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. In addition, 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 installed a chloramine feed
system on March 20, 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
|
|
3
|
5
|
|
Quality of Service
|
|
|
|
3
|
4
|
|
Boil Water Notice
|
|
|
|
3
|
4
|
|
Water Pressure
|
|
|
|
5
|
1
|
|
Total*
|
2
|
1
|
0
|
20
|
22
|
* A customer comment 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 noted, 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 30 of the Utility’s customers attended the
meeting and 9 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 received a petition with signatures from 128
customers dated March 2, 2017, and additional petition pages with 15 customer
signatures dated March 6, 2017. The petition stated that the undersigned urged
the Commission to decrease, not increase, water rates. In this petition, 72
customers commented on the affordability of the rate increase, eight commented
on the quality of the water, one commented on the water pressure, and three
commented on insufficient support for the rate increase. The remaining
customers signed the petition without comment.
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 $5,048. (Frank, Hill)
Staff Analysis:
·
Staff’s audit report was filed on
September 1, 2016. Bocilla’s response to the audit was received October 10,
2016. In its response to the staff audit report of the Utility, Bocilla and
staff agreed to the audit adjustments as set forth in the tables below.
Table 2-1
Description of Audit Adjustments
|
Audit Adjustments
|
Description of
Adjustments
|
|
Finding 6
|
Reflect appropriate accumulated amortization of CIAC.
|
|
Finding 8
|
Reflect the removal of unsupported and out-of-period
costs, as well as the reclassification of certain amounts.
|
Source: Staff Audit
In its response to Audit Finding
6, the Utility disagreed with audit staff’s calculation of accumulated
amortization of CIAC to reflect the retirement of the water treatment plant.
Staff agrees with Bocilla and has reflected the removal of the retired plant
based on the correct amortization rates. Additionally, the Utility’s response
to Audit Finding 8 included invoices to support some of the expenses that were
removed as unsupported. Staff verified and included the appropriate supported
amounts. However, one invoice provided was out-of-period and another should
have been capitalized. Based on the audit adjustments agreed to by Bocilla,
staff recommends that the adjustments set forth in Table 2-2 below, 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
|
|
($5,048)
|
|
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,
with adjustments described below. Accordingly, UPIS should be increased by
$9,848. A corresponding adjustment should be made to decrease accumulated
depreciation by $49,695 and depreciation expense by $1,025. (Hill, Norris)
Staff Analysis:
In its response to the
audit, Bocilla contested Audit Finding 2 and the corresponding adjustments to
accumulated depreciation reflected in Audit Finding 5. In regards to Audit
Finding 2, audit staff reduced the average plant balance of Account 331 –
Transmission & Distribution Mains to reflect the removal of unsupported
plant additions totaling $577,798. As detailed in Audit Finding 1, the Utility
was unable to locate any records prior to 2007. Thus the majority of the
unsupported plant additions are prior to 2007. The Utility acknowledged this
factor in its audit response and stated that it was having an original cost
study prepared to substantiate the costs that the Utility was unable to
support. Additionally, there were physical assets such as pumping equipment,
which were 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 sent 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 below. 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. 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.
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.
|
|
Reclassify boost
station assets to appropriate NARUC Account
|
The Utility included all assets
from the interconnect project in the Transmission and Distribution account.
The assets that belong in the Pumping Equipment account should be
reclassified so that appropriate depreciation rates will be applied.
|
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. However, staff
recommends that the use of the original cost study be limited to substantiating
the balance of Account 331 – Transmission & Distribution Mains, not
supporting a higher UPIS balance.
Furthermore, the staff audit report
is still relevant for the three additional plant accounts that comprise the
Utility’s test year average balance. Additionally, information received during
staff’s inquiry of the original cost study necessitates further adjustments.
Staff’s recommended adjustments to test year plant are discussed below.
Account 331 – Transmission & Distribution
Mains
Staff’s October 4, 2016 site inspection included a boost
station which was not identified in the Utility’s MFRs. The Utility provided
additional documentation for these assets and all costs associated with the
Englewood Water District interconnect (Englewood Project). In its MFRs, Bocilla
recorded the entire cost of the Englewood Project in Account 441 – Transmission
& Distribution Mains as a plant addition of $363,809 in 2014 and $97,256 in
2015 for a total amount of $461,065. This amount reflects a 64 percent
allocation of costs, due to the KIU agreement discussed below, totaling
$717,616 and an additional $1,791 of costs directly attributed to Bocilla. The
Englewood Project is comprised of three distinct components: a subaqueous
crossing, an interconnect, and a boost station. However, the Utility recorded
the boost station as part of the total interconnect project instead of
isolating that amount to record in Account 311 – Pumping Equipment.
