Case Background
K W Resort
Utilities Corporation (KWRU or Utility) is a Class A Utility providing
wastewater service to approximately 2,061 customers in Monroe County. Water
service is provided by the Florida Keys Aqueduct Authority (FKAA). Prior to the
current case, rates were last established for this Utility in 2007.
According to the Utility’s 2014 Annual Report, KWRU had operating
revenues of $1,479,307 and operating expenses of $1,199,672. On July 1, 2015,
the Utility filed its application for the rate increase at issue. KWRU
requested that the application be processed using the Proposed Agency Action
(PAA) procedure. The test year established for final rates was the 13-month
average period ended December 31, 2014.
On February 24,
2016, the Office of Public Counsel (OPC) filed a Notice of Intervention in this
docket, and Order No. PSC-16-0114-FOF-SU acknowledging intervention was issued
on March 18, 2016. Subsequently, the Commission approved a two-phased rate
designed to recover a wastewater revenue requirement of $2,238,046 in Phase I
and $2,485,904 in Phase II. On April 13, 2016, OPC and Monroe County
(County) timely filed protests of the PAA Order. By letter dated April 18,
2016, KWRU gave notice that it elected to put the Phase I rates approved in the
PAA Order into effect during the pendency of the administrative hearing pursuant
to Section 367.081(8), Florida Statutes (F.S.).
On April 18,
2016, Harbor Shores Condominium Unit Owners Association, Inc. (Harbor Shores)
timely filed a cross-petition. On April 21, 2016, KWRU timely filed a
cross-protest. On April 26, 2016, the Harbor Shores’ representative was granted
qualified representative status.
A formal
evidentiary hearing and service hearing were held November 7-8, 2016, in Key
West. The parties filed briefs on December 9, 2016. On February 7, 2017, the
Commission voted to approve new rates and charges for the Utility. Following
the Commission’s vote, a computational error was discovered within the approved
miscellaneous service charges. The Commission corrected this error, by vote, on
March 7, 2017. The Commission approved a rate increase designed to recover a
wastewater revenue requirement of $2,436,418. The Final Order codified the results of
both votes.
On March 14,
2017, KWRU filed its Motion for Reconsideration seeking reconsideration of the
Commission’s decision regarding plant in service, operation and maintenance (O&M)
expense for implementing advanced wastewater treatment (AWT), rate structure
and rates, and the appropriate test year for establishing rates. The Utility did
not file a request for Oral Argument. Subsequently, Harbor Shores filed its
Motion for Reconsideration on March 24, 2017 seeking reconsideration of the
Commission’s decision to classify Harbor Shores as a general service customer.
It did not file a request for Oral Argument.
On March 28, 2017, the OPC and County, (jointly Intervenors) filed their
response in opposition to KWRU’s Motion for Reconsideration. Intervenors did
not request Oral Argument. On March 29, 2017, KWRU filed its response in
opposition to Harbor Shores’ Motion for Reconsideration.
The Commission
has jurisdiction pursuant to Sections 367.081, F.S. The Commission is
authorized to consider Motions for Reconsideration pursuant to Rule 25-22.060, Florida
Administrative Code (F.A.C.).
Discussion
of Issues
Issue 1:
Should KWRU's Motion for Reconsideration be granted?
Recommendation:
No. KWRU fails to identify a point of fact or law
the Commission overlooked in rendering its decision. Accordingly, KWRU’s Motion
for Reconsideration should be denied. (Norris, Hill, Graves, Johnson, Mapp)
Staff Analysis:
The standard of review for a motion for
reconsideration is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering its Order. In a
motion for reconsideration, the alleged overlooked fact or law must be such
that if it was considered, the Commission would reach a different decision than
the decision in that order. See Stewart Bonded Warehouse, Inc. v.
Bevis, 294 So. 2d 315 (Fla. 1974); Diamond Cab Co. v. King, 146 So.
2d 889 (Fla. 1962); and Pingree v. Quaintance, 394 So. 2d 162 (Fla. 1st
DCA 1981). It is not appropriate to reargue matters that have already been
considered. Sherwood v. State, 111 So. 2d 96 (Fla. 3rd DCA 1959); citing
State ex. Rel. Jaytex Realty Co. v. Green, 105 So. 2d 817 (Fla. 1st DCA
1958). Further, it is not necessary to respond to every argument and fact
raised by each party, and “[a]n opinion should never be prepared merely to
refute the arguments advanced by the unsuccessful litigant.” State ex. Rel.
