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State of Florida
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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-
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DATE:
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February 16, 2018
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TO:
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Office of Commission Clerk (Stauffer)
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FROM:
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Division of Economics (Bruce, Hudson)
Office of the General
Counsel (Crawford)
Division of Accounting and Finance (Cicchetti)
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RE:
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Docket No. 20180025-WS – Application for
approval of tariff for the gross-up of CIAC in Charlotte, Highlands, Lake,
Lee, Marion, Orange, Pasco, Pinellas, Polk, and Seminole Counties, by
Utilities, Inc. of Florida.
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AGENDA:
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03/01/18 – Regular Agenda – Tariff Filing – Interested Persons May
Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Administrative
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CRITICAL DATES:
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03/30/18 (60-Day Suspension Date)
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SPECIAL INSTRUCTIONS:
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None
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Case Background
Utilities, Inc.
of Florida (UIF or utility) is a Class A utility providing water and wastewater
services to 27 systems in the following counties: Charlotte, Highlands, Lake,
Lee, Marion, Orange, Pasco, Pinellas, Polk, and Seminole. The utility reported
in its 2016 annual report, water operating revenues in the amount of $2,498,891
and $1,440,710 for wastewater.
On January 29,
2018, UIF filed an application for approval of a tariff to allow for gross-up
of contributions in aid of construction (CIAC) in Charlotte, Highlands, Lake,
Lee, Marion, Orange, Pasco, Pinellas, Polk and Seminole Counties. As discussed
in Issue 1, the utility indicated that a change in tax law may cause it to be
at risk of the opportunity to earn a reasonable return on its used and useful
property if it is not allowed to collect the impact on receipt of CIAC.
This
recommendation addresses the utility’s request for approval of a gross-up
tariff. ; The Commission has jurisdiction pursuant to Sections 367.081 and
367.091, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should UIF’s request for approval of a tariff to
allow the gross-up of CIAC be approved?
Recommendation:
Yes, the proposed tariff should
be approved. The gross-up amounts should be collected subject to refund pending
resolution of Docket No. 20180013-PU and guaranteed by a corporate undertaking.
UIF should provide notice to property owners who have requested service during
the 12 months prior to the month the request for gross-up of CIAC was filed.
The approved gross-up charges should be effective for connections made on or
after the stamped approval date on the tariff sheets. The utility should
provide proof of noticing within 10 days of rendering its approved notice. In
addition, UIF should be required to file with its Annual Report, a calculation
detailing: (1) the amounts of cash and property contributions received during
the reporting year; (2) the calculation of the utility’s tax liability for the
reporting year; and (3) the amount of taxes actually collected on CIAC for the
reporting year. The reporting requirement should begin with the 2018 Annual
Report and continue each year thereafter. (Bruce, Hudson, Cicchetti)
Staff Analysis:
Effective January 1, 2018, the Federal Tax Cuts and
Jobs Act amended Section 118 of the Internal Revenue Code. Prior to the
amendments, CIAC was exempt from taxable gross income for water and wastewater
utilities. As a result of the amendments, both cash and property CIAC are now
taxable gross income for water and wastewater utilities. In recognition of this
change in the tax law, the Commission has opened Docket No. 02180013-PU, In re: Petition to establish a generic
docket to investigate and adjust rates for 2018 tax savings by Office of Public
Counsel, to address the potential rate impacts on regulated electric, gas,
water, and wastewater utilities.
A similar law, the Tax Reform Act of 1986, became
effective in 1987. In
Docket No. 860184-PU, the Commission found that it was appropriate to allow
water and wastewater utilities to recover the tax on CIAC from the contributor,
including the tax associated with the additional tax that would also become
taxable income. For those utilities that were approved to collect the gross-up
on CIAC, the gross-up amounts collected were held subject to refund and were
evaluated on a case-by-case basis as to whether any refunds were subsequently
required.
In its petition, the utility
included a proposed tariff (Attachment A) to gross-up cash service availability
charges and property contributions to recover the federal and state corporate income
taxes associated with those contributions. According to the utility, UIF could
risk loss of its opportunity to earn a reasonable return on its property used
and useful in the public service if it is not allowed to collect the tax impact
on receipt of CIAC.
The gross-up amounts collected by
UIF should be subject to refund pending resolution of Docket No. 20180013-PU
and guaranteed by a corporate undertaking. In addition, UIF should be required
to file with its Annual Report, a calculation detailing: (1) the amounts of
cash and property contributions received during the reporting year; (2) the
calculation of the utility’s tax liability for the reporting year; and (3) the
amount of taxes actually collected on CIAC for the reporting year. The
reporting requirement should begin with the 2018 Annual Report and continue
each year thereafter.
Based on the above, the proposed
tariff should be approved. The gross-up amounts should be collected subject to
refund pending resolution of Docket No. 20180013-PU and guaranteed by a
corporate undertaking. UIF should provide notice to property owners who have
requested service during the 12 months prior to the month the request for
gross-up of CIAC was filed. The approved gross-up charges should be effective
for connections made on or after the stamped approval date on the tariff
sheets. The utility should provide proof of noticing within 10 days of
rendering its approved notice. In addition, UIF should be required to file with
its Annual Report, a calculation detailing: (1) the amounts of cash and
property contributions received during the reporting year; (2) the calculation
of the utility’s tax liability for the reporting year; and (3) the amount of
taxes actually collected on CIAC for the reporting year. The reporting
requirement should begin with the 2018 Annual Report and continue each year
thereafter.
Issue 2:
Should this docket be closed?
Recommendation:
If the Commission approves staff’s recommendation
in Issue 1, the docket should remain open pending resolution of Docket No.
20180013-PU. (Crawford)
Staff Analysis:
If the Commission approves staff’s recommendation in
Issue 1, the docket should remain open pending resolution of Docket No.
20180013-PU.
