Discussion
of Issues
Issue 1:
What are the appropriate water and wastewater rates
and return on investment for South Sumter Utility Company, LLC?
Recommendation:
Staff’s recommended water and wastewater rates, shown
on Schedule Nos. 4-A and 4-B, are reasonable and should be approved. The
approved rates should be effective for services rendered or connections made on
or after the stamped approval date on the tariff sheets, pursuant to Rule
25-30.475, F.A.C. The Utility should be required to charge the approved rates
until authorized to change them by the Commission in a subsequent proceeding. A
return on equity of 8.74 percent plus or minus 100 basis points should also be
approved. (Graves, M. Watts, Sewards, Friedrich)
Staff Analysis:
In
setting initial rates and charges for a new utility, Commission practice has
been to set rates so that the utility will have an opportunity to earn a fair
return on its investment when approximately 80 percent of its projected customers
are being served. Typically, in the early years of development, the customer
base of a utility is not sufficient to allow the utility to recover its operating
and maintenance (O&M) expenses and earn a
fair return on its investment. However, as growth reaches 80 percent of a utility’s
projected design capacity, the initial rates become compensatory.
Pursuant to the requirements of Rule
25-30.033, F.A.C., SSU’s filing included schedules intended to show projected
plant, operating expenses, and capital structure when the system is operating
at 80 percent of the design capacity. The Utility additionally provided
proposed tariffs as well as an engineer’s report, to support the rates and
charges contained in the tariffs. Staff has reviewed the SSU’s filing and
recommends several adjustments which are discussed below.
Description of the Utility’s Service
SSU anticipates providing water and wastewater service to 8,200
residential units as well as an estimated 153 commercial connections at
build-out (projected to occur by 2023). The area to be served will be part of The
Villages development (Villages), which is a retirement community in central
Florida.
The Utility will construct, operate, and maintain the
water distribution system within its service territory, while purchasing bulk
potable water and fire flow from the City of Wildwood (Wildwood or City).
Pursuant to the Utility’s franchise agreement with Wildwood, SSU agreed to
purchase bulk water from the City. As part of SSU’s purchase agreement with
Wildwood, SSU committed to construct a water treatment plant (WTP) and transfer
the facility to the City for ownership, operation, and maintenance.
The Utility determined it would build the WTP to the same standard as the other
WTPs serving the Villages, in lieu of paying capacity and connection fees.
In response to a staff data request,
the Utility stated “while it would have preferred to own and operate the WTP,
the territory to be served is within the City of Wildwood, which has the first
right to provide such service.” SSU asserted that City of Wildwood resolutions
and Chapter 180, F.S., established Wildwood’s right to provide water and
wastewater service.
Pursuant to the previously discussed
purchase agreement, the City of Wildwood will also temporarily treat and
dispose of wastewater generated by SSU. This term of the agreement is
intended to allow sufficient time for the Utility to construct a wastewater
transmission connection to the City of Leesburg’s Turnpike Wastewater Treatment
Facility. Upon completion of the connection to the City of Leesburg, currently
anticipated to occur in April 2019, wastewater will be treated and disposed of
in perpetuity through an agreement with the City of Leesburg. SSU will
construct, operate, and maintain the wastewater collection and transmission
system within its service area. In response to a staff data request the Utility
stated that the costs of temporary interconnections with Wildwood’s system as
well as interim rates paid to Wildwood were not included in its requested
rates.
Projected Rate Base
In support of its proposed
rates and charges, SSU provided an engineering study, prepared by Farner,
Barley & Associates, Inc., which includes data related to projected costs
as well as customer growth. Farner, Barley & Associates, Inc. performed a
similar study for Central Sumter Utilities (CSU), which was granted initial
rates and charges by the Commission in 2011. Staff believes that the estimates and projections included
in the engineering study are reasonable because they are based on historical
data within the Villages.
Based on SSU’s growth projections, the Utility anticipates
operating at 80 percent of its design capacity in 2021. In its filing, SSU presented
its projected costs for Utility Plant in Service (UPIS) as $30,098,803 for its
water system and $41,797,661 for its wastewater systems. The UPIS presented in
SSU’s filing included costs through 2022; therefore, the UPIS was not properly
adjusted to reflect 80 percent of design capacity. In response to a staff
request, the Utility acknowledged that adjustments to its water distribution
system and its wastewater collection and transmission system were necessary.
Based on the growth projections provided by SSU, staff
recommends a reduction of $4,467,016 for water and $5,013,811 for wastewater to
reflect plant at 80 percent of design capacity. Staff’s reductions are based on
80 percent design capacity occurring approximately mid-year 2021. Staff notes
that a similar approach was used in calculating UPIS for the initial rates and
charges that were approved for CSU.
As previously discussed, the Utility is proposing to
construct a water treatment plant, donate the plant to Wildwood, purchase water
from Wildwood, and include the cost of the plant ($8,544,833) as intangible
plant for rate setting purposes. Under traditional purchased water agreements,
the purchasing utility would pay an impact fee for plant capacity. In response
to a staff data request, SSU states that Wildwood estimated the total impact
fee to connect its water system to SSU’s water system would be $5,180,610.
Based on the discussion above, staff recommends the Commission include
Wildwood’s estimated impact fee as intangible plant as opposed to the total
cost of the WTP at this time. This results in a reduction of $3,364,223 to
intangible plant.