Staff identified several adjustments which should be made
to the total cost of the Englewood Project. Staff believes the total cost of
the project should be reduced by $51,717 to reflect the removal of unsupported
costs, including capitalized construction interest and a bank penalty. Staff
notes that both of these items should be been removed regardless of support due
to the nature of each expense. This total also reflects the removal of the
costs directly attributed to Bocilla totaling $1,791. Additionally, the total
cost of the project should be reduced by $11,261 to reflect the removal of
legal and engineering expenses associated with work unrelated to the Englewood
Project, such as filing index applications with the Commission and the
Utility’s 2013 certificate docket. In total staff believes the total cost of
the Englewood Project should be reduced by $62,978 ($51,717 + $11,261),
resulting in a total cost of $656,429 ($719,407 - $62,978).
Staff is recommending that the total cost of the Englewood
Project should first be partially allocated to KIU, and should then be
classified into the proper National Association of Regulatory Utility
Commissioners (NARUC) accounts. KIU is a utility which purchases water from
EWD, but all water it purchases in this way flows through Bocilla
infrastructure. The Englewood Project assets, as well as certain pro forma
projects discussed in Issue 5, all directly benefit KIU. The Utility agrees
that 64 percent of the value of these assets, with the exception of the
subaqueous crossing as discussed below, should be allocated to Bocilla, and
that 36 percent should be allocated to KIU based on the relative Equivalent
Residential Connection (ERC) capacities of Bocilla and KIU, 715 and 400,
respectively. Review of Bocilla’s support documentation verified that the costs
associated with the subaqueous crossing were equally and individually assumed
by Bocilla and KIU. Bocilla had previously maintained that KIU’s allocation of
the Englewood Project was 36 percent of the total cost, as reflected in the
Utility’s MFRs. However, the KIU Interconnect agreement furnished by the
Utility specified equal funding for that component. Staff reflected this detail
in its allocation of the Englewood Project’s costs and did not apply the 36
percent allocation to the costs associated with the subaqueous crossing.
Further, staff identified the costs associated with the boost station in order
to reclassify these costs to the correct NARUC account of Account 311 – Pumping
Equipment. The costs associated with the boost station totaled $129,863. Table
3-2 below, illustrates staff’s allocation calculation of the Englewood Project.
Table 3-2
Allocation of Englewood
Project Costs
|
|
Unallocated Costs
|
Allocation
Percentage
|
Bocilla Allocated
Costs
|
|
Account 311 –
Pumping Equipment
|
|
Boost Station
|
$129,863
|
64 %
|
$83,112
|
|
|
|
Account 331 – Transmission
& Distribution Mains
|
|
Interconnect
|
$449,979
|
64 %
|
$287,987
|
|
Subaqueous Crossing
|
76,586
|
N/A
|
76,586
|
|
Total
|
$526,565
|
|
$364,573
|
|
|
|
|
|
|
Total Project
|
$656,428
|
|
$447,685
|
Staff’s recommended allocation of
costs from the Englewood Project result in an increase of $83,112 to Account
311 – Pumping Equipment and a decrease of $96,493 to Account 331 – Transmission
& Distribution Mains. However a corresponding adjustment is necessary to
reflect the average balance of Account 331 – Transmission & Distribution
Mains based on staff’s recommended adjustments. As such, Account 331 –
Transmission & Distribution Mains should be increased by $29,956 to reflect
the appropriate average balance. The net effect is an increase of $16,575
($83,112 - $96,493 + $29,956).
Account 334 – Meters
Staff believes an adjustment to
Account 334 – Meters is necessary based on its review and consideration of the
original cost study. Bocilla’s MFRs reflect a 2015 plant addition of $35,880 to
Account 334 – Meters for 104 meters. However, staff was never able to obtain
documentation supporting the full amount of the addition. In lieu of the total
actual costs, it appears that the Utility applied a per unit cost of $345 to
the 104 meters, based on a full scale replacement of each component, including
a backflow preventer in order to calculate the total cost of $35,880 ($345 x
104). Staff requested the complete documentation to support the total and reviewed
all documentation retained by audit staff. Staff was particularly concerned
with obtaining the complete documentation due to an invoice indicating that
several of the meters were actually for KIU. Including capitalized labor, staff
calculated a total cost of $22,428 for 104 meters, which is a reduction of
$13,452. However, due to the meters being an addition during the test year, the
adjustment to the average plant balance only reflects half. As such, staff
recommends that UPIS be decreased by $6,726 to reflect the actual cost of the
documented meter additions.
Account 302 – Franchise
This plant
account was verified by audit staff with no adjustments noted. However, the
Utility had not recorded any accumulated depreciation. Based on Audit Finding
5, accumulated depreciation should be increased by $3,062.
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 be based on the MFRs, with adjustments described
above. Accordingly, UPIS should be increased by $9,848. Staff recalculated the
corresponding accumulated depreciation for the adjusted plant accounts.
Including the adjustment from Audit Finding 5, as previously discussed,
accumulated depreciation should be decreased by $49,695 and depreciation
expense should be decreased by $1,025.
Issue 4:
Should further adjustments be made to the Utility’s
rate base?
