Case Background
Since March 31,
1981, pursuant to the guidelines established by Section 367.081(4)(a), Florida Statutes
(F.S.), and Rule 25-30.420, Florida Administrative Code (F.A.C.), the
Commission has established a price index increase or decrease for major
categories of operating costs on or before March 31 of each year. This process
allows water and wastewater utilities to adjust rates based on current specific
expenses without applying for a rate case.
Staff has
calculated its proposed 2019 price index by comparing the Gross Domestic
Product Implicit Price Deflator Index for the fiscal year ended September 30,
2018. This same procedure has been used each year since 1995 to calculate the
price index. The U.S. Department of Commerce, Bureau of Economic Analysis,
released its most recent third quarter figures on October 26, 2018.
Since March 31,
1981, the Commission has received and processed approximately 3,663 index
applications. The Commission has jurisdiction over this matter pursuant to
Section 367.081, F.S.
Discussion
of Issues
Issue 1:
Which index should be used to determine price level
adjustments?
Recommendation:
The Gross Domestic Product Implicit Price Deflator
Index is recommended for use in calculating price level adjustments. Staff
recommends calculating the 2019 price index by using a fiscal year, four
quarter comparison of the Implicit Price Deflator Index ending with the third
quarter of 2018. (Bennett)
Staff Analysis:
In 1993, the Gross Domestic Product Implicit
Deflator (GDP) was established as the appropriate measure for determining the
water and wastewater price index. At the same time, the convention of using a
four quarter fiscal year comparison was also established and this practice has
been used every year since then. The GDP is prepared by the U.S. Department of
Commerce. Prior to that time, the Gross National Product Implicit Price
Deflator Index (GNP) was used as the indexing factor for water and wastewater
utilities. The Department of Commerce switched its emphasis from the GNP to the
GDP as the primary measure of U.S. production.
Pursuant to Section 367.081(4)(a), F.S., the Commission,
by order, shall establish a price increase or decrease index for major
categories of operating costs incurred by utilities subject to its jurisdiction
reflecting the percentage of increase or decrease in such costs from the most
recent 12-month historical data available. Since 1995, the price index was
determined by using a four quarter comparison, ending September 30, of the
Implicit Price Deflator Index in order to meet the statutory deadline. The updated
price index was determined by comparing the change in the GDP using the four
quarter fiscal year comparison ending September 30, 2018. This method has been
used consistently since 1995 to determine the price index.
In Order No. PSC-2017-0480-PAA-WS, issued December 21,
2017, in Docket No. 20170005-WS, the Commission, in keeping with the practice
started in 1993, reiterated the alternatives which could be used to calculate
the indexing the utility revenues. Past concerns expressed by utilities, as
summarized from utility input in previous hearings, are:
1) Inflation
should be a major factor in determining the index;
2) Nationally
published indices should be vital to this determination;
3) Major
categories of expenses are labor, chemicals, sludge-hauling, materials and
supplies, maintenance, transportation, and treatment expense;
4) An area wage survey, Dodge Building
Cost Index, Consumer Price Index, and the GDP should be considered;
5) A broad
measure index should be used; and
6) The index
procedure should be easy to administer.
Based upon these concerns, the Commission has previously
explored the following alternatives:
1) Survey of
Regulated Water and Wastewater Utilities;
2) Consumer
Price Index;
3) Florida
Price Level Index;
4) Producer
Price Index – previously the Wholesale Price Index; and
5) GDP
(replacing the GNP).
Over the years, the Commission found that the Survey of
Regulated Water and Wastewater Utilities should be rejected because using the
results of a survey would allow utilities to pass on to customers all cost
increases, thereby reducing the incentives of promoting efficiency and
productivity. The Commission has also found that the Consumer Price Index and
the Florida Price Level Index should be rejected because of their limited
degree of applicability to the water and wastewater industry. Both of these
price indices are based upon comparing the advance in prices of a limited
number of general goods and, therefore, appear to have limited application to
water and wastewater utilities.
The Commission further found that the Producer Price Index
(PPI) is a family of indices that measure the average change over time in
selling prices received by domestic producers of goods and services. PPI
measures price change from the perspective of the seller, not the purchaser,
and therefore should be rejected. The bases for these indices have not changed,
and staff believes that the conclusions reached in Order No. PSC-2017-0480-PAA-WS
should continue to apply in this case. Since 1993, the Commission has found
that the GDP has a greater degree of applicability to the water and wastewater
industry. Therefore, staff recommends that the Commission continue to use the
GDP to calculate water and wastewater price level adjustments.