Jaytex Realty Co. v. Green.
In its Motion for Reconsideration, KWRU contends that the
Commission erred as to four matters which are properly subject to
reconsideration. Staff’s analysis and review of the matters put forth in the
Utility’s motion and the response provided by Intervenors are addressed below.
Plant in Service
The first issue
for which KWRU asks for reconsideration concerns the amount of pro forma plant
approved by the Commission. The Utility contends that the Commission overlooked
two components of the total pro forma project cost.
The first
component that the Utility contends the Commission overlooked is the actual
known expenditures classified in Audit Finding 2 as construction work in
progress (CWIP). All parties stipulated to the audit adjustment which
reclassified $303,099 of expenditures associated with the wastewater treatment
plant expansion (Expansion Project) to CWIP.
In their response opposing KWRU’s motion, the Intervenors
first note that KWRU devoted five lines of text to its discussion of the plant
in service issue in its Brief. The Intervenors additionally assert that the
Commission plainly considered the subject amount as it is shown on page 19 of
the Final Order.
KWRU witness
Swain’s direct testimony included a set of minimum filing requirements (MFR)
rate base and net operating schedules that illustrate the Utility’s original
revenue requirement request, as filed in the PAA process, the adjustments and
resulting revenue requirement from the PAA Order, and an additional set of
adjustments calculated in relation to the PAA Phase I and II revenue
requirements. The additional set of adjustments resulted in the Utility’s
updated revenue requirement request. (EXH 17)
The PAA Phase I
revenue requirement did not reflect any monies associated with the Expansion Project, with the exception of the
CWIP verified in Audit Finding 2. As such, in order to reflect the updated cost
of the Expansion Project being placed into service, Schedule A-3 of witness
Swain’s direct testimony reflected a total cost of $4.3 million including a
corresponding adjustment to completely remove the CWIP. (EXH 17) This
corresponding adjustment is necessary because the CWIP balance represents a
component of the total project cost that has already been expended.
Based on the
adjustments reflected in Schedule A-3 of witness Swain’s direct testimony, the
CWIP was accounted for, mathematically, in the $4.3 million Expansion Project
cost that was strictly identified by KWRU. The $4.3 million total project cost
was based on a signed construction contract with Wharton Smith. The Wharton
Smith contract was for the Expansion Project and modification of KWRU’s WWTP
facilities.
Based on
evidence in the record as well as the testimony of KWRU witness Johnson, it is
apparent that some of the costs were already captured in the signed
construction contract with Wharton Smith. The Final Order clearly identified this
concern as it states in part:
…KWRU witness Johnson acknowledged, during
cross-examination, that some of the additional costs presented in his rebuttal
testimony were also included in the Wharton Smith contract
The second component that KWRU requests reconsideration of
is the Commission’s decision to exclude a total of $260,274 in plant in
service. KWRU’s motion states that “[t]he Commission found that Chris Johnson’s
rebuttal testimony did not provide backup documentation of these costs, but
this was incorrect.” KWRU asserts that the record contains evidence, including
invoices and payments, and KWRU witness Johnson’s rebuttal testimony simply
summarized this information in an easy format for the Commission’s
consideration. The exhibits that KWRU asserts the Commission overlooked were
listed in an attachment to the Utility’s motion. The Utility additionally
asserts that the Commission overlooked two change orders from Wharton Smith.
The Intervenors argue that KWRU’s allegations are attempts
to reargue evidence and to supplement the record with a new exhibit. The
Intervenors additionally characterize the Utility’s motion as an attempt to
supplement its Brief.
Staff believes that the evidence which KWRU contends was
overlooked, including the two change orders, does not address the reasons the
relevant costs were excluded. The Final Order states:
Information provided by KWRU witness Johnson
supporting the increase only contained costs with minimal explanation as to why
the additional expenditures were necessary. Furthermore, KWRU witness Johnson
acknowledged, during cross-examination, that some of the additional costs
presented in his rebuttal testimony were also included in the Wharton Smith
contract. Witness Johnson additionally acknowledged that costs associated with
the vacuum tank replacement were included in the additional costs. Given the lack
of supporting evidence as well as the uncertainties highlighted during the
hearing, we find that the updated costs shall not be included in plant in
service.
