Discussion
of Issues
Issue 1:
Is the quality of service provided by Charlie Creek
Utilities, LLC satisfactory?
Recommendation:
Yes. The overall quality of service provided by
Charlie Creek Utilities, LLC should be considered satisfactory. (Knoblauch)
Staff Analysis:
Pursuant to Rule 25-30.433(1), Florida
Administrative Code (F.A.C.), in water and wastewater rate cases, the
Commission shall determine the overall quality of service provided by the
utility. Overall quality of service is derived from an evaluation of three
separate components of the utility operations. These components are: (1) the
quality of the utility’s product; (2) the operating conditions of the utility's
plant and facilities; and (3) the utility’s attempt to address customer
satisfaction. The Rule further states that sanitary surveys, outstanding
citations, violations, and consent orders on file with the Florida Department
of Environmental Protection (FDEP) and the county health department over the
preceding three-year period shall be considered. Furthermore, Section
367.0812(1)(c), 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 the FDEP.
Quality of Utility’s Product
In evaluation of Charlie Creek’s product quality, staff
reviewed the utility’s compliance with FDEP primary and secondary drinking
water standards. Primary standards protect public health, while secondary
standards regulate contaminants that may impact the taste, odor, and color of
drinking water.
Staff reviewed chemical analyses of samples dated June 26,
2012, and July 27, 2015. All results were in compliance with the FDEP primary
and secondary water quality standards. These chemical analyses are performed
every three years. The next scheduled analysis should take place in 2018.
Staff additionally reviewed customer complaints regarding
the quality of Charlie Creek’s product. At the customer meeting held in Wauchula,
FL on January 19, 2017, two customers discussed concerns regarding the quality
of water, including low pressure, water outages, a sulfur odor, low chlorine
levels, and a white substance in the pipes. As of the filing date of this
recommendation, five customers provided written comments expressing similar
concerns.
The utility has stated that there are ongoing efforts to
complete the maintenance and repairs needed to update the system and address
the calcium and odor concerns. To address the white substance customers had
observed, the utility is engaging an engineer in efforts to manage calcification
problems in the system. Staff believes the utility’s efforts to address the
calcification are reasonable considering the customer’s complaints. Additionally,
the utility stated that the buildup of calcium can also be attributed to the
low pressure problems customers have experienced.
One customer at the customer meeting stated that they
contacted the utility about a lack of chlorine in the water, and the utility
responded that they had run out of chlorine. The customer suggested that
additional monitoring of the water quality should be completed on a monthly or
bimonthly basis.
Addressing chlorine level concerns, the utility stated
they had never run out of chlorine and this may have occurred under the
previous owner. The utility disagreed that additional water quality monitoring
is necessary as the water test results are in compliance with the FDEP
requirements and additional testing would result in an added expenses for the
customers.
Staff also requested copies of complaints filed with the utility
during the test year and four years prior to the test year. The utility
indicated that no formal complaints were filed during the test year, but the utility
had received customer calls in relation to an odor from the water. In response,
the utility installed two flushing valves in order to help with the hydrogen
sulfide that was causing the odor.
In 2012, a customer complaint was filed with FDEP which
related to a possible calcium buildup in the lines. Calcium is a secondary
contaminant and is not considered an immediate health risk; however, the
customer was advised to contact FDEP if there were any further concerns. No
other product quality complaints were received. Based on staff’s review, giving
consideration to the utility’s current compliance with FDEP standards, Charlie
Creek’s product should be considered satisfactory. Furthermore, it appears that
the utility is addressing the product quality concerns raised by its customers.
Operating Condition of the Utility’s Plant and
Facilities
Charlie Creek’s service area is located in Wauchula,
Florida, in Hardee County, and is within the Southwest Florida Water Management
District (SWFWMD). The water treatment system has two wells and the raw water
is treated with liquid chlorine for disinfection purposes. The utility’s water
system has two storage tanks totaling 11,000 gallons and is pumped into a 6,000
gallon hydropneumatic tank before entering the distribution system.
On February 12, 2014, FDEP conducted a sanitary survey.
One deficiency was identified, stemming from the utility not meeting minimum
requirements for a community over 350 in population. To meet the minimum
requirements, the utility was required to submit an Emergency Preparedness
Plan, perform remediation measures to one well, and repair or replace its
generator. The utility made the necessary improvements and the system was found
to be in compliance on May 6, 2014. Staff did not identify any issues or
concerns during its January 19, 2017, site visit. Based on the operating
condition of Charlie Creek’s water treatment plant and facilities should be
considered satisfactory.
The Utility’s Attempt to Address Customer
Satisfaction
The final component of the overall quality of service that
must be assessed is the utility’s attempt to address customer satisfaction. A
summary of all complaints and comments received during the test year and four
years prior are shown in Table 1-1.
Table 1-1
Number of Complaints by
Source
|
Subject of Complaint
|
PSC’s Records (CATS)
|
Utility’s Records
|
FDEP
|
Docket Correspondence
|
Customer Meeting
|
|
Improper Billing/ Billing Related
|
|
|
1
|
3
|
|
|
Quality of Water
|
|
|
1
|
3
|
2
|
|
Condition of Facilities
|
|
|
|
4
|
2
|
|
Improper Disconnect
|
2
|
|
|
|
|
|
Outages
|
1
|
|
|
2
|
2
|
|
Total*
|
3
|
0
|
2
|
12
|
6
|
Source: Document
Nos. 00915-17, 01687-17, 01810-17, and 0083-17
*A complaint
may appear more than one time in this table if it meets multiple categories.
As part of staff’s evaluation of customer satisfaction,
staff held a customer meeting to receive customer comments concerning Charlie
Creek’s quality of service. The utility mailed the customer meeting notice to
its customers on January 4, 2017, advising them of the time, place, and purpose
of the meeting, as well as the procedures for filing comments with the
Commission.
Four customers attended the customer meeting, two of which
provided comments. As previously discussed in this issue, both customers reported
problems associated with the water quality. The first customer additionally
cited several instances when contacting the utility, their concerns were not
properly addressed or they were provided with erroneous information. Moreover,
the customer described an occurrence involving a water line break resulting in
multiple day outages, and a customer provided personal equipment to assist the utility
in repairing the line. The second customer echoed many of the same concerns,
such as water outages. Additionally, both customers believed that more
customers were not present at the customer meeting due to a misunderstanding of
the rate increase and the impact it would have on customers’ bills.
Charlie Creek provided a written response to the oral
comments made at the customer meeting. In its response the utility indicated
that, since the utility was acquired in 2014, it has made efforts to upgrade
customer safety and convenience. The utility stated that it is holding annual
meetings with customers to discuss utility related issues and has implemented
an option to pay bills over the phone or online.
Regarding the water main break, the utility stated that
Charlie Creek personnel initially repaired the water main following the break,
but discovered that there was additional damage when the water pressure in the
system remained low. A customer of Charlie Creek volunteered their equipment;
however, due to the extent of the leak, a contractor was hired to complete the
repairs. The utility asserted that customers were not out of water for several
days; however, the pressure was low and a precautionary boil water notice was
issued.
Other issues raised in the written comments received by
the Commission included estimated water usage, lack of flushing, frequent
breaks in water lines, difficulties in contacting the utility, poor customer
service, and a delayed response by the utility when repairing leaks. As
previously discussed, the utility has started holding annual meetings with its
customers to discuss utility related issues. Additionally, the utility
explained that several customer meters have been replaced to improve billing
accuracy.
Staff reviewed the Commission’s complaint records from
January 1, 2011, through March 3, 2017, and found three complaints. Two of the
complaints have been closed. The remaining complaint involved an improper
disconnection of service.
Examining FDEP records over a five year period including
the test year and the four years prior, one complaint was received on February
22, 2012. The customer stated that particles were present in their water, there
was a leak on the purveyor’s side, and they believed meters were not being
correctly read. FDEP personnel contacted the utility’s operator and owner who
addressed the customer’s concerns and the complaint was closed on February 23,
2012.
Based on the utility’s response to customers’ oral
concerns expressed in connection with the customer meeting, the small number of
complaints filed with the Commission, as well as the lack of those filed with FDEP,
staff recommends the utility’s attempt to address customer satisfaction should
be considered satisfactory.
