Case Background
In 2014, the
Florida Legislature enacted sections 367.072, Florida Statutes (F.S.), Petition
to revoke certificate of authorization, and 367.0812, F.S., Rate fixing;
quality of water service as criterion. Section
367.0812, F.S., requires that in fixing just, reasonable, compensatory, and not
unfairly discriminatory rates, the Commission shall consider the extent to
which a water utility provides service that meets secondary water quality
standards as established by the Department of Environmental Protection (DEP).
Section 367.0812(1)(c), F.S., requires the Commission to consider “[c]omplaints
regarding the applicable secondary water quality standards filed by customers
with the [C]ommission, the [DEP], the respective local governmental entity, or
a county health department during the past 5 years.”
The Commission
implemented sections 367.072 and 367.0812, F.S., in 2015. The
Commission adopted Rule 25-30.091, Florida Administrative Code (F.A.C.),
Petition to Revoke Water Certificate of Authorization, and amended Rule
25-30.440, F.A.C., Additional Engineering Information Required of Class A and B
Water and Wastewater Utilities in an Application for Rate Increase, to require
that when a utility applies for a rate increase, it must provide a copy of all
customer complaints that it has received regarding DEP secondary water quality
standards during the past five years. In
addition, Rule 25-30.440(3), F.A.C., requires the submission of the most recent
secondary water quality standards test results. Rule 25-30.443(1), F.A.C., Minimum
Filing Requirements for Class C Water and Wastewater Utilities, makes Rule
25-30.440 applicable to Class C utilities seeking a rate increase, as well.
To promote
clarity and consistency among Commission rules, staff is recommending that the
Commission propose to amend Rule 25-30.445, F.A.C., to require that when
applying for a limited proceeding, water and wastewater utilities must provide
the same information pertaining to secondary water quality standards as are
contained in Rule 25-30.440, F.A.C. Staff also recommends the elimination of the
requirement contained in Rule 25-30.445(8), F.A.C., that a limited proceeding
application shall not be filed for underearnings in lieu of a general rate
case.
A Notice of
Development of Rulemaking was published on July 27, 2016, in Volume 42, Number
145, of the Florida Administrative Register, after which time Utilities Inc.,
of Florida (UIF), the Office of Public Counsel (OPC), and Michael Smallridge
submitted comments on the draft rule. On December 19, 2016, a second notice was
issued to inform interested persons of staff’s intent to include the
elimination of the requirement in Rule 25-30.445(8), F.A.C., that a limited
proceeding shall not be filed for underearnings in lieu of a general rate
case. No further comments were received
as a result of the second notice. No rule development workshop was requested
and none was held.
The Commission
has jurisdiction pursuant to sections 120.54, 350.127(2), 367.081, 367.0812,
367.0822, and 367.121, F.S.
Discussion
of Issues
Issue 1:
Should the Commission propose the amendment of Rule
25-30.445, F.A.C., General Information and Instructions Required of Water and
Wastewater Utilities in an Application for a Limited Proceeding?
Recommendation:
Yes, the Commission should propose the amendment of
Rule 25-30.445, F.A.C., as set forth in Attachment A. (Gervasi, King, L. Smith, Mouring, Rome)
Staff Analysis:
Section 367.0812, F.S., requires that in fixing
just, reasonable, compensatory, and not unfairly discriminatory rates, the
Commission shall consider the extent to which a water utility provides service
that meets secondary water quality standards as established by the Department
of Environmental Protection (DEP). Section 367.0812(1)(c), F.S., requires the
Commission to consider “[c]omplaints regarding the applicable secondary water
quality standards filed by customers with the [C]ommission, the [DEP], the
respective local governmental entity, or a county health department during the
past 5 years.”
Rule 25-30.440(11), F.A.C., Additional Engineering
Information Required of Class A and B Water and Wastewater Utilities in an
Application for Rate Increase, requires that when a utility applies for a rate
increase, it must provide a copy of all customer complaints that it has
received regarding DEP secondary water quality standards during the past five
years. In addition, Rule 25-30.440(3),
F.A.C., requires the submission of the most recent secondary water quality
standards test results. Rule 25-30.443(1), F.A.C., Minimum Filing Requirements
for Class C Water and Wastewater Utilities, makes Rule 25-30.440 applicable to
Class C utilities seeking a rate increase, as well.