Based on the discussion above, staff recommends a
reduction to SSU’s projected plant in service of approximately $7,831,240 for
water, and $5,013,811 for wastewater. Staff notes that actual costs will be
addressed when the Utility comes in for a rate case.
In its filing, SSU projected contributions in aid
of construction (CIAC) balances of $15,264,648 and $17,584,812 for the water
and wastewater systems, respectively, based on its proposed plant capacity
charges of $1,954 per equivalent residential connection (ERC) for water and
$2,251 per ERC for wastewater. As discussed in Issue 10, staff is recommending
a main extension charge of $1,916 for water and $2,610 for wastewater. In
addition, staff is recommending a plant capacity charge of $450 for wastewater.
As such, staff recalculated the projected CIAC balances as a corresponding
adjustment. Consistent with the adjustment to plant discussed above, staff
adjusted the total ERCs used in its recalculation to recognize 80 percent of
design capacity. To recognize the foregoing adjustments, staff recommends a
decrease to projected CIAC of $2,171,470 for water, and an increase of
$3,326,003 for wastewater.
SSU’s projected balances of accumulated depreciation and
amortization of CIAC for the water system are based on the average service life
guidelines, as set forth in Rule 25-30.140, F.A.C. However, the projected amounts
for the wastewater system reflect one account that does not follow the
guidelines and requires correction. Additionally, corresponding adjustments
should be made to both the water and wastewater systems to reflect staff’s
recommended adjustments to plant and CIAC. In total, staff recommends
decreasing projected accumulated depreciation by $947,770 for water and $56,898
for wastewater. Further, projected accumulated amortization of CIAC should be
decreased by $12,667 for water and increased by $343,628 for wastewater.
The Utility projected a working capital allowance of
$191,984 for water and $188,054 for wastewater based on one-eighth of the
estimated O&M expense for each system. Staff recommends a reduction of
$37,575 for water and wastewater, each, to reflect staff’s recommended
adjustments to O&M expense discussed in the revenue requirement section
below.
In total, SSU projected a water rate base of $13,405,856
and a wastewater rate base of $22,059,341. Based on the adjustments discussed
above, staff recommends that the projected rate base for water be reduced by
$4,762,241 and that the projected rate base for wastewater be reduced by
$7,976,863. Staff believes the adjusted rate base projections of $8,643,615 for
water and $14,082,478 for wastewater are reasonable and should be approved.
Rate base calculations for the water and wastewater systems are shown on
Schedule Nos. 1-A and 1-B, respectively. Staff’s adjustments are shown on
Schedule No. 1-C. Consistent with Commission practice in applications for
original certificates, projected rate base is established only as a tool to aid
the Commission in setting initial rates and is not intended to formally
establish rate base.
Cost of Capital
In a deficiency response letter dated November 17, 2017,
the Utility provided a projected capital structure at 80 percent of the design
capacity, including an assertion that the methods of financing the construction
and operation for the Utility remain unchanged from the original application.
SSU stated that the initial capitalization and Utility operations will be
funded 100 percent through equity provided by the developer of the proposed
service area.
SSU proposed a cost of equity of 8.76 percent. Although
the Utility reflected the Commission’s most recent leverage formula,[5] it
incorrectly calculated one of the variables. The Utility included customer
deposits to calculate an equity ratio of 98.52. However, the equity ratio
should only reflect investor sources of capital and not include customer
deposits. The correct equity ratio of 100 percent results in a cost of equity
of 8.74 percent.
In the projected capital structure provided by the
Utility, customer deposits were listed at $526,386. On March 6, 2018, staff
contacted SSU for clarification on the calculation of customer deposits, as
detailed on lines 19-21 of the projected capital structure. In response, the
Utility provided the anticipated customer growth between 2018 and 2022,
which indicated that the Utility based its calculation on an incorrect time
period. The appropriate time period to calculate customer deposits should be
between 2020 and 2021. Staff recalculated projected customer deposits to
reflect the balance at 80 percent of design capacity. As such, staff recommends
an increase of $269,987 to customer deposits for a total of $796,373.
Based on the adjustments above, staff recommends an
overall cost of capital of 8.50 percent. The appropriate return on equity for
SSU is 8.74 percent, with a range of plus or minus 100 basis points, as shown
on Schedule No. 2.
Net Operating Income
SSU requested net operating income (NOI) for the water and
wastewater systems of $708,684 and $908,221, respectively, based on the
projected rate base of each system and a projected overall cost of capital of
5.29 percent for water and 4.12 percent for wastewater. The Utility explained
that it was requesting rates which will generate less than the allowed rate of
return by reducing the revenues of the revenue requirement it originally
projected. SSU stated that its intent was to attempt to more closely match the
rates of other area residents while maintaining financial viability. Staff’s
recommended NOI of $735,037 for water and $1,197,548 for wastewater reflects
the full return on investment resulting from recommended projections of rate
base and overall cost of capital. The projected NOI for the water and
wastewater systems are shown in Schedule Nos. 3-A and 3-B, respectively.
Revenue Requirement
The Utility’s projected revenues include O&M expenses,
depreciation and CIAC amortization expense, taxes other than income, as well as
a return on investment. As a limited liability company, SSU has no income tax
expense. Staff believes adjustments are necessary, as addressed below.
Operation and Maintenance Expense
The Utility projected contractual services expense in the
amounts of $903,893 for water and $925,737 for wastewater. SSU’s contractual
services expense is comprised of management fees, distribution/collection
contractor fees, and engineering fees. Staff recommends adjustments to
management and engineering fees as discussed below.
