Case Background
Rule 25-30.433,
Florida Administrative Code (F.A.C), addresses the procedures that apply in water
and wastewater rate case proceedings. Pursuant to Rule 25-30.433(1), F.A.C., the
Commission shall make a determination on the quality of service provided by the
utility in every rate case proceeding. In making its determination, the
Commission evaluates three components of water and wastewater utility
operations: (1) the quality of the utility’s product (water and wastewater);
(2) the operational conditions of the utility’s plant and facilities; and (3)
the utility’s attempt to address customer satisfaction.
Following
discussion at the September 7, 2017, Internal Affairs Meeting, the Commission
directed staff to explore whether Rule 25-30.433, F.A.C., should be amended to move
the second component used to evaluate the utility’s quality of service – the infrastructure
and operational conditions of the plant and facilities – to a separate section
of the rule. The rationale for this amendment to the rule was that operating
conditions of the plant do not always affect the quality of service provided by
the utility, so it should not be a required component in the Commission’s
evaluation of quality of service.
The notice of
rule development for Rule 25-30.433, F.A.C., appeared in the November 30, 2017,
edition of the Florida Administrative Register, Volume 43, Number 230. A staff
rule development workshop was held on December 14, 2017. The Office of Public
Counsel, Utilities, Inc. of Florida, U.S. Water Services Corp., and Black Bear
Waterworks, Inc., Brendenwood Waterworks, Inc., Brevard Waterworks, Inc.,
Country Walk Utilities, Inc., Harbor Waterworks, Inc. HC Waterworks, Inc.,
Jumper Creek Utility Company, Lake Idlewild Utility Company, Lakeside
Waterworks, Inc. LP Waterworks, Inc., Merritt Island Utility Company, North
Charlotte Waterworks, Inc., Pine Harbour Waterworks, Inc., Raintree Waterworks,
Inc., Seminole Waterworks, Inc., Sunny Hills Utility Company, and the Woods
Utility Company (hereafter referred to as the “Collective Utilities”) participated
in the workshop and filed written post-workshop comments.
This
recommendation addresses whether the Commission should propose the amendment of
Rule 25-30.433, F.A.C. The Commission has jurisdiction pursuant to Sections
120.54, 350.127(2), 367.0812(5), 367.0814, 367.121, and 367.1213, Florida
Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission propose the amendment of Rule
25-30.433, Rate Case Proceedings, F.A.C?
Recommendation:
Yes, the Commission should propose the amendment of
Rule 25-30.433, F.A.C., as set forth in Attachment A. Staff recommends that the
Commission certify proposed amended Rule 25-30.433, F.A.C., as a minor
violation rule. (Cowdery, King, Graves, Fletcher, Draper, Guffey)
Staff Analysis:
Staff recommends that the Commission propose the
amendment of Rule 25-30.433, F.A.C., as set forth in Attachment A. Staff is
recommending amendments to the rule for three reasons: (1) to move the
Commission’s consideration of the infrastructure and operational conditions of
the plant and facilities from the Commission’s evaluation of quality of service
to a separate section of the rule; (2) to codify the information the Commission
considers when evaluating the utility’s quality of service and the
infrastructure and operational conditions of the utility’s plant and
facilities; and (3) to delete language from the rule that conflicts with
statutory requirements.
Introductory
Paragraph – Deletion of Rule Waiver Language
The first
unnumbered paragraph of Rule 25-30.433, F.A.C., contains a general statement
that the rule applies to rate case proceedings unless the applicant or any
intervenor demonstrates that the rule requirements create an unreasonable
burden. If the applicant demonstrates an unreasonable burden, the rule states
that the Commission will consider alternatives to the rule requirements and
that any proposed alternatives must be filed with the minimum filing
requirements.
Staff recommends that the language allowing an applicant
to propose an alternative to the rule requirements if the applicant
demonstrates that the requirements are unreasonably burdensome should be
deleted from the rule. Section 120.542, F.S., governs the procedure by which a
person subject to an agency rule may obtain a variance or waiver from a rule.
The procedure currently set forth in Rule 25-30.433, F.A.C., conflicts with
Section 120.542, F.S., and should be deleted.
Amendment of Subsection (1) - Quality
of Service
Removal
of Operational Conditions of the Utility’s Plant and Facilities From Quality of
Service Evaluation
Subsection (1) of Rule 25-30.433, F.A.C., states that the
Commission will make a determination on the quality of service provided by the
utility in every rate case. The rule states that this determination will be
based on an evaluation of three separate components of water and wastewater
utility operations: (1) quality of the utility’s product (water and
wastewater); (2) operational conditions of the utility’s plant and facilities;
and (3) the utility’s attempt to address customer satisfaction.