To promote clarity and consistency among Commission rules,
and to assist the Commission in considering the extent to which a utility
provides service that meets secondary water quality standards when evaluating
an application for a limited proceeding, staff recommends that the Commission
propose to amend Rule 25-30.445, F.A.C., to add Paragraph (4)(o), for Class A
and B utilities, and Paragraph (5)(h), for Class C utilities, requiring that
the minimum filing requirements (MFRs) for a limited proceeding application
shall include: “1. A copy of all customer complaints that the utility has
received regarding DEP secondary water quality standards during the past five
years; and 2. A copy of the utility’s most recent secondary water quality
standards test results.” Staff currently
obtains this information via data requests after an application for limited
proceeding is filed. By requiring this
information as part of the limited proceeding MFRs, the number of data requests
that would be necessary to process limited proceedings applications should be
reduced, thereby streamlining the process for both staff and applicants.
Utility ratepayers also should benefit from the Commission’s consideration of
secondary water quality standards prior to allowing a utility to move forward
with a rate increase via a limited proceeding.
Staff also recommends that Rule 25-30.445(8), F.A.C., which
requires that “[a] limited proceeding application shall not be filed for
underearnings in lieu of a general rate case,” should be eliminated. Paragraph (8) of the rule could potentially be
interpreted to prohibit justifiable increases simply because a utility is in an
underearnings position, or would be in an underearnings position if the costs
being sought for recovery are incurred, and it suggests that unless a utility
is earning within its authorized range, it would be prohibited from using the
limited proceeding process. As such, Paragraph (8) unnecessarily restricts the
use of the limited proceeding process, which was designed to save regulatory
costs to the utility, its customers, and the Commission. Moreover, Paragraph (6)(b) of the rule
provides that in evaluating whether a utility’s request is appropriate for a
limited proceeding, the Commission will consider “[w]hether the utility has not
had a rate case in more than seven years and the requested rate increase
exceeds 30 percent.” Thus, Paragraph
(6)(b) provides adequate safeguards to prevent utilities from inappropriately
using the limited proceeding process to avoid a general rate case filing in
which all costs of the utility would be fully evaluated.
Other non-substantive changes as shown in the attached
draft rule are self-explanatory. For informational purposes, copies of the two
forms incorporated by reference in the rule are also attached. Staff has not made any recommended changes to
the forms. As shown on page 12, lines
11-13, of the draft rule, the Department of State will provide a hyperlink to
these forms for inclusion in the rule, as required by section 120.54(1)(i)3.a.,
F.S., and Rule 1-1.013(6), F.A.C.
In its written comments, UIF states that it believes that
the prior three years, rather than five years, of customer complaints is more consistent
with prior Commission practice in file and suspend rate cases, and should be
adequate in a limited proceeding to retain consistency. UIF also believes that the rule should
include a specific deadline within which the Commission must act on a limited
proceeding. UIF reasons that a limited
proceeding is currently the only type of rate proceeding without a deadline,
and that as a result, limited proceedings are being underutilized because
utilities have no expectation on when rate relief will be forthcoming. UIF suggests that a five-month deadline is a
reasonable time within which the Commission should be able to rule on a limited
proceeding, and summarily suggests that a deadline will help to insulate the
Commission from political involvement.
In its written comments, OPC agrees with staff’s draft
rule language. OPC believes that the inclusion of the staff recommended rule
changes to the limited proceeding MFRs will provide a more complete record and
additional transparency to the process.
OPC states that customer input on these water quality issues plus the
most recent test results will not only allow Commission staff to conduct a more
thorough evaluation of the case, but will also allow all affected parties and
the Commission to gain a greater understanding of issues that are important to
water utility customers.
OPC strongly disagrees with UIF’s suggestion to include a
specific deadline for the Commission to act on limited proceedings. OPC states
that both the Florida Legislature and the Commission have already identified
instances where a deadline for the Commission to act is warranted. Chapter 367, F.S., requires an eight-month
deadline for the Commission to act on petitions for rate relief through full administrative
hearings, and a five-month deadline for the Commission to act on proposed
agency action proceedings. And the Commission set a 90-day deadline to vote on
a proposed agency action recommendation establishing rates in Rule 25-30.456,
F.A.C., which addresses staff assistance
in alternative rate setting. OPC argues that there are proceedings where
flexibility is paramount and no deadline should be set. To OPC’s knowledge, the
lack of a deadline in limited proceedings does not present a hardship for any
party, and UIF’s comments are akin to “a solution in search of a problem.”
Mr. Smallridge submitted comments on behalf of the eight utilities
that he owns. Mr.
