost study is
sufficient to support the amount of Utility Plant in Service (UPIS) presented
in the MFRs; however, errors and discrepancies discovered by staff suggest that
the original cost study is not sufficiently reliable to support the higher
plant values. Staff recommends that UPIS balances should be based on the MFRs
for all accounts except 311.2 – Pumping Equipment, with adjustments described
below. Accordingly,
UPIS should be $1,197,605. Corresponding adjustments should also be made
to increase accumulated depreciation by $2,856 and decrease depreciation
expense by $3,861. Additionally, property taxes should be decreased by $5,006. (Hill,
Frank)
Staff Analysis:
The staff auditor examined
all records kept by Bocilla to determine which plant costs could be supported. The
auditor found $577,798 from account 331.4 - Transmission and Distribution Mains
was not supported by invoices and recommended it be removed from plant.
Additionally, there were physical assets such as pumping equipment, which was
neither supported by records nor reflected in the Utility’s current books. On
its own initiative, Bocilla decided to contract for an original cost study to
determine a value for UPIS that better reflects the original cost of the Utility’s
investment in assets to serve customers for all plant additions prior to and
including 2014. The procedure for determining original cost consists of
identifying the existence of the assets, estimating their specifications, and
calculating the likely historical cost of these assets at the time they were
placed into utility service.
The referenced source for cost
information for the study was the Engineer’s Estimate of Reproduction Cost
prepared by Giffels-Webster Engineers, Inc. Costs of each component were
calculated based on recent water utility construction, such as a Sarasota
County Utilities project. In preparing the subsequent original cost study,
Management & Regulatory Consultants, Inc. adjusted these costs using the
Handy-Whitman Water Utility Index. The index uses historical trends to indicate
how each type of utility component has changed in price, and was used to
convert the recent cost references to the year each component was placed into
service for Bocilla. Staff believes that the described methodology is
reasonable for establishing original cost of service. Although staff believes
that the methodology for establishing original cost of service is reasonable,
staff has several concerns regarding the overall reliability of the original
cost study for estimating costs. Staff’s concerns are discussed in detail below.
Staff produced four rounds of information
requests regarding the original cost study. Staff has identified in Bocilla’s
responses several errors in component costs, installation dates, and
depreciation methodology. The errors in component costs are summarized in Table
3-1. The original cost study did not include known plant additions (meter
installations) for the year 2015. The Utility explained that it did not reflect
the addition of the new meters because the meters were replacements and not for
new customers. Treating plant additions in this manner misrepresents UPIS as
well as accumulated depreciation.
Table 3-1
Description of Original Cost
Study Errors
|
Error
|
Description of Error
|
|
U-17 understated by $500, U-18 understated by $500,
U-19 overstated by $500
|
Staff requested additional
information about the meter installation, U-19. In its response, Bocilla
discovered that water service (short side) U-17 should be $800 instead of
$300, water service (long side) U-18 should be $1,000 instead of $500, and
meter installed U-19 should be $500 instead of $1,000. These discrepancies
are based on a response from Giffels-Webster Engineers, Inc. to Bocilla. This
error does not impact total UPIS but does affect accumulated depreciation
because these components have different depreciation rates.
|
|
U-19 overstated by
$135
|
U-19 represents the
installation price of a meter, as estimated by Giffels-Webster Engineers,
Inc. In response to staff’s third data request, the Utility stated that the
actual cost to install a meter is $365. This value, modified using the
Handy-Whitman Index, more accurately estimates the historical cost of
installing a meter. This error overstates UPIS by $35,350.
|
|
Remove U-16
$19,267.44 from
2004
|
U-16 represents the assets
related to an interconnect to supply Knight Island Utilities (KIU) with water
it purchases from EWD. As such, it should be considered a non-utility asset.
|
|
Remove U-15
$878.36 from 1991
|
Staff requested additional
information about directional drill U-15, at which point the
Utility discovered that this item was already accounted for in another line
item and should be removed.
|
|
Allocate 36 percent
of Zone 9 assets to KIU
|
Zone 9 items represent the
interconnect with EWD, including the booster station and the sub-aqueous
crossing to the mainland. These assets all directly benefit KIU. The Utility
agrees that 36 percent of the value of these assets should be allocated to
KIU based on the relative Equivalent Residential Connection (ERC) capacities
of Bocilla and KIU, 715 and 400, respectively.
|
Information provided by the
Utility, in response to requests from staff, suggests that plant was installed
during time periods that reflect no additions in the original cost study.
Additionally, staff found that the original cost study did
not use the correct group depreciation methodology when calculating accumulated
depreciation.
Although staff has concerns regarding the
original cost study, staff believes that the information provided can
reasonably be used to conclude that the plant in service for transmission and
distribution is at or above the amount contained in the Utility’s MFRs. Based
on the original cost study, plant in service for transmission and distribution
totaled $1,465,171. This total is nearly 35 percent greater than what the Utility
included in its MFRs. Furthermore, due to a lack of records, the audit only
traced additions back to 2007. The original cost study shows additions totaling
more than $1 million prior to 2007.
Staff believes that the Commission
should approve UPIS balances based on the MFRs for all accounts except 311.2 –
Pumping Equipment. Pumping equipment is installed above-ground and staff’s
October 4, 2016 site visit included this boost station. Additionally, staff has
found no errors or discrepancies in this portion of the original cost study.
For these reasons, staff believes that this recent investment by the Utility
should be included in UPIS based on the original cost study. The total amount of
this investment should therefore be $114,928.
Staff has identified two additional
adjustments which should be made. KIU is a Utility which serves customers on
the same island as Bocilla. KIU also purchases its water from EWD, by way of
Bocilla’s system through an interconnect metered by EWD. KIU is not a customer
of Bocilla yet it receives the benefit of Bocilla’s boost station, the
interconnect with EWD, and the sub-aqueous crossing of Lemon Bay. Bocilla
agrees that 36 percent of the value of these assets should be allocated to KIU
based on the relative ERC capacities of Bocilla and KIU, 715 and 400,
respectively. Thus, account 331.4 – Transmission & Distribution Mains
should be decreased by $197,867 (36% of $390,770 for the lines from EWD to the
boost station, and 36 percent of $160,784 for the sub-aqueous crossing) and
311.2 – Pumping Equipment should be reduced by $41,229 (36% of $114,928).
As a result of the above, corresponding
adjustments should also be made to increase accumulated depreciation by $2,856
and decrease depreciation expense by $3,861. Additionally, property taxes
should be decreased by $5,006.
Conclusion
Staff recommends that the original cost study is
sufficient to support the amount of UPIS presented in the MFRs, but that errors
and discrepancies discovered by staff suggest that the original cost study is
not sufficiently reliable to support the higher plant values. Staff recommends
that UPIS balances should based on the MFRs for all accounts except 311.2 –
Pumping Equipment, with adjustments described above. Accordingly, UPIS should
be $1,197,605. Corresponding adjustments
should also be made to increase accumulated depreciation by $2,856 and decrease
depreciation expense by $3,861. Additionally, property taxes should be decreased
by $5,006.