Conclusion
Based on the summation of staff’s analysis and review
described above, the overall quality of service provided by Charlie Creek should
be considered satisfactory.
Issue 2:
What are the used and useful percentages (U&U)
of Charlie Creek Utilities, LLC's water treatment plant (WTP) and distribution
system?
Recommendation:
Charlie Creek’s WTP should be considered 50 percent
U&U. The water distribution system should be considered 55 percent U&U.
There appears to be no excessive unaccounted for water (EUW); therefore, staff
is not recommending an adjustment be made to operating expenses for chemicals
and purchased power. (Knoblauch)
Staff Analysis:
Charlie Creek’s water system is served by two 4-inch
wells rated at 125 gallons per minute (gpm) and 350 gpm, and the WTP permitted
capacity is 133,000 gallons per day (gpd). The raw water is treated by
chlorination prior to entering the water distribution system. The WTP has two
useable storage tanks totaling 11,000 gallons in capacity. There is an existing
fire flow stand pipe, but no fire hydrants are present. The distribution system
is composed of varying sizes of galvanized and PVC pipes. Staff notes that
there have been no prior rate cases for this utility before the Commission;
therefore, the U&U percentages for the WTP, storage facilities, and the distribution
system have not been previously established.
Water Treatment Plant Used and Useful
Pursuant to Rule 25-30.4325, F.A.C., the U&U
calculations are defined for a water treatment system and storage facilities.
For a water treatment plant with more than one well and storage capacity, the
U&U is described by the following equation: ([Peak Demand + Fire Flow +
Growth – Excessive Unaccounted for Water]/Firm Reliable Capacity).
The peak demand is the single maximum day in the test year
where there is no unusual occurrences and is measured in gallons per day (gpd).
From the flow data provided on the utility’s Monthly Operating Reports (MORs),
the peak demand was found to be 60,000 gpd. There is no fire flow for the utility.
Based on recent data growth in connections appears to be zero. As discussed
below, no EUW has been identified for this system.
The firm reliable capacity is defined for systems with
more than one well as the pumping capacity of all wells combined, excluding the
largest individual well. For Charlie Creek, this yields a value of 125 gpm, or
120,000 gpd. Since DEP rates the treatment facilities at a capacity of 133,000
gpd, the well-based capacity is not constrained by treatment capacity. The
final calculation of U&U for Charlie Creek is 50 percent ([60,000 + 0 + 0 –
0] / 120,000).
Excessive Unaccounted for Water
Rule 25-30.4325, F.A.C., defines EUW as unaccounted for
water in excess of 10 percent of the amount produced. Unaccounted for water is
all water produced that is not sold, metered, or accounted for in the records
of the utility. In determining whether adjustments to plant and operating
expenses are necessary in accordance with Rule 25-30.4325(10), F.A.C., staff
considers several factors. These factors include the causes of EUW, any corrective
action taken, and the economical feasibility of a proposed solution. EUW is
calculated by subtracting both the gallons sold to customers and the gallons
used for other services, such as flushing, from the total gallons pumped for
the test year.
Based on the MORs filed by the utility, Charlie Creek
produced 14,534,000 gallons of water from January 1, 2015 to December 31, 3015.
However, in response to staff’s data request, the utility found tabulation
errors in their MORs and provided the corrected pumped water data. The total gallons pumped using the corrected
data for 2015 was found to be 8,099,000 gallons.
Based on the audit report completed by staff, the utility
sold 8,294,049 gallons of water to customers. Additionally, the utility
documented 233,000 gallons of water that were expended for other uses as
recorded in the 2015 Annual Report. The resulting unaccounted for water is -5.3
percent ([8,099,000 – 8,294,049 – 233,000] / 8,099,000).
The utility believes the reason more water was sold than
pumped was due to several factors. During the first several months of operation
in 2015, the utility identified and replaced forty-three faulty water meters,
representing approximately 30 percent of its customer base. At the end of 2016,
a total of ninety-two meters had been replaced. When determining the amount of
water sold to customers with faulty meters, the utility estimated usages and
utilized past usages from their billing system.
Charlie Creek also found inaccuracies with the master
meters at both wells. On February 17, 2017, the Florida Rural Water Association
(FRWA) tested both well’s master meters and found one meter to be outside the
acceptable range of accuracy. The primary well’s master meter was found to be
running 8.3 percent slower than the test meter, but it was within accuracy
tolerance. The second well’s master meter was found to be running 11.1 percent
faster than the test meter and was not within acceptable accuracy tolerance.
However, the second well had undergone repairs in 2015 following the transfer
of the system and was not operational until November 2016, thus it did not
contribute to the amount of water pumped. Considering the results from the FRWA
and the age of each meter, the utility plans to replace both master meters for
improved accuracy in the amount of water pumped. Staff believes the replacement
of the master meters is prudent.
Staff considered an additional analysis of the unaccounted
for water by taking into account the inaccuracy of the primary well’s master
meter. Using the FRWA’s findings of the primary well’s master meter, the amount
of water pumped was adjusted accordingly and the unaccounted for water was
found to be less than 10 percent. Therefore, considering all of these factors,
staff recommends that no adjustment be made to operating expenses for chemicals
and purchased power due to the EUW.
Storage Used and Useful
The utility has two useable storage tanks with a capacity
of 11,000 gallons. According to Rule 25-30.4325(8), F.A.C., usable storage
capacity less than or equal to the peak day demand shall be considered 100
percent used and useful. As discussed above, the peak day demand was found to
be 60,000 gallons per day, thus, the storage should be considered 100 percent
U&U.
Water Distribution System Used and Useful
The equation for calculating U&U for the water
distribution system is given by: ([Number of Test Year Connections + Growth] /
Capacity of the System). Based on customer bills, the audit report identified
144 residential connections and 1 general service connection during the test
year. The capacity of the system is 266 lots; therefore, the water distribution
system is 55 percent U&U ([145 + 0] / 266).
Summary
Based on staff’s analysis, Charlie Creek’s water treatment
plant should be considered 50 percent U&U, storage U&U should be
considered 100 percent, and the water distribution system should be considered
55 percent U&U. There appears to be no EUW; therefore, staff is not recommending
an adjustment be made to operating expenses for chemicals and purchased power.
Issue 3:
What is the appropriate average test year rate base
for Charlie Creek Utilities, LLC?
Recommendation:
The appropriate average test year water rate base
for Charlie Creek is $26,617. (Vogel)
Staff Analysis:
Charlie Creek’s net book value has never been
established by the Commission, due in part to the lack of original
documentation from the previous owner, during the original certificate audit.
Charlie Creek’s current ownership manages and owns other
utilities in Florida and, as of January 1, 2015, has been recording common
costs on FUS1 books. These costs, which include salaries, transportation, and
office supplies, have been allocated among all of the utilities receiving
services from FUS1. Staff used allocations based on customer count and all
utilities owned and managed by FUS1 at the time of the audit. All new
allocation adjustments are based on ERC count and the current utilities owned
or managed by FUS1 as of September 26, 2016. The new allocation for Charlie
Creek from FUS1 is 7.29 percent. The test year ended December 31, 2015, was
used for the instant case. A summary of each water rate base component and
recommended adjustments are discussed below.
Utility Plant in Service (UPIS)
The UPIS balance to begin the test year was $0 as the
utility’s prior owner’s records were destroyed. For the test year, the utility
recorded water UPIS of $3,044. Staff capitalized major repairs at the plant
originally expensed to Accounts 620 and 636. These repairs include two pump
repairs, one for $504 and the second for $640. The utility originally booked
these costs as expenses, but staff believes these repairs will not be recurring
and did extend the useful life of the assets; therefore, the costs should be
capitalized. The utility’s improvements being capitalized also include
replacing a control box, refurbishing well #2 pumping equipment, installing a
flush point, and installing a starter on well #1. The utility also installed
meters, but did not book the labor and installation costs for these meters.
Therefore, staff has increased UPIS by $360. Staff also increased this account
by $1,070 to include the purchase of a lawn mower.