Recommendation:
Yes. UPIS should be reduced by $44,000 to remove
double counting of land. Land should be also reduced 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 and to decrease property taxes by $3,179.
(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 Bocilla’s rate base, as
discussed below.
Land
In its MFRs, the Utility double
counted $44,000 for land in its rate base. As such, staff decreased plant by
$44,000 to remove the duplicate amount for land. Further, 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. A corresponding
adjustment should be made to remove the real estate taxes associated with the
land. Therefore, property taxes should be decreased by $3,179.
CIAC
In its MFRs, the Utility recorded $458,848 of CIAC. Staff
learned during a conference call with Bocilla and the Office of Public Counsel
(OPC) that the Utility had been incorrectly recording meter installation charges
as revenues. Although, the Utility provided staff a breakdown of meter
installations dating back to 1993, Bocilla’s plant balance only reflects meter
replacements for existing customers during the test year. Therefore, all meter
installation charges prior to the test year should not be reflected in CIAC
except for one during 2015 reflected on the Utility’s breakdown of meter
installations. Accordingly, CIAC should be increased by $83 associated with a
meter installation charge that was previously recorded in test year revenues by
Bocilla. 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 $139,708. This results in a
decrease of $50,067 from the Utility’s requested amount. Therefore, UPIS should
be increased by $139,708. Corresponding adjustments should also be made to
increase accumulated depreciation by $11,709 and increase depreciation expense
by $11,709. Additionally, property taxes should be increased by $2,136. (Hill,
Frank)
Staff Analysis:
The Utility did not reflect any pro forma plant
requests in its original filing. However, in subsequent data requests, Bocilla
requested the inclusion of seven pro forma projects. The amount of the pro
forma plant additions totaled $189,775. The Utility provided invoices and
justification for each of the plant additions. Based on its
review of Bocilla’s requested pro forma plant, staff recommends several
adjustments to the Utility’s proposed pro forma plant as summarized below.
The pro forma
plant additions include $10,964 for a boost station rebuild, $12,850 for a
boost station control package, $11,400 for the 6” valve replacement, $10,060
for looping dead end lines, $14,721 for a chloramine feed system, and $22,102 per year for
four years for a meter replacement program. Bocilla requested $41,371 for a new
utility truck as a pro forma expense. However, staff believes a vehicle asset
should be considered a pro forma plant item. Therefore, staff will address the
new truck in this issue and remove the requested amount from pro forma O&M
expenses.
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.
Boost Station Rebuild
In total,
the Utility requested $10,964 to rebuild its boost station. According to a
probable cause report funded by Bocilla, this repair was necessary due to
improper exercising of fire hydrants. Bocilla further states that Charlotte
County firefighters were seen operating a fire hydrant at the time the damage
was caused. Charlotte County has declined to accept responsibility for this
event, and Bocilla has stated that “any legal action would incur more cost than
the repairs.”
Bocilla’s
support for the amount of the repair included a request of $1,560 for 700 hand-
delivered boil water notices and $3,105 for the engineer’s probable cause
report that it obtained while attempting to recover repair expenses from
Charlotte County. The engineer’s probable cause report is an appropriate
non-recurring expense to be included in pro forma O&M expenses, as
discussed in Issue 12. However, staff believes that both items are not
appropriate to capitalize and reduced the recommended pro forma plant by $4,665
for a total of $6,299. As discussed in Issue 3, this project is associated with
assets that benefit KIU and should reflect a 36 percent allocation to KIU.
Therefore staff reduced the recommended pro forma plant by $2,268 (36 percent x
$6,299) for a total recommended increase of $4,031 to plant.
Boost Station Control
Package
Based on the
most recent update of this project, the Utility requested $12,850 for a control
package for its boost station. The current control system is no longer
supported by the manufacturer, and supporting the control system internally
would cost over 50 percent of the cost of a new system. Additional
functionality, greater reliability, and lower maintenance costs justify the
additional cost of the new system. As discussed in Issue 3, this project is
associated with assets that benefit KIU and should reflect a 36 percent
allocation to KIU. Therefore, staff reduced the recommended pro forma plant by
$4,626 (36 percent x $12,850) for a total recommended increase of $8,224 to
plant.
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 has supported with invoices 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 percent 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 and $9,421 should be approved.
Meter
Replacement
Bocilla
requested $26,449 per year to replace 100 meters each year for a period of four
years. The Utility noted that many of the meters 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 even though it lies
outside of the 24-month window. In its most recent update for the project,
Bocilla reduced its request to $22,102 per year for four years. Based on
documentation provided by the Utility, staff recommends that the Commission
approve a total of $55,200 for this program over four years. Staff’s
recommended amount is based on the replacement of 240 meters at an estimated cost
of $230 per meter over a four-year period. As discussed in Issue 3, the MFRs
did not show any balance in Account 334 – Meters. Because staff is recommending
that the Original Cost Study is not reliable enough to establish original plant
in service, there is no retirement associated with the meter replacements.
