Discussion
of Issues
Issue
1:
Is the
quality of service provided by Orange Land Utilities, LLC satisfactory?
Recommendation:
Staff recommends that the overall quality of service
provided by Orange Land is satisfactory. (Knoblauch)
Staff Analysis:
Pursuant to Section
367.081(2)(a)1, F.S., in water and wastewater rate cases, the Commission shall
consider the overall quality of service provided by a utility. Rule 25-30.433(1),
Florida Administrative Code (F.A.C.), provides for the consideration of three
separate components of the utility’s operations.
The components are: (1) the quality of the utility’s product; (2) the utility’s
attempt to address customer satisfaction; and (3) the operating conditions of
the utility’s plant and facilities. The Rule further states that sanitary
surveys, outstanding citations, violations, and consent orders on file with the
Department of Environmental Protection (DEP) and the county health department
over the preceding three-year period shall be considered. Additionally, Section
367.0812(1), F.S., requires the Commission to consider the extent to which the utility
provides water service that meets secondary water quality standards as established
by the DEP.
Quality of the Utility’s
Product
In
evaluation of Orange Land’s product quality, staff reviewed the Utility’s
compliance with the DEP primary and secondary drinking water standards. Primary
standards protect public health, while secondary standards regulate
contaminants that may impact the taste, odor, and color of drinking water. A
review of DEP compliance records from October 1, 2014, through September 30,
2017, indicates Orange Land’s
finished product met all primary and secondary water quality standards. The
most recent chemical analyses were performed on December 1, 2015, and the
results were in-compliance with the DEP’s standards. These chemical analyses
are performed every three years; therefore, the next scheduled analysis should
be completed in 2018.
At the
customer meeting held on April 30, 2018, two customers voiced concerns related
to the quality of Orange Land’s water. The first customer stated that the
quality of the water had deteriorated since the prior owner. The customer
further asserted that multiple repairs to their filtration system had been
required, and brought to the customer meeting a sink faucet which the customer
described as “corroded” and showing signs of excess chlorine.
The second
customer expressed concerns regarding a notice on their water bills instructing
customers to boil their water. The customer stated that the boil water notice
referenced the last hurricane in 2017, and the notice had remained on
customer’s bills up to the customer meeting. Both customers that spoke affirmed
that they utilized a filtration system and used bottled water for consumption.
Eight
customer comments were filed in the docket from four customers, including the
two customers who spoke at the customer meeting. One customer filed a total of
five comments, which included pictures of the customer’s water filter, as well
as concerns about low pressure, DEP testing, boil water notices, and additional
water testing that was completed by the prior Utility owner. The second customer
filed comments in the docket that reiterated their concerns from the customer
meeting, including apprehensions about the rate increase considering the
quality of the water service. The customer also referenced low pressure, brown
water, and a boil water notice due to a broken pipe. Comments were also
received from two other customers, both of which referenced poor water quality.
While the
Commission has received some comments regarding the quality of Orange Land’s
water, the water issues do not appear to be systemic considering the number of
complaints that were received. The majority of complaints appear to be related
to the aesthetics of the water. However, the Utility’s product is in compliance
with DEP primary and secondary standards as indicated by Orange Land’s most
recent tests performed on December 1, 2015. Therefore, staff recommends that
the quality of Orange Land’s product is satisfactory.
The Utility’s Attempt to
Address Customer Satisfaction
Staff held a
customer meeting on April 30, 2018, to receive customer comments regarding the
quality of service. Two customers spoke at the customer meeting and, as
previously discussed, both customers described water quality issues. In
addition to water quality, the second customer also expressed concerns regarding
the size of the rate increase and its impact on customers.
The Utility
filed a letter in the docket outlining its follow-up action addressing the
concerns raised at the customer meeting. Orange Land stated that it spoke with the first customer and informed them
that the water was in compliance with the DEP and was safe to drink.
Additionally, the customer was advised to maintain any customer installed
filters and to flush their hot water heater biannually. The Utility also stated
that the second customer was contacted and their questions and concerns were
discussed.
In response
to the comments filed in the docket, Orange Land responded that it had been in contact with the first customer
that spoke at the customer meeting, who is the same customer that filed
comments in the docket. The Utility indicated that the low water pressure had
been due to an emergency repair at the water treatment plant (WTP), and the
boil water notices had been removed from customer bills.
Staff reviewed the Commission’s
complaint records from October 1, 2012, through the end of the test year, and
found one complaint received on February 10, 2017. The complaint involved the
Utility’s limited access to a customer’s water meter, which was located inside
of a fenced yard with a canine. A resolution letter was sent to the customer on
August 22, 2017, following several failed attempts by staff to contact the
customer and the complaint was subsequently closed. Staff also reviewed the complaint
records through July 24, 2018, and no additional complaints were received by
the Commission.
Staff
requested all complaints received by the Utility during the test year and four
years prior. The Utility provided one complaint which was received on May 8,
2017. The complaint stated that the bathroom sink faucet was dripping and dirty
water was backing up into the customer’s bathtub. To address the water dripping
from the sink, the Utility cleaned the faucet, which contained sand. The issue
of backup in the bathtub would not be an issue addressed by the water Utility.