Staff recommends that the operational conditions of the
utility’s plant and facilities component should be removed from this section of
the rule as one of the factors the Commission considers in its evaluation of a
utility’s quality of service. Staff believes that this factor should be moved
to a separate section of the rule, new Subsection (2), because operating
conditions of the plant do not always affect the quality of service provided to
customers by the utility. In those instances where it does affect the quality
of service provided to customers, it will be reflected in the quality of the
utility’s product (water) or in the utility’s attempt to address customer satisfaction
(water and wastewater), both of which will remain components in the
Commission’s quality of service evaluation under the amended rule.
Codification
of Information Used To Evaluate Quality of Service
Staff also
recommends that new paragraphs (1)(a) through (e) of Rule 25-30.433, F.A.C., be
added to the rule to codify the information that the Commission currently considers
when evaluating the quality of the utility’s product (water) and the utility’s
attempt to address customer satisfaction (water and wastewater). This
information ranges from the most recent chemical analyses for each water system
to any testimony, complaints, and comments from the utility’s customers and
others with knowledge of quality of service.
The rule
currently states that the Commission will consider sanitary surveys,
outstanding citations, violations and consent orders on file with the
Department of Environmental Protection (DEP) and county health departments or
lack thereof over the preceding three year period. Staff recommends that the
three year time period be removed from the rule. In evaluating quality of
service, the Commission considers all information properly presented to it up
until the close of the record of the hearing, not just information from the
preceding three years. The amended rule
language would codify existing agency practice.
In its
post-workshop comments, OPC stated the rule should be “implemented with the
customers’ interests in mind.” It expressed a concern that the rule language
should capture both the oral and written methods that customers communicate
with the Commission. Staff believes that the recommended rule language in
paragraph (1)(d) – that the Commission will consider any testimony, complaints
and comments of the utility’s customers and others with knowledge of quality
service – is broad enough to sufficiently cover the many ways that customer
complaints and comments are provided to the Commission (e.g., both oral and
written statements directly from customers, OPC testimony in its representation
of customers, Commission staff testimony regarding customer complaints).
Definition
of Rate Case Proceeding Under the Rule
In its post-workshop comments, OPC suggested that the
terms “rate case” and “rate case proceeding” are not defined in the rule and
should apply to all docketed proceedings in which the Commission sets a
utility’s rates, including grandfather certificate proceedings and original
certificate proceedings with existing rates. In response to OPC’s comments, the
Collective Utilities state that the rule should not apply to grandfather
certificate proceedings or original certificate proceedings with existing rates
for three reasons: (1) the Commission typically approves the existing rates for
such utilities unless there is a concern or finding of potential overearnings; (2)
the Commission typically does not establish rate base and/or audit the
operating expenses of the utilities during certificate dockets; and (3) certificate
cases are under different statutory authority than rate cases.
Staff believes that expanding the rule to certificate dockets
could create confusion and result in unintended consequences. For instance, it may mean that customer
service hearings would need to be held in certificate dockets and MFRs would
need to be filed with certificate applications. Thus, staff does not recommend
that the rule be expanded to grandfather certificate proceedings and original
certificate proceedings with existing rates, as suggested by OPC.
Staff, however, agrees with OPC to the extent that the
rule is currently unclear as to whether it applies to staff assisted rate cases
and limited proceeding rate cases and recommends that the Commission amend the
Law Implemented section of the rule to include Section 367.0814, F.S., (staff
assisted rate cases) and Section 367.0822, F.S., (limited proceeding rate
cases) to reflect that the rule applies to these rate case proceedings in
addition to general rate cases filed under Section 367.0812, F.S.
New
Subsection (2) – The Commission’s Evaluation of the Infrastructure and
Operational Conditions of the Utility’s Plant and Facilities
As
discussed above, staff recommends that the Commission’s evaluation of the
operational conditions of the utility’s plant and facilities should be deleted
from Subsection (1) of Rule 25-30.433, F.A.C., and a new Subsection (2) should
be created to address this aspect of utility service. Staff recommends this
amendment to the rule because, as discussed above, operating conditions of the
plant do not always affect the quality of service provided by the utility.