Issue 4:
Should further adjustments be made to the Utility’s
rate base?
Recommendation:
Yes. Land should be decreased by $44,000 to reflect
the removal of land from rate base. CIAC should be increased by $83 associated
with the meter installation charges collected by the Utility. Corresponding
adjustments should be made to increase both accumulated amortization of CIAC
and CIAC amortization expense by $8. (Frank, Hill)
Staff Analysis:
Staff has reviewed the test
year rate base components along with other support documentation. As such,
staff believes further adjustments are necessary to the Utility’s rate base, as
discussed below.
Land
Bocilla no longer operates the
plant for which this land was used, and agrees with staff that the land should
be removed from rate base. Accordingly, land should be decreased by $44,000 to
reflect the removal of land from rate base.
CIAC
In its MFRs, the Utility recorded $458,848 of CIAC. Staff
learned during a conference call with the Utility and OPC that the Utility had
been incorrectly recording meter installation charges as revenues. Accordingly,
CIAC should be increased by $83 associated with a meter installation charge that
was previously recorded in test year revenues by the Utility. Corresponding
adjustments should be made to increase both accumulated amortization of CIAC
and CIAC amortization expense by $8.
Issue 5:
Should any adjustments be made to the Utility’s pro
forma plant?
Recommendation:
Yes. The appropriate amount of pro forma plant
additions is $79,050. This results in a decrease
of $5,300 from the Utility’s requested amount. Therefore, UPIS should be
increased by $79,050. Corresponding adjustments should also be made to increase
accumulated depreciation by $2,866 and increase depreciation expense by $2,866.
Additionally, property taxes should be increased by $1,271. (Hill, Frank)
Staff Analysis:
The Utility requested 6 pro forma plant additions
which were not part of the Utility’s original filing but were provided in
response to a staff data request. The total amount of the pro forma plant
additions totaled $84,349. The Utility provided invoices and justification for each
of the plant additions. Based on invoices the total amount of the plant
additions should be $79,470.
The pro forma plant additions include $7,970 for a boost
station rebuild, $13,809 for a boost station control package, $11,340 for the
6” valve replacement, $10,060 for looping dead end lines, $14,721 for a
chloramine feed system, and $26,449 for a meter replacement program. The
Utility has stated that all projects will be completed in 2017 with the
exception of the meter replacement program which is a four-year program. Based
on staff’s review, the proposed additions will improve the reliability of
Bocilla’s system or improve the quality of the Utility’s product. Staff’s
recommended adjustments, to the Utility’s requested pro forma plant additions,
are discussed below.
Chloramine Feed System
At the point of connection to EWD, the water purchased by
Bocilla passes DEP requirements for chlorine or chloramine residuals. However,
once the water reaches the point of use at some customer residences, periodic
tests reveal that disinfection residuals are at times insufficient, and
formation of nitrites and bio-films have impacted the quality of those
customers’ water. Bocilla has worked with the Florida Rural Water Association
to design a chloramine feed system to address this problem while controlling engineering
costs. The designs of this and related systems have changed since the MFRs were
filed. The amount the Utility is requesting is now $14,721 based on an updated
bid by DMK Associates Inc. As discussed in Issue 3, KIU directly benefits from
certain Bocilla assets and it is appropriate to allocate 36% of the value of
those assets to KIU. The chloramine feed system benefits KIU in this way, and
so $5,300 (36% x $14,721) should be removed.
Meter
Replacement
Bocilla
has requested $26,449 to replace 240 meters over a four-year period, as many
are near the end of their useful life and it is more economical to purchase the
materials needed in bulk. Section 367.081(2)(a)2.a., F.S., states that “the
commission shall consider utility property... to be constructed within a
reasonable time in the future, not to exceed 24 months after the end of the
historic base year... unless a longer period is approved by the Commission, to
be used and useful in the public service, if such property is needed to serve
current customers....” Because this pro forma plant item is needed to serve
current customers, staff recommends that this property be allowed in rate base
as used and useful.
Based on the recommended amount
of pro forma plant, staff calculated the corresponding accumulated
depreciation, depreciation expense, and property tax expense. Accumulated depreciation
should be increased by $2,866 and depreciation expense should be increased by
$2,866. Additionally, property taxes should be increased by $1,271.
Issue 6: What is the used and useful (U&U) percentage of the
Utility's water transmission and distribution system?
Recommendation:
Bocilla’s water transmission and distribution
system should be considered 100 percent U&U. There appears to be no excessive
unaccounted for water (EUW), therefore, staff recommends that no adjustment be
made to operating expenses for purchased water.
(Hill)
Staff Analysis: Bocilla’s water transmission and distribution system should be
considered 100 percent U&U. There appears to be no EUW, therefore, staff is
not recommending an adjustment be made to operating expenses for purchased
water, as discussed below.
Excessive Unaccounted for Water
Rule 25-30.4325(1)(e), F.A.C., defines Excessive
Unaccounted for Water (EUW) as “unaccounted for water in excess of 10 percent
of the amount produced.” Unaccounted for water is all water that is produced
that is not sold, metered or accounted for in the records of the Utility. EUW
is calculated by subtracting both the gallons used for other services, such as
flushing, and the gallons sold to customers from the total gallons pumped for
the test year. The Utility produced 30,892,000 gallons of water and sold
24,936,000 gallons of water to customers. The Utility recorded 720,000 gallons
of water used for normal flushing and 3,650,000 gallons of water used for
flushing to achieve DEP required chlorine residuals. The result ([30,892,000 –
24,936,000 - 720,000 -3,650,000] / 30,892,000) for unaccounted for water is
5.13 percent, not in excess of 10 percent and so there is no EUW.
Distribution
System Used & Useful
Bocilla
purchases water from EWD through an interconnection. This interconnection is
equivalent to a single well, and so it should be considered 100 percent U&U
pursuant to Rule 25-30.4325(4), F.A.C.
There are no large undeveloped parcels in Bocilla’s territory; however, there
are undeveloped lots interspersed throughout the distribution system. All lines
are required to serve existing customers, and no portions of the distribution
system could be isolated as not U&U; therefore, distribution system should
be considered 100 percent U&U.
Conclusion
Bocilla’s water transmission and distribution system should be
considered 100 percent U&U. There appears to be no EUW, therefore, staff recommends
that no adjustment be made to operating expenses for purchased water.
Issue 7:
What is the appropriate working capital allowance?
Recommendation:
The appropriate working capital allowance is $47,399. As such, the working capital allowance should
be increased by $1,933. (Frank)
Staff Analysis:
Rule 25-30.433(2), F.A.C., requires Class B
utilities to use the formula method, or one-eighth of O&M expense, to
calculate the working capital allowance. The Utility has properly filed its
allowance for working capital using the formula method. Staff has recommended
adjustments to the Utility’s O&M expense. As a result, staff recommends
working capital of $47,399. This reflects an
increase of $1,933 to the Utility’s requested working capital allowance.