The Utility proposed total management fees of $751,776,
split evenly between the water and wastewater systems at $375,888 each. In
response to staff’s data requests, SSU provided information detailing how the
management fee was derived. The Utility used CSU’s average monthly O&M
expenses attributable to management activities included in its customer
management fee to develop SSU’s projected management fees. Staff believes CSU
is an appropriate company to develop projected fees, as both utilities will
have similar fees assessed for management and accounting services from The
Villages and Village Center Community Development District (VCCDD). These
entities handle management and accounting services for SSU and CSU.
Using CSU’s average monthly costs for management services
of approximately $97,700, as broken out in Table 1-1 below, SSU estimated a
monthly fee of $7.96 per customer. The Utility also included an additional 10
percent for an escalation adjustment ($0.80), as well as 10 percent for a
contingency adjustment ($0.80), for a total of $9.55 ($7.96 + $0.80 + $0.80).
Staff reviewed the components of CSU’s average monthly
costs used to calculate the management fee and believes adjustments are
necessary. Staff believes the rent expense, insurance, and organizational costs
are duplicative of what is included in overhead fees and contractual services
to VCCDD. In addition, inclusion of regulatory assessment fees (RAFs) and
property tax are duplicative, as the Utility will recover these items through
the revenue requirement. In response to staff’s data request, the Utility
acknowledged that SSU would have 100 percent equity financing provided by the
developer, and would not have an interest expense. SSU acknowledged the error
and agreed this expense should be removed from the amount used to develop the
Utility’s management fee. Staff recommends the amount used to develop the
Utility’s management fee should be reduced by $70,800, resulting in a total
monthly expense of $26,800. Table 1- 1 below summarizes staff’s adjustments.
Table 1-1
Monthly Management Fees
|
Expenses
|
Utility
|
Staff
|
|
CSU Overhead Fees (Villages
Accounting, Villages Administration, Villages Planning and Engineering)
|
$14,566
|
$14,566
|
|
Contract Services to VCCDD
|
12,267
|
12,267
|
|
Rent Expense
|
4,150
|
0
|
|
Insurance
|
1,638
|
0
|
|
Organizational Costs
|
47
|
0
|
|
RAF Fees
|
16,483
|
0
|
|
Property Tax
|
273
|
0
|
|
Interest
|
48,272
|
0
|
|
Total
|
$97,696
|
$26,833
|
Source: Utility’s Cost Justification
In
addition, staff recommends removing the 10 percent escalation and the 10
percent contingency adjustments. The Utility used the escalation adjustment to
account for inflation of costs between 2017 and 2021. However, SSU has the
opportunity to file for an annual price index increase pursuant to Section
367.081(4)(a), F.S. Staff
believes the Utility’s explanation of the contingency adjustment is duplicative
of the escalation adjustment explanation. As such, staff recommends removal of
SSU’s escalation and contingency adjustments.
Based on the adjustments above, staff recommends a
reduction to the Utility’s projected management fees of $289,882 for water and
$289,882 for wastewater. This results in a total recommended management fee of
$86,006 for the water system and $86,006 for the wastewater system.
SSU’s annual engineering expenses, $32,146 for water and
wastewater each were estimated based on actual costs incurred by CSU during
2016. Similar to the previously discussed expenses, the Utility included an
upward adjustment for escalation as well as a contingency. Removal of the
escalation and contingency adjustments results in an engineering expense
estimate of $21,432 for both water and wastewater. Based on staff’s estimate,
engineering expenses should be reduced by $10,714._--____
In total, staff recommends a reduction to O&M expense
of $300,596 ($289,882 + $10,714) and $300,596 ($289,882 + $10,714) for water
and wastewater, respectively.
Depreciation and CIAC Amortization Expense
The Utility reflected depreciation expense, net of CIAC
amortization, of $481,464 for water and $803,038 for wastewater. Based on
staff’s adjustments to rate base, corresponding adjustments should be made to
decrease net depreciation by $270,972 and $198,583 for water and wastewater,
respectively.
Taxes Other Than Income
In its filing, SSU included RAFs of $149,924 and $198,958
for water and wastewater, respectively. The Utility also included property
taxes of $2,368 and $3,452 for water and wastewater, respectively. Staff
determined that the Utility incorrectly calculated RAFs. Accordingly, staff
recalculated RAFs using 4.5 percent of operating revenues. As such, staff
recommends decreasing RAFs for water and wastewater by $20,352 and $45,096,
respectively. Corresponding adjustments to decrease property taxes by $465 for
water and $456 for wastewater were also made in accordance with staff’s
adjustment to plant in service as shown in Schedule No. 3-C.
Staff recommends adjusted revenue requirements of $2,286,672
for water and $3,151,727 for wastewater be used to set initial rates for
service. The calculation of SSU’s projected water and wastewater revenue
requirements are shown on Schedule Nos. 3-A and 3-B, respectively. Staff’s
adjustments are shown on Schedule No. 3-C.
Rates
and Rate Structure
SSU structured
its proposed rates in accordance with Rule 25-30.033(2), F.A.C., which requires
that a base facility and usage rate structure, as defined in Rule 25-30.437(6),
F.A.C., be utilized for metered service. The Utility’s proposed rates were
designed to generate the Utility’s requested revenue requirements of $2,879,376
for its water system and $3,419,165 for its wastewater system.
