Case Background
ESAD Enterprises, Inc. d/b/a
Beaches Sewer System, Inc. (Beaches or utility) is a Class C wastewater-only
utility operating in Gulf County, Florida. The utility serves approximately 316
residential and four general service customers. In addition, the utility
collects a guaranteed revenue charge for 45 properties that have paid service
availability charges but have not yet connected to the system. Water service is
provided by the City of Port St. Joe.
On October 10, 2018,
Hurricane Michael hit the utility’s service territory, significantly damaging
the area and the utility’s plant and lift stations. While the utility’s ability
to serve has been restored, the homes of numerous customers have not. The
utility indicated that approximately 76 customers or 23 percent of the customer
base is unable to receive wastewater service due to extensive storm damage
incurred due to Hurricane Michael.
As a result, the utility
filed a letter dated November 20, 2018, describing a new charge it has
implemented for those affected customers not receiving service. Beaches is
currently authorized to bill a monthly flat rate for wastewater service of
$43.03. In its letter, the utility
stated it has noticed the 76 affected customers and has billed them in the
amount of $11.79, the amount of the utility’s approved guaranteed revenue
charge, instead of $43.03 for the November 2018 billing period. Further, the
utility indicated that numerous customers contacted the utility to express that
they understood the purpose of the change in billing and would remit payment
for the $11.79. The utility has also
received a request to discontinue service from one customer who does not intend
to rebuild. The Commission has jurisdiction pursuant to Sections 367.081 and
367.091, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Beaches' request to offer
a standby charge of $11.79 to customers whose homes incurred extensive damage
due to Hurricane Michael and, therefore, cannot utilize wastewater service?
Recommendation:
Yes. The utility’s request to offer a standby charge
of $11.79 to customers whose homes incurred extensive damage due to Hurricane
Michael and, therefore, cannot utilize wastewater service should be approved.
The utility should file a tariff sheet and a proposed customer notice which
encompasses the amount and purpose of the standby charge, the customer’s right
to discontinue service by providing written notice to the utility, and that the
continuance of the standby charge will be reviewed by the Commission staff in
January 2020 subsequent to the utility filing a report by January 1, 2019
detailing the number of customers still being billed the standby charge.
Beaches should be required to provide notice to all customers. The approved
charge should apply to affected customers on a temporary basis until all
affected customers have either resumed wastewater service or disconnected from
the system. The utility should provide proof of noticing within 10 days of
rendering its approved notice. (Friedrich)
Staff Analysis:
Beaches provides wastewater
service to approximately 320 customers on the Florida Panhandle in Port St.
Joe. The utility bills each customer its approved flat rate of $43.03 per month
for wastewater service. This area was impacted considerably by Hurricane
Michael in October of 2018. The utility indicated that the homes of
approximately 76 customers incurred extensive storm damage and are
uninhabitable and, therefore, those customers cannot utilize wastewater
service. The utility has demonstrated concern regarding its revenue stability,
considering that approximately 23 percent of its customer base cannot utilize
wastewater service in the immediate future. In order to maintain a stable
revenue stream, Beaches requested approval to bill the affected customers a
temporary monthly charge in the amount of its approved guaranteed revenues
charge ($11.79), instead of its flat rate.
By letter
dated November 20, 2018, the utility advised the Commission of its intended
billing changes to those affected customers. As mentioned previously, the
utility indicated that it would bill those customers with homes that cannot
utilize wastewater service a charge of $11.79 instead of its approved $43.03
flat rate. The utility additionally indicated that while many customers
impacted by the hurricane may not currently be sending wastewater back to the
Beaches’ wastewater system, there are still many fixed costs attributable to
the utility being able to provide wastewater service on demand to this group of
customers in the near future. Staff is interpreting the utility’s filed letter as
a request to establish a new class of service pursuant to Section 367.091(5),
F.S., since the affected customers would be billed a new standby charge which
is a new customer class that did not exist previously under the utility’s
tariff.
In its letter,
Beaches requested to bill its guaranteed revenue charge to affected customers. Pursuant
to Rule 25-30.515(9), Florida Administrative Code (F.A.C.), and the utility’s
service availability policy in its tariff, a guaranteed revenue charge is
designed to help the utility recover a portion of its fixed costs from the time
capacity is reserved until a customer begins to pay monthly service charges. Based
on the aforementioned, it is not appropriate to bill this customer group a
guaranteed revenue charge because they have previously connected to the
utility’s wastewater system. In this context, the utility’s efforts to recover
the fixed portion of the cost of providing wastewater service from customers
who will resume service in the short term is analogous to the purposes of the
guaranteed revenue charge which has been approved for the utility by the
Commission. The
distinction is that the guaranteed revenue charge is for customers who have not
yet hooked up to the system while the standby charge is for customers who are
temporarily not able to use the services because of a natural disaster.