Issue 8:
What is the appropriate rate base for the test year
period ended December 31, 2015?
Recommendation:
Consistent with staff’s other recommended
adjustments, the appropriate rate base for the test year ended December 31,
2015, is $612,514. (Frank)
Staff Analysis:
In its MFRs, the Utility requested a rate base of
$690,154. Based on staff’s previously recommended adjustments, the appropriate
rate base is $612,514. The schedule for rate base is attached as Schedule No.
1-A, and the adjustments are shown on Schedule No. 1-B.
Issue 9:
What is the appropriate return on equity?
Recommendation:
Based on the Commission’s leverage formula currently
in effect, the appropriate return on equity (ROE) is 11.16 percent with an
allowed range of plus or minus 100 basis points. (Frank)
Staff Analysis:
The ROE included in the Utility’s MFRs is 10.50 percent.
Based on the current leverage formula in effect and an equity ratio of 17.70
percent, the appropriate ROE is 11.16 percent.[4]
Staff recommends an allowed range of plus or minus 100 basis points be
recognized for ratemaking purposes.
Issue 10:
What is the appropriate weighted average cost of
capital based on the proper components, amounts, and cost rates associated with
the capital structure for the test year ended December 31, 2015?
Recommendation:
The appropriate weighted average cost of capital for
the test year ended December 31, 2015, is 5.77 percent. (Frank)
Staff Analysis:
·
In its filing, Bocilla requested an
overall cost of capital of 5.97 percent. The Utility’s capital structure
consists of long-term debt, common equity, and deferred income taxes. In
addition to the recommended cost rate for common equity, staff believes an
adjustment is necessary to the cost rate for long-term debt. In its filing,
Bocilla reflected a cost rate of 5.00 percent for long-term debt. However,
based on the stated interest rate and issuance costs associated with this
long-term debt, staff recommends that the appropriate cost rate for this
long-term debt is 4.75 percent.
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 5.77 percent. Schedule No. 2, attached
to this recommendation details staff’s recommended overall cost of capital.
Issue 11:
What is the appropriate amount of test year revenues?
Recommendation:
The appropriate test year revenues for Bocilla’s
water system are $398,153. (Johnson)
Staff Analysis:
In its MFRs, Bocilla’s
adjusted test year revenues were $395,395. The water revenues include $393,227
of annualized service revenues and $2,168 of miscellaneous revenues. In review
of the Utility’s adjusted test year billing data, staff found that the Utility used
the incorrect billing analysis for each rate block. Based on the audit, staff
made the adjustments to reflect the appropriate number of gallons used in each
rate block. Therefore, the test year service revenues for Bocilla should be $398,103,
which results in an increase of $4,876 ($398,103 - $393,227).
Staff also made adjustments to
miscellaneous revenues for Bocilla. The Utility recorded monies received from
service availability charges as miscellaneous revenues instead of CIAC.
Therefore, staff decreased miscellaneous revenues by $1,292 for an allowance
for funds prudently invested (AFPI) charge and $165 for a meter installation
charge. In addition, the Utility included $711 in its miscellaneous revenues
for other charges. However, according to staff’s audit, Bocilla only billed two
initial connection charges of $25. Therefore, staff reduced miscellaneous
revenues by $661 ($711-$50). For the reasons outlined above, the miscellaneous
revenues for the Utility should be $50 ($2,168 - $1,292 - $165 - $661). Based
on the above, the appropriate test year revenues for Bocilla are $398,153
($398,103 + $50). Table 11-1 below, represents a summary of staff’s adjustments
for test year revenues.
Table 11-1
Test Year Revenues
|
|
Water
|
|
Service Revenues
|
|
|
Utility Recorded Service Revenues
|
$393,227
|
|
Staff’s Adjustment
|
$4,876
|
|
Total Service Revenues
|
$398,103
|
|
|
|
|
Miscellaneous Revenues
|
|
|
Utility Recorded Miscellaneous Revenues
|
$2,168
|
|
Staff’s Miscellaneous Revenue
Adjustments
|
$2,118
|
|
Total Miscellaneous Revenues
|
$50
|
|
Total Test Year Revenues
|
$ 398,153
|
Issue 12:
Should any adjustments be made to the Utility’s pro
forma expenses?
Recommendation:
Yes. The Utility’s requested pro forma expenses
should be reduced by $21,121 to a total of $34,598. (Hill, Frank)
Staff Analysis:
The Utility’s requested pro forma expenses should be
reduced by $21,121 to a total of $34,598.
Salaries & Wages –
Employees
In its
filing, the Utility requested an additional $10,400 a year for its
administrative employee to work one extra day a week. Through a response to a
data request, Bocilla subsequently stated that this figure was in error and
that only 400 additional hours at an hourly rate of $25 is being requested.
Given the amount of responsibilities for this position, staff believes the
additional 400 hours for the part-time administrative employee is reasonable.
However, as discussed more fully in Issue 13, staff recommends an hourly rate
of $20 instead of $25. As such, staff recommends the appropriate pro forma
salary amount should be $8,000. Accordingly, staff recommends the requested pro
forma salary adjustment be reduced by $2,400 ($10,400 - $8,000).
Regulatory Commission
Expense – Other
In its MFRs,
Bocilla requested $16,024 for the loss on the early abandonment of the water
treatment plant. Subsequently, the Utility withdrew its request. Thus, staff
recommends the removal of the $16,024 amount.
Contractual Services –
Accounting
In its
filing, the Utility requested $4,200 for Contractual Services – Accounting. In
response to a data request, Bocilla stated that it presently does not utilize
any monthly accounting services but is requesting $350 per month be authorized
as the Utility does not have the accounting expertise to perform the necessary
monthly accruals to derive monthly financial statements. Bocilla further
asserted that accruals are done at the end of the year and are being performed
for free by one of the board of directors. The Utility asserts that it is not a
reasonable business practice to have a director provide this free service and
as such should be done monthly and be a paid function. Based on the above,
staff recommends the requested $4,200 for Contractual Services – Accounting is
reasonable.
Insurance – Vehicle
In its MFRs, Bocilla requested
$2,600 for Insurance – Vehicle. In response to a data request, the Utility
provided an estimate for insurance expense of $2,018 and stated that the test year
expense for Insurance – Vehicle should only be increased by $274 to reflect the
estimate for the insurance on the new vehicle. Accordingly, staff recommends
that the requested pro forma amount be reduced by $2,326 ($2,600 - $274).
Contractual Services - Engineering
The test year already includes 26.25 of the 50 hours
requested for lead, copper, and chlorine control services, therefore, the
requested $6,750 should be reduced by $3,510. The net adjustment to Contractual
Services – Engineering should be a decrease of $3,510.
Chloramine Feed System Chemicals, Operation &
Maintenance
At the time it filed its MFRs, the Utility was undergoing
an iterative design process for its chloramine feed system. It has now provided
estimated chemical expenses of $2,649, which should be approved as prudent to
address the nitrification and bio-film problem discussed in Issue 5.
