Discussion
of Issues
Issue 1:
Should the Commission approve the utility’s request
for a limited proceeding?
Recommendation:
The Commission should approve the utility’s request
for a limited proceeding rate increase. Camachee should be allowed an annual
increase of $38,196 (43.31 percent), resulting in an adjusted revenue
requirement of $126,395. The adjusted revenue requirement is reflected on
Schedule No. 1-A. The appropriate monthly water rates are shown on Schedule No.
2. 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, Golden)
Staff Analysis:
Limited proceedings generally address a specific or
significant change that would adversely affect the normal operating income of
the utility and are usually narrow in scope.
Staff believes that Camachee’s case as filed is sufficiently narrow in scope to
qualify for a limited proceeding. Staff also believes that Camachee has met all
the minimum filing requirements as set forth in Rule 25-30.445, F.A.C. In the
past, the Commission has approved limited proceeding rate increases for a utility that experienced a significant
reduction in usage.
Billing Determinants and Test year Revenues
In its application, Camachee stated that the average
annual usage from 2009 through 2015 was 7,505,000 gallons, which is considerably
less than the 9,142,000 gallons used in the utility’s 2009 SARC. Staff reviewed
monthly billing determinants for both 2015 and 2016 and found the gallons to be
significantly lower than the gallons used in establishing rates in Camachee’s
2009 SARC. Staff relied on billing determinants from 2016 to most accurately
represent the current usage of Camachee’s customer base. The customer demand
was 6,632,340 gallons in 2015 and 7,558,533 gallons in 2016. Staff found that
both the residential and commercial customers of the utility had a comparable
decrease in usage since the utility’s last rate case, indicating that the
reduction in demand was not associated exclusively with the marina.
The utility’s requested percentage increase was based on revenues
of $78,173, which are the 2015 billing determinants annualized with a price
index rate adjustment that became effective June of 2016. As mentioned previously, the customer demand
increased from 2015 to 2016. Therefore,
in order to determine the appropriate percentage increase, staff believes that
2016 billing determinants should be used to determine the test year revenues.
As a result, staff annualized revenues for 2016, which resulted in revenues of
$88,199.
Revenue Requirement
In its application, the utility
proposed a revenue requirement of $130,003, comprised of the $114,439 revenue
requirement that was authorized in the utility’s last staff-assisted rate case
by Order No. PSC-10-0126-PAA-WU
(2009 SARC), plus an estimated $15,564 for the total price index and pass
through adjustments that the Commission approved for Camachee for 2010 through
2016. In addition, Camachee requested approval to recover the rate case expense
and regulatory assessment fees (RAFs) related to the limited proceeding. The utility
did not request any other changes to the operating expenses,
cost of capital, or rate base established in its 2009 SARC. Consequently, staff
used the revenue requirement, operating expenses, cost of capital, and rate
base that were approved by the Commission in the 2009 SARC as the starting point
for calculating the adjusted revenue requirement for this limited proceeding.
In its January 25, 2017 letter, OPC
objected to Camachee’s estimated $15,564 total price index and pass through
revenue increase, and proposed that it would be more appropriate to use the
actual revenue increases approved by the Commission. Staff notes that the utility’s
proposal is consistent with the methodology previously used in a similar
limited proceeding approved by the Commission.
However, in the instant case, this method results in an overstatement of the utility’s
price index and pass through revenue increases when compared to the actual
approved price index and pass through revenue increases.
The utility’s estimate of $15,564 was
calculated by applying a combined percentage increase for the 2010 through 2016
price index and pass through adjustments to the total revenue requirement
approved in the utility’s 2009 SARC. However, because Camachee’s actual annual
revenues have been consistently lower than the approved revenue requirement,
the actual revenue increases that resulted from the price index and pass
through adjustments were also lower than would have resulted if the utility’s
revenues had more closely matched the revenue requirement authorized in the
2009 SARC. Specifically, Camachee’s actual revenues subsequent to the 2009 SARC
have only ranged from $73,586 to $84,346, representing approximately 64 percent
to 74 percent of the $114,439 authorized revenue requirement. Based on the utility’s
actual revenues, the combined actual price index and pass through revenue
increases that were approved for Camachee from 2010 through 2016 equal $10,867,
which is $4,697 less than the utility’s estimate. Due to the significant
difference between the estimated and actual price index and pass through
revenue increases, staff agrees with OPC that it would be more appropriate to
use the actual revenue increases of $10,867 in this case. Consequently, staff
has increased the utility’s 2009 approved operating expenses by a total of
$10,867 to reflect the operating expense increases that were associated with
the price index and pass through adjustments approved from 2010 through 2016.
