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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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April 6, 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 (Hudson)
Division of Accounting
and Finance (Cicchetti, Maurey)
Office of the General
Counsel (Crawford)
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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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04/20/18 – Regular Agenda – Proposed Agency Action (Issue 1) and Tariff
Filing (Issue 2) – 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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06/01/18 (60-Day Suspension Date)
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SPECIAL INSTRUCTIONS:
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Place before Docket Nos. 20180042-WS and 20180059-WU
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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.
Pursuant to
Order No. PSC-2018-0162-TRF-WS, issued March 26, 2018,
in the instant docket, the Commission approved UIF’s tariff for the gross-up of
contributions in aid of construction (CIAC). The gross-up amounts to be
collected were subject to refund pending resolution of Docket No. 20180013-PU, In re: Petition to establish a generic
docket to investigate and adjust rates for 2018 tax savings by Office of Public
Counsel and guaranteed by a corporate undertaking. UIF was ordered 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 was to begin with the 2018 Annual Report and continue each year thereafter.
On April 2,
2018, UIF filed a request for termination of its CIAC gross-up tariffs. Upon
further reflection, UIF is concerned that requiring the gross-up of CIAC will
eliminate its opportunity to obtain government grants, since it would require
the amount of the grant to be increased to cover the income tax liability. In
addition, UIF believes the CIAC gross-up may put the utility at a competitive
disadvantage because developers may choose other alternatives in lieu of the
utility’s services to avoid paying the higher grossed-up CIAC. As an
alternative, the utility stated that a developer could construct its own facilities
and create a non-regulated homeowner’s association to own and operate the
facilities. Also, the utility indicated that an adjacent government-owned
utility could create an incentive for the developer to find a way to circumvent
UIF’s exclusive service territory. As a condition of the requested termination of
its CIAC gross-up tariffs, UIF asked for acknowledgement of its preferred
treatment of the taxes it pays on CIAC.
This
recommendation addresses the utility’s request for termination of its CIAC
gross-up tariffs and the acknowledgement of its preferred treatment of the
taxes it pays on CIAC. The Commission has jurisdiction pursuant to Sections
367.081 and 367.091, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission acknowledge, in the positive,
UIF’s requested treatment of the taxes it pays on CIAC?
Recommendation:
Yes. Netting debit deferred taxes against credit
deferred taxes in the capital structure, as requested by UIF, is standard
Commission practice. It is also standard Commission practice to include debit
deferred taxes in rate base if the net of the credit and debit deferred taxes
is a debit. (Cicchetti)
Staff Analysis:
Netting debit deferred
taxes against credit deferred taxes is standard Commission practice.
Debit deferred taxes arise when a utility pays taxes that have not yet been
collected from customers. Credit deferred taxes arise when customers have paid
taxes through rates but the taxes have not yet been paid by the Company to the
IRS. Net credit deferred taxes are included as zero-cost capital in the capital
structure and net debit deferred taxes are included in rate base. It is
uncommon for a utility to have a net debit deferred tax balance.
If CIAC is not grossed-up for taxes, the utility will pay
the tax itself and will remain whole by netting debit deferred taxes against
credit deferred taxes or including the debit deferred taxes in rate base. Such
treatment is beneficial because it will allow UIF to obtain government grants
without having to charge the governmental entity an additional amount for taxes
and will keep from putting UIF at a competitive disadvantage regarding growth
by avoiding a gross-up charge for taxes associated with CIAC.
Therefore, staff recommends that the Commission
acknowledge that UIF’s requested treatment of the taxes it pays on CIAC appears
reasonable and is consistent with the Commission’s regulatory practices.
Issue 2:
Should the Commission approve UIF's request to
terminate its CIAC gross-up tariffs?
Recommendation:
Yes. If the Commission approves UIF’s requested tax
treatment of CIAC in Issue 1, it should also approve the utility’s request to
terminate its CIAC gross-up tariffs. The tariff should be terminated upon the
vote of the Commission. UIF should provide notice to property owners who have requested
service during the 12 months prior to the request to terminate the CIAC
gross-tariffs. The utility should provide proof of noticing within 10 days of
rendering its approved notice. The termination of the CIAC gross-up tariffs
should relieve the utility of the reporting requirements that were outlined in
Order No. PSC-2018-0162-TRF-WS. (Hudson)
Staff Analysis:
As stated in the case background, UIF requested
acknowledgement of its preferred method of treatment of taxes to be paid on
CIAC, which is to offset deferred taxes against credit deferred taxes in the
capital structure. If the net of the credit and debit deferred taxes is a
debit, the amount is included in rate base. As discussed in Issue 1, staff recommends
that the utility’s requested treatment is standard Commission practice. As a
result, staff believes it is appropriate to grant the utility’s request to terminate
its CIAC gross-tariffs.
The utility’s CIAC gross-up tariffs became effective March
15, 2018. Pursuant to Order No. PSC-2018-0162-TRF-WS, the utility was 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. Since the
implementation of the tariffs, the utility did not collect any CIAC. Further,
the termination of the CIAC gross-up tariffs should relieve the utility of the reporting
requirements.
Based on the above, the Commission should approve UIF’s
request to terminate its CIAC gross-up tariffs. The tariff should be terminated
upon the vote of the Commission. UIF should provide notice to property owners
who have requested service during the 12 months prior to the request to
terminate the CIAC gross-tariffs. The utility should provide proof of noticing
within 10 days of rendering its approved notice. The termination of the CIAC
gross-up tariffs relieve the utility of the reporting requirements that were
outlined in Order No. PSC-2018-0162-TRF-WS.
Issue 3:
Should this docket be closed?
Recommendation:
With respect to Issue 1, 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
should be issued. With respect to Issue 2, the order should become final upon
the issuance of the consummating order unless a person whose substantial
interests are affected by the Commission’s decision files a protest within 21
days of the issuance of the order. If a timely protest is filed, the tariff
should remain in effect, pending resolution of the protest. If no protest is
timely filed as to Issues 1 or 2, the docket should close upon the issuance of
the consummating order. In the event of a protest, the docket should remain
open to address the protest. (Crawford)
Staff Analysis:
With respect to Issue 1, 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
should be issued. With respect to Issue 2, the order should become final upon
the issuance of the consummating order unless a person whose substantial
interests are affected by the Commission’s decision files a protest within 21
days of the issuance of the order. If a timely protest is filed, the tariff
should remain in effect, pending resolution of the protest. If no protest is
timely filed as to Issues 1 or 2, the docket should close upon the issuance of
the consummating order. In the event of a protest, the docket should remain
open to address the protest.