Case Background
Aquarina
Utilities, Inc., (Aquarina or Utility) is a Class B utility providing service
to approximately 296 water and 311 wastewater customers in Brevard County.
Aquarina also provides non-potable water for irrigation to approximately 107
customers.
The
Utility filed its application for a staff-assisted rate case (SARC) on January
2, 2015. By Order No. PSC-16-0583-PAA-WS (SARC Order) issued December 29, 2016,
the Florida Public Service Commission (Commission) approved Phase I revenue
requirements and rates. The SARC Order further stated that implementation of
Phase II rates was conditioned upon Aquarina completing certain pro forma items
within 12 months of the issuance of a consummating order in this docket. A
Consummating Order (Order No. PSC-17-0031-CO-WS) was issued on January 23,
2017. Therefore, the pro forma items were to be completed before January 23,
2018.
The
pro forma items consisted of the replacement of the water treatment plant’s
reverse osmosis (R/O) skid; the wastewater treatment plant’s (WWTP) catwalks, WWTP
blowers, and sand filters; along with the acquisition of a plant map by use of
a Geographical Information System (GIS). The SARC Order also provided that if
Aquarina encountered any unforeseen events that would impede the completion of the
pro forma items, it shall immediately notify the Commission in writing. On
November 9, 2017, the Utility notified staff that it would not be able to meet
the deadline for completing the pro forma items. The Utility requested an
extension within the timeframe required until March 1, 2018, to complete the pro
forma items, which was granted by Order No. PSC-2017-0485-FOF-WS.
On February 5, 2018, the Utility informed
staff that it could not meet the March 1, 2018, deadline and requested another
extension. By Order No. PSC-2018-0218-FOF-WS, the Commission granted Aquarina
an extension until November 30, 2018, to complete the pro forma items. On
February 1, 2019, the Utility provided documentation for consideration in determining
Phase II rates. On February 20, 2019, Aquarina filed a motion requesting that the
Commission restructure its rates in connection with the establishment and
implementation of Phase II rates. The Utility withdrew the motion on March 11,
2019.
This recommendation addresses the
appropriate Phase II rates. The Commission has jurisdiction pursuant to
Sections 367.081, 367.0814, and 367.121, Florida Statutes.
Discussion
of Issues
Issue 1:
What are the appropriate Phase II revenue
requirements for Aquarina?
Recommendation: The appropriate revised Phase II revenue increases are $7,550 for
potable water, no increase for non-potable water, and $965 for wastewater,
which equate to increases of 4.77 percent for potable water and 0.54 percent
for wastewater, over Phase I revenue requirements. Phase II rate base is shown
on Schedule Nos. 1-A through 1-D. The operating income for Phase II is shown on
Schedule Nos. 2-A through 2-D. (Lewis,
L. Smith)
Staff Analysis:
By
Order No. PSC-16-0583-PAA-WS, the Commission approved five pro forma items in
this docket. In the SARC Order, the Commission approved Phase II rates
conditioned upon Aquarina’s completion of the items. The Utility has provided
documentation (invoices) demonstrating that four of the five items have been
completed. For comparison purposes, staff provides a summary of the costs
approved in the SARC Order and the costs being recommended in Table 1-1.
Table 1-1
Summary of
Phase II Costs
|
Item
|
Approved
|
Recommended
|
Difference
|
|
R/O Skid*
|
$52,232
|
$49,602
|
($2,630)
|
|
WWTP Blower**
|
28,716
|
24,569
|
(4,147)
|
|
Catwalks**
|
9,703
|
20,954
|
11,251
|
|
Sand Filter
Blowers**
|
5,603
|
7,502
|
$,899
|
|
GIS Mapping***
|
76,768
|
0
|
(76,768)
|
|
Total
|
$173,022
|
$102,627
|
($69,603)
|
*Potable
Water Plant in Service
**Wastewater
Plant in Service
***Operation
and Maintenance
Phase II Documentation
Aquarina provided documentation for Phase II rates on
February, 1, 2019. Prior to providing its documentation, the Utility provided
multiple updates regarding the status of its pro forma items. Staff believes that
the documentation provided by the Utility should be considered for establishing
Phase II rates.
Based on the documentation the actual costs associated
with the replacement of the R/O skid and the WWTP blower were below the amounts
approved by the Commission. Recognizing the increase of more than 100 percent
in the cost to replace the catwalks, the Utility indicated that the original
contractor could not perform the job and a new quote was obtained. Aquarina
explained that when the plant fixtures and catwalks were evaluated it was
determined the steel frames for the catwalks were not going to work because the
extent of deterioration was greater than originally understood.