Staff’s recommended water rates
on Schedule No. 4-A reflect staff’s recommended revenue requirement of
$2,286,672 for the water system less projected miscellaneous revenues of
$39,381. Consistent with the Utility’s proposed rate structure, staff
recommends a traditional BFC and gallonage charge rate structure with an
additional gallonage charge for non-discretionary usage for residential water
customers. SSU proposed a discretionary threshold of 3,000 for its residential
water customers and staff believes this is reasonable. The Utility proposed
allocating 59 percent of the water revenues to the base facility charge (BFC);
however, staff recommends allocating 40 percent of water revenues to the BFC
because SSU indicated that its customer base would not be seasonal. It has been
Commission practice to allocate 40 percent of revenues to the water BFC unless
a seasonal customer base or other unique circumstance presents itself.[8]
Additionally, staff’s recommended
wastewater rates on Schedule No. 4-B reflect staff’s recommended revenue
requirement of $3,151,727 for the wastewater system less projected
miscellaneous revenues of $39,381. Staff believes the Utility’s proposed
wastewater rate structure, which consists of a BFC, gallonage charge, and
gallonage cap of 10,000 gallons for residential customers, is reasonable. The
Utility proposed allocating 63 percent of wastewater revenues to the BFC.
However, it is Commission practice to allocate approximately 50 percent of
revenues to the wastewater BFC for the same reasons mentioned above.
The average monthly residential
bill for a customer of SSU, based on 3,000 gallons per month would be $27.66
for water and $38.57 for wastewater using staff’s recommended rates.
Comparatively, the average monthly residential bill for a customer of Central
Sumter Utility (CSU), a sister Utility, based on the same usage is $14.99 for
water and $30.59 for wastewater.
Conclusion
Based on the above,
staff’s recommended water and wastewater rates, shown on Schedule Nos. 4-A and
4-B, are reasonable and should be approved. The approved rates should be
effective for services rendered or connections made on or after the stamped
approval date on the tariff sheets, pursuant to Rule 25-30.475, F.A.C. The
Utility should be required to charge the approved rates until authorized to
change them by the Commission in a subsequent proceeding. A return on equity of
8.74 percent plus or minus 100 basis points should also be approved.
Issue 2:
Should the miscellaneous service charges requested
by South Sumter Utility Company, LLC be approved?
Recommendation:
Yes.
The Utility’s requested miscellaneous service charges of $35.13 should be
approved. The charges should be effective for service rendered on or after the
stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. SSU
should be required to charge the approved charges until authorized to change
them by the Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
Section
367.091, F.S., authorizes the Commission to establish miscellaneous service
charges. SSU’s request was accompanied by its reason for requesting the charges
as well as the cost justification required by Section 367.091(6), F.S. The
Utility requested initial connection, normal reconnection, violation
reconnection and premise visit charges of $35.13 during normal business hours.
Additionally, SSU requested that its violation reconnection charge for its
wastewater system be actual cost pursuant to Rule 25-30.460(1)(c), F.A.C.
The purpose
of these charges is to place the burden for requesting or causing these
services on the cost causer rather than the general body of ratepayers. The
Utility’s requested charges are based on the cost of its contractors to
administer and perform miscellaneous services. The VCCDD will perform the
administrative labor and CH2M, the Utility’s operation and maintenance
contractor, will perform the field labor associated with miscellaneous service
charges. The Utility requested recovery of $7.53 of administrative labor
associated with processing miscellaneous services based on the contractor’s
hourly salary of $22.60 and its ability to process a miscellaneous service
request in approximately 20 minutes ($22.60x20/60). Additionally, SSU requested
recovery of $27.60 for the direct expense of the outside contractor performing
the field labor. The Utility’s cost justification for its requested
miscellaneous service charges is shown below in Table 2-1.
Table
2-1
Miscellaneous Service Charges Cost
Justification
|
Field Labor
|
$27.60
|
|
Administrative Labor
|
$7.53
|
|
Total
|
$35.13
|
Source: Utility’s Cost
Justification
Staff
compared SSU’s requested miscellaneous service charges to those currently in
place for its sister Utility, CSU. CSU’s charges were based on estimated
expenses at the time the original certificate was approved in 2011.[9] Although,
CSU’s charges were based on estimations and implemented seven years ago, the
charges requested by SSU are consistent with CSU’s current charges of $21 for
normal hours and $42 for after hours. It is also important to note that CSU has
not had a proceeding for the Commission to reevaluate these charges since their
original implementation. Staff believes the Utility’s requested charges are
reasonable and should be approved. A summary of the Utility’s requested
miscellaneous service charges are shown below in Table 2-2.
Table
2-2
Miscellaneous Service Charges
|
Initial Connection Charge
|
$35.13
|
|
Normal Reconnection Charge
|
$35.13
|
|
Violation Reconnection Charge (Water)
|
$35.13
|
|
Violation Reconnection Charge (Wastewater)
|
Actual Cost
|
|
Premises Visit Charge
|
$35.13
|
Source: Utility’s Cost
Justification
Based on the
above, the Utility’s requested miscellaneous service charges of $35.13 should
be approved. The charges should be effective for service rendered on or after
the stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. The
Utility should be required to charge the approved charges until authorized to
change them by the Commission in a subsequent proceeding.
Issue 3:
Should the late payment charge requested by South
Sumter Utility Company, LLC be approved?