As discussed in Issue 2, the utility also included the
purchase and installation of two master meters. The utility also purchased and
installed two gate valves along with the necessary sampling expenses. These
additions totaled $1,472 and $2,223 (1,833 + 390), respectively. Staff has also
included an averaging adjustment of negative $7,393. Staff’s adjustments to
UPIS result in a net increase of $4,349. Therefore, staff recommends that the
appropriate UPIS balance is $7,393. These recommended adjustments to UPIS are
detailed in Table 3-1.
Table 3-1
Adjustments
made to UPIS
|
|
Adjustment Description
|
Water
|
|
1.
|
To capitalize the purchase of a 30 gpd pump.
|
$590
|
|
2.
|
To capitalize the replacement of a control box.
|
508
|
|
3.
|
To capitalize the refurbishment of well pumping equipment.
|
2,156
|
|
4.
|
To capitalize the installation of a 2-inch flush point.
|
1,800
|
|
5.
|
To capitalize the installation of a starter for a well.
|
418
|
|
6.
|
To capitalize non-recurring pump repairs and new impeller.
|
1,144
|
|
7.
|
To include the installation cost of replaced meters.
|
360
|
|
8.
|
To include the purchase of a new lawn mower.
|
1,070
|
|
9.
|
To include pro forma replacement of two gate valves and
sampling.
|
2,223
|
|
10.
|
To include pro forma purchase and installation of two
master meters.
|
1,472
|
|
|
Subtotal
|
$11,741
|
|
|
Averaging Adjustment
|
(7,393)
|
|
|
Net Increase to UPIS
|
$4,349
|
|
|
Existing UPIS
|
3,044
|
|
|
Test Year UPIS
|
$7,393
|
UPIS - Allocated
The utility did not record a balance in UPIS – Allocated.
Due to the utility’s relationship with FUS1, staff has included allocated
common plant from FUS1. Staff’s audit included total FUS1 balances for Office
Furniture & Equipment, Transportation Equipment, and Tools, Shop, and
Garage Equipment of $21,770. After applying Charlie Creek’s 7.29 percent
allocation, staff increased UPIS – Allocated by $1,588. Staff also included an
averaging adjustment of negative $69. Therefore, staff recommends that the
appropriate UPIS - Allocated balance is $1,518.
Land & Land Rights
The utility recorded a test year land balance of $12,050.
No adjustments are necessary; therefore, staff recommends that the Land &
Land Rights balance remain $12,050
Non-Used and Useful (non-U&U) Plant
The utility did not record a test year non-U&U plant
balance for water. As discussed in Issue 2, staff determined the WTP to be 50
percent U&U and the water distribution system to be 55 percent U&U.
Staff has applied the U&U percentage to WTP average
plant balances and to the associated average accumulated depreciation balances.
Staff has increased non-U&U WTP by $1,120 for average plant and decreased
the associated average depreciation by $75. Staff has applied the U&U
percentage to the water distribution average plant balances and to the
associated average accumulated depreciation balances. Staff has increased
non-U&U water distribution system by $905 for average plant and decreased the
associated average depreciation by $38. Staff’s adjustments to non-U&U
plant are an increase of $2,025 and staff’s adjustments to associated average
depreciation are a decrease of $112. Therefore, staff recommends non-U&U
plant of $1,912.
Contributions in Aid of Construction (CIAC)
The utility did not record CIAC balances. Due to the lack
of original cost for transmission and distribution plant, staff cannot
determine an amount for CIAC. Commission audit staff found no additions in the
test year and determined that no adjustments are necessary. Staff recommends
CIAC of zero.
Accumulated Depreciation
Charlie Creek recorded a test year accumulated
depreciation balance of $179. Staff recalculated accumulated depreciation using
the prescribed rates set forth in Rule 25-30.140, F.A.C., and depreciation
associated with plant additions and retirements and has increased water by $98.
Staff has decreased this account by $215 for water to reflect the simple
average. As discussed in Issue 2, the utility requested pro forma items. Staff
has included $152 for the average accumulated depreciation associated with the
pro forma items. Staff’s total adjustments to this account are a decrease of
$36. Staff’s adjustments to this account results in an Accumulated Depreciation
balance of $215.
Accumulated Depreciation- Allocated
The utility did not record a test year balance for
Accumulated Depreciation – Allocated. Staff has included in this account
accumulated depreciation for plant associated with FUS1’s common plant that has
been allocated to Charlie Creek. Staff has included $58 to Accumulated
Depreciation - Allocated. Staff has also included an averaging adjustment of
$21 for each account. Therefore, staff’s adjustments to this account results in
an Accumulated Depreciation – Allocated balance of $37.
Accumulated Amortization of CIAC
As stated above, staff recommends a CIAC balance of zero;
therefore, the balance of Accumulated Amortization of CIAC should also be zero.
Working Capital Allowance
Working capital is defined as the short-term
investor-supplied funds that are necessary to meet operating expenses.
Consistent with Rule 25-30.433(2), F.A.C., staff used the one-eighth of the
operation and maintenance (O&M) expense formula approach for calculating
the working capital allowance. Applying this formula, staff recommends a
working capital allowance of $7,820 (based on O&M expense of $62,557 /8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base for Charlie Creek is $26,617. Rate base
is shown on Schedule No. 1-A. The related adjustments are shown on Schedule No.
1-B.
Issue 4:
What is the appropriate return on equity and overall
rate of return for Charlie Creek Utilities, LLC?
Recommendation:
The appropriate return on equity (ROE) is 11.16
percent with a range of 10.16 percent to 12.16 percent. The appropriate overall
rate of return is 6.28 percent. (Vogel)
Staff Analysis:
According to staff’s audit, Charlie Creek’s test
year capital structure reflected common equity of $15,931, long term debt of
$8,660 and customer deposits of $2,555.
Staff has decreased common equity by $15,931 to remove
revenue earned from the previous owner and to reflect an adjustment made by the
utility based on the transfer audit performed in Docket 150186-WU. Staff
decreased the customer deposits balance by $599, to reflect the utility’s
customer deposit log. The utility’s capital structure has been reconciled with staff’s
recommended rate base. The appropriate ROE for the utility is 11.16 percent
based upon the Commission-approved leverage formula currently in effect. Staff recommends an ROE of 11.16 percent,
with a range of 10.16 percent to 12.16 percent, and an overall rate of return
of 6.28 percent. The ROE and overall rate of return are shown on Schedule No.
2.
Issue 5:
What are the appropriate test year revenues for Charlie
Creek Utilities, LLC?
Recommendation:
The appropriate test year revenues for Charlie
Creek's water system are $65,621. (Friedrich)
Staff Analysis:
Charlie Creek recorded total test year revenues of
$68,259. The water revenues included $63,582 of service revenues and $4,677 of
miscellaneous revenues. Based on staff’s review of the utility’s billing
determinants and the service rates that were in effect during the test year,
staff determined test year service revenues should be $59,656. This results in
a decrease of $3,926 ($63,582-$59,656) to service revenues. In addition, staff
made adjustments to miscellaneous revenues. Based on staff’s review of the
number of miscellaneous service occurrences during the test year and the
utility’s tariff approved miscellaneous service charges, staff determined
miscellaneous revenues should be $5,965. This results in an increase of $1,288
($5,965-$4,677). Based on the above, the appropriate test year revenues for
Charlie Creek’s water system are $65,621.
Issue 6:
What is the appropriate amount of operating expense
for Charlie Creek Utilities, LLC?
Recommendation:
The appropriate amount of operating expense for
Charlie Creek is $69,063. (Vogel)
Staff Analysis:
Charlie Creek recorded operating expense of $71,632
for the test year ended December 31, 2015. The test year O&M expenses have
been reviewed, including invoices, canceled checks, and other supporting
documentation. Staff has also included an allocated portion of FUS1’s operating
expenses for the test year ended December 31, 2015. Staff used allocations
based on customer count and all utilities owned and managed by FUS1 at the time
of the audit. All incremental allocation increases are based on ERC count as of
September 26, 2016. The new allocation for Charlie Creek from FUS1 is 7.29
percent. Staff has made several adjustments to the utility's operating expenses
as summarized below.