At the workshop, OPC initially expressed concern with
moving the operational conditions of the utility’s plant and facilities to a
separate section of the rule, stating that it is a component of the utility’s
quality of service. OPC did not address this concern in its post-workshop
comments.
Staff does not believe that moving this component to a
separate section of the rule will impact the Commission’s ability to review the
infrastructure and operational conditions of the plant and facilities to ensure
the safe, efficient, and sufficient service to utility customers, as mandated
by Section 367.111, F.S. As discussed above, in those instances where the operational
condition of the utility’s plant and facilities affects quality of service
provided to customers, it will be reflected in the quality of the utility’s
product (water) or in the utility’s attempt to address customer satisfaction
(water and wastewater), both of which will remain components in the
Commission’s quality of service evaluation under the amended rule. If the
operational conditions of the plant have not resulted in customer complaints or
adversely affected the quality of the utility’s product, it will not impact the
Commission’s evaluation of the quality of service provided by the utility.
Nonetheless, the Commission will continue to have the
authority under new Subsection (2) of the rule to evaluate the utility’s
management of the utility’s operations and facilities. If the Commission finds
that the utility’s infrastructure and operational conditions of the plant and
facilities do not meet the requirements with Commission Rule 25-30.225, F.A.C.,
which sets forth the standard for a utility’s plant and facilities, the
Commission could, pursuant to Section 367.111, F.S., reduce the utility’s
return on equity until the standards are met or institute other remedial
measures, such as reducing the utility president’s salary or imposing a fine on
the utility, pursuant to Section 367.161, F.S., to bring the utility into
compliance with Commission statutes, rules, and orders.
Renumbered
Subsection (3) – Working Capital
This
subsection addresses working capital. OPC commented that this subsection should
be amended to exclude deferred rate case expense in the balance sheet method of
working capital and to exclude rate case expense amortization from O&M
expenses for purposes of calculating the formula method of working capital for
Class B and C utilities. OPC noted that the Commission follows Section
367.081(9), F.S., which stated: “A
utility may not earn a return on the unamortized balance of the rate case
expense. Any unamortized balance of rate
case expense shall be excluded in calculating the utility’s rate base.” OPC believes that the rule should be amended
accordingly to be in compliance with this statute and Commission practice and
policy.
OPC is
correct that the Commission in complying with Section 367.081(9), F.S., excludes
deferred rate case expense in the balance sheet method of working capital for
Class A utilities and excludes rate case expense amortization from O&M
expenses for purposes of calculating the formula method of working capital for
Class B and C utilities. However, adding
the language suggested by OPC to the rule would not be required for
implementation of the statute, because it is already required by the language
of Section 367.081(9), F.S. In adopting
rules, agencies are not to reiterate or paraphrase statutory material as part
of the rule language. See Section 120.545(1)(c), F.S. For this reason,
staff does not recommend that renumbered subsection (3) be amended.
Renumbered
Subsection (11) – Right of Access and Continued Use of Land
Section
367.1213, F.S., requires a utility to own the land or possess the right to
continued use of the land upon which treatment facilities are located. This
section provides the Commission with the authority to adopt rules to implement
this statute.
In renumbered subsection (11), staff recommends that the rule
language be amended to reflect the language used in the statute. Staff further
recommends that the Commission add language to the rule, consistent with Commission
rules addressing applications for original certificates (Rule 25-30.034(1)(m),
F.A.C.), applications for amendment of certificates (Rule 25-30.036(1)(e),
F.A.C.), and applications for transfer of certificates (Rule 25-30.037(2)(s),
F.A.C.), that documentation demonstrating continued use of the land shall be in
the form of a recorded deed, recorded quit claim deed accompanied by title
insurance, recorded lease, such as a 99-year lease, or recorded easement.
In its post-workshop comments, OPC questioned why the rule
is limited to only treatment facilities, stating that a utility should be
required to have the right of access and continued use of land upon which all
of its facilities and equipment are located. OPC states that this should
include the utility’s water source of supply plant, wastewater disposal,
wastewater reuse, water transmission and distribution, and wastewater
collection lines.
In response to OPC’s comments, Utilities, Inc. of Florida
states that it is unaware of “any problem that would compel or justify a change
in the status quo.” It further states that obtaining such documentation would
have a “monumental” impact on a utility the size of Utilities, Inc. of Florida
and would result in “substantial additional rate case expense.”
The Collective Utilities also disagreed with OPC’s
comments. They stated that OPC’s suggestion would expand the rule beyond the
statutory authority of Section 367.1213, F.S., and that it appears to be a “solution
in search of a problem that does not exist.”