Additionally, Operation & Maintenance should be increased by $490 for
repairs and maintenance associated with the feed system.
Fire
Hydrant Maintenance and Exercise Program
The
Utility requested $2,325 for maintenance and $3,720 to exercise its fire
hydrants. Maintenance will consist of sand blasting and painting half of the 62
hydrants each year to extend their lives. Bocilla has stated that the harsh
salt water environment has lead to the need to replace fire hydrants before
their estimated useful life and that performing this maintenance will extend
the life of the existing hydrants and save replacement costs, which are between
$2,500 and $3,000. Bocilla has also requested $3,720 to exercise its fire
hydrants twice yearly to ensure proper function. This is in response to a
recent loss of life due to a fire in Bocilla’s territory and increased concern
about fire protection. Staff recommends that these programs are prudent and
that the cost calculations submitted by Bocilla for these activities reflect
the actual cost of components and labor not already included in salary expense.
Conclusion
Based on the above, staff recommends
that the Utility’s requested pro forma expenses be reduced by $21,121 to a total of $34,598.
Issue 13:
Should any adjustments be made to the Utility’s
salaries and wages expense?
Recommendation:
Yes. Salaries and wages expense should be reduced by
$18,860. A corresponding adjustment should be made to reduce payroll taxes by
$2,269. (Frank)
Staff Analysis:
Based on its review of test year salaries and wages
expense, staff recommends several adjustments to the Utility’s proposed expense
as summarized below.
Salaries & Wages – Employees
In its MFRs, the Utility
reflected a total expense of $104,866 for employee salaries and wages. The
Utility has one full-time operator who is on call 24 hours a day, 365 days a
year. Although the Utility no longer operates a water treatment plant, the
licensed operator is required to maintain the new plant components of the
chlorination system and the boost station. These tasks represent a significant
level of complexity comparable to running a full water treatment plant. Further,
the Utility has stated that since the interconnect has been in service for over
a year, the number of hours required to maintain these components is the actual
amount and is not an estimation. The operator’s duties related to the
distribution system, testing, repairs and regulatory compliance have not
changed. Bocilla estimates that the operator spends about 20 percent of his
time performing tasks for KIU. As such, the Utility only included 80 percent of
the operator’s salary totaling $48,413. However, Bocilla subsequently provided
an updated unallocated salary of $60,000 for the operator. Using this updated
salary amount, staff calculated 80 percent of the operator’s salary to be
$48,000. This results in a reduction of $413 ($48,413 - $48,000). Staff used
the American Water Works Association’s (AWWA) 2015 Compensation Survey (CS) to
examine the reasonableness of the licensed operator’s salary of $48,000. Staff
compared the requested salary to the weighted average salary of an operator II,
the lowest level operator, in the AWWA CS. Staff discovered that $48,000 falls
below the weighted average salary for an operator II. As such, staff believes
the full-time licensed operator’s salary of $48,000 is reasonable.
The Utility has a part-time field
employee who makes $20 an hour and was paid a total of $25,470 for the test year.
Staff believes the hourly rate is excessive for a part-time meter reader. Staff
compared meter reading expense to what was approved for Little Gasparilla Water
Utility, Inc., which is also a water reseller utility in the same county, with
a comparable number of customers. In that Order, the Commission approved $6,000
for meter reading expense, which comes to $4.04 per meter read.[5] Staff used
the same methodology and calculated an annual meter reading expense of $19,407
($4.04 x 400 customers x 12 months). Therefore, staff reduced the part-time
field employee’s annual salary expense by $6,063.
The Utility has a part-time
administrative employee currently working one day a week at $25 an hour. The
duties of this position include responsibility over the website, all initial
complaints, payroll, workman’s comp, online payments, regulatory compliance
reporting, correspondence and all basic accounting functions. Staff used the AWWA
2015 CS to examine the reasonableness of the administrative employee’s rate of
$25 an hour. Given the description of duties for this position, staff compared
the requested hourly rate to the weighted average hourly rate of an accounting
clerk in the AWWA CS and believes that $25 an hour is excessive. Staff reduced
the administrative employee’s annual expense by $2,015 to reflect a rate of $20
an hour. This results in a total reduction of $2,015.
The Utility further included
$2,550 in test year expense for Christmas bonuses. Staff believes the
recommended adjustments above allow the Utility’s employees to make fair and
reasonable salaries and wages. As such, staff believes the $2,550 for Christmas
bonuses is excessive and should be removed.
In total, staff recommends reducing employee’s salaries and wages expense
by $11,041 ($413 + $6,063 + $2,015 + $2,550).
Salaries & Wages –
Officers
In its MFRs, the Utility
reflected an expense of $88,061 for officer’s salaries and wages. This amount
reflects a 10-percent reduction for non-utility activities. In response to
staff data requests, the Utility stated that the officer’s duties have
increased since removing the water treatment plant from service. The Utility
stated that this was not anticipated, but nitrification and bio-films generated
from chloramine treated water has presented many additional problems that
require continuous flushing. The Utility also provided an allocation of the
officer’s time spent on different job duties.
According to the Utility, 20 to
30 percent of the officer’s time is spent on field related work and 70 to 80
percent of time is associated with administrative office duties. The Utility estimated
the officer’s total time per month tending to Utility operations is 160 to 200
hours. Overall, the officer is responsible for overseeing and protecting a
publicly regulated water supply 24 hours a day, 365 days a year. Staff
performed a comparative analysis to examine the reasonableness of the requested
officer salary. Staff used the AWWA 2015 CS to examine the reasonableness of
the officer’s starting salary of $88,061. Staff compared 30 percent of the
officer’s salary to a weighted average for a manger to account for the
managerial field work and 70 percent to general manager superintendent to
account for the overall oversight responsibility of the Utility. Accordingly,
staff believes an officer’s salary of $84,643 is reasonable. This results in a $3,418
reduction to officer’s salaries. Further, staff believes the additional hours
recommended above for the administrative employee, totaling $8,000, will offset
some of the duties and responsibilities of the officer. As such, staff believes
the officer’s salaries should be further reduced by $8,000. Staff recommends a
total reduction of $11,418 ($3,418 + $8,000) to officer’s salaries expense.
Included in officer’s salaries
and wages expense is $10,800 reclassified to directors’ fees from miscellaneous
expenses. The Utility’s board of directors consists of three directors who meet
once a week for an hour. In its response to staff’s third data request, the
Utility stated that the major responsibilities of the board of directors include
1) supervise, retain, evaluate and compensate the Utility officers, 2) develop
a strategic function in providing the vision, mission, and goals of the
organization, 3) develop a governance system for the business, including
overall strategies and financing, and 4) fulfill the fiduciary duty to protect
the organization’s assets and shareholders’ investment. Staff notes that one of
the three directors is also the officer/owner of the Utility. As such, staff
believes the role of the directors to supervise, retain, evaluate, and
compensate the Utility officer is unreasonable. Further, staff believes it is
excessive to have three directors for a Utility with only one full-time
employee. As such, staff recommends reducing each director’s fee by two-thirds.