Recommendation:
Yes. The
Utility’s request to implement a $5.50 late payment charge is recommended and should
be approved. The approved charge should be effective for service rendered on or
after the stamped approval date on the tariff pursuant to Rule 25-30.475,
F.A.C. The Utility should be required to charge the approved charge until
authorized to change it by the Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
The Utility requested a $5.50 late
payment charge to recover the cost of supplies and labor associated with
processing late payment notices. SSU’s request for a late payment
charge was accompanied by its reason for requesting the charge as well as the
cost justification required by Section 367.091, F.S.
Since
SSU
has not begun to provide its service to customers, staff asked the
Utility to provide historical data from its sister Utility, CSU, for
staff to consider in its analysis of the Utility’s requested late payment
charge. The CSU late payment data indicated that approximately 3.4 percent of
the CSU customer base is assessed late payment charge each month. This
approximation was based on billing data obtained from October 2017 through
January 2018.
The Utility
requested recovery of $4.59 for the labor associated with processing late
payment charges. SSU anticipates its billing specialist will spend
approximately 10 minutes per account to research, compile, and produce late
notices and the administrative supervisor will spend approximately 3 minutes
per account to review the work of the billing specialist as well as prepare
reports and identify possible trends. This is consistent with prior Commission
decisions where the Commission has allowed 10-15 minutes per account per month
for the administrative labor associated with processing delinquent customer
accounts.[10] The labor
costs include $3.06 ($18.36/6) for the billing specialist and $1.53 ($27.54/18)
for the administrative supervisor.
Additionally,
SSU requested recovery of the cost of supplies, postage, and RAFs associated
with processing delinquent accounts. The Utility’s calculation for its
requested late payment charge is shown below in Table 3-1.
Table
3-1
Late Payment Charge Cost Justification
|
Labor
|
$4.59
|
|
Supplies
|
$0.15
|
|
Postage
|
$0.49
|
|
Markup for RAFs
|
$0.25
|
|
Total
|
$5.48
|
Source: Utility’s Cost Justification
Based on
staff’s research, over the past seven years the Commission has approved late
payment charges ranging from $4.90 to $7.15.[11]
The purpose of this charge is not only to provide an incentive for customers to
make timely payment, thereby reducing the number of delinquent accounts, but
also to place the cost burden of processing delinquent accounts solely upon
those who are cost causers. Staff believes the Utility’s requested late payment
charge is reasonable and should be approved.
Based on the
above, SSU’s request to implement a $5.50 late payment charge is reasonable and
should be approved. The approved charge should be effective for service
rendered on or after the stamped approval date on the tariff pursuant to Rule
25-30.475, F.A.C. The Utility should be required to charge the approved charge
until authorized to change it by the Commission in a subsequent proceeding.
Issue 4:
Should the Utility’s request to implement a backflow
prevention assembly testing charge be approved?
Recommendation:
Yes. The Utility’s requested backflow prevention
assembly testing charge for general service customers at actual cost should be
approved. The approved charge should be effective for service rendered on or
after the stamped approval date on the tariff pursuant to Rule 25-30.475,
F.A.C. SSU should be required to charge the approved charge until authorized to
change it by the Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
The Utility
requested a backflow prevention assembly testing charge to recover the costs
the Utility would incur for performing annual testing on behalf of
non-compliant commercial customers. The
Florida Department of Environmental Protection (FDEP) requires customers with
cross-connections into the water system to install a backflow prevention
assembly on the potable water line. In addition, the FDEP requires that certain
backflow prevention assemblies be field-tested at least once a year by a
certified contractor. The residential customers of SSU are not required to annually test their backflow prevention
assembly devices because the type of assembly they will have, a double check
valve, cannot be tested, but FDEP recommends it be replaced every five to ten
years pursuant to Rule 62-555.360, F.A.C.
It is the responsibility of the customer to annually test their
backflow prevention assembly. The Utility would only administer this charge if a
general service customer fails to test their backflow prevention device in
accordance with the FDEP requirements. This charge would be imposed after 30
days’ notice to the customer and would include an estimate of the amount which
will be charged. This noticing period will provide the customer a final
opportunity to come into compliance before SSU performs
the necessary testing on the customer’s behalf. The Utility is requesting this
charge at actual cost in order to pass on the amount it will incur from a
contractor performing the necessary testing. SSU
provided a subcontract agreement to demonstrate the anticipated costs of
backflow prevention device testing. Based on the subcontract agreement, the
Utility would incur testing costs between $50 and $100 depending on meter size
to test the customer’s backflow prevention device if the customer is
non-compliant with the FDEP requirements.
The Commission previously approved a backflow prevention device
testing charge for Black Bear Reserve Corporation (Black Bear).[12] Black Bear’s charge is a voluntary testing charge for its
residential and general service customers giving customer’s an alternative to
independently seeking out a certified tester. As mentioned previously, SSU’s requested backflow prevention assembly testing charge will only
be administered to non-compliant general service customers. The Utility
provided related data for its neighboring Utility, North Sumter Utility (NSU).
In 2017, NSU had approximately 500 commercial customers with backflow prevention
devices and only 36 (7.2 percent) needed to be tested by the Utility. Based on SSU’s application, it anticipates it will serve approximately 122
general service customers.
Staff
recommends that SSU’s request to administer to
non-compliant general service customers a backflow prevention assembly testing
charge should be approved. This charge may be levied if circumstances are consistent
with those discussed in this issue and will be set forth in the Utility’s
tariff. The Utility’s requested backflow prevention assembly testing charge for
general service customers at actual cost should be approved. The approved
charge should be effective for service rendered on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. The Utility
should be required to charge the approved charge until authorized to change it
by the Commission in a subsequent proceeding.