Conclusion
In total, staff recommends an increase of $139,708 ($4,031
+ $8,224 + $9,421 + $55,200 + $11,400 + $10,060 + $41,371). This results in a
decrease of $50,067 from the Utility’s requested amount. There are no
associated retirements to the pro forma projects. Therefore, UPIS should be
increased by $139,708. Corresponding adjustments should also be made to
increase accumulated depreciation by $11,709 and increase depreciation expense
by $11,709. Additionally, property taxes should be increased by $2,136.
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 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 purchased
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.
Transmission
& 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, Bocilla’s transmission and 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 $44,993.
As such, the working capital allowance should be decreased by $473. (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 expenses, 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 Bocilla’s O&M expenses. As a result, staff recommends
working capital of $44,993. This reflects a
decrease of $473 to the Utility’s requested working capital allowance of
$45,466.
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 $744,524.
(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 $744,524. 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
21.58 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 6.03 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 discussed in Issue 9,
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, the Utility subsequently stated that no adjustments were made to
reflect the removal of the non-utility funds from the loan balance. The Utility
also stated that the cost rate does not take into account the closing costs of
the loan. Staff reviewed the loan statement and 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.
The Utility provided the closing
statement for a loan totaling $1,005,226. The stated purpose of the loan was to fund the Englewood Project.
However, the loan also paid off the balances of two existing loans. As
discussed in Issue 3, two components of the Englewood Project, an interconnect
and boost station, are allocated between Bocilla and KIU. The third component,
a subaqueous crossing, was equally funded by the two Utilities. Although
Bocilla secured the funding and commenced the project, KIU has a specific
agreement with Bocilla to pay for its allocation of the Englewood Project
costs. Therefore, staff believes an adjustment should be made to reflect a
percent of the loan amount attributable to KIU.
Staff determined KIU’S allocation of the debt by isolating
the amount of the loan that was associated with funding the allocated
components of the project, not including the subaqueous crossing as it was
equally funded. This results in a reduction of $219,673 to the average balance
of the long-term debt. 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 6.03 percent. Schedule No. 2 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 $397,988
of annualized service revenues, $2,168 of miscellaneous revenues and a
deduction of $4,761 for credits to customers. In review of the Utility’s
adjusted test year billing data, staff found that the Utility used the
incorrect number of gallons for each rate block in calculating annualized
revenues. 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 a small
increase of $115 ($398,103 - $397,988).
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 the staff’s audit, Bocilla only billed
two initial connection charges of $25. Therefore, staff reduced miscellaneous
revenues by $661 ($711-$50). The total reduction to miscellaneous revenues is
$2,118 ($1,292+$165+$661). For the reasons outlined above, the miscellaneous
revenues for the Utility should be $50 ($2,168-$2,118). In addition, the
Utility gave $4,761 in credits to customers who had abnormally high usage and
met the Utility’s criteria for a credit. Staff did not include these credits in
test year revenues. Staff believes this a business decision and the burden
should not be carried by the general body of ratepayers. 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 Annualized Service Revenues
|
$397,988
|
|
Staff’s Adjustment
|
$115
|
|
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. Bocilla’s requested pro forma O&M expenses
should be reduced by $29,402. A corresponding adjustment should be made to increase
payroll taxes by $765. (Hill, Frank)
Staff Analysis:
In its filing, the Utility requested $55,719 for pro forma expenses. Based on its review of Bocilla’s requested pro forma expenses, staff
recommends several adjustments to the Utility’s proposed expenses as summarized
below.
Salaries & Wages –
Employees
In its
filing, the Utility requested an additional $10,400 ($25 x 416 hours) a year
for its administrative employee to work one extra day a week. However, in
response to staff’s first data request, Bocilla stated that this figure was an
error and that only 400 additional hours is being requested. Given the amount
of responsibilities for this position as described by the Utility, and the
difficulty Bocilla has had keeping adequate records, staff believes one
additional day per week for the part-time administrative employee is
reasonable. Staff reduced this expense by $400 ($10,400 - $10,000) to reflect
the corrected request. The Utility did not include in its request the
corresponding increase in payroll taxes to reflect the additional time.
Therefore, staff made a corresponding adjustment to increase payroll taxes by
$765.
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.
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 that $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. The Utility
points to its poor record keeping as evidence for its need of accounting
services. 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 service for free, and as such should be done monthly as a
paid function. Given the need for proper record keeping, staff recommends no
adjustment to the requested $4,200 for Contractual Services – Accounting.