Salaries and Wages- Employees (601)
Charlie Creek recorded salaries and wages – employees
expense of $12,876. Staff received a compensation survey completed by OCBOA
Consulting, LLC (OCBOA) regarding the salaries of FUS1 employees. The utility
requested an increase in salaries based on the survey. Staff analyzed the
results of the compensation survey and properly allocated the salary
adjustments for Charlie Creek. Staff’s adjustments and analysis of the compensation
study are consistent with those approved in East Marion Utilities, LLC (East
Marion), a sister utility, by the Commission at the February 7, 2017 Commission
Conference. Staff
continues to believe that the amounts approved are appropriate at this time.
Staff’s allocation of salaries is detailed in Table 6-1.
Table 6-1
Adjustments
made to Salaries and Wages – Employees based on the OCBOA Compensation Survey
|
Title
|
Requested
|
Current Salary
|
Allocation %
|
Allocated Salary
|
|
Chief Financial Off.
|
$55,500
|
$54,366
|
7.29
|
$3,964
|
|
Operation Supervisor
|
39,000
|
39,000
|
7.29
|
2,844
|
|
Office Manager
|
39,500
|
39,500
|
7.29
|
2,880
|
|
Cust. Serv. Rep.
|
34,000
|
34,000
|
7.29
|
2,479
|
|
Part-time Billing
|
10,400
|
10,400
|
7.29
|
758
|
|
Total
|
|
|
|
$12,927
|
Source: Utility’s request based on Compensation Survey
from OCBOA
Staff has
increased this expense by $51 to account for the increase in salaries and to
properly allocate the salary expense. Staff’s total adjustments result in an
increase of $51. Therefore, staff is recommending salaries and wages –
employees expense of $12,927.
Salaries and Wages- Officers (603)
Charlie Creek recorded salaries and wages – officers
expense of $5,700. Based on the adjustments approved at the February 7, 2017
Commission Conference, staff has decreased this expense by $398. This
represents a recommended total President salary of $72,704 to be allocated over
all FUS1 utilities, as previously approved. The utility has not provided any
additional information regarding this account and staff does not believe any
additional increases are appropriate at this time. Therefore, staff is
recommending salaries and wages – officers expense of $5,302
Employee Pensions and Benefits (604)
Charlie Creek recorded employee pensions and benefits
expense of $1,838. Staff has decreased this expense by $260 to include the
appropriate amount of benefits expense for the test year. Staff has increased
this account by $122 to reflect the incremental allocation increase. Staff’s
adjustments result in a decrease of $138. Therefore, staff is recommending
employee pensions and benefits expense of $1,700.
Purchased Power (615)
The
utility recorded purchased power expense of $3,790. Staff has decreased this expense
by $18 to remove an out of period expense. Staff increased this expense by $392
to include a previously unrecorded invoice. Staff’s net adjustments are an
increase of $374. Therefore, staff recommends purchased power expense of $4,164.
Fuel for Power Production (616)
The
utility recorded fuel for power production expense of $496. Staff has
reclassified this expense to Account 650. Therefore, staff’s adjustments result
in a decrease of $496. Therefore, staff recommends fuel for power production
expense of $0.
Chemicals (618)
Charlie
Creek recorded chemicals expense of $1,994. Staff has decreased this account by
$165, to remove a double entry. Staff’s total adjustments result in a decrease
of $165. Therefore, staff recommends chemicals expense of $1,829.
Materials & Supplies (620)
The
utility recorded materials & supplies expense of $2,926. Staff has
decreased this account by $1,144 to remove capitalized expenses relating to
pump repairs during the test year. The utility, in its audit response, requested
inclusion of these expenses in O&M. Staff believes these expenses should be
capitalized as they are non-recurring. Staff has increased this account by $369
to include an allocated invoice not previously included. Staff also increased
this account by $155 to reflect the incremental allocation increase. Staff’s
total adjustments result in a decrease of $620. Therefore, staff recommends
materials & supplies expense of $2,306.
Contractual Services- Other (636)
Charlie
Creek recorded Contractual Services – Other expense of $16,705. As discussed in
Issue 1, calcification of the water distribution system has caused quality of
service issues associated with water color and water pressure. The utility has
engaged an engineering consultant to address the calcification issue which has
also caused water meters and appurtenances to fail. Based on information
provided by Charlie Creek, correcting the calcification issue will likely improve
the utility’s quality of service. Charlie Creek provided an invoice of $4,197 for
the scope of services to be completed by the engineering consultant. The
utility attempted to obtain multiple bids, but due to the rural location of the
utility, no other engineering firm was able to provide a bid. Staff believes the
engineering analysis and its costs are prudent and reasonable. Staff recommends
the following adjustments to Contractual Services – Other.
Table 6-2
Adjustments made to Contractual Services - Other
|
|
Adjustment
Description
|
Water
|
|
1.
|
To capitalize the purchase of a 30 gpd pump.
|
($590)
|
|
2.
|
To capitalize the replacement of a control box.
|
(508)
|
|
3.
|
To capitalize the refurbishment of well pumping equipment.
|
(2,156)
|
|
4.
|
To capitalize the installation of a 2-inch flush point.
|
(1,800)
|
|
5.
|
To capitalize the installation of a starter for a well.
|
(418)
|
|
6.
|
To remove a duplicate invoice.
|
(528)
|
|
7.
|
To include an allocated invoice not previously included.
|
33
|
|
8.
|
To reflect the incremental allocation increase.
|
76
|
|
9.
|
To reflect an increase in water operations expense of
$25/month.
|
300
|
|
10.
|
To include pro forma replacement of two check valves.
|
86
|
|
11.
|
To include pro forma sampling expense for a main repair.
|
390
|
|
12.
|
To include pro forma main repair.
|
400
|
|
13.
|
To include pro forma piping supplies.
|
216
|
|
14.
|
To include pro forma calcification analysis, amortized
over five years.
|
839
|
|
|
Total
|
($3,660)
|
Source: Audit Control No. 16-182-4-1, Audit
Response, and Responses to Staff’s Data Requests
Based on
the adjustments shown above, staff’s net adjustment is a decrease of $3,660. Staff
recommends Contractual Services – Other expense of $13,045.
Rent Expense (640)
Charlie
Creek recorded rent expense of $1,258. Staff has decreased this account by $104
to reflect the annualized lease agreement with FUS1. Staff has increased this
account by $89 to reflect the incremental allocation increase based on ERCs.
Staff’s adjustments result in a net decrease of $15. Therefore, staff
recommends rent expense of $1,243.
Transportation Expense (650)
Charlie
Creek recorded transportation expense of $1,309. Staff has increased this
account by $295 to reflect the appropriate allocated expenses for
transportation. Staff has decreased this account by $122 to remove a truck loan
from expenses. Staff has decreased this account by $27 to remove unsupported
expenses. Staff has reclassified an account balance from Account 616 for $496,
increasing this account balance by $496. Finally, staff increased this expense
by $151 to reflect the incremental allocation increase. Staff’s total
adjustments result in an increase of $793. Staff recommends transportation
expense of $2,102.
Insurance Expense (655)
Charlie
Creek recorded insurance expense of $1,935 for the test year. Staff has
decreased this expense by $301 to remove the health insurance premiums
duplicated in Account 604. Staff recommends insurance expense for the test year
of $1,634.
Regulatory Commission Expense (665)
Charlie
Creek did not record regulatory commission expense for the test year. Staff has
determined the filing fees, noticing fees, and postage for the instant case to
be $1,259. Staff has also included $887 to reflect amortized filing and legal
fees from the transfer, not previously included. Staff has amortized these
amounts over four years. Therefore, staff recommends regulatory commission
expense of $536.
Bad Debt Expense (670)
Charlie
Creek recorded a bad debt expense estimation of $350 for the test year. Staff
has increased this account by $1,615 to reflect the actual bad debt expense per
an Aging Account Report. The utility did not have three years of records to
compare. However, the Aging Account Report included approximately 6 months of
2016 data totaling $883. Staff believes approximately 18 months of data is a
valid representation of bad debt expense for this utility. Therefore, staff
recommends bad debt expense of $1,965.