The specific adjustment is broken down between a $10,377 increase to operation
and maintenance expenses and the associated $490 increase to RAFs for a total
adjustment of $10,867.
Also, the utility is required by Rule 25-30.446, F.A.C.,
to provide notices of the customer meeting and notices of final rates in this
case to its customers. For noticing, staff estimated $93 for postage expense,
$67 for printing expense, and $9 for envelopes. This results in $169 for the
noticing requirement. The utility paid a $500 limited proceeding filing fee.
The utility also provided documentation to support $5,280 for accounting
services related to this filing. Pursuant to Section 367.0816, F.S., rate case
expense is amortized over a four-year period.
Based on the above, staff recommends total rate case expense of $5,949 ($169 +
$500 + $5,280), which amortized over four years is $1,487.
In addition, the operating expenses approved in the 2009
SARC included annual amortized rate case expense of $1,020 to recover the rate
case expense associated with the 2009 SARC. That rate case expense became fully
amortized in 2014 and the utility’s rates were reduced. However, because staff
used the operating expenses approved in the 2009 SARC as the starting point in
the instant case, an additional adjustment to remove the previously approved
2009 SARC rate case expense from the operating expenses used in staff’s
calculations is necessary. Therefore, staff decreased regulatory commission
expense by $1,020. Based on the above, staff’s total adjustment to reflect the
addition of rate case expense for the instant docket and removal of the 2009
SARC rate case expense is an increase of $467 ($1,487 - $1,020 = $467).
Therefore, staff recommends regulatory commission expense of $467.
The Commission approved RAFs of $5,065 in Camachee’s 2009
SARC. Based on staff’s recommended test year revenues of $88,199, the utility’s
RAFs should be $3,969. Therefore, staff decreased RAFs by $1,096 to reflect the
appropriate test year RAFs. As discussed above, staff also increased operating
expenses by $490 to reflect the RAFs associated with Camachee’s previously
approved price index and pass through revenue increases, resulting in a net
decrease to Taxes Other Than Income (TOTI) of $607. In addition, staff
increased RAFs by $1,719 to reflect RAFs of 4.5 percent of the change in revenues
resulting from the limited proceeding increase.
Based on the above, the appropriate revenue requirement
for this limited proceeding is $126,395, which is an annual increase of $38,196
(43.31 percent) over the test year revenues. The adjusted revenue requirement
of $126,395 will allow the utility the opportunity to recover its expenses as
approved in the 2009 SARC, the expense increases approved in the 2010 through
2016 price index and pass through adjustments, rate case expense associated
with the instant case, and the associated RAFs. The adjusted operating expenses
and revenue requirement are shown on Schedule No. 1-A, and the adjustments are
shown on Schedule No. 1-B.
The adjusted revenue requirement was designed to maintain
the 9.67 percent overall rate of return that was authorized in the 2009 SARC
when compared to the 2009 approved operating expenses, adjusted only as
discussed above, and the 2009 approved water rate base. However, Camachee’s
2015 Annual Report indicates that the utility has experienced an increase in
its operating expenses and a decrease in its rate base since the 2009 SARC.
For comparison purposes, the last column on Schedule No.
1-A shows an estimate of the operating loss and overall rate of return that the
utility is more likely to achieve based on its more recent operating expenses
and rate base using the adjusted revenue requirement of $126,395. Again, for
comparison purposes only, staff increased the utility’s 2015 operation and
maintenance expenses of $101,152 by $1,487 to reflect the annual rate case
expense associated with this limited proceeding for an adjusted operation and
maintenance expense of $102,639. The utility’s 2015 operation and maintenance
expenses did not include any rate case expense from the 2009 SARC because it
became fully amortized in 2014, therefore, the additional adjustment to remove
the prior rate case expense was not necessary for this comparison. Staff also
increased Camachee’s 2015 TOTI by $1,719 to reflect the additional RAFs
associated with the limited proceeding revenue increase. The comparison shows
that Camachee would experience an estimated operating loss of $1,877 and a
negative rate of return of 0.59 percent.
Rates
Staff recommends that the percentage increase of 43.31 percent
be applied as an across-the-board increase to existing service rates. The
private fire protection rates should be one-twelfth of the approved base
facility charge pursuant to Rule 25-30.465, F.A.C. The recommended monthly
rates are shown on Schedule No. 2.