Additionally,
staff did not identify any DEP complaints made during the test year or four
years prior. However, staff contacted the DEP regarding complaints that were
received after the test year and the DEP indicated that two complaints had
made. One of the complaints was from the first customer that spoke at the
customer meeting. The customer raised similar concerns to those at the customer
meeting on boil water notices, mold growing in filter system, colored rings
forming in toilet, and high chlorine. The DEP specified that the complainant’s
filter system was outside and it notified the customer that sun exposure could
cause the growth of mold. Additionally, the DEP conducted a site visit in
response to the customer’s concerns, and the chlorine residual was found to be below
acceptable levels. The DEP contacted the system operator, who stated that
chlorine was subsequently added and the chlorine residual was testing within
acceptable levels. The DEP conducted a second site visit and the chlorine
residual at the plant and at the complainant’s home were again within
acceptable levels.
The second
DEP complaint was regarding color and odor, as well as residue in the water.
Orange Land responded that the water had to be shut off because of a lightning
strike at the well, and customers were notified of the service interruption. As
a result of the power failure at the well, dirt had collected in the water.
Additionally, the Utility indicated that the residue was calcium scale
build-up, and advised the customer that a water softener and regular flushing
of their hot water heater could be beneficial.
Orange Land
appears to be responsive to customers based on the Utility’s follow-up action
after the customer meeting and in response to customer complaints. Therefore,
based on staff’s review of customer complaints, staff believes that Orange Land
has satisfactorily attempted to address customer satisfaction.
Operating Condition of
the Utility’s Plant and Facilities
Orange Land’s WTP has two wells and a
hydropneumatic tank. The raw water obtained from the two wells is treated with
chlorine bleach. Staff reviewed the Utility’s last DEP Sanitary Survey, dated
April 24, 2017, which identified six deficiencies at Orange Land’s WTP. The
deficiencies found were bio-growth on the hydropneumatic tank and piping, lack
of sampling and monitoring plans, low chlorine residual levels in the
distribution system, and absence of meter accuracy checks. In a letter dated
October 26, 2017, the DEP stated that all deficiencies that were identified had
been corrected and the system was determined to be in-compliance with the DEP’s
rules and regulations. Based on the Utility’s compliance with the DEP, staff
recommends the operating condition of Orange Land’s plant and facilities is
satisfactory.
Conclusion
Staff recommends the overall quality of service provided
by Orange Land is satisfactory.
Issue
2:
What are the
used and useful (U&U) percentages of Orange Land Utilities, LLC’s WTP and
distribution system?
Recommendation:
Orange Land’s
WTP and distribution system should continue to be considered 100 percent
U&U. There appears to be no excessive unaccounted for water (EUW);
therefore, staff recommends that no adjustment be made to operating expenses
for chemicals and purchased power. (Knoblauch)
Staff Analysis:
Orange
Land’s WTP has two wells rated
at 110 gallons per minute (gpm) and 100 gpm. The Utility’s water system does
not have a storage tank, but has one hydropneumatic tank totaling 1,000 gallons
in capacity. The distribution system is composed of 960 linear feet of 4 inch
polyvinyl chloride (PVC), 570 linear feet of 4 inch asbestos cement (AC), and
2,250 linear feet of 2 inch PVC pipes.
Rule 25-30.4325,
F.A.C., addresses the method by which the U&U of a water system is
determined. The U&U for Orange Land’s WTP and distribution system were last
determined by Order No. PSC-08-0309-PAA-WU. In
that order, the Commission determined the Utility’s service territory was
built-out and found the WTP and distribution system to be 100 percent U&U.
Used and Useful Percentages
As noted
above, the Commission found both the WTP and distribution system to be 100
percent U&U in the prior rate case. The Utility has not increased the
capacity of its water treatment facilities or distribution system since its
last rate case. Therefore, consistent with the Commission’s previous decision,
staff recommends the Utility’s WTP and water distribution system be considered
100 percent U&U.
Excessive Unaccounted for Water
Rule
25-30.4325, F.A.C., additionally provides factors to be considered in
determining whether adjustments to operating expenses are necessary for EUW. EUW
is defined as “unaccounted for water in excess of 10 percent of the amount
produced.” Unaccounted for water is all water produced that is not sold,
metered, or accounted for in the records of the Utility.
EUW is
calculated by subtracting both the gallons sold to customers and the gallons
used for other services, such as flushing, from the total gallons pumped for
the test year. Based on monthly operating reports, Orange Land produced
4,107,000 gallons of water from October 1, 2016, to September 30, 2017. From
the audit completed by staff, the Utility sold 3,680,739 gallons of water to
customers. The Utility documented 18,000 gallons of water usage for line
flushing. The resulting calculation ([4,107,000 – 3,680,739 – 18,000] /
4,107,000) for unaccounted for water is 9.9 percent; therefore, there is no
EUW. Staff recommends no adjustments should be made to purchased power and
chemicals at this time.
Conclusion
Orange Land’s
WTP and distribution system should be considered 100 percent U&U.
Additionally, staff recommends no adjustment to purchased power and chemicals
should be made for EUW.
Issue
3:
What is the
appropriate average test year rate base for Orange Land Utilities, LLC?