New Utility Truck
In its MFRs, Bocilla requested
$7,200 for the lease of a new truck to replace an older truck currently being
used. It also made a corresponding request of $2,500 for maintenance and gas and
$2,600 for insurance associated with the new truck. As discussed in Issue 5,
staff capitalized the full amount of the new truck to plant after the Utility
decided to purchase rather than lease it. Therefore, staff reduced O&M
expense by $7,200 to reflect the removal of the lease expense. The Utility also
requested $2,500 for maintenance and gas for the new vehicle and mileage
reimbursements for its employees who may need to use personal vehicles for
work. Staff believes because the Utility utilized a truck and reimbursed
employees’ fuel during the test year, test year expenses should adequately
reflect the costs of gas and maintenance and reimbursements for personal
vehicles. Therefore, staff disallowed the requested $2,500 for additional
maintenance and gas. In response to a staff data request, the Utility provided
an updated estimate for insurance expense of $2,018. Staff believes because
there was $1,470 for test year insurance expense, an additional $548 ($2,018 -
$1,470) is reasonable to reflect the estimate for the insurance on the new
vehicle. Accordingly, staff recommends that the requested pro forma amount be
reduced by $2,052 ($2,600 - $548). In total, staff recommends a decrease of
$11,752 ($7,200 + $2,500 + $2,052) to pro forma expenses associated with the
purchase of a new truck.
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 $3,544. Additionally,
as discussed above in Issue 5, staff expensed the probable cause report
associated with the boost station rebuild and amortized it over five years,
pursuant to Rule 25-30.433(8), F.A.C. This results in an increase of $397. In
total, staff recommends a decrease of $3,146 ($3,544 - $397).
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. Staff notes that this total includes the
chemicals needed to treat water consumed by KIU. In its response to staff’s
fourth data request, the Utility stated that 46 percent of the flows through
this system can be attributable to KIU, and so staff recommends that the
requested chemical expense be reduced to $1,430, or 54 percent of the requested
amount. Since this is a pro forma addition, O&M should be increased by $490
for estimated repairs and maintenance associated with the feed system.
Fire
Hydrant Maintenance and Exercise Program
The
Utility requested $4,650 over two years for maintenance of 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 led 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. The Utility stated that it is critical to perform this maintenance for
all hydrants within the next two years to prevent incurring these replacement
costs. Staff believes that the first round of maintenance is prudent, but that
more justification is required to approve an ongoing 2-year maintenance cycle.
Staff therefore recommends that the $4,650 should be amortized over two years.
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 this program is prudent and that the cost calculations
submitted by Bocilla for this activity reflects 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 $29,402 (-$400 - $16,024 - $11,752 -
$3,146 + $1,430 + $490). A corresponding adjustment should be made to increase
payroll taxes by $765.
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
$13,896. Pensions and benefits should be decreased by $1,510. A corresponding
adjustment should be made to reduce payroll taxes by $1,103. (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, Bocilla reflected a
total expense of $104,866 for employee salaries and wages. The Utility has one
full-time operator, which the Utility allocates 20 percent of the operator’s
salary to KIU. Bocilla also has a part-time meter reader/distribution worker, a
part time administrative employee, and a part-time sub-contractor. In an effort
to examine the reasonableness of the Utility’s salary levels, staff used
multiple resources including the American Water Works Associations’ (AWWA) 2015
Compensation Survey and believes all employee compensation falls within a
reasonable range. Given the intensive description of job duties and no
additional benefits included for the part-time positions, staff believes the
salary levels are reasonable.
Staff believes there should be a
20 percent allocation to KIU for the operator’s annual bonus. This results in a
decrease of $510 ($2,550 x 20%). Further, staff believes the operator’s
pensions and benefits should also reflect a 20 percent allocation to KIU. The
operator is the only employee receiving pensions and benefits. Therefore, the
allocation results in a decrease of $1,510 ($7,548 x 20%) to the total amount
of the Utility’s pensions and benefits. In total, staff
recommends reducing employees’ salaries and wages expense by $510.
Salaries & Wages –
Officers
In its MFRs, the Utility
reflected an expense of $88,061 for the officer’s salary. This amount reflects
a 10 percent allocation for the officer’s time spent on KIU activities. The
total salary of the officer is $97,846. In response to staff data requests,
Bocilla 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 have presented many additional problems that require continuous flushing.
According to Bocilla, the officer
is responsible for overseeing and protecting a publicly regulated water supply
24 hours a day, 365 days a year. The Utility estimated the officer’s total time
per month tending to utility operations is 160 to 200 hours. Staff used the
AWWA 2015 Compensation Survey (CS) to examine the reasonableness of the
officer’s starting salary of $97,846. Staff compared the job description of the
officer to a general manager in the AWWA to account for the overall oversight
responsibility of the officer. According to the AWWA, the midpoint salary range
for a water utility general manger is $88,844. As such, staff believes that this
is a reasonable level for the officer’s salary. Staff recommends reducing the
officer’s total salary by $9,002 to reflect the AWWA midpoint salary range for
a general manager.
