State of Florida		Public Service Commission Capital Circle Office Center ● 2540 Shumard Oak Boulevard Tallahassee, Florida 32399-0850 -M-E-M-O-R-A-N-D-U-M-
DATE:	November 30, 2017
TO:	Office of Commission Clerk (Stauffer)
FROM:	Division of Accounting and Finance (Mouring) Division of Economics (Hudson) Office of General Counsel (Taylor, Crawford)
RE:	Docket No. 20170247-WU – Joint motion requesting Commission approval of settlement agreement by the Office of Public Counsel, Black Bear Waterworks, Inc., Brendenwood Waterworks, Inc., Brevard Waterworks, Inc., Country Walk Utilities, Inc., Harbor Waterworks, Inc., Lake Idlewild Utility Company, Raintree Waterworks, Inc., and Sunny Hills Utility Company.
AGENDA:	12/12/17 – Regular Agenda – Proposed Agency Action – Interested Persons May Participate
COMMISSIONERS ASSIGNED:
PREHEARING OFFICER:			Clark
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None

Case Background

Black Bear Waterworks, Inc., Brendenwood Waterworks, Inc., Brevard Waterworks, Inc., Country Walk Utilities, Inc., Harbor Waterworks, Inc., Lake Idlewild Utility Company, Raintree Waterworks, Inc., and Sunny Hills Utility Company (hereafter referred to as Utilities) are all jurisdictional water and/or wastewater utilities. These Utilities all share a common majority ownership.

In April 2017, as part of its ongoing earnings surveillance activities, the Commission staff identified possible overearnings based upon a review of the Utilities’ respective 2016 Annual Reports. By letter dated May 5, 2017, the Utilities consented to holding subject to refund any earned return on equity (ROE) which exceeded the maximum of the allowed ROE for the year ended December 31, 2016. Multiple meetings between staff and the Utilities took place during the summer to discuss the Utilities’ level of earnings.

On October 3, 2017, an informal meeting between Commission staff, the Utilities, and the Office of Public Counsel (OPC) was held to discuss the potential disposition of any portion of such earned return above the maximum allowed ROE. Subsequent to that meeting, the Utilities and OPC (collectively referred to as Parties) held further discussions regarding additional data provided by the Utilities to OPC.

On November 17, 2017, the Parties filed a Joint Motion Requesting Commission Approval of Settlement Agreement (Agreement) to resolve the disposition of 2017 overearnings, and address any possible overearnings for 2018. This Agreement is attached to this recommendation as Attachment A.

The purpose of this recommendation is to present the settlement proposal to the Commission for approval. The Commission has jurisdiction pursuant to Sections 367.081, 367.082, and 367.121, Florida Statutes.

Discussion of Issues

Issue 1:

 Should the Commission approve the Joint Motion and Settlement Agreement by the Parties?

Recommendation: 

 Yes. The proposed Settlement Agreement adequately addresses the potential overearnings staff had previously identified during its ongoing earnings surveillance activities.

As applicable, the Utilities should make refunds, credit CIAC, and reduce rates as outlined in the Settlement Agreement. Schedule No. 1 reflects staff’s recommended rates per the Settlement Agreement. Brendenwood Waterworks, Inc. should file a proposed customer notice reflecting the Commission's decision within 15 days of the Commission vote. The approved rates should be effective for service rendered on or after the stamped approval date of the tariff pursuant to Rule 25-30.475(1), Florida Administrative Code (F.A.C.), after staff has verified that the proposed customer notice is adequate and this notice has been provided to the customer. The Settlement Agreement specifies that this rate reduction should be effective the first billing cycle in January 2018. Brendenwood Waterworks, Inc. should provide proof that the customers have received notice within 10 days after the date of the notice. (Mouring, Hudson)

Staff Analysis: 