Section 367.1213, F.S., only requires that a utility own
the land or possess the right to continued use of the land upon which treatment
facilities are located. Staff recommends that the Commission not adopt OPC’s
suggested rule language, as it would expand the rule beyond its statutory
authority.
Statement of Estimated Regulatory Costs
Pursuant to Section 120.54(3)(b)1.,
F.S., agencies are encouraged to prepare a statement of estimated regulatory
costs (SERC) before the adoption, amendment, or repeal of any rule. A SERC was prepared for this rulemaking and
is appended as Attachment B. As required by Section 120.541(2)(a)1., F.S., the
SERC analysis includes whether the rule amendments are likely to have an
adverse impact on economic growth, private sector job creation or employment,
or private sector investment in excess of $1 million in the aggregate within 5
years after implementation. Section 120.541(2)(a)1., F.S. None of the
impact/cost criteria will be exceeded as a result of the recommended revisions.
The SERC
concludes that the rule amendments will likely not directly or indirectly
increase regulatory costs in excess of $200,000 in the aggregate in Florida
within 1 year after implementation. Further, the SERC concludes that the rule
amendments will not likely increase regulatory costs, including any
transactional costs or have an adverse impact on business competitiveness,
productivity, or innovation in excess of $1 million in the aggregate within 5
years of implementation. Thus, the rule amendments do not require legislative
ratification, pursuant to Section 120.541(3), F.S. In addition, the SERC states that the rule
amendments would have no impact on small businesses, would have no
implementation or enforcement cost on the Commission or any other state and
local government entity, and would have no impact on small cities or small
counties. The SERC states that
transactional costs likely to be incurred by individuals and entities required
to comply with the requirements of the rule are expected to be minimal.
Minor Violation Rules Certification
Pursuant to Section 120.695, F.S., beginning July 1, 2017,
for each rule filed for adoption, the Commission is required to certify whether
any part of the rule is designated as a rule the violation of which would be a
minor violation. A list of the Commission rules designated as minor violation
rules is published on the Commission’s website, as required by Section
120.695(2), F.S. Currently, Rule 25-30.433, F.A.C., is on the Commission’s list
of rules designated as minor violations. If the Commission proposes the
amendment of Rule 25-30.433, F.A.C., the rule would continue to be considered a
minor violation rule. Therefore, for purposes of filing the amended rule for
adoption with the Department of State, staff recommends that the Commission
certify proposed amended Rule 25-30.433, as minor violation rules.
Conclusion
The Commission should propose the amendment of Rule
25-30.433, F.A.C., as set forth in Attachment A. Staff recommends that the
Commission certify proposed amended Rule 25-30.433, F.A.C., as a minor
violation rule.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no requests for hearing or comments are
filed, the rule should be filed with the Department of State, and the docket
should be closed.
Staff Analysis:
If no requests for hearing or comments are filed,
the rule should be filed with the Department of State, and the docket should be
closed.
25-30.433 Rate Case Proceedings.
In
a rate case proceeding, the following provisions shall apply., unless
the applicant or any intervenor demonstrates that these rules result in an
unreasonable burden. In these instances, fully supported alternatives will be
considered by the Commission. Any alternatives proposed by the utility must be
filed with the minimum filing requirements.
(1)The Commission in every rate case
shall make a determination of the quality of service provided by the utility.
This shall be derived from an evaluation of three separate components of water
and wastewater utility operations: quality of utility’s product (water and
wastewater); operational conditions of utility’s plant and facilities; and the
utility’s attempt to address customer satisfaction. Sanitary surveys, outstanding citations,
violations and consent orders on file with the Department of Environmental
Protection (DEP) and county health departments or lack thereof over the
preceding 3-year period shall also be considered. DEP and county health department officials’
testimony concerning quality of service as well as the testimony of utility’s
customers shall be considered.
(1)
The Commission in every rate case shall make a determination of the quality of
service provided by the utility by evaluating the quality of the utility’s
product (water) and the utility’s attempt to address customer satisfaction
(water and wastewater). In making this
determination, the Commission shall consider:
(a)
The most recent chemical analyses for each water system as described in Rule
25-30.440(3), F.A.C.;
(b)
Any Department of Environmental Protection (DEP) and county health department
citations, violations and consent orders that address quality of service;
(c)
Any DEP and county health department officials’ testimony concerning quality
of service;
(d)
Any testimony, complaints and comments of the utility’s customers and others
with knowledge of the utility’s quality of service; and
(e)
Any utility testimony and responses to the information provided in paragraphs
(1)(a) – (d) above.