This results in a reduction of $7,200 ($3,600 + $3,600). Staff’s adjustments
for director’s fees result in a net increase of $3,600 ($10,800 - $7,200).
Based on the adjustments above, staff recommends reducing officer’s
salaries expense by $7,818 ($11,418 - $3,600).
Conclusion
Based on the above, staff recommends that the Utility’s
salaries and wages expense be reduced by $18,660. A corresponding adjustment
should be made to reduce payroll taxes by $2,269.
Issue 14:
Should further adjustments be made to the Utility’s
O&M expense?
Recommendation:
Yes. O&M expense should be further decreased by
$18,738. (Frank)
Staff Analysis:
·
Based on its review of test year O&M
expense, staff recommends several adjustments to the Utility’s O&M expense
as summarized below.
Employee Pensions &
Benefits
In its MFRs, the Utility
reflected an expense of $7,548 for employee pensions and benefits expense in
the test year. As discussed in Issue 3, staff made an adjustment to account for
non-utility activities. In its response to staff’s second data request, the
Utility stated it has no objection to this adjustment. This results in a
reduction of $1,510 ($7,548 x 20%).
Purchased Power
In its filing, Bocilla reflected
an expense of $4,549 for purchased power expense in the test year. Staff
removed $1,471 from test year expenses related to charges for the abandoned
water treatment plant. Staff removed $175 related to an out of test year bill. Finally,
staff removed $365 for a deposit which was reimbursed to the Utility. In its
response to staff’s second data request, the Utility stated it has no objection
to the above adjustments to purchased power. In total, staff recommends a
reduction of $2,011 ($1,471 + $175 + $365).
Contractual Services - Engineering
Staff,
OPC, and the Utility agree that an expense of $1,012.50 for well plugging is
not recurring in nature and should be removed. The net adjustment to
Contractual Services – Engineering should be a decrease of $1,012.50.
Contractual Services –
Legal
In its MFRs, the Utility
reflected an expense of $654 for Contractual Services - Legal expense in the
test year. A $360 bill for legal services was also included as part of the
Utility’s rate case expense. As such, staff removed $360 from Contractual Services
– Legal as duplicative costs already reflected in rate case expense.
Transportation Expenses
In its filing, the Utility
reflected an expense of $5,454 for transportation expense in the test year.
Staff reduced transportation expense by $94 related to an out-of-period fuel
purchase. Also, staff notes that the Utility is located on a barrier island
which requires a barge fee in order to be transported from the mainland to the
island. Upon staff’s request, the Utility provided a breakdown of the number of
trips to the island per the required barge fees. Staff reviewed the number of
trips and believes this expense is reasonable. Staff increased transportation
expenses by $13,320 to reclassify barge fees from miscellaneous expense.
Further, staff removed $1,080 for an out-of-period barge fee.
The expenses related to the
Utility golf cart should be removed as unsupported and not prudent given the
new utility truck. This represents a reduction in vehicle maintenance of $619.
Based on the above, staff recommends
a total increase of $11,527 (-$94+ $13,320 - $1,080 - $619).
Insurance – Workman’s
Comp
In its MFRs, the Utility
reflected an expense of $4,383 for workman’s comp expense in the test year. As discussed
in Issue 3, staff made an adjustment to account for non-utility activities. In
its response to staff’s second data request, the Utility stated they agree to a
10 percent allocation to non-utility activities. However, staff believes the
allocation for non-utility activities should be consistent at 20 percent.
Therefore, staff reduced workman’s comp by $877 ($4,383 x 20%).
Advertising Expense
In its MFRs, the Utility recorded
$375 for advertising expense in the test year. In its response to staff’s
second data request, the Utility agreed with the removal of advertising
expenses. As such, staff removed $375 for advertising expense.
Miscellaneous Expenses
In its MFRs, the Utility recorded
$46,378 for miscellaneous expense in the test year. Staff reduced miscellaneous
expense by $13,320 to reclassify barge fees to transportation expense. Staff
also reduced miscellaneous expense by $10,800 to reclassify directors’ fees to
officer’s salaries and wages expense. This results in a total reduction of
$24,120 ($13,320 + $10,800).
Conclusion
Based on the above, staff
recommends that O&M expense be further decreased by $18,738.
Issue 15:
What is the appropriate amount of rate case expense?
Recommendation:
The appropriate amount of rate case expense is
$82,929. This expense should be recovered over four years for an annual expense
of $20,732. Therefore, annual rate case expense
should be decreased by $368. (Frank)
Staff Analysis:
·
In its MFRs, Bocilla requested $84,400 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 December 16, 2016, the Utility submitted its last revised
estimate of rate case expense, through completion of the PAA process, which
totaled $98,788. See Table 15-1 below.
Table 15-1
Bocilla’s
Initial and Revised Rate Case Expense Request
|
|
MFR B-10
Estimated
|
Actual
|
Additional
Estimated
|
Revised
Total
|
|
Friedman & Friedman, PA
|
$38,000
|
$22,385
|
$4,855
|
$27,240
|
|
Englewood Management Group, LLC
|
30,000
|
47,930
|
8,000
|
55,930
|
|
DMK Engineering
|
8,100
|
3,375
|
0
|
3,375
|
|
M&R Consultants
|
0
|
2,100
|
0
|
2,100
|
|
Giffels-Webster, Inc.
|
0
|
6,905
|
0
|
6,905
|
|
Filing Fee
|
4,000
|
2,000
|
0
|
2,000
|
|
Bocilla In-house
|
1,600
|
1,238
|
0
|
1,238
|
|
Customer Notices
|
1,200
|
0
|
0
|
0
|
|
Travel
|
1,500
|
0
|
0
|
0
|
|
Total
|
$84,400
|
$85,933
|
$12,855
|
$98,788
|
Source:
MFR Schedule B-10 and Utility responses to staff data requests
Pursuant to Section 367.081(7), F.S., the Commission
shall determine the reasonableness of rate case expense and shall disallow all
rate case expense determined to be unreasonable. Staff has examined the
requested actual expenses, supporting documentation, and estimated expenses as
listed above for the current rate case. Based on its review, staff believes the
following adjustments to Bocilla’s rate case expense estimate are appropriate.
Friedman
& Friedman, P.A. (F&F)
In its MFRs,
the Utility included $38,000 in legal fees to complete the rate case. The
Utility provided documentation detailing this expense through December 9, 2016.
The actual fees and costs totaled $22,385 with an estimated $4,855 to complete
the rate case, totaling $27,240.
F&F’s
actual expenses included the $2,000 filing fee. However, the Utility also
included $2,000 in its MFR Schedule B-10, under “Public Service Commission –
Filing Fee.” Staff has left the filing fee under the filing fee line item and
has removed the entry from legal fees to avoid double recovery of this fee.