Recommendation:
The appropriate average test year rate base for Orange
Land is $29,381. (Frank, Knoblauch)
Staff Analysis:
The appropriate components of the Utility’s rate
base include utility plant in service, land,
Contributions-In-Aid-of-Construction (CIAC), accumulated depreciation,
amortization of CIAC, and working capital. Rate base was last established as of
May 1, 2016, in Docket No. 20160144-WU.
Staff selected the test year ended September 30, 2017, for the instant case. A
summary of each rate base component and recommended adjustments are discussed
below.
Utility Plant in Service (UPIS)
The Utility recorded a test year UPIS balance of $52,241.
Staff increased UPIS by $866 to include an averaging adjustment.
Orange Land has
requested several pro forma plant projects. The pro forma projects include
replacement of a hydropneumatic tank, flow meter, well-house roof, and
electrical panel, as well as a meter replacement program. The Utility obtained
two bids for the hydropneumatic tank, well-house roof, and electrical panel
projects and the lowest bids were selected for each respective project. The
replacement of the flow meter was completed by Orange Land, and the Utility
will also be completing the work for the meter replacement program. As such,
staff increased UPIS by $8,032.
Table 3-1
Pro Forma Projects
|
Description
|
Pro Forma Cost
|
Retirement
|
Net Amount
|
Net Depreciation
Expense
|
Net Acc.
Depreciation
|
|
Hyrdo Tank
|
$10,274
|
($9,205)
|
$1,069
|
$36
|
$8,863
|
|
Meter Replacement
|
3,450
|
(2,587)
|
863
|
$51
|
$2,384
|
|
Well-House Roof
|
700
|
0
|
700
|
$26
|
($26)
|
|
Electrical Panel
|
5,122
|
0
|
5,122
|
$301
|
($301)
|
|
Flow Meter
|
278
|
0
|
278
|
$9
|
($9)
|
|
Total
|
$19,824
|
($11,792)
|
$8,032
|
$422
|
$10,911
|
Source:
Document Nos. 02337-2018, 02338-2018, and 04327-2018.
Staff’s
net adjustment to UPIS is an increase of $8,898 ($866 + $8,032). Therefore, staff
recommends that the appropriate UPIS balance is $61,139.
Land & Land Rights
The Utility recorded a test year land balance of $1,000.
Based on staff’s review, no adjustment is necessary. Therefore, staff
recommends that the appropriate balance for land is $1,000.
Used & Useful
As discussed in Issue 2, Orange Land's WTP and
distribution system are considered 100 percent U&U. Therefore, no U&U
adjustments are necessary.
Accumulated Depreciation
Orange Land recorded a test year accumulated depreciation
balance of $44,378. Staff increased accumulated depreciation by $825 to include
an averaging adjustment. Staff also decreased accumulated depreciation by
$10,911 to reflect pro forma additions and corresponding retirements. Staff’s adjustments
result in a net decrease to accumulated depreciation of $10,086 ($10,911 -
$825). Staff recommends an accumulated depreciation balance of $34,292.
Contributions In Aid of Construction
The Utility recorded a CIAC balance of $7,350. Based on
staff’s review, no adjustment is necessary. Therefore, staff recommends that
the appropriate balance is $7,350.
Accumulated Amortization of CIAC
The Utility recorded a test year accumulated amortization
of CIAC balance of $6,222. Staff reduced accumulated amortization of CIAC by
$54 to include an averaging adjustment. As such, staff recommends an accumulated
amortization of CIAC balance of $6,168.
Working Capital Allowance
Working capital is defined as the short-term investor-supplied
funds that are necessary to meet operating expenses. Consistent with Rule
25-30.433(2), F.A.C., staff used the one-eighth of the operation and
maintenance (O&M) expense formula approach for calculating the working
capital allowance. This formula does not include rate case expense. Applying
this formula, staff recommends a working capital allowance of $2,716 (based on
O&M expense of $21,728/8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base for Orange Land is $29,381. Rate base
is shown on Schedule No. 1-A. The related adjustments are shown on Schedule No.
1-B.
Issue
4:
What is the
appropriate return on equity and overall rate of return for Orange Land
Utilities, LLC?
Recommendation:
The appropriate return on equity (ROE) is 10.32
percent with a range of 9.32 percent to 11.32 percent. The appropriate overall
rate of return is 8.46 percent. (Frank)
Staff Analysis: According
to staff’s audit, Orange Land’s test year capital structure reflected common
equity of $8,391 and long term debt of $9,801. The Utility’s capital structure
has been reconciled with staff’s recommended rate base. The appropriate ROE for
the Utility is 10.32 percent based upon the Commission-approved leverage
formula currently in effect.[6] Staff
recommends an ROE of 10.32 percent, with a range of 9.32 percent to 11.32
percent, and an overall rate of return of 8.46 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
..
Issue 5:
What are the
appropriate test year revenues for Orange Land Utilities, LLC?
Recommendation:
The appropriate test year revenues for
Orange Land’s water system are $22,617. (Bruce)
Staff
Analysis: Orange
Land recorded total revenues of $22,351. The water revenues included $21,975 of
service revenues and $376 of miscellaneous revenues. During the test year, the
Utility had a rate increase as a result of a price index. Therefore, staff
annualized test year revenues by applying the rates in effect as of July 1,
2017, to the appropriate billing determinants. As a result, staff determined
that service revenues should be $22,241, which is an increase of $266. There is
no adjustment to miscellaneous revenues. The appropriate test year revenues for
Orange Land water system, including miscellaneous revenues are $22,617 ($22,241
+ $376).