The following information provides a historical
perspective of the annual price index:
Table 1-1
Historical Analysis
of the Annual Price Index for Water and Wastewater Utilities
|
Year
|
Commission
Approved
Index
|
Year
|
Commission
Approved
Index
|
|
2007
|
3.09%
|
2013
|
1.63%
|
|
2008
|
2.39%
|
2014
|
1.41%
|
|
2009
|
2.55%
|
2015
|
1.57%
|
|
2010
|
0.56%
|
2016
|
1.29%
|
|
2011
|
1.18%
|
2017
|
1.51%
|
|
2012
|
2.41%
|
2018
|
1.76%
|
The table below shows the historical participation in the
Index and/or Pass-Through programs:
Table 1-2
Percentage of
Jurisdictional Water and Wastewater Utilities Filing for Indexes and
Pass-Throughs
|
Year
|
Percentage
|
Year
|
Percentage
|
|
2007
|
47%
|
2013
|
41%
|
|
2008
|
42%
|
2014
|
39%
|
|
2009
|
53%
|
2015
|
49%
|
|
2010
|
29%
|
2016
|
38%
|
|
2011
|
43%
|
2017
|
37%
|
|
2012
|
30%
|
2018
|
42%
|
Issue 2:
What rates should be used by water and wastewater
utilities for the 2019 Price Index?
Recommendation:
The 2019 Price Index for water and wastewater
utilities should be 2.36 percent.
(Bennett)
Staff Analysis:
The U.S. Department of Commerce, Bureau of Economic
Analysis, released the most recent third quarter 2018 figures on October 26,
2018. Consistent with the Commission’s establishment of the 2018 Price Index
last year, staff is using the third quarter 2018 amounts to calculate staff’s
recommended 2019 Price Index. Using the third quarter amounts allows time for a
hearing if there is a protest, in order for the Commission to establish the 2019
Price Index by March 31, 2019, in accordance with Section 367.081(4)(a), F.S.
The percentage change in the GDP using the fiscal year comparison ending with
the third quarter is 2.36 percent. This number was calculated as follows.
|
GDP Index for the fiscal year ended 9/30/18
|
110.645
|
|
GDP Index for the fiscal year ended 9/30/17
|
108.097
|
|
Difference
|
2.55
|
|
Divided by 9/30/17 GDP Index
|
108.097
|
|
2019 Price Index
|
2.36%
|
Issue 3:
How should the utilities be informed of the indexing
requirements?
Recommendation:
Pursuant to Rule 25-30.420(1), F.A.C., the Office of
Commission Clerk, after the expiration of the Proposed Agency Action (PAA)
protest period, should mail each regulated water and wastewater utility a copy
of the PAA order establishing the index containing the information presented in
Attachment 1. A cover letter from the Director of the Division of Accounting
and Finance should be included with the mailing of the order (Attachment 2).
The entire package should also be made available on the Commission’s website.
(Bennett)
Staff Analysis:
Staff recommends
that the package presented in Attachment 1 should be mailed to every regulated
water and wastewater utility after the expiration of the PAA protest period,
along with a copy of the PAA order once final. The entire package should also
be made available on the Commission’s website.
In an effort to increase the number of water and
wastewater utilities taking advantage of the annual price index and
pass-through programs, staff is recommending that the attached cover letter
(Attachment 2) from the Director of the Division of Accounting and Finance be
included with the mailing of the PAA Order in order to explain the purpose of
the index and pass-through applications and to communicate that Commission
staff is available to assist them.
Issue 4:
Should this docket be closed?
Recommendation:
No. Upon expiration of the 14-day protest period, if
a timely protest is not received, the decision should become final and
effective upon the issuance of a Consummating Order. Any party filing a protest
should be required to prefile testimony with the protest. However, this docket
should remain open through the end of the year and be closed upon the
establishment of the new docket on January 7, 2019. (Bennett)
Staff Analysis:
Uniform Rule 25-22.029(1), F.A.C., contains an
exception to the procedural requirements set forth in Uniform Rule 28-106.111,
F.A.C., providing that “[t]he time for requesting a Section 120.569 or 120.57
hearing shall be 14 days from issuance of the notice for PAA orders
establishing a price index pursuant to Section 367.081(4)(a), F.S.” Staff, therefore
recommends that the Commission require any protest to the PAA Order in this
docket be filed within 14 days of the issuance of the PAA Order, and that any party
filing the protest should be required to prefile testimony with the protest.