According to
invoices, the law firm of F&F billed the Utility $504 related to the
correction of MFR deficiencies. The Commission has previously disallowed rate
case expense associated with correcting MFR deficiencies because of duplicate
filing costs.[6]
Consequently, staff recommends an adjustment to reduce F&F’s actual legal
fees by $504.
F&F’s
estimate to complete the rate case includes fees for 12 hours at $360/hr. and
additional costs for photocopies and attending the Agenda Conference, totaling
$535. Staff notes that F&F will be attending Agenda for another docket in
addition to this docket. As such, staff reduced the estimate for costs to
attend Agenda by $263 ($525/2) which is half of the estimated costs to avoid
double recovery of travel expenses. Accordingly, staff recommends that legal
fees from F&F should be reduced by $2,767 ($2,000 + $504 + $263).
Englewood Management Group, LLC (EMG)
In its MFRs, the Utility included $30,000 in accounting fees to complete
the rate case. The Utility provided documentation detailing this expense
through December 14, 2016. The actual fees and costs totaled $47,930 with an
estimated $8,000 to complete the rate case, totaling $55,930. Staff reviewed
the invoices and found that $1,806 related to work to correct deficiencies. As
mentioned above, it is Commission practice to disallow rate expense associated
with correcting deficiencies. Therefore, staff recommends an adjustment to
reduce EMG’s actual accounting fees by $1,806. Also included in the invoices
was $447 for an airline ticket. Staff believes this cost is inappropriate since
the consultant is on the board of directors and lives near the Utility.
EMG’s estimate to complete the rate case includes fees totaling
$7,200 (48 hours at $150/hr.) and additional $800 in costs for photocopies and
attending the Agenda Conference. The estimate to complete included 26 hours for
reviewing staff’s recommendation, consulting with client, reviewing PAA Order,
and miscellaneous items that may arise. Staff compared this estimate to
complete for accounting services with a larger Class A Utility and notes that
the Commission previously approved 9.5 hours to review staff recommendations,
the Commission’s PAA Order, and consult with client. As
such, staff believes 9.5 hours is an ample amount of time to review our staff’s
recommendation, the Commission’s PAA Order, and consult with their client in
the instant docket. Accordingly, staff reduced the estimated time for
recommendation review by 16.5 hours resulting in a reduction of $2,475 (16.5hrs.
x $150). Second, using F&F’s estimate for traveling to the Agenda, staff
reduced EMG’s estimate for travel by $275 ($800 - $525).
In total, staff recommends that
accounting fees for EMG should be reduced by $5,003 ($1,806 + $447 + $2,475 +
$275).
DMK Engineering
The Utility provided one invoice related to preparing MFRs, responding to
data requests, and audit facilitation totaling $3,375. The Utility did not
provide an additional estimate to complete the rate case for DMK Engineering.
As such, staff believes the costs are reasonable, and as such staff recommends
no adjustment for the $3,375 amount.
M&R Consultants
In its MFRs, the Utility did not include any estimated rate case expense
associated with accounting services provided by M&R Consultants. However,
the Utility subsequently provided an invoice for fees related to the original
cost study totaling $2,100. In its response to staff’s second data request, the
Utility stated that the costs of obtaining the original cost study will not be
submitted as costs of the rate case. Therefore, staff recommends reducing this
expense by $2,100.
Giffels-Webster, Inc.
In its MFRs, the Utility did not include any estimated rate case expense
associated with accounting services provided by Giffels-Webster, Inc. However,
the Utility subsequently provided two invoices for fees related to the original
cost study totaling $6,905. As mentioned above, the Utility stated that the
costs of obtaining the original cost study will not be submitted as costs of
the rate case. Therefore, staff recommends reducing this expense by $6,905.
Filing Fee
The Utility included $4,000 in its MFR Schedule B-10 for the filing fee.
However, the filing fee for this rate case was $2,000. As such, staff reduced
the filing fee expense by $2,000.
Customer Notices
In its MFRs, the Utility included estimated costs of
$1,200 for printing and shipping. The Utility is responsible for sending out
three notices: the initial notice, customer meeting notice, and notice of the
final rate increase. 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.[8] As such, staff estimated the postage cost for the notices to be
approximately $564 (400 customers x $0.47 x 3 notices).
Staff estimates envelope costs to be $72 (400 customers x $0.06 per
envelope x 3 notices) and copying costs to be $280 (400 customers x $0.10 per
copy x 7 pages).[9] Based on these components, the total cost for
customer notices and postage is $916 ($564 + $72 + $280). Accordingly, staff
recommends rate case expense be decreased by $284 ($1,200 - $916).
Travel
In its MFRs, the Utility included estimated $1,500
for travel costs. However, the Utility subsequently provided documentation
detailing estimated travel costs for F&F and EMG’s rate case expense. Staff
addresses travel costs for these consultants above. As such, staff reduced
travel costs by $1,500 to avoid double recovery.
Conclusion
Based upon the adjustments
discussed above, staff recommends that Bocilla’s revised rate case expense of
$98,788 be decreased by $17,859 to reflect staff’s adjustments, for a total of
$82,929. A breakdown of staff’s recommended rate case expense is reflected in
Table 15-2 below.
Table 15-2
Staff Recommended Rate Case Expense
|
Description
|
MFR
Estimated
|
Utility Revised
Act.& Est.
|
Staff
Adjustment
|
Recom.
Total
|
|
Legal Fees
|
$38,000
|
$27,240
|
($2,767)
|
$24,474
|
|
Accounting Consultant Fees
|
30,000
|
55,930
|
(5,003)
|
50,702
|
|
Engineering Consultant Fees
|
8,100
|
12,380
|
(9,005)
|
3,375
|
|
Filing Fee
|
4,000
|
2,000
|
(2,000)
|
2,000
|
|
Bocilla In-house
|
1,600
|
1,238
|
0
|
1,238
|
|
Customer Notices
|
1,200
|
0
|
916
|
916
|
|
Travel
|
$1,500
|
0
|
0
|
0
|
|
Total
|
$84,400
|
$98,788
|
($17,859)
|
$82,929
|
Source: MFR Schedule B-10 and responses to staff data
requests
In its MFRs, the Utility requested total rate case expense
of $84,400. When amortized over four years, this represents an annual expense
of $21,100. The recommended total rate case expense of $82,929 should be
amortized over four years, pursuant to Section 367.0816,
F.S. This represents an annual expense of $20,732. Based on the above, staff
recommends that annual rate case expense be decreased by $368 ($20,732 -
$21,100) compared to the original request in the MFRs.
Issue 16: What is the
appropriate revenue requirement for the test year ended December 31, 2015?