Issue 6:
What is the
appropriate amount of operating expense for Orange Land Utilities, LLC?
Recommendation: The appropriate amount of
operating expense for Orange Land is
$25, 240. (Frank, Johnson)
Staff Analysis: Orange Land recorded operating expense of $28,276 for the test year
ended September 30, 2017. The test year O&M expenses have been reviewed,
including invoices, canceled checks, and other supporting documentation. An
allocated portion of FUS1’s operating expenses were also included for the test
year ended September 30, 2017. Allocations were based on the customer count of
all utilities owned and managed by FUS1 in the test year. Staff’s adjustments
to the Utility’s operating expenses are summarized below
.
Operation & Maintenance Expense
Salaries and Wages – Employees (601)
The Utility requested an increase in salaries and wages
expense based on the need for an additional 2.5 employees on FUS1’s workforce
and the allocation of one FUS1 employee who was not previously allocated to
Orange Land. In total, the Utility requested
additional costs for Orange Land’s allocated portion of three new
Maintenance Technicians and for the increase in allocated costs related to
expanding an existing part-time customer billing position to full-time.
The current staffing level and salaries for FUS1 employees
were last evaluated by the Commission in Order No. PSC-17-0107-PAA-WS. At the time, FUS1 managed nine utilities with a total
of 1,961 customers. As of September 30, 2017,
FUS1 now owns and operates 12 utilities with a total of 2,791 customers. With
the additional customers added to FUS1, staff believes it is appropriate to
increase the part-time billing position to a full-time position.
The Utility requested that the salary of an existing
Maintenance Technician be allocated to the Orange Land system. The Utility made
a similar request in Docket No. 20150257-WS; however, the Commission determined
that the Maintenance Technician should not be allocated to the East Marion
system as the employee did not work on that particular system. In the present
case, Orange Land indicated that the Maintenance Technician would be working on
all of FUS1’s systems moving forward. The Utility also requested two additional
Maintenance Technicians, who would similarly be employed for the maintenance of
all systems.
Staff believes that the existing Maintenance Technician
should be allocated to Orange Land considering that the employee will now be
maintaining the system. Staff also believes that the addition of the
Maintenance Technician to the Orange Land system will provide backup support in
the event that the President and/or Operations Supervisor are unavailable.
Given the number and size of the systems currently owned by FUS1, staff
considers three field employees to be adequate for providing service. Staff
does not believe that the two additional Maintenance Technicians should be
allocated to Orange Land as the Utility currently utilizes a contractor for the
system’s operations.
FUS1 is requesting a salary of $37,900 for the Maintenance
Technician. Staff used the American Water Works Associations’ (AWWA) 2016
Compensation Survey in an effort to examine the reasonableness of the requested
salary. The Maintenance Technician is currently being paid $33,488 by FUS1. As
stated earlier, the duties of the Maintenance Technician have increased as he
now works on all of FUS1’s systems. Furthermore, the requested $37,900
represents the minimum for rural system Maintenance Technicians found in the
AWWA 2016 Compensation Survey. Therefore, staff believes the requested salary
for the Maintenance Technician is appropriate.
Table 6-1 below details the requested and recommended
amounts for each of FUS1’s positions, as well as the allocations for each
position to Orange Land.
Table 6-1
Adjustments
made to Salaries and Wages – Employees
|
Title
|
Requested
|
Recommended
|
Allocation %
|
Recommended
Allocated
|
|
Chief Financial Off.
|
$54,366
|
$54,366
|
2.65
|
$1,441
|
|
Office Manager
|
$39,500
|
$39,500
|
2.65
|
1,047
|
|
Cust. Serv. Rep.
|
$34,000
|
$34,000
|
2.65
|
901
|
|
Billing Position
|
$20,800
|
$20,800
|
2.65
|
551
|
|
Oper. Supervisor
|
$39,000
|
$39,000
|
2.65
|
1,034
|
|
Maintenance Tech.
|
$37,900
|
$37,900
|
2.65
|
1,004
|
|
Maintenance Tech.
|
$37,900
|
$0
|
2.65
|
0
|
|
Maintenance Tech.
|
$37,900
|
$0
|
2.65
|
0
|
|
Total
|
$5,978
|
Staff believes the salary levels and allocation percentage
are appropriate and necessary for Orange Land. Orange
Land recorded salaries and wages – employees expense of $8,116. Based on the
most recent allocation of 2.65 percent, as reflected at the end of the test
year, staff has increased salaries and wages by $1,280 to account for the
full-time billing position and Maintenance Technician. A corresponding adjustment
should also be made to decrease the account by $3,418 to reflect the
prospective allocation of test year salaries. Staff’s total adjustments result
in a decrease to salaries and wages – employees expense of $2,138 (-$3,418 +
$1,280). Therefore, staff recommends a salaries and wages – employees expense
of $5,978 for Orange Land.