 As stated in the Case Background, in April 2017, as part of its ongoing earnings surveillance activities, the Commission staff identified possible overearnings based upon a review of the Utilities respective 2016 Annual Reports. On November 17, 2017, the Parties filed a Joint Motion Requesting Commission Approval of Settlement Agreement to resolve the disposition of 2017 overearnings, and address any possible overearnings for 2018. With respect to overearnings for 2017, customers of Black Bear Waterworks, Inc. would receive bill credits representing 10.44 percent of water revenues, Brendenwood Waterworks, Inc. customers would receive bill credits representing 14.20 percent of water revenues, Lake Idlewild Utility Company customers would receive bill credits representing 9.67 percent of water revenues, and customers of Raintree Waterworks, Inc. would receive credits for 2.88 percent of water revenues. All refunds would be made in accordance with Rule 25-30.360(3), F.A.C.

In addition, Brendenwood Waterworks, Inc., has agreed to reduce water rates by 11.38 percent on a prospective basis effective with the first billing cycle in January 2018. For Harbor Waterworks, Inc., a credit adjustment to Contributions in Aid of Construction in the amount of $39,160 would be made along with an offsetting adjustment to Retained Earnings.

The Agreement also provides protections for customers for possible overearnings of Black Bear Waterworks, Inc., Harbor Waterworks, Inc., Lake Idlewild Utility Company, and Raintree Waterworks, Inc. in 2018. These utilities have agreed to hold subject to refund all revenues received during the calendar year 2018 that are above their respective authorized ROE range until final review of the 2018 Annual Reports.

The Parties agree that no further actions are needed with respect to Brevard Waterworks, Inc., Country Walk Utility Company, or Sunny Hills Utility Company.

The Parties stated that this Agreement resolves the issues raised in this proceeding so as to maintain a degree of stability and predictability with respect to customer bills. Staff believes that the Agreement is a reasonable resolution for the possible overearnings on a prospective basis. Further, staff believes that it is in the public interest for the Commission to approve the Agreement because it promotes administrative efficiency, avoiding the time and expense of a formal earnings investigation.

In keeping with the Commission's long-standing practice of encouraging parties to settle contested proceedings, staff recommends that the Commission approve the Joint Motion and Settlement Agreement by the Parties. The proposed Settlement Agreement adequately addresses the potential overearnings staff had previously identified during its ongoing earnings surveillance activities. Schedule No. 1 reflects staff’s recommended rates per the Settlement Agreement.

Staff also recommends that Brendenwood Waterworks, Inc. file a proposed customer notice reflecting the Commission's decision approving a permanent reduction in water rates within 15 days of the Commission vote. The approved rates should be effective for service rendered on or after the stamped approval date of the tariff pursuant to Rule 25-30.475(1), F.A.C., after staff has verified that the proposed customer notice is adequate and this notice has been provided to the customer. The Agreement specifies that this rate reduction will be effective the first billing cycle in January 2018. Brendenwood Waterworks, Inc. should provide proof that the customers have received notice within 10 days after the date of the notice.

Issue 2:

 Should this docket be closed?

Recommendation: 

  No. If no timely protest is received from a substantially affected person upon expiration of the protest period, the PAA Order will become final upon the issuance of a Consummating Order. However, this docket should remain open to allow staff to verify completion of the refunds discussed in Issue 1 and to verify that the revised tariff sheets and customer notice have been filed by Brendenwood Waterworks, Inc. and approved by staff. Once staff has verified that the notice has been provided and refunds have been made in accordance with Rule 25-30.360, F.A.C., the docket should be closed administratively. (Taylor, Mouring)

Staff Analysis: 

 If no timely protest is received from a substantially affected person upon expiration of the protest period, the PAA Order will become final upon the issuance of a Consummating Order. However, this docket should remain open to allow staff to verify completion of the refund discussed in Issue 1 and to verify that the revised tariff sheets and customer notice have been filed by Brendenwood Waterworks, Inc. and approved by staff. Once staff has verified that the notice has been provided and refunds have been made in accordance with Rule 25-30.360, F.A.C., the docket should be closed administratively.