Issue 5:
Should the temporary meter deposit requested by South
Sumter Utility Company, LLC be approved?
Recommendation:
Yes. The Utility’s requested temporary meter deposit
for general service customers at actual cost pursuant to Rules 25-30.315 and 25-30.345, F.A.C., is reasonable and should be
approved. The approved charge should be effective for service rendered on or
after the stamped approval date on the tariff pursuant to Rule 25-30.475,
F.A.C. SSU should be required to charge the approved charge until authorized to
change it by the Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
SSU requested a
temporary meter deposit for general service customers consistent with Rules
25-30.315 and 25-30.345, F.A.C., which allows the Utility to charge an
applicant a reasonable charge to defray the costs of installing and removing
facilities and materials for temporary service. This deposit would be collected
from commercial entities requesting a temporary meter for construction
activities. Once temporary meter service is terminated, SSU will credit the customer with the reasonable salvage value of the
service facilities and materials consistent with Rules 25-30.315 and 25-30.345,
F.A.C.
Based on the
above, the Utility’s requested temporary meter deposit for general service
customers at actual cost pursuant to Rules 25-30.315 and 25-30.345, F.A.C., is
reasonable and should be approved. The approved charge should be effective for
service rendered on or after the stamped approval date on the tariff pursuant
to Rule 25-30.475, F.A.C. The Utility should be required to charge the approved
charge until authorized to change it by the Commission in a subsequent
proceeding.
Issue 6:
Should the investigation of meter tampering charge requested
by South Sumter Utility Company, LLC be approved?
Recommendation:
Yes. The Utility’s requested investigation of meter
tampering charge of $35.13 is reasonable and should be approved. The approved
charge should be effective for service rendered on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. SSU should be
required to charge the approved charge until authorized to change it by the
Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
Rule 25-30.320(2)(i),
F.A.C., provides that a customer’s service may be discontinued without notice
in the event of tampering with the meter or other facilities furnished or owned
by the Utility. In addition, Rule 25-30.320(2)(j), F.A.C., provides that a
customer’s service may be discontinued in the event of an unauthorized or
fraudulent use of service. The rule allows SSU to require the
customer to reimburse the Utility for all changes in piping or equipment
necessary to eliminate the illegal use and to pay an amount reasonably
estimated as the deficiency in revenue resulting from the customer’s fraudulent
use before restoring service.
SSU requested an investigation of meter tampering charge of $35.13,
consistent with its requested miscellaneous service charges (Issue 2). An
investigation of meter tampering requires a field representative to go to the
customer’s premises to inspect the customer’s meter and service laterals.
Additionally, the administrative employee would set up an appointment time and
serve as the liaison between the field representative and the customer.
The
Utility’s requested charge is consistent with other investigation of meter
tampering charges approved by the Commission.[13]
Staff recommends SSU’s requested charge is reasonable and should be approved.
The Utility’s requested investigation of meter tampering charge cost
justification is shown below in Table 6-1.
Table
6-1
Investigation of Meter Tampering Charge
Cost Justification
|
Field Labor
|
$27.60
|
|
Administrative Labor
|
$7.53
|
|
Total
|
$35.13
|
Source: Utility’s Cost Justification
Based
on the above, SSU’s requested investigation of meter
tampering charge of $35.13 is reasonable and should be approved. The approved
charge should be effective for service rendered on or after the stamped
approval date on the tariff pursuant to Rule 25-30.475, F.A.C. The Utility
should be required to charge the approved charge until authorized to change it
by the Commission in a subsequent proceeding.
Issue
7:
Should the collection device cleaning charge requested
by South Sumter Utility Company, LLC be approved?
Recommendation:
Yes. The Utility’s requested collection device cleaning charge
for general service customers should be approved. The approved charge should be
effective for service rendered on or after the stamped approval date on the
tariff pursuant to Rule 25-30.475, F.A.C. SSU should be required to charge the
approved charge until authorized to change it by the Commission in a subsequent
proceeding. (Friedrich)
Staff Analysis:
SSU requested a fats,
oil, and grease (FOG) collection device cleaning charge for general service
customers to facilitate the Utility’s FOG
management program. The program is designed to help prevent damage and
operational problems in the wastewater collection and treatment system by
removing FOG from the wastewater stream prior to it entering the collection
system. Once FOG is introduced into the wastewater system, it then cools,
solidifies, accumulates and restricts wastewater flow within the pipes.
Restaurants are the most common type of general service customer to have higher
concentrations of FOG in their discharged wastewater. The Utility indicated
that its collection device cleaning charge would only apply to general service
customers who fail to perform the required actions after receiving written
notice from the Utility with an estimate of potential charges.
All customers with a grease interceptor are required by the
Utility to have a quarterly cleaning schedule, provide a cleaning manifest to
the Utility, and perform any needed maintenance that has been identified by the
customer’s grease interceptor cleaning contractor. If a cleaning manifest is
not received by the Utility on time or if necessary maintenance has not been
performed, a reminder letter will be sent to the customer with an estimate of
charges for cleaning the grease interceptor and giving the customer 15 days to
come into compliance. If the customer fails to come into compliance by the
notified deadline, the Utility will hire a contractor to perform the cleaning
and the contractor’s cost will be passed through to the general service
customer at the actual cost to the Utility.