Recommendation:
·
Staff recommends the following revenue
requirement be approved.
|
Test Year Revenue
|
$ Increase
|
Revenue Requirement
|
% Increase
|
|
$398,153
|
$75,708
|
$473,861
|
19.01%
|
(Frank)
Staff Analysis:
·
In its filing, the Utility requested a
revenue requirement to generate annual revenue of $547,770. This requested
revenue requirement represents a revenue increase of $152,375, or approximately
38.54 percent. Consistent with recommendations concerning rate base, cost of
capital, and operating income issues, staff recommends the appropriate revenue
requirement should be $473,861 for water. This represents an increase in
revenues of $75,708 (or 19.01 percent) for water. This increase will allow the
Utility the opportunity to recover its operating expenses and earn a 5.77
percent return on its investment in water rate base. The schedule for operating
income is attached as Schedule No. 3-A, and the adjustments are shown on
Schedule No. 3-B.
Issue 17:
What are the appropriate rate structures and rates
for Bocilla’s water system?
Recommendation:
The recommended rate structure and monthly water
rates are attached to this recommendation as Schedule No. 4. The Utility should
file revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheet pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The Utility should provide proof of
the date notice was given within 10 days of the date of the notice. (Johnson)
Staff Analysis:
Bocilla is located on a
barrier island in Charlotte County and provides water service to approximately 400
residential customers. Typically, staff evaluates the seasonality of a utility’s
customers based on the percentage of bills at zero gallons, which is 11
percent. However, for Bocilla, a portion of the customers are in residence
periodically throughout each month rather than a few months out of the year.
Therefore, staff believes it is appropriate to evaluate the seasonality based
on the percentage of bills at the 1,000 gallon level, which is 30 percent. As a
result, it appears that the customer base is somewhat seasonal. The average
residential water demand is 5,125 gallons per month. The average water demand
excluding zero gallon bills is 5,738 gallons per month. The Utility’s current
water system rate structure for residential and general service customers
consists of a base facility charge (BFC) and a three-tier inclining block rate
structure. The rate blocks are: (1) 0-6,000 gallons; (2) 6,001-12,000 gallons;
and (3) all usage in excess of 12,000 gallons per month.
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 rate
structure includes a revenue allocation to the BFC of 56.11 percent. Typically,
unless the Utility’s customer base is highly seasonal, the Commission allocates
no greater than 40 percent of the water revenue to the BFC. Staff believes a
BFC allocation of 48 percent will send the appropriate conservation pricing
signals to target discretionary usage and also provide revenue stability to
address the moderate amount of seasonal usage in Bocilla’s customer base.
The average person per household
served by the Utility is two. Therefore, based on the number of people per
household, 50 gallons per day per person, and the number of days per month, the
non-discretionary usage threshold should be 3,000 gallons per month instead of
6,000 gallons. Staff recommends a BFC and a three-tier gallonage charge rate
structure, which includes a gallonage charge for non-discretionary usage for
residential water customers. The rate tiers should be: (1) 0-3,000 gallons
(non-discretionary); (2) 3,001-12,000 gallons; and (3) all usage in excess of
12,000 gallons per month. Approximately 23 percent of the customer demand
exceeds 12,000 gallons per month. Further, based on the recommended revenue
increase of approximately 19 percent as well as the demographics of Bocilla’s
customer base, the reduction in residential demand is expected to be
insignificant. Staff recommends a BFC and uniform gallonage charge rate
structure for general service water customers.
Table 17-1 below, contains
staff’s recommended rate structure and rates as well as alternative rate
structures, which include varying BFC allocations and rate blocks. Alternative
I results in a more even distribution of the rate increase to all customers
regardless of demand, but does not send the appropriate pricing signals to
target discretionary usage. Alternative II maintains the existing tiers (0 –
6,000, 6,001-12,000, 12,000+) but provides a greater increase to
non-discretionary demand than the staff recommended rate structure. The staff
recommended rate structure mitigates the rate impact for non-discretionary
demand while sending a significant pricing signal for demand in excess of
12,000 gallons per month.
Table 17-1
Staff’s Recommended and Alternative Water Rate Structures and Rates
|
|
RATES AT TIME OF
FILING
|
STAFF
RECOMMENDED RATES
48% BFC
|
ALTERNATIVE
I
56% BFC
|
ALTERNATIVE
II
49% BFC
|
|
Residential
|
|
|
|
|
|
5/8” x 3/4” Meter
Size
|
$46.24
|
$46.82
|
$53.90
|
$47.16
|
|
|
|
|
|
|
|
Charge per 1,000 gallons
|
|
|
|
|
|
0-6,000 gallons
|
$4.62
|
|
|
$7.46
|
|
6,001 – 12,000 gallons
|
$7.76
|
|
|
$9.32
|
|
Over 12,000 gallons
|
$12.32
|
|
|
$18.65
|
|
|
|
|
|
|
|
0 – 3,000 gallons
|
|
$6.83
|
$6.12
|
|
|
3,001 – 12,000 gallons
|
|
$8.53
|
$7.66
|
|
|
Over 12,000 gallons
|
|
$17.07
|
$15.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 Gallons
|
$60.10
|
$67.31
|
$72.26
|
$69.54
|
|
6,000 Gallons
|
$73.96
|
$92.90
|
$95.24
|
$91.92
|
|
12,000 Gallons
|
$120.52
|
$144.08
|
$141.20
|
$147.84
|
The recommended rate structure and monthly water rates are
shown on Schedule No. 4. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet pursuant to Rule 25-30.475(1), F.A.C. In addition, the
approved rates should not be implemented until staff has approved the proposed
customer notice and the notice has been received by the customers. The Utility
should provide proof of the date notice was given within 10 days of the date of
the notice.
Issue 18:
Should Bocilla's request to implement a late payment
charge be approved?
Recommendation:
Yes. Bocilla’s request to implement a late payment
charge of $7.12 should be approved. Bocilla should be required to file a
proposed customer notice and tariff to reflect the Commission-approved charge.
The approved charge should be effective for services rendered on or after the
stamped approval date on the tariff sheet pursuant to Rule 25-30.475(1), F.A.C.
In addition, the approved charge should not be implemented until staff has
approved the proposed customer notice. The Utility should provide proof of the
date notice was given no less than 10 days after the date of the notice.
(Johnson)
Staff Analysis:
The Utility
is requesting a $7.12 late payment charge to recover the cost of supplies and
labor associated with processing late payment notices. The Utility’s request
for a late payment charge was accompanied by its reason for requesting the
charge, as well as the cost justification required by Section 367.091(6), F.S. The
Utility indicated that four late payment notices are processed per hour. The
hourly salary for the employee that processes late payment notices is $24.50
per hour. Based on the labor and four late payment notices per hour, the labor
cost per notice is $6.15. The cost basis for the Utility’s requested and
staff’s recommended late payment charge, including labor, is shown below, in
Table 18-1.
Table 18-1
Late
Payment Cost Justification
|
|
Staff’s
Recommended
|
|
Labor
|
$6.15
|
|
Printing
|
0.50
|
|
Postage
|
0.47
|
|
Total
|
$7.12
|
Source: Utility’s cost justification
and staff’s calculation
Since the late 1990s, the
Commission has approved late payment charges ranging from $2.00 to $7.00.[11] Staff’s
recommended late payment charge is consistent with previously approved late
payment charges. The purpose of this charge is not only to provide an incentive
for customers to make timely payment, thereby reducing the number of delinquent
accounts, but also to place the cost burden of processing delinquent accounts
solely upon those who are the cost causers.