Further, staff believes that the
Utility’s ten percent allocation of officer’s salary for non-utility activities
does not reasonably reflect the officer’s time spent on KIU business. Due to
poor record keeping of the officer’s time, the Utility was unable to provide
staff with recorded hours for time associated with KIU. Staff believes that 20 percent,
consistent with the Utility’s suggested allocated time for the operator, of the
officer’s time is more reasonable given the amount of billing calculations and
employee management that is involved with KIU. Therefore, staff believes that
20 percent of the officer’s salary should be allocated to KIU. This decreases
the recommended salary level by $17,769 ($88,844 x 20%). This results in a
recommended officer’s salary of $71,075 ($88,844 - $17,769). In total, staff
recommends decreasing the Utility’s requested officer’s salary by $16,986
($88,061 - $71,075).
Staff increased officer’s salaries
and wages expense by $10,800 for directors’ fees reclassified from
miscellaneous expenses. The Utility’s board of directors consists of three
directors who meet once a week for an hour and receive $3,600 each annually.
Staff believes it is excessive to have three directors meet weekly for a water
reseller Utility with only one full-time employee. Staff recommends decreasing
each director’s fee to $100 a month for a total reduction of $7,200. This
results in a net increase of $3,600 ($10,800 - $7,200).
In total, staff recommends
reducing officer’s salaries and wages expense by $13,386 (-$16,986 + $3,600).
Conclusion
Based on the above, staff recommends that the Utility’s
salaries and wages expense be reduced by $13,896 ($510 + $13,386). Pensions and
benefits should be decreased by $1,510. A corresponding adjustment should be
made to reduce payroll taxes by $1,103.
Issue 14:
Should further adjustments be made to the Utility’s
O&M expense?
Recommendation:
Yes. O&M expense should be further decreased by
$18,520. (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.
Purchased Power
In its filing, Bocilla reflected
an expense of $4,549 for Purchased Power in the test year. Staff removed $1,131
from test year expenses related to charges for the abandoned water treatment
plant. Staff also 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. Purchased Power
is also affected by the KIU relationship discussed in Issues 3 and 12. As a
result, Purchased Power should also be reduced by $1,078 to account for KIU’s
46 percent share of pumping costs. In total, staff recommends a reduction of
$2,574 ($1,131 + $365 + $1,078).
Contractual Services – Engineering
Staff and
the Utility agree that an expense of $1,463 for well plugging is not recurring
in nature and should be amortized over five years. The net adjustment to
Contractual Services – Engineering should be a decrease of $1,170.
Contractual Services –
Legal
In its MFRs, the Utility
reflected an expense of $654 for Contractual Services – Legal 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 expenses in the test year.
Staff reclassified barge fees totaling $13,320 from miscellaneous expense.
Although the Utility’s office is located on the mainland, the infrastructure is
located on a barrier island which requires a barge fee for transportation from
the mainland to the island. In an effort to verify the actual costs of barging,
staff requested the contract between Bocilla and Palm Island Transit, the
transit company. The Utility provided a contract between Palm Island Transit
and Islander Management Group, LLC (IMG), which in turn bills Bocilla for the
barging. Staff compared the invoices from IMG to the contract agreement to
verify the costs. The Utility also provided a new contract between Palm Island
Transit and Bocilla. The contract allows for 50 round trips per month for a
monthly rate of $950 and $19 for each additional trip. Staff recommends using the
new contract total of $11,400 ($950 x 12 months) plus $1,140 ($19 x 60) to
reflect additional trips based on an average of 60 additional trips per year.
This results in a decrease of $780 ($13,320 - $12,540). In total, staff
recommends a net increase of $12,540 ($13,320 - $780) to transportation
expenses.
Insurance – Workman’s
Comp
In its MFRs, the Utility
reflected an expense of $4,383 for workman’s comp expense in the test year.
Staff reduced this expense by $442 to reflect a 20 percent allocation to KIU
for the operator’s workman’s comp. Staff also reduced this expense by $263 for
capitalized overhead associated with the meter replacement program. In total,
staff reduced workman’s comp by $705 (-$442 - $263).
Advertising Expense
In its MFRs, the Utility recorded
$375 for advertising expense in the test year. This expense comprised of rotary
club membership fees. As such, staff removed $375 for non-utility expense.
Salaries & Wages –
Employees
Staff made adjustments to correct
capitalized employee time spent replacing meters for the meter replacement
program. Staff decreased the sub-contractor’s expense by $3,480 and increased
the distribution worker’s expense by $2,960. This results in a net decrease of
$520 ($2,960 - $3,480).
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 remove barge fees addressed above in transportation
expense. Staff also reduced miscellaneous expense by $10,800 to reclassify
director’s fees to officer’s salaries and wages expense. Staff also removed
$1,237 related to meter replacements and capitalized the expense to plant. This
results in a total reduction of $25,357 ($13,320 + $10,800 + $1,237).
Conclusion
Based on the above, staff recommends that O&M expense
be further decreased by $18,520
(-$2,574 - $1,170 - $360 + $12,540 - $705 - $375 - $520 - $25,357).