The Commission has evaluated contamination issues for wastewater
Utilities in the past. For KW Resort Utilities, Corp., a monthly lift station
cleaning charge was approved for the Monroe County Detention Center.[14]
The Commission also approved an increase in contractual services for Harder
Hall-Howard, Inc. to address the overflowing grease traps of a restaurant that
did not properly maintain its collection devices.[15]
Staff believes the Utility’s proposed FOG management program is a
reasonable, proactive approach to avoid operational problems in the Utility’s
collection and treatment facilities. The Utility’s request is consistent with
Rule 20-30.225(6), F.A.C., which provides that SSU may require that each customer be responsible for cleaning and
maintaining sewer laterals to the point of delivery. Therefore, staff
recommends the Utility’s request to charge a collection device cleaning charge
is reasonable and should be approved. This charge may be levied if
circumstances are consistent with those discussed in this issue and will be set
forth in the Utility’s tariff. The approved charge should be effective for
service rendered on or after the stamped approval date on the tariff pursuant
to Rule 25-30.475, F.A.C. The Utility should be required to charge the approved
charge until authorized to change it by the Commission in a subsequent
proceeding.
Issue 8:
Should South Sumter Utility Company, LLC be
authorized to collect Non-Sufficient Funds (NSF) Charges?
Recommendation:
Yes. SSU should be authorized to collect NSF charges
pursuant to Section 68.065 F.S. The approved charges should be effective for
service rendered on or after the stamped approval date on the tariff pursuant
to Rule 25-30.475, F.A.C. The Utility should be required to charge the approved
charges until authorized to change them by the Commission in a subsequent
proceeding. (Friedrich)
Staff Analysis:
Section 367.091, F.S., requires rates, charges, and customer
service policies to be approved by the Commission. The Commission has authority
to establish, increase, or change a rate or charge. Staff believes that SSU should
be authorized to collect NSF charges consistent with Section 68.065, F.S.,
which allows for the assessment of charges for the collection of worthless
checks, drafts, or orders of payment. As currently set forth in Section
68.065(2), F.S., the following NSF charges may be assessed:
1. $25, if the face value
does not exceed $50,
2. $30, if the face value
exceeds $50 but does not exceed $300,
3. $40, if the face value
exceeds $300,
4. or
five percent of the face amount of the check, whichever is greater.
Approval of
NSF charges is consistent with prior Commission decisions.[16]
Furthermore, NSF charges places the cost on the cost-causer, rather than
requiring that the costs associated with the return of the NSF checks be spread
across the general body of ratepayers. As such, SSU should be authorized to
collect NSF charges pursuant to Section 68.065 F.S. The approved charges should
be effective for service rendered on or after the stamped approval date on the
tariff pursuant to Rule 25-30.475, F.A.C. The Utility should be required to
charge the approved charges until authorized to change them by the Commission
in a subsequent proceeding.
Issue 9:
Should the Utility’s requested initial customer
deposits be approved?
Recommendation:
No. The appropriate initial customer deposits are $41.28
for water and $50.34 for wastewater service for the residential 5/8” x 3/4”
meter size. The initial customer deposit for all other residential meter sizes
and all general service meter sizes should be two times the average estimated
bill. The approved customer deposits should be effective for service rendered
on or after the stamped approval date on the tariff pursuant to Rule 25-30.475,
F.A.C. The Utility should be required to collect the approved deposits until
authorized to change them by the Commission in a subsequent proceeding. (Friedrich)
Staff Analysis:
Rule 25-30.311, F.A.C., contains criteria
for collecting, administering, and refunding customer deposits. Rule
25-30.311(1), F.A.C., requires that each company’s tariff shall contain its
specific criteria for determining the amount of initial deposits. The Utility
requested initial customer deposits of $67.40 for water and $103.00 for
wastewater for the residential 5/8” x 3/4” meter sizes and two times the
average estimated monthly bill for all others. Customer deposits are designed
to minimize the exposure of bad debt expense for the Utility and, ultimately,
the general body of rate payers. In addition, collection of customer deposits
is consistent with one of the fundamental principles of rate making—ensuring
that the cost of providing service is recovered from the cost causer.
Rule 25-30.311(7), F.A.C., authorizes
utilities to collect new or additional deposits from existing customers not to
exceed an amount equal to the average actual charge for water and/or wastewater
service for two billing periods for the 12-month period immediately prior to
the date of notice. The two billing periods reflect the lag time between the
customer’s usage and the Utility’s collection of the revenues associated with
that usage. Commission practice has been to set initial customer deposits equal
to two months bills based on the average consumption for a 12-month period for
each class of customers. Staff reviewed the projected billing data provided in SSU’s application and determined that the anticipated average
residential usage will be approximately 2,616 gallons per month for both water
and wastewater. Consequently, the average residential monthly bill will be approximately
$20.64 for water and $25.17 for wastewater service, based on staff’s
recommended rates.
Based on the above, the appropriate initial customer
deposits are $41.28 for water and $50.34 for wastewater service for the
residential 5/8” x 3/4” meter size. The initial customer deposit for all other
residential meter sizes and all general service meter sizes should be two times
the average estimated bill. The approved customer deposits should be effective
for service rendered on or after the
stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. The
Utility should be required to collect the approved deposits until authorized to
change them by the Commission in a subsequent proceeding.
Issue 10:
What are the appropriate service availability
charges for South Sumter Utility Company, LLC?