Salaries and Wages – Officers (603)
Orange Land recorded salaries and wages – officer’s
expense of $3,553. Staff reduced this account by $900 to remove salary and
wages expense misallocated from outside the test year. Additionally, Orange
Land requested a pro forma increase to salaries and wages – officers expense to
reflect the increase in salary for FUS1’s President. Orange Land requested an
allocated portion of $80,000 for the President of FUS1.
The current salary for the President is $72,704, as
approved in Order No. PSC-17-0107-PAA-WS;
which ultimately fell between the minimum and mid-average salary range found on
the 2016 AWWA Compensation Survey. In the instant case, staff considered the
last approved salary, along with the President’s increased responsibilities in
managing and overseeing FUS1’s utilities. Since the President’s last-approved
salary, FUS1 has added three utilities and 830 customers, which represents a growth
of 42 percent. In addition, the requested $80,000 represents the mid average
salary range found in the 2016 AWWA Compensation Survey. Therefore, staff
believes a President’s salary for FUS1 of $80,000 is appropriate.
Based on the most recent allocation of 2.65 percent, as
reflected at the end of the test year, staff has increased salaries and wages –
officers expense by $193. This increase accounts for Orange Land’s allocated
portion of the President’s pro forma salary increase. A corresponding adjustment
should also be made to decrease the account by $726 to reflect the prospective
allocation of test year salaries.
Staff’s total adjustments result in a net decrease to
salaries and wages – officers expense of $1,433 (-$900 - $726 + $193).
Therefore, staff recommends a salaries and wages– officers expense of $2,120.
Pensions and Benefits (604)
Orange Land recorded pensions and benefits expense of
$958. Staff decreased this expense by $304 to make a corresponding test year
adjustment for an over-allocation of salaries from FUS1. Staff has increased
this expense by $128 to reflect Orange Land’s allocation of the increase in pensions and benefits based on
two new full-time employees for FUS1. Staff’s adjustments result in a net
decrease to pensions and benefits expense of $176 (-$304 + $128). Therefore,
staff recommends pensions and benefits expense of $782.
Purchased Power (615)
The Utility recorded purchased power expense of $826.
Staff decreased this account by $5 for the removal of late payment fees. As
such, staff recommends purchased power expense of $821.
Insurance Expense (655)
Orange Land recorded
insurance expense of $1,624 for the test year. Staff decreased this expense by
$265 to reflect the amount associated with its insurance policy. Therefore,
staff recommends insurance expense of $1,359.
Regulatory
Commission Expense (665)
Orange Land did not record
regulatory commission expense for the test year. Staff calculated a total of
$1,137 in regulatory commission expense. This amount includes a $1,000 filing
fee and $137 in noticing costs for the instant case. The recommended total rate
case expense of $1,137 should be amortized over four years, pursuant to Section
367.081(6), F.S. This represents an annual expense of $284 ($1,137/4). As such,
staff recommends regulatory commission expense of $284.
Bad Debt
Expense (670)
Orange Land did not record bad debt expense for the test
year. Staff collected two years of bad debt expense data using the Utility’s
2016 and 2017 Annual Reports, totaling $327. Staff calculated a two-year
average of bad debt expense of $164. Staff believes 24 months of data is a
valid representation of bad debt expense for this Utility.
Therefore, staff recommends bad debt expense of $164.
Operation and Maintenance Expense Summary
Based on the above adjustments, staff recommends that O&M
expense should be decreased by $3,569, resulting in total O&M expense of $22,013.
Staff’s recommended adjustments to O&M expense are shown on Schedule No
3-C.
Depreciation Expense (Net of Amortization of CIAC)
Orange
Land recorded depreciation expense of
$751 during the test year. Staff calculated depreciation expense associated
with the pro forma plant additions and retirements the Utility requested. These
additions result in an increase of $422. As such, staff recommends depreciation
expense of $1,173.
Taxes Other Than Income (TOTI)
Orange Land
recorded a TOTI balance of $1,943 during the test year. Staff increased
property tax expense by $121 as a corresponding adjustment to the pro forma
plant additions. Staff also decreased TOTI by $53 to reflect the appropriate
amount of a property tax bill received by the Utility in November of 2017.
Additionally, staff decreased payroll taxes by $198 as a corresponding
adjustment to staff’s recommended adjustment to salaries and wages expense.
Staff increased the Regulatory Assessment Fees (RAFs) by $12 to reflect the
adjusted test year revenues. This results in a net decrease of $118 (-$53 -
$198 + $12 + $121).
In addition, as discussed in
Issue 7, revenues have been increased by $5,110 to reflect the change in
revenue required to cover expenses and allow the recommended return on
investment. As a result, TOTI should be increased by $230 to reflect RAFs of
4.5 percent on the change in revenues. Staff’s adjustments result in a net
increase of $112 (-$118 + $230). Therefore, staff recommends TOTI of $2,055.
Operating Expenses Summary
The application of
staff=s recommended
adjustments to Orange Land’s test year operating expenses results in operating expenses
of $25,240. Operating expenses are shown on Schedule No. 3-A. The related
adjustments are shown on Schedule Nos. 3-B and 3-C.
Issue
7:
What is the appropriate
revenue requirement for Orange Land Utilities, LLC?