Smallridge states that five years is too long of a time to expect the utility
to keep every customer complaint. He
states that it is hard for some utilities to produce receipts from the past
year, much less customer complaints from five years ago, and that a five-year
timeframe would be “setting yourself up for failure.” Mr. Smallridge further suggests that the new
language on page 12, line 16 of the attached draft rule should specify “A Class
A or B water utility’s application for limited proceeding shall also include”
instead of “A water utility’s application for limited proceeding shall also
include,” to clarify who this provision of the rule applies to, similar to on
page 13, line 21 of the draft rule, which states “A Class C water utility’s
application for limited proceeding shall also include[.]”
Staff disagrees with UIF’s comment that the prior three
years, rather than five years, of customer complaints is more consistent with
prior Commission practice in file and suspend rate cases, and should be
adequate in a limited proceeding to retain consistency. Staff also disagrees with Mr. Smallridge’s
comment that five years is too long of a time for a utility to keep these types
of customer complaints. As noted above,
the draft rule language is consistent with Rule 25-30.440(11), F.A.C., which
requires that when a utility applies for a rate increase, it must provide a
copy of all customer complaints that it has received regarding DEP secondary
water quality standards during the past five years, and Rule 25-30.443(1),
F.A.C., makes this requirement applicable to Class C utilities seeking a rate
increase, as well. This rule requirement
implements section 367.0812, F.S., which requires the Commission to consider
the extent to which a water utility provides service that meets secondary water
quality standards when fixing rates. Section 367.0812(1)(c), F.S., requires the
Commission to consider “[c]omplaints regarding the applicable secondary water
quality standards filed by customers with the [C]ommission, the [DEP], the
respective local governmental entity, or a county health department during
the past 5 years.” (emphasis added). Moreover, as previously noted, staff currently
obtains this information via data requests after an application for limited
proceeding is filed. Therefore, only the
timing of providing the secondary water quality standards information will be
affected by the implementation of the rule amendment, not the nature of the
information itself.
Staff further disagrees with UIF’s suggestion to include a
five-month deadline within which the Commission must act on a limited
proceeding. Staff agrees with OPC that
there are statutory deadlines imposed upon the Commission to act within a specified
timeframe in certain types of cases, such as in file and suspend rate cases. There
is no statutory deadline contained in section 367.0822, F.S., the limited
proceedings statute. Moreover, applications for limited proceedings vary in
scope and in complexity. Pursuant to section
367.0822, F.S., “[t]he [C]omission shall determine the issues to be considered
during such a proceeding and may grant or deny any request to expand the scope
of the proceeding to include other related matters.” Thus, some limited proceedings take
considerably longer to process than others, and it is important for the
Commission to have the flexibility to set its own deadlines to act on limited
proceeding applications.
Finally, with respect to Mr. Smallridge’s comment to
specify on page 12, line 16 of the attached draft rule that Paragraph (4)(o)
applies to Class A and B utilities, the inclusion of this language is
unnecessary because Paragraph (4) of the rule already specifies that “The
following [MFRs] shall be filed . . . for a Class A or B water or wastewater
utility,” as shown on page 9, lines 24-25 of the attached draft rule. The new language of Paragraph (4)(o) of the
draft rule is narrowed to water utilities because the inclusion in limited
proceeding MFRs of water-related customer complaints and test results is
inapplicable to wastewater only utilities.
Statement
of Estimated Regulatory Costs
The
Florida Administrative Procedure Act encourages an agency to prepare a
Statement of Estimated Regulatory Costs (SERC).
Section 120.54(3)(b), F.S. An
agency must prepare a SERC if the proposed rule is likely to directly or
indirectly increase regulatory costs in excess of $200,000 in the aggregate
within one year after implementation of the rule, and shall consider the impact
of the rule on small businesses, small counties, and small cities. Id.
Section 120.541(2)(a), F.S., requires a SERC to include an
economic analysis showing whether the rule, directly or indirectly, is likely
to: 1) have an adverse impact on economic growth, private sector job creation,
employment, or investment; 2) have an adverse impact on business
competitiveness; or 3) increase regulatory costs in excess of $1 million in the
aggregate within five years after the implementation of the rule. Section
120.541(3), F.S., requires that if the adverse impact or regulatory costs of
the rule exceed any of those criteria, the rule shall be submitted to the
President of the Senate and Speaker of the House, and may not take effect until
it is ratified by the Legislature.
The SERC prepared by staff is included as Attachment B to
this recommendation. It indicates that the rule is not expected to adversely
impact economic growth, private job sector employment, investment, and business
competitiveness during the five-year period following its implementation, and
that any transactional costs that might be incurred by affected entities would
be de minimis. Based on the SERC, the recommended rules will not require
legislative ratification.