(2)
In order to ensure safe, efficient, and
sufficient service to utility customers, the Commission shall consider whether
the infrastructure and operational conditions of the plant and facilities are
in compliance with Rule 25-30.225, F.A.C.
In making this determination, the Commission shall consider:
(a)
Any testimony of DEP and county health
department officials;
(b) Inspections, including sanitary
surveys for water systems and compliance evaluation inspections for wastewater
systems; citations, violations and consent orders issued to the utility;
(c) Any testimony, complaints and comments of the
utility’s customers and others with knowledge of the infrastructure and operational
conditions of the utility’s plant and facilities; and
(d) Any utility testimony and responses to the
information provided in paragraphs (2)(a) – (c) above.
(3)(2)
Working capital for Class A utilities shall be calculated using the balance
sheet approach. Working capital for Class B and C utilities shall be calculated
using the formula method (one-eighth of operation and maintenance expenses).
(4)(3)
Used and useful debit deferred taxes shall be offset against used and useful
credit deferred taxes in the capital structure. Any resulting net debit
deferred taxes shall be included as a separate line item in the rate base
calculation. Any resulting net credit deferred taxes shall be included in the
capital structure calculation. No other deferred debits shall be considered in
rate base when the formula method of working capital is used.
(5)(4)
The averaging method used by the Commission to calculate rate base and cost of
capital shall be a 13-month average for Class A utilities and the simple
beginning and end-of-year average for Class B and C utilities.
(6)(5)
Non-used and useful adjustments shall be applied to the applicable depreciation
expense. Property tax expense on non-used and useful plant shall not be
allowed.
(7)(6)
Charitable contributions shall not be recovered through rates.
(8)(7)
Income tax expense shall not be allowed for subchapter S corporations,
partnerships or sole proprietorships.
(9)(8)
Non-recurring expenses shall be amortized over a 5-year period unless a shorter
or longer period of time can be justified.
(10)(9)
The amortization period for forced abandonment or the prudent retirement, in
accordance with the National Association of Regulatory Utility Commissioners
Uniform System of Accounts, of plant assets prior to the end of their
depreciable life shall be calculated by taking the ratio of the net loss
(original cost less accumulated depreciation and contributions-in-aid-of-construction
(CIAC) plus accumulated amortization of CIAC plus any costs incurred to remove
the asset less any salvage value) to the sum of the annual depreciation
expense, net of amortization of CIAC, plus an amount equal to the rate of
return that would have been allowed on the net invested plant that would have
been included in rate base before the abandonment or retirement. This formula
shall be used unless the specific circumstances surrounding the abandonment or
retirement demonstrate a more appropriate amortization period.
(11)(10)
A utility is required to have the right of access and continued use of own
the land upon which the utility treatment facilities are located, or possess
the right to the continued use of the land, such as a 99-year lease. Documentation
of continued use shall be in the form of a recorded warranty deed, recorded
quit claim deed accompanied by title insurance, recorded lease such as a
99-year lease, or recorded easement.
The Commission may consider a written easement or other cost-effective
alternative.
(12)(11)
In establishing an authorized rate of return on common equity, a utility, in
lieu of presenting evidence, may use the current leverage formula adopted by
Commission order. The equity return established shall be based on the equity
leverage order in effect at the time the Commission decides the case.
(13)(12)
Nonutility investment should be removed directly from equity when reconciling
the capital structure to rate base unless the utility can show, through
competent evidence, that to do otherwise would result in a more equitable
determination of the cost of capital for regulatory purposes.
(14)(13)
Interest expense to be included in the calculation of income tax expense shall
be the amount derived by multiplying the amount of the debt components of the
reconciled capital structure times the average weighted cost of the respective
debt components. Interest expense shall include an amount for the parent debt
adjustment in those cases covered by Rule 25-14.004, F.A.C. Interest shall also
be imputed on deferred investment tax credits in those cases covered by 26 CFR
Part 1, s. 1.46-6(b)(2)(i), (3) and (4)(ii) issued May 22, 1986 and effective
for property constructed or acquired on or after August 15, 1971.
Rulemaking
Authority 350.127(2), 367.0812(5), 367.0814, 367.121, 367.1213 FS. Law Implemented 367.081, 367.0812(1), 367.0814,
367.0822, 367.1213, 376.1213
FS. History–New 11-30-93, Amended 12-14-93 ____________.