Upon expiration of the protest period, if a timely protest is not received, the
decision should become final and effective upon the issuance of a Consummating
Order. However, this docket should remain open through the end of the year and
be closed upon the establishment of the new docket on January 7, 2019.
FLORIDA PUBLIC SERVICE COMMISSION
PRICE INDEX APPLICATION
APPLICABLE TEST YEAR _____________
Department
of Environmental Protection Public Water System ID NO. ___________________ Department of Environmental Protection Wastewater
Treatment Plant ID NO. _______________
WATER WASTEWATER
Operation
& Maintenance Expenses1 $_______ $_______
LESS:
(a) Pass-through Items:
(1)
Purchased Power
_______ _______
(2)
Purchased Water
_______ _______
(3)
Purchased Wastewater Treatment _______ _______
(4)
Sludge Removal
_______ _______
(5)
Other2
_______ _______
(b) Rate Case Expense Included in
Expenses _______ _______
(c) Adjustments to Operation & Maintenance
Expenses
from last rate case, if applicable:3
(1)_________________ _______ _______
(2)_________________ _______ _______
Costs to be Indexed $_______ $_______
Multiply by Annual
Commission-Approved Price Index 2.36
% 2.36
%
Total Indexed Costs $_______
$_______
Add Change in Pass-Through
Items:4
(1)_________________ _______ _______
(2)_________________ _______ _______
Divide
Index and Pass-Through Sum by Expansion
Factor for Regulatory
Assessment Fees .955 .955
Increase in Revenue _______ _______
Divide by
Applicable Test Year Revenue5 $_______ $_______
Percentage Increase in Rates % %
======= =======
FOOTNOTES APPEAR ON
THE FOLLOWING PAGE
PAGE 1 FOOTNOTES
1This
amount must match last year’s annual report.
2Other
expense items may include increases in required Department of Environmental
Protection testing, ad valorem taxes, permit fees charged by the Department of
Environmental Protection or a local government authority, National Pollutant
Discharge Elimination System fees, and regulatory assessment fees. These items
should not be currently embedded in the utility's rates.
3This
may include adjustments that follow a methodology referenced in the Order from
a utility’s last rate case (i.e. averaged bad debt expense or excessive
unaccounted for water percentage applied to chemicals expense).
4This
may include an increase in purchased power, purchased water, purchased
wastewater treatment, sludge hauling, required Department of Environmental
Protection testing, ad valorem taxes, and permit fees charged by the Department
of Environmental Protection or a local government authority providing that
those increases have been incurred within the 12-month period prior to the
submission of the pass-through application. Pass-through National Pollutant
Discharge Elimination System fees and increases in regulatory assessment fees
are eligible as pass-through costs but not subject to the twelve month rule.
All pass-through items require invoices. See Rule 25-30.425, F.A.C. for more
information.
5If
rates changed after January 1 of the applicable test year, the book revenues
must be adjusted to show the changes and an explanation of the calculation
should be attached to this form. See Annualized Revenue Worksheet for instructions
and a sample format.
ANNUALIZED REVENUE
WORKSHEET
Have the
rates charged for customer services changed since January 1, of the applicable
test year?
( ) If no, the utility should use actual
revenues. This form may be disregarded.
( ) If yes, the utility must annualize its
revenues. Read the remainder of this form.
Annualizing
calculates the revenues the utility would have earned based upon the previous
year’s customer consumption at the most current rates in effect. To complete
this calculation, the utility will need consumption data for the previous year
to apply to the existing rate schedule. Below is a sample format which may be
used.
CALCULATION
OF ANNUALIZED REVENUES*
Consumption
Data for Applicable Test Year
Number of Current Annualized
Bill/Gal. Sold X Rates Revenues
Residential Service:
Bills:
5/8"x3/4" meters _____________ ________ ___________
1" meters _____________
________ ___________
1 2" meters _____________
________ ___________
2" meters _____________
________ ___________
Gallons Sold ____________ _______ __________
General
Service:
Bills:
5/8"x3/4"
meters _____________ _______ __________
1"
meters _____________ _______ __________
1 2" meters _____________ _______ __________
2" meters _____________ _______ __________
3" meters _____________ _______ __________
4" meters _____________ _______ __________
6"
meters _____________ _______ __________
Gallons Sold _____________ _______ __________
Total
Annualized Revenues for the Applicable Test Year $ __________
*Annualized
revenues must be calculated separately if the utility consists of both a water
system and a wastewater system. This form is designed specifically for
utilities using a base facility charge rate structure. If annualized revenues
must be calculated and further assistance is needed, contact the Commission
Staff at (850) 413-6900.
