Discussion
of Issues
Issue 1:
Should an interim revenue increase be approved?
Recommendation:
Yes, Gator Waterworks should be authorized to
collect interim revenues as indicated below:
|
|
Test Year Revenues
|
$ Increase
|
Revenue
Requirement
|
% Increase
|
|
Water
|
$56,351
|
$21,089
|
$77,440
|
37.42%
|
(Wilson,
Golden)
Staff Analysis:
On
May 13, 2019, Gator Waterworks filed an application requesting an interim
revenue increase in its water rates. Section 367.0814(4), F.S., details interim
rate increases for staff-assisted rate cases.
Section
367.0814(4), F.S., states:
The commission may,
upon its own motion, or upon petition from the regulated utility, authorize the
collection of interim rates until the effective date of the final order. Such
interim rates may be based upon a test period different from the test period
used in the request for permanent rate relief. To establish interim relief,
there must be a demonstration that the operation and maintenance expenses
exceed the revenues of the regulated utility, and interim rates shall not
exceed the level necessary to cover operation and maintenance expenses as
defined by the Uniform System of Accounts for Class C Water and Wastewater
Utilities (1996) of the National Association of Regulatory Utility
Commissioners.
Staff has reviewed the utility’s
filed operation and maintenance (O&M) expenses in relation to its revenues.
Based on the utility’s filing, staff recommends that Gator Waterworks has
demonstrated a prima facie
entitlement to an interim rate increase in accordance with Section 367.0814(4),
F.S.
Revenue Increase
In order to establish interim
rate relief as prescribed by Section 367.0814(4), F.S., staff used the
utility’s revenues reflected in its filing for the test year ended March 31, 2019.
The test year revenues are $56,351, which includes $51,833 from water service
rates and $4,518 from miscellaneous service revenues. The test year O&M
expenses are $76,491. The difference between the utility’s test year revenues
and O&M expenses is $20,140.
In addition, the interim water
increase should be grossed up to include regulatory assessment fees (RAFs). The
Commission has previously determined that it would be inappropriate to approve
an increase in a utility’s rates to cover its operating expenses and deny that
same utility the funds to pay RAFs.[2]
Furthermore, by approving an interim rate increase that allows for the payment
of RAFs, the utility should be able to fully cover its O&M expenses. The
RAFs associated with the interim increase equal $949.
In total, Gator Waterworks should
be allowed an interim water revenue increase of $21,089 ($20,140 + $949) to
produce revenues sufficient to cover O&M expenses and additional RAFs. Thus,
staff recommends the appropriate interim revenue requirement should be $77,440.
This is a 37.42 percent increase above the utility’s test year revenues. Table 1-1
illustrates staff’s interim increase calculation.
Table 1-1
Determination of Interim
Increase
|
Water
|
|
1. Utility Test
Year O&M Expenses
|
$76,491
|
|
2. Less: Utility Test Year Revenues
|
$56,351
|
|
3. Revenues to
Cover O&M Expenses
|
$20,140
|
|
4. Interim Revenue
Increase
|
$20,140
|
|
5. RAFs on Interim
Rate Increase
|
$949
|
|
6. Total Interim
Revenue Increase ($)
|
$21,089
|
|
7. Total Interim
Revenue Increase (%)
|
37.42%
|
Source: The utility’s application and staff’s calculations
Issue 2:
What are the appropriate interim water rates?
Recommendation:
The interim rate increase of 40.69 percent should be
applied as an across-the-board increase to the existing service rates. The
rates, as shown on Schedule No. 1, should be effective for service rendered on
or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475(1), Florida Administrative Code (F.A.C.). The utility should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. In addition, the approved rates should not be
implemented until the required security has been filed, 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:
Staff recommends that
interim service rates for Gator Waterworks are designed to allow the utility
the opportunity to generate annual operating revenues of $77,440. Before
removal of miscellaneous revenues, this would result in an increase of $21,089 (37.42
percent). To determine the appropriate increase to apply to the service rates,
miscellaneous revenues should be removed from the test year revenues. The
calculation is as follows:
Table 2-1
Percentage Increase Less
Miscellaneous Revenues
|
|
|
Water
|
|
1.
|
Total Test Year Revenues
|
$56,351
|
|
2.
|
Less: Miscellaneous
Revenues
|
$4,518
|
|
3.
|
Test Year Revenues from Service Rates
|
$51,833
|
|
4.
|
Revenue Increase
|
$21,089
|
|
5.
|
% Service Rate Increase (Line 4/Line 3)
|
40.69%
|
Source:
Staff’s recommended revenue requirement and the utility’s application
Staff recommends that the interim rate increase of 40.69
percent should be applied as an across-the-board increase to the existing service
rates. The rates, as shown on Schedule No. 1, 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. The utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. In addition,
the approved rates should not be implemented until the required security has
been filed, 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:
What is the appropriate security to guarantee the
interim increase?
Recommendation:
The appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking. (Hightower, Wilson,
Golden)
Staff Analysis:
Pursuant to Section 367.082, F.S., revenues
collected under interim rates shall be placed under bond, escrow, letter of
credit, or corporate undertaking subject to refund with interest at a rate
ordered by the Commission. As recommended in Issue 1, the total annual interim revenue
increase is $21,089. In accordance with Rule 25-30.360, F.A.C., staff
calculated the potential refund of revenues and interest collected under
interim conditions to be $14,286. This amount is based on an estimated eight
months of revenue being collected from staff’s recommended interim rates over
the utility’s current authorized rates shown on Schedule No. 1.
The
owner/president provided the most recent three years of his personal financial
net worth. Staff reviewed the confidential personal financial information
provided by the owner/president.[3] Staff
believes that in this circumstance the owner/president has demonstrated the
financial ability and wherewithal to guarantee the interim refund in this rate
increase, if necessary. Further, the owner/president provided a personal
guarantee in the amount of $14,286, in this docket.[4]
Pursuant to Rule
25-30.360(6), F.A.C., the utility should provide a report by the 20th day of
each month indicating the monthly and total revenue collected subject to
refund. Should a refund be required, the refund should be with interest and
undertaken in accordance with Rule 25-30.360, F.A.C. In no instance should
maintenance and administrative costs associated with any refund be borne by the
customers. Such costs are the responsibility of, and should be borne by, the utility.
Accordingly, the appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking.
Issue 4:
Should this docket be closed?
Recommendation:
No. The docket should remain open pending the
Commission’s final action on the utility’s requested rate increase. (DuVal)
Staff Analysis:
The docket should remain open pending the
Commission’s final action on the utility’s requested rate increase.