Issue 15:
What is the appropriate amount of rate case expense?
Recommendation:
The appropriate amount of rate case expense is $99,588.
This expense should be recovered over four years for an annual expense of $24,897.
Therefore, annual rate case expense should be increased by $3,797. (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 March 7, 2017, the Utility submitted its last
revised estimate of rate case expense, through completion of the PAA process,
which totaled $117,328.
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
|
$28,688
|
$4,635
|
$33,323
|
|
Englewood Management Group, LLC
|
30,000
|
55,587
|
8,175
|
63,762
|
|
DMK Engineering
|
8,100
|
3,375
|
3,775
|
7,150
|
|
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
|
1,838
|
250
|
2,088
|
|
Customer Notices
|
1,200
|
0
|
0
|
0
|
|
Travel
|
1,500
|
0
|
0
|
0
|
|
Total
|
$84,400
|
$100,493
|
$16,835
|
$117,328
|
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.
Coenson
& Friedman, P.A. (C&F)
In its MFRs,
the Utility included $38,000 in legal fees to complete the rate case. Bocilla
provided documentation detailing this expense through March 1, 2017. The actual
fees and costs totaled $26,247 with an estimated $4,635 to complete the rate
case, totaling $30,882.
C&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 C&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.[5]
Consequently, staff recommends an adjustment to reduce C&F’s actual legal
fees by $504.
C&F’s
estimate to complete the rate case includes fees for 12.5 hours at $370/hr. and
an additional $10 for photocopies, totaling $4,635. Staff has reviewed the
estimate to complete and believes this amount is reasonable. Therefore, staff
made no further adjustments.
Englewood Management Group, LLC (EMG)
In its MFRs, the Utility included $30,000 in accounting fees to complete
the rate case. Bocilla provided documentation detailing this expense through
December 14, 2016. The actual fees and costs totaled $55,587 with an estimated
$8,000 to complete the rate case, totaling $63,587. Staff reviewed the invoices
and found that a total of $1,133 occurred before the test year. Staff notes
that certain line items on these invoices referred to work with C&F that
did not appear on any of C&F’s rate case expense invoices. Also, lines
items indicated work involving the correction of books and records to make the
test year accurate. Staff believes it is the Utility’s responsibility to keep
accurate books and records. As such, staff removed $1,133 from rate case
expense. Staff further found that $1,806 was 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 $583 for traveling. 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 $7,500 (50 hours at $150/hr.) and an additional $675 in costs for
attending the Commission Conference. The estimate to complete included 18 hours
for responding to staff requests and analysis for staff consideration in
drafting final order. After the last estimate to complete was provided by
Bocilla, invoices for 11.5 hours were submitted for EMG related to responding
to staff requests. Therefore, staff removed 11.5 hours from the estimated 18
hours for responding to staff’s requests. Staff also removed 8 hours for review
of the Final Order as duplicative of another line item for an estimate of 4
hours to review the Commission’s PAA Order. Further, staff removed 4 hours
associated with miscellaneous items that may arise as unreasonable. As a
result, staff reduced EMG’s estimate to compete by $3,525 (23.5 hours x
$150/hr.). In addition to EMG’s estimated time to complete, Bocilla estimated
$675 for lodging, meals, and travel costs for EMG to attend the Commission
Conference. In an effort to be consistent with other consultants’ estimated
travel costs, staff reduced this estimate to $575 to reflect $200 for a hotel
reservation, $50 for meals, and $325 for mileage (650 miles x $0.50/mile). This
results in a decrease of $100 ($675 - $575). Staff recommends a total decrease
of $3,625 ($3,525 + $100) to the estimate to complete. In total, staff recommends
that accounting fees for EMG be reduced by $7,147 ($3,522 + $3,625).
DMK Engineering
The Utility provided one invoice related to preparing MFRs, responding to
data requests, and audit facilitation totaling $3,375. Bocilla also provided an
estimate to complete the rate case which includes $560 for responding to data
requests and $2,640 ($165/hr x 16 hrs.) for traveling and attending the Commission
Conference. The estimate to complete also includes $575 in costs for lodging,
meals, and mileage. Staff believes these expenses are reasonable. As such,
staff recommends no adjustment to actual and estimated rate case expense for
DMK Engineering.
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,
Bocilla 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, Bocilla 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, Bocilla 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.
In-House
In its MFRs, the
Utility did not include any estimated rate case expense for in-house employees.
However, in response to staff’s data requests, the Utility provided $1,838 for
rate case work done by their part-time administrative employee. Further,
Bocilla provided an estimate to complete for the President to attend the Commission
Conference. This estimate includes hotel and meals totaling $250. Staff
believes these expenses are reasonable and recommend no adjustment to in-house
rate case expense.