AFFIRMATION
I,
___________________________________, hereby affirm that the figures and
calculations upon which the change in rates is based are accurate and that the
change will not cause ______________________________ to exceed the range of its last authorized
rate of return on
(name of utility)
equity,
which is ___________________.
I, the
undersigned/officer of the above-named utility, have read the foregoing and
declare that, to the best of my knowledge and belief, the information contained
in this application is true and correct.
This
affirmation is made pursuant to my request for a price index and/or
pass-through rate increase, in conformance with Section 367.081(4), Florida
Statutes.
Further, I
am aware that pursuant to Section 837.06, Florida Statutes, whoever knowingly
makes a false statement in writing with the intent to mislead a public servant
in the performance of his official duty shall be guilty of a misdemeanor of the
second degree.
Signature:
________________________
Title:
____________________________
Telephone
Number: ________________
Fax Number:
______________________
Sworn to
and subscribed before me this _____________________ day of
____________________, 20__.
My Commission
expires:
(SEAL)
_________________________
Notary Public
State of
Florida
STATEMENT OF
QUALITY OF SERVICE
Pursuant to paragraphs 25-30.420(2)(h) and (i), Florida
Administrative Code,
_______________________________
(name of utility)
[ ] does not have any active written
complaints, corrective orders, consent orders, or outstanding citations with the
Department of Environmental Protection (DEP) or the County Health Departments.
[ ] does
have the attached active written complaint(s), corrective order(s), consent
order(s), or outstanding citation(s) with the DEP or the County Health
Department(s). The attachment(s) includes the specific system(s) involved with
DEP permit number and the nature of the active complaint, corrective order,
consent order, or outstanding citation.
This
statement is intended such that the Florida Public Service Commission can make
a determination of quality of service pursuant to Section 367.081(4)(a),
Florida Statutes, and Rule 25-30.420(4)(a), Florida Administrative Code.
Name:
_____________________________
Title:
_____________________________
Telephone Number: __________________
Fax Number: _______________________
Date: _____________________________
NOTICE TO CUSTOMERS
Pursuant to Section 367.081(4)(a), Florida Statutes, water and wastewater
utilities are permitted to adjust the rates and charges to its customers
without those customers bearing the additional expense of a public hearing.
These adjustments in rates would depend on increases or decreases in
noncontrollable expenses subject to inflationary pressures such as chemicals,
and other general operation and maintenance costs.
On ______________________, __________________________________filed its
notice of
(date) (name of utility)
intention with the Florida Public Service Commission to increase water
and wastewater rates in _____________ County pursuant to this Statute. The
filing is subject to review by the Commission Staff for accuracy and
completeness. Water rates will increase by approximately ______% and wastewater
rates by ______%. These rates should be reflected for service rendered on or
after ______________________.
(date)
Exception
_______________________________________________ hereby waives the right
to implement
(name of utility)
a pass-through rate increase within 45 days of filing, as provided by
Section 367.081(4)(b), Florida Statutes, in order that the pass-through and
index rate increase may both be implemented together 60 days after the official
filing date of this notice of intention.
Signature:
___________________________
Title:
_______________________________
(To be used if an index and pass-through rate increase are requested
jointly.)
NOTICE
TO CUSTOMERS
Pursuant to Section 367.081(4)(b), Florida Statutes, water and wastewater
utilities are permitted to pass through, without a public hearing, a change in
rates resulting from: an increase or decrease in rates charged for utility
services received from a governmental agency or another regulated utility and
which services were redistributed by the utility to its customers; an increase or decrease in the rates that it
is charged for electric power, the amount of ad valorem taxes assessed against
its used and useful property, the fees charged by the Department of
Environmental Protection in connection with the National Pollutant Discharge
Elimination System Program, or the regulatory assessment fees imposed upon it
by the Commission; costs incurred for
water quality or wastewater quality testing required by the Department of
Environmental Protection; the fees charged for wastewater bio solids disposal;
costs incurred for any tank inspection required by the Department of
Environmental Protection or a local governmental authority; treatment plant and
water distribution system operator license fees required by the Department of
Environmental Protection or a local governmental authority; water or wastewater
operating permit fees charged by the Department of Environmental Protection or
a local governmental authority; and consumptive or water use permit fees
charged by a water management district.