Recommendation:
The appropriate service availability charges are a
meter installation charge of $402 for a 5/8” x 3/4” meter and a main extension
charge of $1,916 per ERC for the Utility’s water system. Additionally, a
main extension charge of $2,610 per ERC and a plant capacity charge of $450 per
ERC for the Utility’s wastewater system should be approved. The recommended main extension and plant capacity charges should be
based on an estimated 86 gallons per day (gpd) of water demand. The
approved charges should be effective for connections made on or after the
stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. The Utility
should be required to charge the approved charges until authorized to change
them by the Commission in a subsequent proceeding.
(Friedrich)
Staff Analysis:
SSU requested a meter installation charge of $402 for
5/8” x 3/4” meters and actual cost for all other meter sizes, and a main
extension charge of $1,315 per ERC and a plant capacity charge of $639 per ERC
for its water system. Additionally, the Utility requested a main extension
charge of $1,241 per ERC and a plant capacity charge of $1,010 per ERC for its
wastewater system. According to the Utility, the requested service availability
charges are based on the projected cost of the water and wastewater systems and
the anticipated capacity of 8,542 ERCs. In
addition, the requested charges reflect an allocation based on the costs of the
distribution and collection systems. SSU’s
projected distribution and collection systems costs reflect two-thirds of the
total costs of the projected plant; therefore, the requested main extension
charges reflect two-thirds of the requested service availability charges.
Similarly, the requested plant capacity charges reflect one-third of the
requested service availability charges. Further, according to the Utility, the requested charges are in compliance
with Rule 25-30.580, F.A.C., in that at design capacity the CIAC will not be in
excess of 75 percent, and will not be less than the percentage of facilities
and plant represented by the distribution and collection systems.
Rule 25-30.580(1)(a), F.A.C., provides that the maximum amount of CIAC,
net of amortization, should not exceed 75 percent of the total original cost,
net of accumulated depreciation, of the Utility's facilities and plant when the
facilities and plant are at their design capacity. The maximum guideline is
designed to ensure that the Utility retains an investment in the system. Rule
25-30.580(1)(b), F.A.C., provides that the minimum amount of CIAC should not be
less than the percentage of such facilities and plant that is represented by
the distribution and collection systems.
Meter Installation Charges
SSU is requesting approval of a meter
installation charge of $402 for 5/8” x 3/4” meters. All other meter sizes will be
installed at the Utility’s actual cost. The Utility’s proposed meter
installation charge of $402 is based on the estimated cost to install water
meters and the required backflow prevention device for the 5/8” x 3/4” meter
size. Staff recommends the meter installation charges are reasonable and should
be approved.
Main Extension Charges
Based on staff’s recommended adjustments to SSU’s projected UPIS costs, the projected cost of the water and
wastewater systems are $22,267,563 and $36,783,852. Typically the Commission
approves main extension charges based on the average cost per ERC of the
distribution and collection systems and the anticipated capacity. Therefore,
staff recommends main extension charges of $1,916 for water and $2,610 for wastewater.
Plant Capacity Charges
As mentioned above, Rule 25-30.580, F.A.C., provides minimum and
maximum guidelines for designing service availability charges. Since the value
of the distribution system represents such a significant percentage of the water
system (73 percent), even a minimal additional plant capacity charge would
result in an overall contribution level in excess of 75 percent at design
capacity. This differs from the Utility’s calculations for its proposed service
availability charges because staff’s recommended rate base reflects a
significant reduction in the projected costs of the water system. Additionally,
staff’s recommended main extension charge reflects the average projected cost
per ERC rather than an allocation of costs between the main extension and plant
capacity charges. Therefore, staff recommends a plant capacity charge for water
should not be approved.
Based on staff’s recommended main extension charge for wastewater,
staff recommends a plant capacity charge of $450 per ERC for wastewater, which
would result in a projected contribution level of approximately 61 percent at
design capacity. Staff believes this is consistent with Rule 25-30.580, F.A.C.,
and will allow SSU to maintain an appropriate
investment in its system. Table 10-1 below displays the Utility’s proposed and
staff’s recommended service availability charges for its water and wastewater
systems.
Table
10-1
Service Availability Charges
|
|
Utility Proposed
|
Staff Recommended
|
|
Charge
|
Water
|
Wastewater
|
Water
|
Wastewater
|
|
Meter Installation Charge
|
$402
|
N/A
|
$402
|
N/A
|
|
Main Extension Charge
ERC = 86 gpd
|
$1,315
|
$1,241
|
$1,916
|
$2,610
|
|
Plant Capacity Charge
ERC = 86 gpd
|
$639
|
$1,010
|
N/A
|
$450
|
Source: Utility’s Cost Justification
Based on the above, the appropriate service availability charges are a meter installation
charge of $402 for a 5/8” x 3/4” meter and a main extension charge of $1,916
per ERC for the Utility’s water system. Additionally, a main extension charge of $2,610 per ERC and a
plant capacity charge of $450 per ERC for the Utility’s wastewater system. The recommended main
extension and plant capacity charges should be based on an estimated 86 gpd of
water demand. The approved charges should be effective for connections
made on or after the stamped approval date on the tariff pursuant to Rule
25-30.475, F.A.C. SSU should be required to charge the approved charges until
authorized to change them by the Commission in a subsequent proceeding.
Issue 11:
Should this docket be closed?
Recommendation:
No. 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. The docket should remain open for staff’s
verification that the revised tariff sheets and customer notice have been filed
by the Utility and approved by staff. Once these actions are complete, this
docket should be closed administratively. (Crawford)
Staff Analysis:
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. The docket should
remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the Utility and approved by staff. Once
these actions are complete, this docket should be closed administratively.