Based on the above passage, the Commission expressed that
the Utility did not provide adequate explanation as to the necessity of the
additional costs and there was uncertainty regarding the costs. The Commission
did not raise a concern as to whether the costs were incurred. The basis for
excluding the costs for which KWRU seeks reconsideration of was reiterated in
the following paragraph of the Final Order which states:
Unlike the other additional costs presented by witness
Johnson, the estimates for additional engineering costs were supported by KWRU
witness Castle, who is the engineer of record for the pro forma plant
expansion. Witness Castle provided estimates for hours and tasks that would be
performed for the time period October 2016 through March 2017.
Given the testimony of witness Castle, the Commission was
provided an explanation of why the additional costs ($113,680) were necessary
to be incurred.
As an additional point of comparison, the Commission
included $4.3 million in plant in service for the Plant Expansion. With regard
to the $4.3 million, the Final Order states:
The Utility’s estimate of $4.3 million was supported
by a signed construction contract with Wharton Smith. OPC witness Woodcock
testified that the cost of $4.3 million does not appear to be unreasonable
given the location (Florida Keys) of the project and the crowded conditions at
the WWTP site. Witness Woodcock further testified that it appears that KWRU was
prudent in receiving three bids for the project prior to its award.
Staff believes that the statement above further
demonstrates that the Commission’s decision was based, not only on
documentation of costs, but also on supporting testimony.
In addition as mentioned above, the Commission, as
previously cited, expressed uncertainty regarding the costs presented by
witness Johnson. Witness Johnson acknowledged during cross-examination that
some of the additional costs presented in his rebuttal testimony were also
included in the Wharton Smith contract. The invoices and payments presented in
the Utility’s motion do not provide clarification as to whether or not costs
have already been accounted for in the Wharton Smith contract. Therefore,
approval of the costs that the Utility seeks reconsideration of could result in
double recovery by the Utility.
Based on the review described above, staff believes that
the Commission did not overlook or fail to consider the matters regarding plant
in service set forth in KWRU’s motion. Therefore, staff recommends that the
Commission should not reconsider its decision to exclude the costs for which
the Utility is seeking reconsideration.
AWT O&M Expenses
In its Final Order, the Commission determined that the
appropriate level of O&M expenses to reflect the implementation of AWT
operations should be $1,647,853. KWRU asserts that the Commission, in its
determination of appropriate levels of O&M expenses for implementing AWT,
overlooked certain fixed costs. Specifically, the Utility’s motion states that
the Commission “overlooked fixed costs which are incurred in operation of the
newly constructed third plant/treatment train, regardless of flow levels.”
The Utility’s motion additionally stated that its
“Supplemental Response to Third Data Request” provides a breakdown of O&M
expenses associated with the existing facilities, as well as the incremental
amount of O&M expenses related to the new treatment train and new wells.
The Utility further claims that the record does not reveal any objection by any
party to the increased costs necessitated by the operation of the new treatment
train.
With respect to the issue of its allowable O&M
expenses, the Intervenors argue that KWRU attempts to rely on its supplemental
response to staff’s third data request which is not in the record. The
Intervenors state that this is a naked and legally improper attempt to induce
the Commission to consider new evidence outside the hearing record.
The Intervenors additionally address KWRU’s assertion that
“[t]he record does not reveal any objection by any party to the increased costs
necessitated by the operation of the new treatment train.” The Intervenors
state that this statement is patently misleading and clearly erroneous. The
Intervenors continue that OPC objected to KWRU’s requested pro forma O&M
expense adjustments and it is disingenuous to now say that the record does not
reveal any objection by any party to the increased costs necessitated by the
operation of the new treatment train.