Section
367.091(6), F.S., provides that an application to establish a rate or charge
other than monthly rates for service pursuant to Section 367.081, F.S., must be
accompanied by a cost justification. Historically, the Commission has based
guaranteed revenue charges on the utility’s approved base facility charge (BFC)
to reflect the fixed costs associated with the reserved capacity. [3] Beaches’
approved rate for wastewater service is a flat rate of $43.03. Typically, the
Commission allocates approximately 50 percent of wastewater revenues to the BFC
when designing wastewater rates to allow the utility to recover fixed costs
associated with providing wastewater service. [4]
However, staff believes the proposed
$11.79 charge for standby service, which mirrors the approved guaranteed
revenue charge and represents approximately 27 percent of the utility’s current
flat rate, is a reasonable proxy for estimating the fixed costs associated with
providing wastewater service. The proposed charge appears to be just,
reasonable, and compensatory consistent with Section 367.091(5), F.S.
Further,
staff considered the importance of the utility’s ability to maintain a stable
revenue stream, as well as the impact Hurricane Michael had on customers. Staff
agrees with the utility’s concern to maintain a stable revenue stream and the
importance in sustaining the utility’s wastewater system at a safe and reliable
level. If no revenues are collected from the
affected customers, the remaining customer base could be adversely affected in
the utility’s next rate case.
For the
November 2018 billing period, Beaches sent a notice outlining its intended
change in billing and a revised bill of $11.79 to the 76 affected customers.
While staff is not opposed to the utility’s requested billing method, staff
believes that those affected customers without homes suitable for service
should be made aware that they may discontinue service with the utility and
would, therefore, no longer be billed. The disconnected customer would then be
responsible for remitting the utility’s approved initial connection charge at
the time of reconnection, in the event the customer is ready to resume service
in the future. Currently, the utility’s approved initial connection charge is
$25.70.
Based on the
foregoing, staff believes the utility’s request is reasonable and should be
approved. The proposed standby charge is intended to be utilized by customers
rebuilding their homes and resuming service in the future. Therefore, staff
recommends the utility file a report with the Commission by January 1, 2020,
detailing the number of customers still being billed the standby charge in
order for staff to evaluate the number of remaining affected customers and whether
the standby charge should be continued. Staff understands that there may be
customers whose homes were completely destroyed and who may not have intentions
to rebuild and resume service in the near future. Staff believes those
customers that do not intend to rebuild and resume service in the near future
should be advised that they may file a written request to discontinue service
with the utility.
Although the
utility provided notice to the affected customers of its intended change in
billing, the notice was not reviewed by staff and incorrectly characterized the
utility’s proposed charge as a guaranteed revenue charge. Therefore, the
utility should re-notice all customers. The notice should accurately describe
the purpose and amount of the standby charge and clearly explain to customers
that they have the option to disconnect from the utility’s wastewater system.
Additionally, the notice should describe the process for a customer to disconnect
from the system and the applicable miscellaneous service charges the customer
would be subject to in order to resume service after disconnecting. Since
Beaches is a wastewater only utility, the notice should additionally state that
it is the customer’s responsibility to notify Beaches when the customer has
resumed water service with the City in order for Beaches to transition to billing
the customer the flat rate for wastewater service instead of the standby
charge. While the utility believes it has identified the affected customers,
there may be additional customers that cannot receive wastewater service;
therefore, staff believes all customers of the utility should be noticed. If
additional customers contact the utility requesting the standby charge, then the
additional customers must provide the utility proof that they are not receiving
water service in order to be billed the standby charge for wastewater service.
Based on the
above, the utility’s request to offer a standby charge of $11.79 to customers whose
homes incurred extensive damage due to Hurricane Michael and, therefore, cannot
utilize wastewater service should be approved. The utility should file a tariff
sheet and a proposed customer notice which encompasses the amount and purpose
of the standby charge, the customer’s right to discontinue service by providing
written notice to the utility, and that the continuance of the standby charge
will be reviewed by the Commission staff in January 2020 subsequent to the
utility filing a report by January 1, 2019 detailing the number of customers
still being billed the standby charge. Beaches should be required to provide
notice to all customers. The approved charge should apply to affected customers
on a temporary basis until all affected customers have either resumed
wastewater service or disconnected from the system. The utility should provide
proof of noticing within 10 days of rendering its approved notice.
Issue 2:
Should this docket be closed?
Recommendation:
No. If a protest is filed within 21 days of issuance
of the Order, the standby charge approved herein should remain in effect with
any charges held subject to refund pending resolution of the protest. If no timely protest is filed, a consummating
order should be issued. This docket should remain open for the Commission to
reevaluate the continuance of the standby charge in 2020. (Murphy, Crawford)
Staff Analysis:
No. If a protest is filed within 21 days of issuance
of the Order, the standby charge approved herein should remain in effect with
any charges held subject to refund pending resolution of the protest. If no timely protest is filed, a consummating
order should be issued. This docket should remain open for the Commission to
reevaluate the continuance of the standby charge in 2020.