Staff also notes that the cost of the sand filter blowers
increased by more than 30 percent. Based on staff’s review of the original
quote and the actual invoices provided by the Utility, the difference in cost
appears to be related to the installation charges on the sand filter blowers
which were not included in the originally approved amount.
Because the Utility did not have accurate and up to date
plant maps for its distribution and collection systems, the Commission authorized
$76,768 to obtain the services to create the maps. Aquarina provided an
unsigned contract, dated September 1, 2018, with the Florida Rural Water
Association (FRWA) to rent the necessary equipment to conduct the plant surveys
at a cost of $792. As stated, the contract was not signed by the FRWA,
furthermore, the mapping has not been completed to date; therefore, staff does
not believe the costs should be included in Phase II revenue requirements.
Based on the above, staff believes Aquarina has provided sufficient explanation
and documentation to support a total amount of $102,627 in Phase II items.
In
addition to providing documentation and invoices associated with the approved Phase
II pro forma items, the Utility also provided invoices totaling $3,640 for
maintenance and repair of its old R/O skid as well as a bid of $14,985 for the
installation of a new control panel. The Utility indicated that the new control
panel is needed to allow switching between the new R/O skid and the old R/O
skid. In the SARC Order, the Commission found replacement of the old R/O skid
to be prudent based on its age and scarcity of replacement parts. Therefore, the
continued operation and maintenance of the old R/O skid was not contemplated by
the Commission during the SARC. Staff does not believe that the costs
associated with the old R/O skid should be included in Phase II revenue
requirements as they were not contemplated in the SARC.
As
discussed above, staff has revised the Phase II pro forma amounts. These revised
amounts are shown in Table 1-2.
Table 1-2
Revised Phase II Pro Forma Adjustments
|
|
|
Accum
|
Depr.
|
|
Description
|
UPIS
|
Depr.
|
Expense
|
|
Potable Water
|
|
|
|
|
Reverse Osmosis Skid
|
$49,602
|
($2,255)
|
$2,255
|
|
Retirement
|
(37,202)
|
37,202
|
(1,691)
|
|
Revised Total
|
$12,401
|
$34,947
|
$564
|
|
Previous Total
|
13,434
|
37,859
|
611
|
|
Difference
|
($1,033)
|
($2,912)
|
($47)
|
|
|
|
|
|
|
Wastewater
|
|
|
|
|
Catwalks at Plant
|
$20,954
|
($776)
|
$776
|
|
Blower
|
24,569
|
(1,638)
|
1,638
|
|
Sand Filters
|
7,502
|
(417)
|
417
|
|
Retirements
|
(39,769)
|
39,769
|
(1,918)
|
|
Revised Total
|
$13,256
|
$36,938
|
$912
|
|
Previous Total
|
11,005
|
30,431
|
646
|
|
Difference
|
$2,251
|
$6,507
|
$266
|
Source: Responses to Staff’s Data Requests
As a
result of the revised Phase II pro forma amounts, staff has summarized the
UPIS, Operating Expenses, and Revenue Increase amounts in Table 1-3.
Table 1-3
Summary
of Revenue Increase Amounts
|
|
Approved
|
Revised
|
|
|
Description
|
Phase II
|
Phase II
|
Difference
|
|
Potable
|
|
|
|
|
UPIS
|
$1,463,661
|
$1,462,628
|
($1,033)
|
|
Operating Expenses
|
$163,201
|
$157,670
|
($5,531)
|
|
Revenue Increase
|
$13,022
|
$7,550
|
($5,472)
|
|
Non-Potable
|
|
|
|
|
UPIS
|
$945,345
|
$945,345
|
$0
|
|
Operating Expenses
|
$245,825
|
$240,466
|
($5,359)
|
|
Revenue Increase
|
$5,382
|
$0
|
($5,382)
|
|
Wastewater
|
|
|
|
|
UPIS
|
$1,623,048
|
$1,625,299
|
$2,251
|
|
Operating Expenses
|
$175,657
|
$170,629
|
($5,028)
|
|
Revenue Increase
|
$5,994
|
$965
|
($5,029)
|
Source:
Staff’s Calculations
Conclusion
Based on staff’s review of documentation provided by
Aquarina, the appropriate revised Phase II revenue increases are $7,550 for
potable water, no increase for non-potable water, and $965 for wastewater,
which equate to increases of 4.77 percent for potable water and 0.54 percent
for wastewater, over Phase I revenue requirements. Phase II rate base is
shown on Schedule Nos. 1-A through 1-D. The operating income for Phase II is
shown on Schedule Nos. 2-A through 2-D.