Miscellaneous Expense
Charlie
Creek recorded miscellaneous expense of $7,159. Staff recommends the following
adjustments to miscellaneous expense:
Table 6-3
Adjustments made to Miscellaneous Expense
|
|
Adjustment
Description
|
Water
|
|
1.
|
To remove bank fees for non-sufficient funds and closing
costs.
|
($105)
|
|
2.
|
To remove transfer filing fees and amortize into Acct. 665.
|
(750)
|
|
3.
|
To remove a portion of the purchase fee for the utility.
|
(100)
|
|
4.
|
To include customer convenience fees.
|
758
|
|
5.
|
To remove interest payments for a loan.
|
(407)
|
|
6.
|
To move expenses relating to original certification to
Acct. 665.
|
(137)
|
|
7.
|
To include expenses relating to an annual customer meeting.
|
199
|
|
8.
|
To remove unsupported expenses.
|
(123)
|
|
9.
|
To reflect the test year allocation of expenses from FUS1.
|
17
|
|
10.
|
To remove equipment expenses included in Acct. 640.
|
(179)
|
|
11.
|
To reflect the appropriate amount of utility expenses from
FUS1.
|
(170)
|
|
12.
|
To include amortized closing costs of a loan, amortized
over 5 years.
|
20
|
|
13.
|
To reflect the incremental allocation increase.
|
279
|
|
14.
|
To include pro forma roof repair, amortized over five
years.
|
219
|
|
|
Total
|
($479)
|
Source: Audit Control No. 16-182-4-1,
Audit Response, and Invoices provided by utility
Staff’s
total adjustments decrease this account by $479. Therefore, staff recommends
miscellaneous expense of $6,680.
Operation and Maintenance Expenses Summary
Based on
the above adjustments, staff recommends that the O&M expense balance is
$62,557. Staff’s recommended adjustments to O&M expense are shown on
Schedule Nos. 3-A through 3-C.
Depreciation Expense (Net of Amortization of
CIAC)
Charlie
Creek recorded depreciation expense of $179 during the test year. Staff
recalculated depreciation expense using the prescribed rates set forth in Rule
25-30.140, F.A.C. Staff increased depreciation expense by $98 to reflect the
appropriate depreciation expense. Staff increased depreciation expense by $249
to include the appropriate depreciation of allocated plant. Staff increased
depreciation expense by $152 to include depreciation expense for pro forma
plant. Staff decreased depreciation expense by $112 to reflect the U&U
adjustment to plant. The appropriate amount of amortization of CIAC is $0.
Staff’s total adjustment is an increase of $387, resulting in a net
depreciation expense of $566.
Taxes Other Than Income (TOTI)
Charlie Creek recorded a TOTI balance of $5,993 for the
test year. Staff has recalculated the utility’s property taxes using the
updated 2015 rates and has decreased this account $4,278. The utility had
included the 2013 and 2014 property tax payment in this account. Staff
increased this account to include payroll taxes of $1,251. Staff has increased
this account by $2,953, to reflect the appropriate test year Regulatory
Assessment Fees (RAFs) based on adjusted test year revenues. Staff increased
TOTI by $74 to reflect the pro forma plant addition. Staff also decreased TOTI
by $490 to remove property taxes associated with non-U&U property. Staff’s
adjustments to TOTI result in a net decrease of $490.
In addition, as discussed in Issue 8, revenues have been
increased by $9,697 to reflect the change in revenue required to cover expenses
and allow the recommended operating margin. As a result, TOTI should be
increased by $436 to reflect RAFs of 4.5 percent on the change in revenues. This
adjustment results in a net decrease of $54. Staff recommends TOTI of $5,939
Operating Expense Summary
The application of staff’s recommended adjustments to
Charlie Creek’s test year operating expenses results in operating expenses of
$69,063. Operating expenses are shown on Schedule Nos. 3-A. The related
adjustments are shown on Schedule Nos. 3-B and 3-C.
Issue 7:
Should the Commission utilize the operating ratio
methodology as an alternative method of calculating the water revenue
requirement for Charlie Creek Utilities, LLC? If so, what is the appropriate
margin?
Recommendation:
Yes, the Commission should utilize the operating
ratio methodology for calculating the water revenue requirement for Charlie
Creek. The margin should be 10 percent of O&M expense. (Vogel)
Staff Analysis:
Section 367.0814(9), F.S., provides that the Commission may, by
rule, establish standards and procedures for setting rates and charges of small
utilities using criteria other than those set forth in Sections 367.081(1),
(2)(a), and (3), F.S. Rule 25-30.456, F.A.C., provides an alternative to a
staff-assisted rate case as described in Rule 25-30.455, F.A.C. As an
alternative, utilities with total gross annual operating revenue of less than
$275,000 per system may petition the Commission for staff assistance using
alternative rate setting.
Charlie
Creek did not petition the Commission for alternative rate setting under the
aforementioned rule, but staff believes the Commission should employ the
operating ratio methodology to set rates in this case. The operating ratio
methodology is an alternative to the traditional calculation of revenue
requirements. Under this methodology, instead of applying a return on the
utility’s rate base, the revenue requirement is based Charlie Creek’s O&M
expenses plus a margin. This methodology has been applied in cases in which the
traditional calculation of the revenue requirement would not provide sufficient
revenue to protect against potential variances in revenues and expenses.
By Order No.
PSC-96-0357-FOF-WU,[4]
the Commission, for the first time, utilized the operating ratio methodology as
an alternative means for setting rates. This order also established criteria to
determine the use of the operating ratio methodology and a guideline margin of
10 percent of O&M expense. This criterion was applied again in Order No.
PSC-97-0130-FOF-SU.[5]
Most recently, the Commission approved the operating ratio methodology
for setting rates in Order No. PSC-16-0126-PAA-WU.[6]
By Order No. PSC-96-0357-FOF-WU, the Commission established criteria to
determine whether to utilize the operating ratio methodology for those
utilities with low or non-existent rate base. The qualifying criteria
established by Order No. PSC-96-0357-FOF-WU and how they apply to the utility
are discussed below:
1) Whether the utility=s O&M expense exceeds rate base.
The operating ratio method substitutes O&M expense for rate base in
calculating the amount of return. A utility generally would not benefit from
the operating ratio method if rate base exceeds O&M expense. In the instant
case, rate base is less than the level of O&M expense. The utility’s
primary risk resides with covering its operating expense. Based on the staff’s recommendation,
the adjusted rate base for the test year is $26,617, while adjusted O&M
expenses are $62,557.
2) Whether the utility
is expected to become a Class B utility in the foreseeable future. Pursuant to Section 367.0814(9), F.S., the
alternative form of regulation being considered in this case only applies to
small utilities with gross annual revenue of $275,000 or less. Charlie Creek is
a Class C utility and the recommended revenue requirement of $75,318 is
substantially below the threshold level. The utility=s service area has not had any
significant growth in the last five years. Therefore, it appears the utility
will not become a Class B utility in the foreseeable future.
3) Quality of service
and condition of plant. As
discussed in Issue 1, the overall quality of service provided by Charlie Creek
Utilities, LLC should be considered satisfactory.
4) Whether the utility
is developer-owned. The current utility owner is not a developer.
5) Whether the utility
operates treatment facilities or is simply a distribution and/or collection
system. The issue is whether or not purchased water and/or wastewater costs
should be excluded in the computation of the operating margin. Charlie Creek operates
a water treatment plant.
Based on staff’s review of the
utility’s situation relative to the above criteria, staff recommends that Charlie
Creek is a viable candidate for the operating ratio methodology.
By Order
Nos. PSC-96-0357-FOF-WS and PSC-97-0130-FOF-WU, the Commission determined that
a margin of 10 percent shall be used unless unique circumstances justify the
use of a greater or lesser margin. The important question is not what the
return percentage should be, but what level of operating margin will allow the
utility to provide safe and reliable service and remain a viable entity. The
answer to this question requires a great deal of judgment based upon the
particular circumstances of the utility.
Several factors must be considered
in determining the reasonableness of a margin. First, the margin must provide
sufficient revenue for the utility to cover its interest expense. Staff believes
the margin will sufficiently cover the interest expense for Charlie Creek.
Second, the operating ratio
method recognizes that a major issue for small utilities is cash flow;
therefore, the operating ratio method focuses more on cash flow than on investment.