While several documents in CAJ-4, sponsored by KWRU
witness Johnson, make note of the fact that the Utility filed supplemental
responses to staff’s third date request, the Intervenors are correct in that
neither the supplemental document nor the responses contained therein were
included within the exhibit and therefore were not entered into the evidentiary
record. Further, staff believes that the Utility’s assertion that the
Commission “overlooked fixed costs which are incurred in operation of the newly
constructed third plant/treatment train, regardless of flow levels” is not
accurate and the Commission should not reconsider its decision regarding KWRU’s
O&M expenses. The Final Order demonstrates that the Commission gave
consideration to the matter asserted by KWRU in its motion. Staff believes that
the following statement from the Final Order precisely describes the argument
that the Utility claims the Commission did not consider:
KWRU asserted that the expanded plant will necessitate
additional costs regardless of flow levels and regardless of the causes of
those flow levels. KWRU contended that simply calculating a cost per gallon,
does not take into account the fixed costs associated with operating the
expanded plant, including minimum chemical inputs and power.
The O&M expenses approved in the Final Order were not
based on O&M expenses associated with the operation of the expanded plant;
however, this was not an oversight as asserted by KWRU. Both OPC witness
Merchant and KWRU witness Swain provided testimony that the Utility’s test-year
request letter specified that the pro forma expenses were non-growth related.
Therefore, the Utility’s O&M expenses were not evaluated based on operation
of the expanded plant; rather, the O&M expenses were based on the Utility
upgrading its existing facilities and operations to meet AWT standards. The
Final Order states:
[W]e find that witness Merchant’s methodology for
determining Phase I O&M expenses, which relies on known information for
2016, is adequate to evaluate the Utility’s pro forma O&M expense request,
as characterized in its test year letter.
Additionally, based on review of the Final Order, the record
evidence, and the Utility’s Motion for reconsideration, staff does not believe
that the Commission overlooked or failed to consider the matters regarding
O&M expenses set forth in KWRU’s motion. Therefore, staff recommends that
the Commission should not reconsider its decision as sought by the Utility.
Rate Structure & Rates
KWRU claims that, for reuse, the Commission used 2015 gallons of
85,571,000 and escalated the gallonage by five percent for 2016 growth. KWRU
states that this methodology is arbitrary and unsupported by any record
evidence. KWRU requests that the reuse gallonage adjustment conform with either
the actual gallonage in evidence, or the same methodology with regards to used
and useful. In the Intervenor’s joint response, they state that there is no
factual basis to support KWRU’s request that the Commission reconsider the
reuse adjustment.
KWRU is incorrect in its claim that the Commission used actual 2015
reuse gallons and escalated the gallonage by five percent. The Commission
annualized actual gallons for January through September of 2016, as provided in
Exhibit 51 BSP 0093. This calculation resulted in annualized reuse gallonage of
45,211,000. This calculation is shown on page 67 of the Final Order when the
annualized miscellaneous revenues from reuse are $60,583 (45,211 x $1.34).
Based on the above, the Commission used a methodology consistent with KWRU’s
request for reconsideration. Since the Commission did not overlook or fail to
consider the evidence in the record, KWRU’s motion for reconsideration on this
issue should be denied.
Test Year
The final issue raised by KWRU relates to adjustments made
to the 2014 historical test year. The Utility contends that the Commission’s
adjustments to billing determinants and CIAC for known and measurable changes
were in derogation of PSC Rule and ultimately created a projected test year.
Ultimately, KWRU asserts that the Commission does not have the authority to
adjust a historic test year to projected.
In response to interrogatory No. 67 requesting actual 2016
billing determinants, KWRU provided a schedule showing revenues by month,
customer class, and meter size for January through September of 2016 (EXH 51,
BSP 96). The Commission was unable to calculate actual billing determinants due
to KWRU’s change in rate structure during 2016 when the Utility implemented the
PAA rates after they were protested.
The Commission-approved billing determinants were based on
the 2014 test year and increased for known and measurable growth, consistent
with OPC’s proposed methodology and staff’s used and useful calculation.
Therefore, the Commission’s decision was fully supported by record evidence.
Additionally, KWRU contended that the Commission erred in
its interpretation and application of Section 367.081(2)(a)(1), F.S., by making
an adjustment to include CIAC that was collected and documented after the
historical test year. By taking issue with the Commission’s interpretation, the
Utility is validating the fact that the Commission did not overlook or fail to
consider the statute in its decision. Further, the Final Order provided clear
guidance, as shown below:
We find that the inclusion of collected, non-prepaid
CIAC does not violate Section 367.081(2)(a)1., F.S. Documented CIAC collected
by customers actively receiving service in a future period beyond the test year
is clearly demonstrated and not prospective. However, we agree that potential
CIAC shall not be imputed.