Issue 2:
What are the appropriate rates for Phase II?
Recommendation:
The appropriate Phase II rates are
shown on Schedule Nos. 3-A and 3-B. 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 sheets 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: By Order No. PSC-16-0583-PAA-WS, issued December 29, 2016, in
the instant docket, the Commission approved Phase II revenue requirements and
rates associated with the pro forma items. As discussed in Issue 1, staff is
recommending Phase II revenue requirements be revised to reflect the actual
cost incurred for the pro forma items. As a result, Phase II rates should be
recalculated to reflect the staff recommended revised Phase II revenue
requirements.
In Phase I, the potable water
system was overearning by $12,593. When there are overearnings for a water and
wastewater system, it has been Commission practice to avoid decreasing water
rates by netting the revenues of the water and wastewater systems if the
customer bases are similar. Decreasing the potable water rates undermines
conservation efforts. There is a 5 percent difference in the number of water
customers and wastewater customers. Due to the minimal difference between
potable water and wastewater customers, the Commission approved netting the
potable water overearnings with the wastewater system increase in order to
avoid decreasing potable water rates. Therefore, for Phase I, the potable water
rates remained unchanged.
For Phase II, the staff recommended
revenue requirement of $165,805 for potable water is less than the revenues of
$170,848 generated by the Phase I potable water rates. Therefore, staff
recommends a continuation of the netting. However, $5,043 ($170,848 - $165,805)
is required to maintain the Phase I potable water rates, which is less than the
$12,593 required in Phase I. For this reason, in addition to the Phase II
revenue increase of $965, the wastewater system revenues of $7,550 ($12,593 -
$5,043) previously included in Phase I potable water rates should be returned
to the wastewater system in Phase II. As a result, the revenue increase after
netting is $8,515 ($7,550 + $965) for wastewater in Phase II. Table 2-1
outlines the revenues used for designing rates.
Table 2-1
Commission-Approved Phase I and
Staff Recommended Phase II
Revenue Requirements for Rate
Setting
|
|
Phase I
|
Phase II
|
|
|
Potable Water
|
Wastewater
|
Potable Water
|
Wastewater
|
|
Commission-Approved/Staff
Recommended Revenue Requirement
|
$158,255
|
$179,663
|
$165,805
|
$180,628
|
|
Revenue generated from rates
|
$170,848
|
$161,821
|
$170,848
|
$167,070
|
|
Revenue Increase/Decrease
|
($12,593)
|
$17,842
|
($5,043)
|
$13,558
|
|
Netting
|
$12,593
|
($12,593)
|
$5,043
|
($5,043)
|
|
Revenue Increase
|
$0
|
$5,249
|
$0
|
$8,515
|
|
Percent Increase to Rates
|
0%
|
3.24%
|
0%
|
5.10%
|
|
Revenue Requirement for Rate
Setting
|
$170,848
|
$167,070
|
$170,848
|
$175,585
|
For Phase II, netting the potable
water and wastewater systems’ revenues results in an increase of 5.10 percent
for the wastewater system. The revenue increase of $8,515, excluding
miscellaneous revenues of $655, results in a 5.12 percent increase. The 5.12
percent increase should be applied as an across-the-board increase to the Phase
I wastewater rates. Since the implementation of the Phase I rates, the Utility
was approved for a price index increase effective December 7, 2018. In order to
maintain the price index increase, staff recommends that the incremental
difference between the Phase I and Phase II rates be added to the Utility’s current
wastewater rates. Staff recommends no change to the potable water rates. There
is no revenue or rate change for non potable water rates.
The appropriate Phase II rates are
shown on Schedule Nos. 3-A and 3-B. 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 sheets 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 3:
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 will be issued. The docket should
remain open for staff’s verification that the revised tariff sheets and the
customer notice have been filed by the Utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed administratively.
(Murphy)
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 will be issued. The docket should
remain open for staff’s verification that the revised tariff sheets and the
customer notice have been filed by the Utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed
administratively.