In the instant case, the utility’s primary risk resides with covering its
operating expense. A traditional calculation of the revenue requirement may not
provide sufficient revenue to protect against potential variances in revenues
and expenses. Under the rate
base methodology, the return to Charlie Creek would be $1,597. With the large
number of necessary repairs and improvements made to the system in its first
year under this owner and the potential need for additional repairs, staff does
not believe the $1,597 would provide the financial cushion necessary to
successfully operate this utility.
Third, if
the return on rate base method was applied, a normal return would generate such
a small level of revenue that in the event revenues or expenses vary from
staff’s estimates, Charlie Creek could be left with insufficient funds to cover
operating expenses. Therefore, the margin should provide adequate revenue to
protect against potential variability in revenues and expenses. If the
utility’s operating expenses increase or revenues decrease, Charlie Creek may
not have the funds required for day-to-day operations. Staff determined that a
10 percent margin would be sufficient in this case.
In
conclusion, staff believes the above factors show that the utility needs a
higher margin of revenue over operating expenses than the traditional return on
rate base method would allow. Therefore, in order to provide Charlie Creek with
adequate cash flow to provide some assurance of safe and reliable service,
staff recommends application of the operating ratio methodology at a margin of
10 percent of O&M expense for determining the revenue requirements.
Issue 8:
What is the appropriate revenue requirement for
Charlie Creek Utilities, LLC?
Recommendation:
The appropriate revenue requirement is $75,318,
resulting in an annual increase of $9,697 (14.78 percent). (Vogel)
Staff Analysis:
Charlie
Creek should be allowed an annual increase of $9,697 (14.78 percent). This will
allow the utility the opportunity to recover its expenses as well as a 10
percent margin on O&M expenses for its water systems. The calculations are
shown in Tables 8:
Table 8-1
|
Water
Revenue Requirement
|
|
Adjusted O&M Expense
|
|
$62,557
|
|
Operating Margin (%)
|
|
10.00%
|
|
Operating Margin ($)
|
|
$6,256
|
|
Adjusted O&M Expense
|
|
62,557
|
|
Depreciation Expense (Net)
|
|
566
|
|
Taxes Other Than Income
|
|
5,503
|
|
Test Year RAFs
|
|
436
|
|
Revenue Requirement
|
|
$75,318
|
|
Less Adjusted Test Year Revenues
|
|
65,621
|
|
Annual Increase
|
|
$9,697
|
|
Percent Increase
|
|
14.78%
|
Issue 9:
What are the appropriate rate structure and rates
for Charlie Creek Utilities, LLC?
Recommendation:
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. (Friedrich)
Staff Analysis:
Charlie Creek is located in Hardee County within the
SWFWMD and provides water service to approximately 145 residential and one
general service customer. Approximately 10.49 percent of the residential
customer bills during the test year had zero gallons indicating a non-seasonal
customer base. The average residential water demand is 4,788 gallons per month.
The utility’s current water system rate structure for residential and general
service customers consists of a base facility charge (BFC) based on meter size
and a two-tier inclining block rate structure. The rate blocks are: (1) 0-3,000
gallons and (2) all usage in excess of 3,000 gallons per month.
Staff performed an analysis of the utility’s billing data
in order to evaluate the appropriate rate structure for the residential water
customers. The goal of the evaluation was to select the rate design parameters
that: (1) produce the recommended revenue requirement; (2) equitably distribute
cost recovery among the utility’s customers; (3) establish the appropriate
non-discretionary usage threshold for restricting repression; and (4)
implement, where appropriate, water conserving rate structures consistent with
Commission practice.
In order to design gallonage charges that will send the
appropriate pricing signals to target non-discretionary usage, staff believes
40 percent of the revenue requirement should be recovered through the BFC. At
the 40 percent BFC allocation, the percentage increase in price increases as
consumption increases, which is one of the rate design goals. In addition, the average number of people per
household served by the water system is two and one half; therefore, based on
the number of persons per household, 50 gallons per day per person, and the
number of days per month, the non-discretionary usage threshold should be 4,000
gallons per month instead of 3,000 gallons. Staff recommends a BFC and a
two-tier gallonage charge rate structure for residential customers. The rate
tiers should be: (1) 0-4,000 gallons and (2) all usage in excess of 4,000
gallons per month. Staff recommends a BFC and uniform gallonage charge rate
structure for general service customers.
Further, based on the recommended revenue increase of
approximately 16.3 percent excluding miscellaneous revenues, the residential
consumption can be expected to decline by 292,000 gallons, resulting in
anticipated average residential demand of 4,619 gallons per month. Staff
recommends a 3.5 percent reduction in total test year residential gallons for
rate setting purposes and corresponding reductions of $13 for purchased power,
$6 for chemical expense, and $1 for RAFs to reflect the anticipated repression.
These adjustments result in a post repression revenue requirement of $69,333.
The recommended rate structure and monthly water rates are shown on Schedule
No. 4. Additionally, staff evaluated alternative rate structures with varying
BFC allocations and found that the alternatives were not in accordance with the
rate design parameters.
Based on the above, 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 10:
What is the appropriate amount by which rates should
be reduced in four years after the published effective date to reflect the
removal of the amortized rate case expense as required by Section 367.081(8),
F.S.?
Recommendation:
The water rates should be reduced as shown on
Schedule Nos. 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 367.081(8), F.S. Charlie Creek 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. (Vogel, Friedrich)
Staff Analysis:
Section 367.081(8), 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. The total reduction is $617.
Based on the above, the water rates should be reduced as
shown on Schedule Nos. 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 367.081(8), F.S. Charlie Creek
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 11:
Should the recommended rates be approved for Charlie
Creek Utilities, LLC on a temporary basis, subject to refund with interest, in
the event of a protest filed by a party other than the utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates should be approved for the utility on a temporary basis,
subject to refund with interest, in the event of a protest filed by a party
other than the utility. Charlie Creek should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition,
the temporary rates should not be implemented until staff has approved the
proposed notice, and the notice has been received by the customers. Prior to
implementation of any temporary rates, the utility should provide appropriate
security. If the recommended rates are approved on a temporary basis, the rates
collected by the utility should be subject to the refund provisions discussed
below in the staff analysis. In addition, after the increased rates are in
effect, pursuant to Rule 25-30.360(6), F.A.C., the utility should file reports
with the Commission’s Office of Commission Clerk no later than the 20th of each
month indicating the monthly and total amount of money subject to refund at the
end of the preceding month. The report filed should also indicate the status of
the security being used to guarantee repayment of any potential refund. (Vogel)
Staff Analysis:
This recommendation
proposes an increase in water rates. A timely protest might delay what may be a
justified rate increase resulting in an unrecoverable loss of revenue to the
utility. Therefore, pursuant to Section 367.0814(7), F.S., in the event of a
protest filed by a party other than the utility, staff recommends that the
recommended rates be approved as temporary rates. Charlie Creek should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition,
the temporary rates should not be implemented until staff has approved the
proposed notice, and the notice has been received by the customers. The
recommended rates collected by the utility should be subject to the refund
provisions discussed below.
Charlie Creek should be
authorized to collect the temporary rates upon staff’s approval of an
appropriate security for the potential refund and the proposed customer notice.
Security should be in the form of a bond or letter of credit in the amount of
$6,586. Alternatively, the utility could establish an escrow agreement with an
independent financial institution.
If the utility chooses a bond as
security, the bond should contain wording to the effect that it will be
terminated only under the following conditions:
1)
The Commission approves the rate increase; or,
2)
If the Commission denies the increase, the utility
shall refund the amount collected that is attributable to the increase.
If the utility chooses a letter
of credit as a security, it should contain the following conditions:
1) The
letter of credit is irrevocable for the period it is in effect, and,
2) The letter of credit will be
in effect until a final Commission order is rendered, either approving or
denying the rate increase.
If security is provided through
an escrow agreement, the following conditions should be part of the agreement:
1) The
Commission Clerk, or his or her designee, must be a signatory to the escrow
agreement
2) No
monies in the escrow account may be withdrawn by the utility without the
express approval of the Commission;
3) The
escrow account shall be an interest bearing account;
4) If
a refund to the customers is required, all interest earned by the escrow
account shall be distributed to the customers;
5) If
a refund to the customers is not required, the interest earned by the escrow
account shall revert to the utility;
6) All
information on the escrow account shall be available from the holder of the
escrow account to a Commission representative at all times;
7) The
amount of revenue subject to refund shall be deposited in the escrow account
within seven days of receipt;
8) This
escrow account is established by the direction of the Florida Public Service
Commission for the purpose(s) set forth in its order requiring such account.
Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972),
escrow accounts are not subject to garnishments; and
9) The
account must specify by whom and on whose behalf such monies were paid.
In no instance should the
maintenance and administrative costs associated with the refund be borne by the
customers. These costs are the responsibility of, and should be borne by, the
utility. Irrespective of the form of security chosen by the utility, an account
of all monies received as a result of the rate increase should be maintained by
the utility. If a refund is ultimately required, it should be paid with
interest calculated pursuant to Rule 25-30.360(4), F.A.C.
Should the recommended
rates be approved by the Commission on a temporary basis, Charlie Creek should maintain a record of the amount of the security, and the amount of
revenues that are subject to refund. In addition, after the increased rates are
in effect, pursuant to Rule 25-30.360(6), F.A.C., the utility should file
reports with the Commission’s Office of Commission Clerk no later than the 20th
of each month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund.
Issue 12:
Should the miscellaneous service charges of Charlie
Creek Utilities, LLC be revised?
Recommendation:
Yes. Charlie Creek’s miscellaneous service charges
should be revised. The charges should be effective on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the
approved charges 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. (Friedrich)
Staff Analysis:
Section 367.091, F.S., authorizes the
Commission to approve and change miscellaneous service charges. The utility
requested that staff evaluate its existing miscellaneous service charges. The
staff recommended salaries have been utilized in order to determine the administrative
and field labor component of miscellaneous services. Staff has also utilized
the mileage provided by the utility and the IRS mileage rate to calculate the
transportation costs associated with administering the miscellaneous services.
In addition, the utility has requested that miscellaneous service charges be
grossed up to reflect the appropriate RAFs. The Commission has previously
approved miscellaneous service charges that are grossed up to reflect the
appropriate RAFs.[7] Below in
Table 12-5 are the utility’s current and staff’s recommended miscellaneous
service charges rounded up to the nearest tenth.
Initial Connection
The initial
connection charge is levied for service initiation at a location where service
did not exist previously. A Charlie Creek representative makes one trip when
performing the service of an initial connection. Based on labor and
transportation to and from the service territory, staff recommends initial
connection charges of $56.50 for normal hours and $60.10 for after hours.
Staff’s calculation is shown below in Table 12-1.
Table
12-1
Initial
Connection Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
|
Labor (Field)
($20.31/hr x 1/3 hr)
|
$6.77
|
Labor (Field)
($30.47/hr x 1/3 hr)
|
$10.16
|
|
Transportation
($0.535/mile x 80 miles-to/from)
|
$42.80
|
Transportation
($0.535/mile x 80 miles-to/from)
|
$42.80
|
|
Mark up for RAFs (4.5%)
|
$2.43
|
Mark up for RAFs (4.5%)
|
$2.59
|
|
Total
|
$56.50
|
Total
|
$60.05
|
Source: Utility’s cost justification documentation.
Normal
Reconnection Charge
A normal
reconnection charge is levied for the transfer of service to a new customer
account at a previously served location, or reconnection of service subsequent
to a customer requested disconnection. A normal reconnection requires two
trips, which includes one to turn service on and the other to turn service off.
Based on labor and
transportation to and from the service territory, staff recommends that the
normal reconnection charge should be $104.80 for normal hours and $110.30 for
after hours. Staff’s calculations are shown below in Table 12-2.
Table 12-2
Normal
Reconnection Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
|
Labor (Field)
($20.31/hr x 1/4 hr x 2)
|
$10.16
|
Labor (Field)
($30.74/hr x 1/4hr x 2)
|
$15.37
|
|
Transportation
($0.535/mile x 80 miles-to/from x 2)
|
$85.60
|
Transportation
($0.535/mile x 80 miles-to/from x 2)
|
$85.60
|
|
Mark up for RAFs (4.5%)
|
$4.51
|
Mark up for RAFs (4.5%)
|
$4.75
|
|
Total
|
$104.77
|
Total
|
$110.22
|
Source: Utility’s cost justification documentation
Violation
Reconnection Charge
The violation
reconnection charge is levied prior to reconnection of an existing customer
after discontinuance of service for cause. The service performed for violation
reconnection requires two trips, which includes one trip to turn off service
and a subsequent trip to turn on service once the violation has been remedied.
Based on labor and transportation to and from the service territory, staff
recommends violation reconnection charges of $104.80 for normal hours and $110.30
for after hours. Staff’s calculations are shown below in Table 12-3.
Table 12-3
Violation
Reconnection Charge Calculation
|
Activity
|
Normal
Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
|
Labor (Field)
($20.31/hr x 1/4 hr x 2)
|
$10.16
|
Labor (Field)
($30.74/hr x 1/4 hr x 2)
|
$15.37
|
|
Transportation
($0.535/mile x 80 miles-to/from) x 2
|
$85.60
|
Transportation
($0.535/mile x 80 miles-to/from) x 2
|
$85.60
|
|
Mark up for RAFs (4.5%)
|
$4.51
|
Mark up for RAFs (4.5%)
|
$4.75
|
|
Total
|
$104.77
|
Total
|
$110.22
|
Source: Utility’s cost justification documentation.
Premises
Visit
The premises visit
charge is levied when a service representative visits premises at the
customer’s request for complaint resolution and the problem is found to be the
customer’s responsibility. In addition, the premises visit can be levied when a
service representative visits a premises for the purpose of discontinuing
service for nonpayment of a due and collectible bill, and does not discontinue
service because the customer pays the service representative or otherwise makes
satisfactory arrangements to pay the bill. A premises visit requires one trip.
Based on labor and
transportation to and from the service territory, staff recommends a premises
visit charges of $56.50 for normal hours and $60.10 for after hours. Staff’s
calculations are shown below in Table 12-4.
Table 12-4
Premises
Visit Charge Calculation
|
Activity
|
Normal
Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
Labor (Administrative)
($18.00/hr x1/4hr)
|
$4.50
|
|
Labor (Field)
($20.31/hr x 1/3 hr)
|
$6.77
|
Labor (Field)
($30.74/hr x 1/3 hr)
|
$10.16
|
|
Transportation
($0.535/mile x 80 miles-to/from)
|
$42.80
|
Transportation
($0.535/mile x 80 miles-to/from)
|
$42.80
|
|
Mark up for RAFs (4.5%)
|
$2.43
|
Mark up for RAFs (4.5%)
|
$2.59
|
|
Total
|
$56.50
|
Total
|
$60.05
|
Source: Utility’s
cost justification documentation.
Below, in Table 12-5, are the
Utility’s requested and staff’s recommended miscellaneous service charges.
Table 12-5
Miscellaneous Service
Charges
|
|
Current
|
Staff Recommended
|
|
Normal Hours
|
After Hours
|
Normal Hours
|
After Hours
|
|
Initial Connection Charge
|
$20.00
|
$40.00
|
$56.50
|
$60.10
|
|
Normal Reconnection Charge
|
$10.00
|
$20.00
|
$104.80
|
$110.30
|
|
Violation Reconnection Charge
|
$20.00
|
$20.00
|
$104.80
|
$110.30
|
|
Premises Visit Charge (in lieu of Disconnection)
|
$10.00
|
$20.00
|
$56.50
|
$60.10
|
Conclusion
Charlie
Creek’s miscellaneous service charges should be revised. The charges should be
effective on or after the stamped approval date on the tariff pursuant to Rule
25-30.475, F.A.C. In addition, the approved charges 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 13:
Should the request of Charlie Creek Utilities, LLC
to implement a late payment charge be approved?
Recommendation:
Yes. Charlie Creek’s request to implement a $5.25
late payment charge should be approved. The utility should be required to file
a proposed customer notice and tariff to reflect the Commission-approved
charge. The approved charge should be effective 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.