Based on the above, Bocilla’s request to implement a late
payment charge of $7.12 should be approved. Bocilla should be required to file
a proposed customer notice and tariff to reflect the Commission-approved
charge. The approved charge should be effective for services rendered on or
after the stamped approval date on the tariff sheet pursuant to Rule
25-30.475(1), F.A.C. In addition, the approved charge should not be implemented
until staff has approved the proposed customer notice. The Utility should
provide proof of the date notice was given no less than 10 days after the date
of the notice.
Issue 19:
Should the Utility’s approved service availability
policy and charges be revised?
Recommendation:
Yes. Bocilla’s existing wastewater system capacity
charge should be discontinued. Staff recommends a main extension charge of $1,279
per ERC and a new meter installation charge of $365. The Utility’s existing
AFPI charge should be collected from the remaining 315 ERCs the system was
designed to serve. The approved service availability charges may only be
collected from new connections to the Utility’s water system. 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.
(Johnson)
Staff Analysis:
Bocilla’s existing service
availability charges shown on Table 19-1 were originally approved by Charlotte
County and were subsequently grandfathered in when Charlotte County transferred
jurisdiction to the Commission in 2013. The charges include a meter installation
charge of $165 and a system capacity charge of $3000 per ERC.
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.
Main Extension Charge
Based on the original cost study,
the cost of the water distribution system is $914,370 and the lines have a
design capacity of 715 ERCs. Therefore, staff recommends that the Utility’s
service availability charges be revised to include a main extension charge of
$1,279 per ERC ($914,370/715). Staff’s recommended main extension charge 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 reviewed the contribution
level of Bocilla’s water system and found that the current contribution level
is 33 percent, which 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 the water
distribution system. Based on staff’s review, the recommended main extension
charge would allow the Utility to be approximately 75 percent contributed at
full capacity. As a result, staff recommends that Bocilla’s system capacity
charge be discontinued.
Meter Installation
Charge
A meter installation charge is
designed to recover the cost of the meter and the installation. The Utility’s
current meter installation charges are $165 for the 5/8” x 3/4” meter and actual
cost for all other meter sizes. Based on the cost justification provided for
the meter replacement program, staff believes it is appropriate to update the Utility’s
existing meter installation charges. Staff believes the requested meter
installation charge of $365 is reasonable.
AFPI Charge
Bocilla also has an AFPI charge
that was originally approved by Charlotte County. An AFPI charge is designed to
allow the Utility to recover, from new connections, a portion of the
depreciation, property taxes, and return on investment associated with non-used
and useful plant. The costs are typically accumulated on a monthly basis for up
to five years. A new customer connecting to the system today would pay the
maximum charge of $1,292.31 per ERC. Staff recommends that the Utility be
authorized to continue collecting an AFPI charge of 1,292.31 per ERC from the
remaining 315 ERCs the system was designed to serve.
Based on the above, Bocilla’s existing wastewater system
capacity charge should be discontinued. Staff recommends a main extension
charge of $1,279 per ERC and a new meter installation charge of $365. The Utility’s
existing AFPI charge should be collected from the remaining 315 ERCs the system
was designed to serve. The approved service availability charges may only be
collected from new connections to the Utility’s water system. 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 19-1
Current and Recommended
Service Availability Charges
|
|
Current Charge
|
Recommended Charge
|
|
Main
Extension Charge
|
$0
|
$1,279
|
|
Plant
Capacity Charge
|
$0
|
$0
|
|
System
Capacity Charge
|
$3,000
|
$0
|
|
Meter
Installation Charge
|
$165
|
$365
|
|
AFPI
Charge
|
$1,292.31
|
$1,292.31
|
Issue 20:
What are the appropriate initial customer deposits
for Bocilla?
Recommendation:
The appropriate water initial customer deposit
should be $169 for the residential 5/8 inch x 3/4 inch meter size. The initial
customer deposits for all other residential meter sizes and all general service
meter sizes should be two times the average estimated bill for water service.
The approved initial customer deposits should be effective for connections made
on or after the stamped approval date on the tariff sheet pursuant to Rule
25-30.475, F.A.C. (Johnson)
Staff Analysis:
Rule 25-30.311, F.A.C., contains
the criteria for collecting, administering, and refunding customer deposits.
Customer deposits are designed to minimize the exposure of bad debt expense for
a utility and, ultimately, the general body of ratepayers. Historically, the
Commission has set initial customer deposits equal to two times the average
estimated bill. Currently, Bocilla does not have initial customer deposits in
place. Based on the average water demand, the appropriate initial customer
deposit should be $169 to reflect an average residential customer bill for two
months.
Based on the above, staff recommends that the appropriate
water initial customer deposit should be $169 for the residential 5/8 inch x
3/4 inch meter size. The initial customer deposits for all other residential
meter sizes and all general service meter sizes should be two times the average
estimated bill for water service. The approved initial customer deposits should
be effective for connections made on or after the stamped approval date on the
tariff sheet pursuant to Rule 25-30.475, F.A.C.
Issue 21: 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 Section 367.0816, F.S.?
Recommendation:
The water rates should be reduced as shown on
Schedule No. 4 to remove rate case expense grossed-up for Regulatory Assessment
Fees (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., Bocilla
should be required to file revised tariffs and a proposed customer notice
setting forth the lower rates and the reason for the reduction no later than
one month prior to the actual date of the required rate reduction. If the Utility
files this reduction in conjunction with a price index or pass-through rate
adjustment, separate data should be filed for the price index and/or
pass-through increase or decrease and the reduction in the rates due to the
amortized rate case expense. (Johnson, Frank)
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 $21,709.
The water rates should be reduced as shown on Schedule No.
4 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. Bocilla 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 22:
In determining whether any portion of the interim
water 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 7.81 percent for
water. 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 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. (Frank)
Staff
Analysis:
The Commission authorized Bocilla
to collect interim water rates, subject to refund, pursuant to Section 367.082,
F.S. The approved interim revenue requirement for water of $464,122 represented
an increase of $65,159 or 16.33 percent.
According to Section 367.082(4),
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 that interim rates are 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
ended December 31, 2015. Bocilla’s approved interim rates did not include any
provisions for pro forma or projected operating expenses or plant. The interim
increase was designed to allow recovery of actual interest expense, and the
lower limit of the last authorized range for equity earnings.
To establish the proper refund
amount, staff calculated adjusted interim period 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 requirement of $425,918 for water. The adjusted water
interim revenue requirement of $425,918 is lower than the interim revenue
requirement of $464,122, resulting in a refund of 7.81 percent.
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.
Issue 23:
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. Bocilla 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. (Frank)
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.
Bocilla 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 24:
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 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. Once these actions are
complete, this docket should be closed administratively. (Leathers)
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 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. Once these actions are
complete, this docket should be closed administratively.