Recommendation:
The appropriate revenue requirement is $27,727
resulting in an annual increase of $5,110 (22.60 percent). (Frank)
Staff Analysis:
Orange Land should be allowed an annual increase of
$5,110 (22.60 percent). The calculations are shown below in Table 7-1.
Table 7-1
|
Revenue
Requirement
|
|
Adjusted Rate Base
|
|
$29,381
|
|
Rate of Return
|
|
x 8.46%
|
|
Return on Rate Base
|
|
2,528
|
|
Adjusted O&M Expense
|
|
22,013
|
|
Depreciation Expense (Net)
|
|
1,173
|
|
Taxes Other Than Income
|
|
1,825
|
|
Test Year RAFs
|
|
230
|
|
Revenue Requirement
|
|
27,727
|
|
Less Adjusted Test Year Revenues
|
|
22,617
|
|
Annual Increase
|
|
5,110
|
|
Percent Increase
|
|
22.60%
|
Issue
8:
What is the
appropriate rate structure and rates for Orange Land Utilities, LLC’s water
system?
Recommendation:
The
recommended rate structure and monthly water rates are shown on Schedule No. 4.
The Utility should file revised tariff sheets and a proposed customer notice to
reflect the Commission-approved rates. The approved rates should be effective
for service rendered on or after the stamped approval date on the tariff sheet
pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved rates should
not be implemented until staff has approved the proposed customer notice and
the notice has been received by the customers. The Utility should provide proof
of the date notice was given within 10 days of the date of the notice. (Bruce)
Staff
Analysis: Orange Land’s water system is located in Pasco
County within the SWFWMD. The Utility provides water service to 74 residential
water customers and 2 general service customers. Approximately 4 percent of the
residential customer bills during the test year had zero gallons indicating a
non-seasonal customer base. The average residential water demand is 4,303
gallons per month. The Utility’s current residential and general service rate
structure consists of a base facility charge (BFC) and a two-tier inclining
block rate structure. The rate blocks are 0-5,000 gallons and all usage in
excess of 5,000 gallons per month.
Staff performed an analysis of the Utility’s billing data in order to
evaluate the appropriate rate structure for the residential water customers.
The goal of the evaluation was to select the rate design parameters that: (1)
produce the recommended revenue requirement; (2) equitably distribute cost
recovery among the utility’s customers; (3) establish the appropriate
non-discretionary usage threshold for restricting repression; and (4)
implement, where appropriate, water conserving rate structures consistent with
Commission practice.
Currently, approximately 60
percent of the Utility’s revenues are recovered through the BFC. Typically, the
Commission sets the BFC cost recovery no greater than 40 percent unless the
utility’s customer base is seasonal; however, seasonality is not an issue for
this Utility. Staff recommends that 45 percent of the revenue requirement should
be recovered through the BFC to mitigate the impact of the shift in the BFC
cost recovery. Lowering the BFC cost recovery sends the appropriate pricing
signals to target discretionary demand. The average persons per household
served by the water system is 2.5; therefore, based on the number of person per
household, 50 gallons per day per persons, and the number of days per month,
the non-discretionary usage threshold should be 4,000 gallons per month. Staff
recommends a continuation of the two-tier rate structure with separate
gallonage charges for discretionary and non-discretionary usage for residential
water customers. The rate blocks should be: (1) 0-4,000 gallons; and (2) all
usage in excess of 4,000 gallons per month. This rate structure will continue
to send the appropriate pricing signals, which will target customers with high
consumption levels and minimize price increases for customers at
non-discretionary levels. The recommended general service rates do not include
an inclining block because general service customers are less likely to
conserve since they typically pass the cost to their customers. Therefore,
staff recommends that the general service rate structure be revised to include
a BFC and uniform gallonage charge.
Based on a recommended revenue
increase of 22.60 percent, which excludes miscellaneous revenues, the
residential consumption can be expected to decline by 199,000 gallons resulting
in anticipated average residential demand of 4,064 gallons per month. Staff
recommends a 5.6 percent reduction in test year residential gallons for
ratesetting purposes and corresponding reductions of $44 for purchased power
and $2 for RAFs to reflect the anticipated repression, which results in a post
repression revenue requirement of $27,305. As shown in Table 8-1, in comparison
to staff’s recommended rate structure and rates, Alternatives I and II send
less of a pricing signal for targeting discretionary usage. In addition,
Alternative II provides higher percentage price increases and prices to
customers below the non-discretionary threshold.
