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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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September 28, 2018
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TO:
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Office of Commission Clerk (Stauffer)
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FROM:
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Division of Economics (Bethea, Hudson)
Division of Accounting and Finance (Cicchetti)
Office of the General Counsel (Crawford)
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RE:
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Docket No. 20180161-WS – Application
for approval of tariff for the gross-up of CIAC for water and wastewater
rates in Polk County, by Gold Coast Utility Corp.
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AGENDA:
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10/11/18 – Regular Agenda – Tariff Filing – Interested Persons May
Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Administrative
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CRITICAL DATES:
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10/30/18 (60-Day Suspension
Date)
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SPECIAL INSTRUCTIONS:
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None
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Case Background
Gold Coast
Utility Corp. (GCUC or utility) is a Class B utility providing water and
wastewater services in Polk County to approximately 220 water and 204
wastewater customers. The utility reported in its 2017 annual report operating
revenues in the amount of $276,908 for water and $437,106 for wastewater. The
utility collected contributions in aid of construction (CIAC) in the amount of
$1,100 for water and $0 for wastewater in 2017.
On
August 31, 2018, the utility filed an application for approval of a tariff to
allow for gross-up of CIAC. As discussed in Issue 1 below, the utility
indicated that the change in tax law may cause it to risk the loss of its
opportunity to earn a reasonable return on its used and useful property if it
is not allowed to collect the tax impact on receipt of CIAC. This
recommendation addresses the utility's request for approval of gross-up tariffs related to changes in the
federal tax code effective in 2018. Any potential refund related to the
change in the federal tax rate currently embedded in the utility’s rates is
outside of this recommendation and will be addressed in the generic Docket No.
20180013-PU. The Commission has jurisdiction pursuant
to Sections 367.081 and 367.091, Florida Statutes (F.S.).
Discussion of Issues
Issue 1:
Should GCUC’s request for approval of a tariff to
allow the gross-up of CIAC be approved?
Recommendation:
Yes, the tariffs filed on August 31, 2018, should be
approved. The utility should provide notice to all persons in the service areas
included in the application who have filed a written request for service or who
have been provided a written estimate for service within the 12 calendar months
prior to the month the application was filed.
The approved gross-up
charges should be effective for connections made on or after the stamped approval
date on the tariff sheets. The utility should
provide proof of noticing within 10
days of rendering its approved notice. (Bethea, Hudson, Cicchetti)
Staff Analysis:
Effective January
1, 2018, the Federal Tax
Cuts
and Jobs Act amended
Section 118 of the Internal
Revenue Code. Prior to the amendments, CIAC was exempt from
taxable gross income for water and wastewater utilities. As a result of the amendments, both cash and property CIAC are now taxable gross income
for
water
and
wastewater
utilities. In recognition of this
change in the tax law, the Commission has opened Docket
No. 20180013-PU, In re: Petition to establish a generic docket to investigate and adjust rates for 2018 tax savings by Office of Public
Counsel to address
the potential rate impacts on regulated electric, gas, water, and wastewater
utilities.
A similar law, the Tax Reform Act of 1986, became effective in 1987. In Docket No.
19860184-PU, the Commission found
that it was appropriate to allow water
and wastewater utilities
to recover the tax on CIAC from the
contributor, including the tax
associated with the additional tax that
would also become
taxable income. For those utilities
that were approved
to collect the gross-up on CIAC, the gross-up amounts collected were held subject to refund and were evaluated on a case-by-case basis as to whether any refunds were subsequently required.
On August 31, 2018, the
utility filed a tariff (Attachment A) to gross-up cash service availability
charges and property contributions to recover the federal and state corporate
income taxes associated with those contributions. According to the utility, GCUC
could risk loss of its opportunity to earn a reasonable return on its property
used and useful in the public service if it is not allowed to collect the tax
impact on receipt of CIAC.
The tariff recognizes that,
for depreciable property, depreciation expense is tax deductible and the utility’s
tax liability will be reduced by depreciation claimed for tax purposes. The
proposed tariff is mathematically the same, regarding the gross-up for taxes,
as the tariff approved by the Commission following the hearing in Docket No.
19860184-PU. Because
the proposed tariff accurately depicts the utility’s expected tax expense
associated with CIAC, staff believes no further Commission action would be
required once the gross-up formula has been approved. The proposed tariff is the
same as those approved in Order No. PSC-2018-0330-TRF-WS in Docket No.
20180042-WS, Order No. PSC-2018-0331-TRF-WS in Docket No. 20180059-WS, and Order
No. PSC-2018-0269-TRF-WS in Docket No. 20180100-WS.
Based on the above, staff
recommends that the tariffs should be approved. The approved gross-up charges
should be effective for connections made on or after the stamped approval date
on the tariff sheets. The utility should provide notice to all persons in the
service areas included in the application who have filed a written request for
service or who have been provided a written estimate for service within the 12
calendar months prior to the month the application was filed. The utility
should provide proof of noticing within 10 days of rendering its approved
notice.
Issue 2:
Should this docket be closed?
Recommendation:
If a protest is filed by a substantially
affected person within 21 days of issuance of the order, the tariffs should
remain in effect, with any revenues held subject to refund, pending resolution
of the protest. If no timely protest is filed, the order should become
final upon the issuance of a consummating order. However, the docket
should remain open to allow staff to verify that the appropriate notice has
been filed by the utility and approved by staff. Once the utility has provided
proof of noticing, the docket should be closed administratively. (Crawford)
Staff Analysis:
If a protest is filed by a substantially
affected person within 21 days of issuance of the order, the tariffs should
remain in effect, with any revenues held subject to refund, pending resolution
of the protest. If no timely protest is filed, the order should become
final upon the issuance of a consummating order. However, the docket
should remain open to allow staff to verify that the appropriate notice has
been filed by the utility and approved by staff. Once the utility has provided
proof of noticing, the docket should be closed administratively.