As required by section 120.541(2)(b)-(e), F.S., Attachment
B also addresses the estimated number of individuals and entities likely to be
required to comply with the rules, the estimated cost of implementing and
enforcing the rules, the estimated transactional costs likely to be incurred by
individuals and entities required to comply with the rules, and an analysis of
the impact on small businesses, small counties, and small cities.
For the foregoing reasons, staff recommends that the
Commission should propose the amendment of Rule 25-30.445, F.A.C., as shown on
Attachment A.
Issue 2:
Should this docket be closed?
Recommendation:
Yes, if no requests for hearing or comments are
filed, the rule amendments as proposed should be filed for adoption with the
Secretary of State and the docket should be closed.
Staff Analysis:
Unless comments or requests for hearing are filed,
the rule amendments as proposed may be filed with the Secretary of State
without further Commission action. The
docket may then be closed. (Gervasi)
25-30.445 General Information and
Instructions Required of Water and Wastewater Utilities in an Application for a
Limited Proceeding.
(1)
Each applicant for a limited proceeding shall provide the following general
information to the Commission:
(a)
The name of the applicant as it appears on the applicant’s certificate and the
address of the applicant’s principal place of business;
(b)
The type of business organization under which the applicant’s operations are
conducted; if the applicant is a corporation, the date of incorporation; the
names and addresses of all persons who own 5 percent or more of the applicant’s
stock; or the names and addresses of the owners of the business.
(c)
The number(s) of the Commission order(s), if any, in which the Commission most
recently considered the applicant’s rates for the system(s) involved.
(d)
The address within the service area where the application is available for
customer inspection during the time the rate application is pending.
(e)
A statement signed by an officer of the utility that the utility will comply
with the noticing requirements in Rule 25-30.446, F.A.C.
(2)
In a limited proceeding application:
(a)
Each schedule shall be cross-referenced to identify related schedules.
(b)
Except for handwritten official company records, all data in the petition and
application shall be typed.
(c)
The original and seven copies shall be filed with the Office of Commission
Clerk.
(3)
A filing fee as required in Rule 25-30.020, F.A.C., shall be submitted at the
time of application.
(4)
The following minimum filing requirements shall be filed with the utility’s
application for limited proceeding for a Class A or B water or wastewater
utility:
(a)
A detailed statement of the reason(s) why the limited proceeding has been
requested.
(b)
If the limited proceeding is being requested to recover costs required by a
governmental or regulatory agency, provide the following:
1.
A copy of any rule, regulation, order or other regulatory directive that has
required or will require the applicant to make the improvement or the
investment for which the applicant seeks recovery.
2.
An estimate by a professional engineer, or other person, knowledgeable in
design and construction of water and wastewater plants, to establish the
projected cost of the applicant's investment and the period of time required
for completion of construction.
(c)
A schedule that provides the specific rate base components for which the
utility seeks recovery. Supporting detail shall be provided for each item
requested, including:
1.
The actual or projected cost(s);
2.
The date the item will be or is projected to be placed in service;
3.
Any corresponding adjustments that are required as a result of adding or
removing the requested component(s) from rate base, which may include
retirement entries; and
4.
Any other relevant supporting information.
(d)
If the utility’s application includes a request for recovery of plant in
service, accumulated depreciation and depreciation expense, supporting detail
shall be provided by primary account as defined by the NARUC Uniform System of
Accounts, in accordance with Rule 25-30.110, F.A.C.
(e)
A calculation of the weighted average cost of capital shall be provided for the
most recent 12-month period, using the mid-point of the range of the last
authorized rate of return on equity, the current embedded cost of fixed-rate
capital, the actual cost of short-term debt, the actual cost of variable-cost
debt, and the actual cost of other sources of capital which were used in the
last individual rate proceeding of the utility. If the utility does not have an
authorized rate of return on equity, the utility shall use the current leverage
formula pursuant to Section 367.081(4)(f), F.S.
(f)
If the utility is requesting recovery of operating expenses, the following
information shall be provided:
1.
A detailed description of the expense(s) requested;
2.
The total cost by primary account pursuant to the NARUC Uniform System of
Accounts;
3.
Supporting documentation or calculations; and
4.
Any allocations that are made between systems, affiliates or related parties.
If allocations are made, submit full detail that shows the total amount
allocated, a description of the basis of the allocation methodology, the
allocation percentage applied to each allocated cost, and the workpapers
supporting the calculation of the allocation percentages.
(g)
Calculations for all items that will create cost savings or revenue impacts
from the implementation of the requested cost recovery items.
(h)
If the utility includes any other items where calculations are required,
supporting documentation shall be filed that reflects the calculations or
assumptions made.