Table 8-1
Staff’s
Recommended and Alternative Water Rate Structures and Rates
|
|
|
STAFF
|
|
|
|
RATES AT
|
RECOMMENDED
|
ALTERNATIVE
|
ALTERNATIVE
|
|
TIME OF
|
RATES
|
I
|
II
|
|
|
FILING
|
(45% BFC)
|
(50% BFC)
|
(60% BFC)
|
|
Residential
|
|
|
|
|
|
5/8” x
3/4” Meter Size
|
$14.91
|
$13.99
|
$15.55
|
$18.67
|
|
|
|
|
|
|
|
Charge per 1,000
gallons
|
|
|
|
|
|
0-5,000 gallons
|
$2.15
|
|
|
|
|
Over 5,000 gallons
|
$3.17
|
|
|
|
|
|
|
|
|
|
|
0-4,000 gallons
|
|
$4.09
|
$3.72
|
$2.97
|
|
Over 4,000 gallons
|
|
$4.77
|
$4.24
|
$3.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Typical
Residential 5/8" x 3/4" Meter Bill Comparison
|
|
|
4,000 Gallons
|
$23.51
|
$30.35
|
$30.43
|
$30.55
|
|
8,000 Gallons
|
$35.17
|
$49.43
|
$47.39
|
$43.59
|
|
10,000 Gallons
|
$41.51
|
$58.97
|
$55.87
|
$50.11
|
|
|
|
|
|
|
|
|
|
|
|
Based on the above,
the recommended rate structure and monthly water rates are shown on Schedule
No. 4. The Utility should file revised tariff sheets and a proposed customer
notice to reflect the Commission-approved rates. The approved rates should be
effective for service rendered on or after the stamped approval date on the
tariff sheet pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved
rates should not be implemented until staff has approved the proposed customer
notice and the notice has been received by the customers. The Utility should
provide proof of the date notice was given within 10 days of the date of the
notice.
Issue 9:
What are the appropriate initial customer
deposits for Orange Land Utilities, LLC water system?
Recommendation:
The
appropriate initial customer deposit should be $64 for the residential 5/8 inch
x 3/4 inch meter size. The initial customer deposits for all other residential meter
sizes and all general service meter sizes should be two times the average
estimated bill for water. The approved initial customer deposits 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 collect the approved deposits until authorized to
change them by the Commission in a subsequent proceeding. (Bruce)
Staff
Analysis: Rule 25-30.311, F.A.C., provides the criteria for
collecting, administering, and refunding customer deposits. Customer deposits
are designed to minimize the exposure of bad debt expense for the utility and,
ultimately, the general body of ratepayers. An initial customer deposit ensures
that the cost of providing service is recovered from the cost causer.
Historically, the Commission has set initial customer deposits equal to two
times the average estimated bill.[11] Currently, the Utility’s initial deposit for
residential water is $42 for the 5/8 inch x 3/4 inch meter size and two times
the average estimated bill for the general service meter sizes. Based on the
staff recommended water rates and post repression average residential demand,
the appropriate initial customer deposit for water should be $64 to reflect an
average residential customer bill for two months.
Staff
recommends the appropriate initial customer deposits should be $64 for the
residential 5/8 inch x 3/4 inch meter size for water. The initial customer
deposits for all other residential meter sizes and all general service meter
sizes should be two times the average estimated bill for water. The approved
initial customer deposits 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 collect
the approved deposits until authorized to change them by the Commission in a
subsequent proceeding.
Issue
10:
What is the
appropriate amount by which rates should be reduced in four years after the
published effective date to reflect the removal of the amortized rate case
expense as required by Section 367.081(8) F.S.?
Recommendation:
The rates should be reduced as shown on Schedule No.
4, to remove rate case expense grossed-up for RAFs and amortized over a
four-year period. The decrease in rates should become effective immediately
following the expiration of the four-year rate case expense recovery period,
pursuant to Section 367.081(8), F.S. Orange Land should be required to file revised tariffs and a proposed
customer notice setting forth the lower rates and the reason for the reduction
no later than one month prior to the actual date of the required rate
reduction. If the Utility files this reduction in conjunction with a price
index or pass-through rate adjustment, separate data should be filed for the
price index and/or pass-through increase or decrease and the reduction in the
rates due to the amortized rate case expense. (Frank, Bruce)
Staff Analysis:
Section 367.081(8), F.S., requires that the rates be
reduced immediately following the expiration of the four-year period by the
amount of the rate case expense previously included in rates. The reduction
will reflect the removal of revenue associated with the amortization of rate
case expense and the gross-up for RAFs. The total reduction is $298.
The rates should be reduced as shown on Schedule No. 4 to
remove rate case expense grossed-up for RAFs and amortized over a four-year
period. The decrease in rates should become effective immediately following the
expiration of the four-year rate case expense recovery period, pursuant to
Section 367.081(8), F.S. Orange Land should
be required to file revised tariffs and a proposed customer notice setting
forth the lower rates and the reason for the reduction no later than one month
prior to the actual date of the required rate reduction. If the Utility files
this reduction in conjunction with a price index or pass-through rate
adjustment, separate data should be filed for the price index and/or
pass-through increase or decrease and the reduction in the rates due to the
amortized rate case expense.
Issue
11:
Should the
recommended rates be approved for Orange Land Utilities, LLC on a temporary
basis, subject to refund with interest, in the event of a protest filed by a
party other than the Utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates should be approved for the Utility on a temporary basis,
subject to refund with interest, in the event of a protest filed by a party
other than the Utility. Orange Land should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The approved
rates should be effective for service rendered on or after the stamped approval
date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In addition,
the temporary rates should not be implemented until staff has approved the
proposed notice, and the notice has been received by the customers. Prior to
implementation of any temporary rates, the Utility should provide appropriate security.