On ______________________, _______________________________ filed its
notice of
(date) (name of utility)
intention with the Florida Public Service Commission to increase water
and wastewater rates in ______________ County pursuant to this Statute. The
filing is subject to review by the Commission Staff for accuracy and
completeness. Water rates will increase by approximately ______% and wastewater
rates by ______%. These rates should be reflected on your bill for service
rendered on or after ______________________.
(date)
If you should have any questions, please contact your local utility
office. Be sure to have account number handy for quick reference.
Commissioners:
Art
graham, Chairman
Julie
i. brown
Donald
J. Polmann
Gary
F. Clark
Andrew
Giles Fay
|
State of Florida
|
Division
of
Accounting
and Finance
Andrew
L. Maurey
Director
(850) 413-6900
|
|
Public Service Commission
|
Month Day, 2019
All Florida Public Service
Commission
Regulated Water & Wastewater Utilities
Re: Docket No. 20180005-WS - 2019 Price Index
Dear Utility Owner:
Since March 31, 1981, pursuant to
the guidelines established by Section 367.081(4)(a), Florida Statutes (F.S.),
and Rule 25-30.420, Florida Administrative Code (F.A.C.), the Commission has
established a price index increase or decrease for major categories of
operating costs. This process allows water and wastewater utilities to
adjust rates based on current specific expenses without applying for a rate
case. The intent of this rule is to insure that
inflationary pressures are not detrimental to utility owners, and that any
possible deflationary pressures are not adverse to rate payers. By keeping up
with index and pass-through adjustments, utility operations can be maintained
at a level sufficient to insure quality of service for the rate payers.
Pursuant
to Rule 25-30.420(1)(a), F.A.C., all operation and maintenance expenses shall
be indexed with the exception of:
a) Pass-through items pursuant to Section 367.081(4)(b), F.S.;
b) Any amortization of rate case expense; and
c) Disallowances or adjustments made in an applicant's most
recent rate proceeding.
Please
note that all sludge removal expense should now be removed from operation and
maintenance expenses for the purpose of indexing. Incremental increases in this
category of expense may now be recovered using a pass-through request.
All Florida Public Service Commission
Regulated Water & Wastewater Utilities
Page 2
Month Day, 2019
Upon the filing of a request for
an index and/or pass-through increase, staff will review the application and
modify existing rates accordingly. If for no other reason than to keep up with
escalating costs, utilities throughout Florida should file for this rate relief
on an annual basis. Utilities may apply for a 2019 Price Index anytime between
April 1, 2019, through March 31, 2020. The attached package will answer
questions regarding what the index and pass-through rate adjustments are, how
to apply for an adjustment, and what needs to be filed in order to meet the
filing requirements. While this increase for any given year may be minor, (see
chart below), the long-run effect of keeping current with rising costs can be
substantial.
|
Year
|
Annual
Commission
Approved Index
|
Year
|
Annual
Commission
Approved Index
|
|
1994
|
2.56%
|
2007
|
3.09%
|
|
1995
|
1.95%
|
2008
|
2.39%
|
|
1996
|
2.49%
|
2009
|
2.55%
|
|
1997
|
2.13%
|
2010
|
0.56%
|
|
1998
|
2.10%
|
2011
|
1.18%
|
|
1999
|
1.21%
|
2012
|
2.41%
|
|
2000
|
1.36%
|
2013
|
1.63%
|
|
2001
|
2.50%
|
2014
|
1.41%
|
|
2002
|
2.33%
|
2015
|
1.57%
|
|
2003
|
1.31%
|
2016
|
1.29%
|
|
2004
|
1.60%
|
2017
|
1.51%
|
|
2005
|
2.17%
|
2018
|
1.76%
|
|
2006
|
2.74%
|
2019
|
2.36%
|
Please be
aware that pursuant to Section 837.06, F.S., whoever knowingly makes a false
statement in writing with the intent to mislead a public servant in the
performance of his or her official duty shall be guilty of a misdemeanor of the
second degree.
Our staff
is available at (850) 413-6900 should you need assistance with your filing. If
you have any questions, please do not hesitate to call.
Sincerely,
Andrew L. Maurey
Director
Enclosures