(i)
A calculation of the revenue increase including regulatory assessment fees and
income taxes, if appropriate.
(j)
Annualized revenues for the most recent 12-month period using the rates in
effect at the time the utility files its application for limited proceeding and
a schedule reflecting this calculation by customer class and meter size.
(k)
A schedule of current and proposed rates for all classes of customers.
(l)
Schedules for the most recent 12-month period showing that, without any
increased rates, the utility will earn below its authorized rate of return in
accordance with Section 367.082, F.S. The schedules shall consist of a rate
base, net operating income and cost of capital schedule with adjustments to
reflect those consistent with the utility’s last rate proceeding.
(m)
If the limited proceeding is being requested to change the current rate
structure, provide a copy of all workpapers and calculations used to calculate
requested rates and allocations between each customer class. The test year shall
should be the most recent 12-month period. In
addition, the following schedules, which are incorporated herein by reference,
from Form PSC/AFD 19-W (11/93), entitled “Class A Water and/or Wastewater
Utilities Financial, Rate and Engineering Minimum Filing Requirements”, shall
should be provided. The schedules can be obtained from the Commission’s
Division of Accounting and Finance.
1.
Schedule E-2, entitled “Revenue Schedule at Present and Proposed Rates,”
is available at [hyperlink].
2.
Schedule E-14, entitled “Billing Analysis Schedules,” is available at
[hyperlink]. Only two copies are required.
(n)
Revised tariff sheets should not be filed with the application.
(o)
A water utility’s application for limited proceeding shall also include:
1.
A copy of all customer complaints that the utility has received regarding DEP
secondary water quality standards during the past five years; and
2.
A copy of the utility’s most recent secondary water quality standards test
results.
(5)
In addition to the requirements stated in subsections (1) through (3), the
following minimum filing requirements shall be filed with the utility’s
application for limited proceeding for a Class C water or wastewater utility:
(a)
A detailed statement of the reason(s) why the limited proceeding has been
requested.
(b)
If the limited proceeding is being requested to recover costs required by a
governmental or regulatory agency, provide a copy of any rule, regulation,
order or other regulatory directive that has required or will require the
applicant to make the improvement or the investment for which the applicant
seeks recovery.
(c)
A schedule that provides the specific rate base components for which the
utility seeks recovery, if known. Supporting detail shall be provided for each
item requested, including:
1.
The actual or projected cost(s);
2.
The date the item will be or is projected to be placed in service;
3.
Any corresponding adjustments, if known, that are required as a result of
adding or removing the requested component(s) from rate base, which may include
retirement entries; and
4.
Any other relevant supporting information, if known.
(d)
If the utility is requesting recovery of operating expenses, provide an
itemized description of the expense(s), including the cost and any available
supporting documentation or calculations.
(e)
Provide a description of any known items that will create cost savings or
revenue impacts from the implementation of the requested cost recovery items.
(f)
A calculation of the revenue increase including regulatory assessment fees and
income taxes, if applicable.
(g)
Annualized revenues for the most recent 12-month period using the rates in
effect at the time the utility files its application for limited proceeding and
a schedule reflecting this calculation by customer class and meter size.
(h)
A Class C water utility’s application for limited proceeding shall also
include:
1.
A copy of all customer complaints that the utility has received regarding DEP
secondary water quality standards during the past five years; and
2.
A copy of the utility’s most recent secondary water quality standards test
results.
(6)
In evaluating whether the utility’s request is improper for a limited
proceeding, the Commission will consider factors such as:
(a)
Whether the utility’s filing includes more than 4 separate projects for which
recovery is sought and the requested rate increase exceeds 30 percent.
Corresponding adjustments for a given project are not subject to the above
limitation;
(b)
Whether the utility has not had a rate case in more than seven years and the
requested rate increase exceeds 30 percent; or
(c)
Whether the limited proceeding is filed as the result of the complete
elimination of either the water or wastewater treatment process and the
requested rate increase exceeds 30 percent.
(7)
The utility shall provide a statement in its filing to the Commission which
addresses whether the utility’s rate base has declined or whether any expense
recovery sought by the utility is offset by customer growth since its most
recent rate proceeding or will be offset by future customer growth expected to
occur within one year of the date new rates are implemented.
(8)
A limited proceeding application shall not be filed for underearnings in lieu
of a general rate case.
Rulemaking
Authority 350.127(2), 367.121(1)(a) FS. Law Implemented 367.081, 367.0812,
367.0822, 367.121(1)(a), 367.145(2) FS. History–New 3-1-04, Amended___________