Customer Notices
In its MFRs, the Utility included estimated costs of
$1,200 for printing and shipping. Bocilla 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 supporting 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.[6]
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).[7]
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 an estimated
$1,500 for travel costs. However, Bocilla subsequently provided documentation
detailing estimated travel costs for C&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 the Utility’s revised rate case expense of
$117,328 be decreased by $18,940 to reflect staff’s adjustments, for a total of
$99,588. A breakdown of staff’s recommended rate case expense is as follows:
Table 15-2
Staff Recommended Rate Case Expense
|
Description
|
MFR
Estimated
|
Utility Revised
Act.& Est.
|
Staff
Adjustment
|
Recom.
Total
|
|
Legal Fees
|
$38,000
|
$33,323
|
($2,504)
|
$31,323
|
|
Accounting Consultant Fees
|
30,000
|
63,762
|
(7,147)
|
56,615
|
|
Engineering Consultant Fees
|
8,100
|
16,155
|
(9,005)
|
7,150
|
|
Filing Fee
|
4,000
|
2,000
|
0
|
2,000
|
|
Bocilla In-house
|
1,600
|
2,088
|
0
|
2,088
|
|
Customer Notices
|
1,200
|
0
|
(284)
|
916
|
|
Travel
|
$1,500
|
0
|
0
|
0
|
|
Total
|
$84,400
|
$117,328
|
($18,940)
|
$99,588
|
Source: MFR Schedule B-10 and responses to staff data
requests
In its MFRs, Bocilla 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 $99,588 should be amortized over four years; pursuant to Section
367.0816, F.S.
This represents an annual expense of $24,897. Based on the above, staff
recommends that annual rate case expense be increased by $3,797 ($24,897 -
$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
|
$82,665
|
$480,818
|
20.76%
|
(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 $480,818. This represents an increase in revenues of $82,665
(or 20.76 percent). This increase will allow the Utility the opportunity to
recover its operating expenses and earn a 6.03 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. In addition, the Utility
currently has a bulk water rate for service to an emergency interconnection
with an adjacent exempt utility and a private fire protection rate in
accordance with Rule 25-30.465 F.A.C.
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 the BFC and three-tier gallonage charge rate
structure, which includes a gallonage charge for non-discretionary usage for
residential water customers, should be continued. However, 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 21 percent as well as the seasonal
nature 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. The Utility has no customers
for bulk water; therefore, staff recommends that Bocilla’s bulk water tariff be
canceled. The Utility’s private fire protection rates should be updated in
accordance with Rule 25-30.465 F.A.C.
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 for
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
|
$47.50
|
$54.64
|
$47.81
|
|
|
|
|
|
|
|
Charge per 1,000
gallons
|
|
|
|
|
|
0-6,000 gallons
|
$4.62
|
|
|
$7.61
|
|
6,001 – 12,000 gallons
|
$7.76
|
|
|
$9.52
|
|
Over 12,000 gallons
|
$12.32
|
|
|
$19.04
|
|
|
|
|
|
|
|
0 – 3,000 gallons
|
|
$6.93
|
$6.25
|
|
|
3,001 – 12,000 gallons
|
|
$8.66
|
$7.81
|
|
|
Over 12,000 gallons
|
|
$17.32
|
$15.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 Gallons
|
$60.10
|
$68.29
|
$73.39
|
$70.64
|
|
6,000 Gallons
|
$73.96
|
$94.27
|
$96.82
|
$93.47
|
|
12,000 Gallons
|
$120.52
|
$146.23
|
$143.68
|
$150.59
|
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 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.[9] Staff
recommends that the Utility’s requested late payment charge of $7.12 is
consistent with previously approved late payment charges and should be
approved. 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 new meter installation charge
of $365 and a main extension charge of $1,279 per ERC. The Utility’s existing
AFPI charge should be collected from the remaining 315 ERCs the system was originally
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, a system capacity charge of $3,000 per ERC, and an
AFPI charge.
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.
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.
Main Extension Charge
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).
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.
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 that is not included in rates. The costs are typically
accumulated on a monthly basis for up to five years. The Bocilla AFPI charges
accrued from 1992 to 1995. While the plant associated with those charges was
subsequently retired in 2014, the Utility is entitled to continue to recover
the costs incurred from 1992 to 1995 from future connections. 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.
Conclusion
Based on
the above, Bocilla’s existing wastewater system capacity charge should be
discontinued. Staff recommends a new meter installation charge of $365 and a
main extension charge of $1,279 per ERC. The Utility’s existing AFPI charge
should be collected from the remaining 315 ERCs the system was originally 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
|
|
Meter Installation Charge
5/8”x3/4”
|
$165.00
|
$365.00
|
|
Main Extension Charge
Per ERC
|
$0.00
|
$1,279.00
|
|
System Capacity Charge
|
$3,000.00
|
$0.00
|
|
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 $171 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 $171 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 $171 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 $26,267.
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 11.3 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 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. (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, 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 $411,621 for water. The adjusted water interim revenue
requirement of $411,621 is lower than the interim revenue requirement of
$464,122, resulting in a refund of 11.3 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 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.