(Friedrich)
Staff Analysis:
The utility is requesting a
$5.25 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, F.S. In its cost justification,
Charlie Creek’s total cost for a late payment charge is $5.28, but Charlie
Creek is requesting this charge to be rounded down to $5.25. Since the 1990s,
the Commission has approved late payment charges ranging from $2.00 to $7.00.[8] The
purpose of this charge is to provide an incentive for customers to make timely
payments and to place the cost burden of processing delinquent accounts solely
upon those who are cost causers. Staff believes Charlie Creek’s requested late
payment charge of $5.25 is appropriate. Charlie Creek’s labor cost of $4.75
accounts for the office personnel time to search, determine, and process
delinquent accounts. The provided justification by Charlie Creek also includes
costs for supplies and postage for printing and sending out late payment
notices. Charlie Creek’s cost basis for the late payment charge is shown below
in Table 8-1.
Table 13-1
Late Payment Charge Cost
Justification
|
Activity
|
Cost
|
|
Labor
|
$4.75
|
|
Supplies
|
$0.06
|
|
Postage
|
$0.47
|
|
Total Cost
|
$5.28
|
Source: Utility’s cost
justification documentation
Based on the above, Charlie Creek’s request to implement a
$5.25 late payment charge should be approved. The utility should be required to
file a proposed customer notice and tariff to reflect the Commission-approved
charge. The approved charge should be effective 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 14:
Should the Commission approve Charlie Creek
Utilities, LLC’s request to implement a convenience charge of $3.43?
Recommendation:
Yes. Charlie Creek’s request for approval of a
convenience charge of $3.43 for customers who opt to pay their bill by debit or
credit card should be approved. The convenience charge should be effective on
or after the stamped approval date on the tariff pursuant to Rule 25-30.475,
F.A.C. In addition, the approved charge 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. (Friedrich)
Staff Analysis:
Section 367.091, F.S., authorizes the Commission to
establish, increase, or change a rate or charge other than monthly rates or
service availability charges. The utility is requesting a $3.43 convenience
charge and provided cost justification as required by Section 367.091, F.S. The
utility’s cost analysis breakdown for its requested charge is shown below in
Table 7-1.
Table 14-1
Convenience Charge Cost
Justification
|
Activity
|
Cost
|
|
Labor
|
$0.54
|
|
Ink and Paper per Transaction
|
$0.06
|
|
Credit Card Machines
|
$2.83
|
|
Total
|
$3.43
|
Source: Utility’s cost justification documentation
The charge
is designed to recover the cost of supplies, administrative labor, and equipment. Staff believes that the utility’s requested
charge of a $3.43 convenience charge is reasonable for customers who opt to pay
their water bill by debit or credit card. The utility’s requested charge
benefits the customers by allowing them to expand their payment options.
Furthermore, this fee will insure the utility’s remaining customers do not
subsidize those customers who choose to pay using this option. A convenience charge of $3.43 for Orange Land
Utilities, LLC, a sister utility of Charlie Creek, was approved recently by the
Commission.[9]
Based on the above, staff recommends that Charlie Creek’s
request for approval of a convenience charge of $3.43 for customers who opt to
pay their bill by debit or credit card should be approved. The convenience
charge should be effective on or after the stamped approval date on the tariff
pursuant to Rule 25-30.475, F.A.C. In addition, the approved charge 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 15:
Should Charlie Creek Utilities, LLC’s request for a
$50 meter tampering charge be approved?
Recommendation: Yes. Charlie Creek’s request to
implement a $50 meter tampering charge should be approved. The charge should be
effective for services rendered on or after the stamped approval date on the
tariff pursuant to Rule 25-30.475, F.A.C. In addition, the approved charge
should not be implemented until staff has approved the proposed customer notice
and the notice has been received by the customers. Charlie Creek should provide
proof of the date notice was given within 10 days of the date of the notice.
(Friedrich)
Staff Analysis:
The utility requested a $50 charge to recover the
cost of changes in piping on equipment necessary as a result of meter
tampering. Rule 25-30.320(2)(i), F.A.C., provides that a customer’s service may
be discontinued without notice in the event of tampering with the meter or
other facilities furnished or owned by the utility. In addition, Rule
25-30.320(2)(j), F.A.C., provides that a customer’s service may be discontinued
in the event of an unauthorized or fraudulent use of service. The rule allows
the utility to require the customer to reimburse the utility an amount
reasonably estimated as the deficiency in revenue resulting from the customer’s
fraudulent use before restoring service.
Pursuant to Rule 25-30.345, F.A.C., a utility may charge a
reasonable fee to defray the cost of restoring service that was discontinued
for proper cause as specified in Rule 25-30.320, F.A.C. The Commission has previously approved a
meter tampering charge of $50 for sister utilities of Charlie Creek. The
utility provided the appropriate cost justification pursuant to Section
367.091, F.S. Staff believes this is reasonable and consistent with prior
Commission decisions and should be approved. However, the charge is appropriate
only where an investigation reveals evidence of meter tampering.
Based on the above, staff recommends that Charlie Creek’s
request to implement a $50 meter tampering charge should be approved. The
charge should be effective for services rendered on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the
approved charge 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 16:
What are the appropriate initial customer deposits
for Charlie Creek Utilities, LLC?
Recommendation:
The appropriate water initial customer deposit
should be $76 for the residential 5/8" x 3/4" 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. (Friedrich)
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 the 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, the utility has an
initial customer deposit of $65 for the residential 5/8” x 3/4” meter size and
two times the average customer bill for all other meter sizes. Based on the
staff recommended water rates and post repression average residential demand,
the appropriate initial customer deposit should be $76 for water to reflect an
average residential customer bill for two months
Staff recommends that the appropriate water initial
customer deposit should be $76 for the residential 5/8" x 3/4" 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 17:
Should the existing plant capacity charge of Charlie
Creek Utilities, LLC, be discontinued?
Recommendation:
Yes. Charlie Creek’s existing plant capacity charge
should be discontinued. The utility’s existing plant capacity charge should be
discontinued. (Friedrich)
Staff Analysis:
The current service
availability charges for Charlie Creek were approved in Docket No. 150186-WU
with the utility’s original certificate.[10]
The utility’s service availability charges consist of meter installation
charges based on meter size and a plant capacity charge of $750. 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.
Staff’s recommended rate base
consists of plant improvements and additions by the current owner. The recommended
rate base does not include values for the distribution system or CIAC.
Therefore, based on staff’s recommended rate base the utility’s current contribution
level is zero percent.
If the utility continues to
collect the current plant capacity charge of $750 per equivalent residential
connection (ERC), the contribution level would exceed the utility’s plant in
service balance. Due to the relatively small amount of rate base and the number
ERCs that can be served by the utility, staff recommends that the plant
capacity charge be discontinued. This would allow the utility to maintain a
minimum level of investment on which to earn a return in a future rate proceeding.
Based on the above, Charlie Creek’s existing plant capacity charge should be
discontinued.
Issue 18:
Should the utility be required to notify the
Commission in writing that it has adjusted its books in accordance with the
Commission’s decision?
Recommendation:
Yes. Charlie Creek should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Charlie Creek should submit a letter within 90 days of
the final order in this docket, confirming that the adjustments to all
applicable NARUC USOA primary 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 the deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days. (Vogel)
Staff Analysis:
Charlie Creek should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Charlie Creek should submit a letter within 90 days of
the final order in this docket, confirming that the adjustments to all the
applicable NARUC USOA primary 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 the deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days.
Issue 19:
Should this docket be closed?
Recommendation:
No. Except for the granting of temporary rates in
the event of protest, the four year rate reduction, and proof of adjustments of
books and records, which are final actions 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 will be issued. The
docket should remain open for staff’s verification that the revised tariff
sheets and customer notice have been filed by the utility and approved by
staff, and the utility has provided staff with proof that the adjustments for
all the applicable NARUC USOA primary accounts have been made. Once the above
actions are completed this docket will be closed administratively. (Tan)
Staff Analysis:
Except for the granting of temporary rates in the
event of protest, the four year rate reduction, and proof of adjustments of
books and records, which are final actions 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 will be issued 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 will be issued. The docket should remain open for staff’s verification
that the revised tariff sheets and customer notice have been filed by the
utility and approved by staff, and the utility has provided staff with proof
that the adjustments for all the applicable NARUC USOA primary accounts have
been made. Once the above actions are completed this docket will be closed
administratively.