If the recommended rates are approved on a temporary basis, the rates collected
by the Utility should be subject to the refund provisions discussed below in
the staff analysis. In addition, after the increased rates are in effect,
pursuant to Rule 25-30.360(6), F.A.C., the Utility should file reports with the
Commission’s Office of Commission Clerk no later than the 20th of each month
indicating the monthly and total amount of money subject to refund at the end
of the preceding month. The report filed should also indicate the status of the
security being used to guarantee repayment of any potential refund. (Frank)
Staff Analysis:
Section 1.01
This recommendation
proposes an increase in rates. A timely protest might delay what may be a
justified rate increase resulting in an unrecoverable loss of revenue to the Utility.
Therefore, pursuant to Section 367.0814(7), F.S., in the event of a protest
filed by a party other than the utility, staff recommends that the recommended
rates be approved as temporary rates. Orange
Land should file revised tariff sheets and a proposed customer notice to
reflect the Commission-approved rates. The approved rates should be effective
for service rendered on or after the stamped approval date on the tariff sheet,
pursuant to Rule 25-30.475(1), F.A.C. In addition, the temporary rates should
not be implemented until staff has approved the proposed notice, and the notice
has been received by the customers. The recommended rates collected by the Utility
should be subject to the refund provisions discussed below.
Orange Land should be authorized
to collect the temporary rates upon staff’s approval of an appropriate security
for the potential refund and the proposed customer notice. Security should be
in the form of a bond or letter of credit in the amount of $3,442.
Alternatively, the Utility could establish an escrow agreement with an
independent financial institution.
If the Utility chooses a bond as
security, the bond should contain wording to the effect that it will be
terminated only under the following conditions:
1)
The Commission approves the rate increase; or,
2)
If the Commission denies the increase, the Utility
shall refund the amount collected that is attributable to the increase.
If the Utility chooses a letter
of credit as a security, it should contain the following conditions:
1) The
letter of credit is irrevocable for the period it is in effect, and,
2) The letter of credit will be
in effect until a final Commission order is rendered, either approving or
denying the rate increase.
If security is provided through
an escrow agreement, the following conditions should be part of the agreement:
1) The
Commission Clerk, or his or her designee, must be a signatory to the escrow
agreement;
2) No
monies in the escrow account may be withdrawn by the Utility without the
express approval of the Commission;
3) The
escrow account shall be an interest bearing account;
4) If
a refund to the customers is required, all interest earned by the escrow
account shall be distributed to the customers;
5) If
a refund to the customers is not required, the interest earned by the escrow
account shall revert to the Utility;
6) All
information on the escrow account shall be available from the holder of the
escrow account to a Commission representative at all times;
7) The
amount of revenue subject to refund shall be deposited in the escrow account
within seven days of receipt;
8) This
escrow account is established by the direction of the Florida Public Service
Commission for the purpose(s) set forth in its order requiring such account.
Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972),
escrow accounts are not subject to garnishments;
9) The
account must specify by whom and on whose behalf such monies were paid.
In no instance should the maintenance
and administrative costs associated with the refund be borne by the customers.
These costs are the responsibility of, and should be borne by, the Utility.
Irrespective of the form of security chosen by the Utility, an account of all
monies received as a result of the rate increase should be maintained by the Utility.
If a refund is ultimately required, it should be paid with interest calculated
pursuant to Rule 25-30.360(4), F.A.C.
Should the recommended
rates be approved by the Commission on a temporary basis, Orange Land should maintain a record of the amount of the security, and the amount
of revenues that are subject to refund. In addition, after the increased rates
are in effect, pursuant to Rule 25-30.360(6), F.A.C., the Utility should file
reports with the Commission’s Office of Commission Clerk no later than the 20th
of each month indicating the monthly and total amount of money subject to
refund at the end of the preceding month. The report filed should also indicate
the status of the security being used to guarantee repayment of any potential
refund.
Issue
12:
Should Orange Land Utilities, LLC be required
to notify the Commission in writing that it has adjusted its books in
accordance with the Commission’s decision?
Recommendation:
Yes. Orange Land should be required to notify the
Commission in writing, that it has adjusted its books in accordance with the
Commission’s decision. Orange Land should submit a letter within 90 days of the
final order in this docket, confirming that it has made the adjustments to all
applicable National Association of Regulatory Commissioners (NARUC) Uniform
System of Accounts (USOA). In the event the Utility needs additional time to
complete the adjustments, notice should be provided within seven days prior to
the deadline. Upon providing good cause, staff should be given administrative
authority to grant an extension of up to 60 days. (Frank)
Staff Analysis:
Orange Land should be required to notify the
Commission in writing, that it has adjusted its books in accordance with the
Commission’s decision. Orange Land should
submit a letter within 90 days of the final order in this docket, confirming
that the adjustments to all the applicable NARUC USOA primary accounts have
been made to the Utility’s books and records. In the event the Utility needs
additional time to complete the adjustments, notice should be provided within
seven days prior to the deadline. Upon providing good cause, staff should be
given administrative authority to grant an extension of up to 60 days.
Issue
13:
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, and the
utility has provided staff with proof that the adjustments for all the
applicable NARUC USOA primary accounts have been made. Once these actions are
complete, this docket should be closed administratively. (DuVal)
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, and the
utility has provided staff with proof that the adjustments for all the
applicable NARUC USOA primary accounts have been made. Once these actions are
complete, this docket should be closed administratively.