Conclusion
The Commission should approve the utility’s request for
a limited proceeding rate increase. Camachee should be allowed an annual
increase of $38,196 (43.31 percent), resulting in an adjusted revenue
requirement of $126,395. The adjusted revenue requirement is reflected on
Schedule No. 1-A. The appropriate monthly water rates are shown on Schedule No.
2. 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 2:
What is the appropriate amount by which rates should
be reduced four years after the published 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. 2, 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. The utility 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 Camachee 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,
Golden)
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 the rates. The reduction
will reflect the removal of revenues associated with the amortization of rate
case expense, the associated return on working capital, and the gross-up for RAFs
which is $1,576, which will result in the rate decrease shown on Schedule No.
2.
Camachee should be
required to file revised tariff sheets no later than one month prior to the
actual date of the required rate reduction. The utility also should be required
to file a proposed customer notice setting forth the lower rates and the reason
for the reduction. If Camachee Cove 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 3:
Should the recommended rates be approved for Camachee
on a temporary basis, subject to refund, in the event of a protest filed by a
substantially affected person or party?
Recommendation:
Yes. The recommended rates should be approved for
the utility on a temporary basis, subject to refund, in the event of a protest
filed by a substantially affected person or party. 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 temporary rates should not be implemented
until staff has approved the proposed notice, and the notice has been received
by the customers. Prior to implementation of any temporary rates, the utility
should provide appropriate security. If the recommended rates are approved on a
temporary basis, the rates collected by the utility should be subject to the
refund provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the utility
should file reports with the Commission Clerk’s office no later than the 20th
of every month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund. (Golden, Wilson)
Staff Analysis:
This recommendation proposes an increase in rates. A
timely protest might delay what may be a justified rate increase resulting in
an unrecoverable loss of revenue to the utility. Therefore, in the event of a
protest filed by a substantially affected person or party, staff recommends
that the recommended rates be approved as temporary rates. 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 temporary rates should not be implemented until staff has
approved the proposed notice, and the notice has been received by the
customers. The recommended rates collected by the utility should be subject to
the refund provisions discussed below.
The utility should be authorized to collect the temporary
rates upon staff’s approval of an appropriate security for the potential refund
and the proposed customer notice. Security should be in the form of a bond or
letter of credit in the amount of $25,569. Alternatively, the utility could
establish an escrow agreement with an independent financial institution.
If the utility
chooses a bond as security, the bond should contain wording to the effect that
it will be terminated only under the following conditions:
1.
The Commission approves the rate increase; or,
2.
If the Commission denies the increase, the utility
shall refund the amount collected that is attributable to the increase.
If the utility
chooses a letter of credit as a security, it should contain the following
conditions:
1.
The letter of credit is irrevocable for the period it
is in effect.
2.
The letter of credit will be in effect until a final
Commission order is rendered, either approving or denying the rate increase.
If
security is provided through an escrow agreement, the following conditions
should be part of the agreement:
1.
The Commission Clerk, or his or her designee, must be a
signatory to the escrow agreement.
2.
No monies in the escrow account may be withdrawn by the
utility without the prior written authorization of the Commission Clerk, or his
or her designee.
3.
The escrow account shall be an interest bearing
account.
4.
If a refund to the customers is required, all interest
earned by the escrow account shall be distributed to the customers.
5.
If a refund to the customers is not required, the
interest earned by the escrow account shall revert to the utility.
6.
All information on the escrow account shall be
available from the holder of the escrow account to a Commission representative
at all times.
7.
The amount of revenue subject to refund shall be
deposited in the escrow account within seven days of receipt.
8.
This escrow account is established by the direction of
the Florida Public Service Commission for the purpose(s) set forth in its order
requiring such account. Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d
DCA 1972), escrow accounts are not subject to garnishments.
9.
The account must specify by whom and on whose behalf
such monies were paid.
In no instance should the maintenance and administrative
costs associated with the refund be borne by the customers. These costs are the
responsibility of, and should be borne by, the utility. Irrespective of the
form of security chosen by the utility, an account of all monies received as a
result of the rate increase should be maintained by the utility. If a refund is
ultimately required, it should be paid with interest calculated pursuant to
Rule 25-30.360(4), F.A.C.
The utility should maintain a record of the amount of the
bond, and the amount of revenues that are subject to refund. In addition, after
the increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the utility
should file reports with the Commission Clerk’s office no later than the 20th
of every month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund.
Issue 4:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within twenty-one days
of the issuance of the order, a consummating order will be issued. The docket
should remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed
administratively. (Lherisson)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within twenty-one days
of the issuance of the order, a consummating order will be issued. The docket
should remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed
administratively.