Moreover, the Commission’s discretion to make adjustments
is described in Section 367.081(3), F.S., which provides that:
The commission, in fixing rates, may determine the
prudent cost of providing service during the period of time the rates will be
in effect following the entry of a final order relating to the rate request of
the utility and may use such costs to determine the revenue requirements that
will allow the utility to earn a fair rate of return on its rate base.
KWRU does not raise any new fact or point of law not
considered by the Commission it making its final determination in this case,
the Utility merely states its disagreement with the Commission’s interpretation
of certain statutory provisions made within the Final Order.
The Commission did not overlook or fail to consider any
fact or matter of law; therefore, staff recommends that KWRU’s Motion for
Reconsideration be denied.
Issue 2:
Should Harbor Shores' Motion for Reconsideration be
granted?
Recommendation:
No. The Commission considered and evaluated all the
record evidence in reaching its conclusion that Harbor Shores should be classified
as a general service customer, but continue to be billed a base facility charge
(BFC) based on 69 equivalent residential connections (ERCs) and a gallonage
charge with a 10,000 gallon cap per ERC. Because the Commission did not
overlook or fail to consider the evidence in the record, Harbor Shores’ Motion
for Reconsideration should be denied. (C. Johnson)
Staff Analysis:
Harbor Shores is a home owners association, which
contains 69 residential homes within its community. The Commission ordered that
Harbor Shores should be classified as a general service customer of KWRU, but
should continue to be billed a BFC based on 69 ERCs. Harbor Shores argues that
the rates approved by the Commission are unfairly discriminatory because Harbor
Shores is treated differently than other general service customers like
Meridian West and Flagler Village, whom Harbor Shores’ contends are similarly
situated. Harbor Shores states that no analysis of Harbor Shores’ actual demand
was done, but instead the decision was made to base Harbor Shores’ rates on the
69 ERCs of capacity it originally reserved. Harbor Shores asserts that there is
record evidence that Harbor Shores more consistently places 23 ERCs of demand
on the system, instead of the 69 ERCs on which their rate is based on (EXH 89).
Harbor Shores also contends that the ownership of the sub-meters has no impact
on the demand that meter places on KWRU.
In its response opposing Harbor Shores’ motion, KWRU
argues that there is testimony within the record that distinguish Meridian West
and Flagler Village from Harbor Shores, because Meridian West and Flagler
Village have only one master meter owned and maintained by the Florida Keys
Aqueduct Authority and their submeters are owned, controlled, and operated by
the properties’ respective management companies.
The Commission based Harbor Shores’ base facility charge
on the 69 ERCs of capacity it reserved. In addition, Harbor Shores’ demand is
consistent with the demand of 69 single family homes. The 23 ERCs of capacity
that Harbor Shores claims it uses were not calculated correctly. Harbor Shores’
total average monthly water usage, divided by the 69 individual homes in Harbor
Shores, was 3,200 gallons. This is consistent with the average usage of KWRU’s
residential customer base. Additionally, the ownership of the sub-meters
strictly differentiates Harbor Shores from other general service customers and
allows the Commission to directly assess the ERCs of Harbor Shores’ residents.
The Commission considered and evaluated all the record
evidence in reaching its conclusion that Harbor Shores should be a general
service customer but continue to be billed a BFC based on 69 ERCs and a
gallonage charge with a 10,000 gallon cap per ERC. Because Harbor Shores fails
to identify a point of fact or law that the Commission overlooked or failed to
consider when rendering its decision, Harbor Shores’ Motion for Reconsideration
should be denied.
Issue 3:
Should this docket be closed?
Recommendation:
If the Commission approves staff’s recommendation on
Issues 1 and 2, this docket should remain open for staff’s verification that
the Utility has completed the required refunds and that KWRU has notified the
Commission in writing that the adjustments for all applicable NARUC USOA
primary accounts have been made. Once these actions are complete, this docket
should be closed administratively. (Mapp)
Staff Analysis:
If the Commission approves staff’s recommendation on
Issues 1 and 2, this docket should remain open for staff’s verification that
the Utility has completed the required refunds and that KWRU has notified the
Commission in writing that the adjustments for all applicable NARUC USOA
primary accounts have been made. Once these actions are complete, this docket
should be closed administratively.
