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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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July 25, 2019
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Accounting and Finance
(Cicchetti)
Office of the General counsel (Brownless)
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RE:
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Docket No. 20180013-PU – Petition to
establish a generic docket to investigate and adjust rates for 2018 tax
savings, by Office of Public Counsel
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AGENDA:
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08/06/19 –
Proposed Agency Action – Interested Persons May Participate
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COMMISSIONERS ASSIGNED:
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Clark, Brown, Graham
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PREHEARING OFFICER:
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Clark
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CRITICAL DATES:
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None
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SPECIAL INSTRUCTIONS:
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None
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Case Background
The Tax Cuts and
Jobs Act of 2017 (TCJA) was signed into law on December 22, 2017 and became
effective for the taxable year beginning January 1, 2018. On January 9, 2018,
the Office of Public Counsel (OPC) filed a “Petition to Establish Generic
Docket to Investigate and Adjust Rates for 2018 Tax Savings.” On February 6,
2018, in Order No. PSC-2018-0104-PCO-PU, the Florida Public Service Commission (Commission)
established jurisdiction over utilities’ tax savings if such a date was not
contained in an applicable settlement agreement. Subsequently, the Commission
opened separate dockets to address the tax savings for electric and natural gas
utilities. At this time, all electric and natural gas utilities tax savings
dockets have been resolved. The instant docket remains open to address tax
savings associated with water and wastewater utilities (WAW).
For WAW
utilities that have income taxes included in their revenue requirement, the
2018 annual reports are necessary to determine each utility’s earned return and
if a utility earned in excess of its allowed return. As of July 25, 2019, 13 of
15 WAW utilities that have income taxes included in their revenue requirement
have filed their 2018 annual reports. This recommendation addresses the tax
savings for the 13 WAW utilities that have income taxes included in their
revenue requirement and have filed 2018 annual reports.
The Commission
has jurisdiction in this case pursuant to Sections 366.04, 366.041, 366.06, and
366.07, Florida Statutes.
Discussion
of Issues
Issue
1: What is the appropriate disposition of the tax impacts
resulting from the passage of the TCJA for WAW utilities that have income taxes
included in their revenue requirement?
Recommendation:
Of the 13 WAW utilities that have income taxes included in their revenue
requirement and have filed their 2018 annual report, none are earning above
their allowed rate of return range. No adjustments to base rates are necessary
regarding the tax impacts resulting from the passage of the TCJA for these WAW
utilities. (Cicchetti)
Staff
Analysis:
The 15 WAW utilities that have income taxes included in
their revenue requirement are:
·
East Central Florida Services
·
Forest Utilities
·
Gold Coast Utility Corporation
·
Indiantown Company
·
Marion Utilities
·
NHC Utilities
·
Ni Florida
·
North Beach Utilities
·
Peoples Water Service Company
·
Pine Island Cove HOA
·
Placid Lakes
·
Pluris Wedgefield
·
St. James Island
·
Utilities Inc. of Florida
·
Wildwood Water Company
Of the 15, all have filed their
2018 annual report except Gold Coast Utility Corporation and St. James Island.
All utilities that have filed their 2018 annual report have reported either
negative returns or returns below their rate of return ceilings. Attachment A
shows all the utilities’ Net Operating Income, Rate Base, Achieved Rate of
Return, and Approved Rate of Return Cap.
It is staff’s opinion that it is
reasonable for the Commission to consider the earnings position of the utility when
deciding if base rates should be reduced for changes in tax rates. Reducing
base rates would result in cash flow reductions for the utilities, put downward
pressure on earnings, and would accelerate the need for a rate case sooner versus
later. Consequently, staff recommends that no adjustments to base rates are
necessary regarding the tax impacts resulting from the passage of the TCJA for
WAW utilities that have income taxes included in their revenue requirement. Such
treatment is consistent with the Commission’s decisions in Docket Nos.
20180051-GU, 20180052-GU, 20180053-GU, and 20180054-GU.
Issue
2: Should this docket be closed?
Recommendation:
Yes. Upon expiration of the protest period, if a timely protest is
not received from a substantially affected person, the decision should become
final and effective upon issuance of the Consummating Order and this docket
should be closed and separate dockets opened to address the tax impacts
associated with the passage of the TCJA for Gold Coast Utility Corporation and
St. James Island. (Brownless)
Staff
Analysis: Upon expiration of the protest period, if a timely
protest is not received from a substantially affected person, the decision
should become final and effective upon issuance of the Consummating Order and
this docket should be closed and separate dockets opened to address the tax
impacts associated with the passage of the TCJA for Gold Coast Utility
Corporation and St. James Island.
Gold Coast Utility Corporation and St. James Island have
not yet filed their 2018 annual reports. Consequently, the tax impacts
associated with the TCJA cannot be evaluated for these two utilities. Both of
these utilities are facing unique circumstances that will be addressed in
dockets of their own. Also, closing this docket will resolve this tax issue for
financial reporting purposes for the 13 utilities identified in Issue 1 that
have filed their 2018 annual reports. Staff recommends the instant docket be
closed and individual dockets be opened to address this tax issue for Gold
Coast Utility Corporation and St. James Island.
Table
1-1
Tax
Cuts and Jobs Act WAW Analysis
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Net Operating
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Achieved
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Approved
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Company
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Income
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Rate Base
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ROR
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ROR Cap
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1
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East Central Florida Services
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$
(114,909)
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$
258,447
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-44.46%
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8.12%
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2
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Forest Utilities
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$
49,819
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$
2,523,171
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1.97%
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4.94%
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3
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Gold Coast Utility Corporation
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5.91%
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4
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Indiantown Company
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$
(56,565)
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$
486,821
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-11.62%
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4.21%
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5
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Marion Utilities
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$
(68,168)
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$
1,232,286
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-5.53%
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8.19%
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6
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NHC Utilities
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$
(18,724)
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$
71,054
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-26.35%
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8.74%
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7
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Ni Florida
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$
258,149
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$
4,254,955
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6.07%
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8.00%
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8
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North Beach Utilities
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$
97,188
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$
1,280,162
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7.59%
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7.69%
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9
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Peoples Water Service Company
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$
259,716
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$
3,599,525
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7.22%
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8.05%
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10
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Pine Island Cove HOA
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$
(70,504)
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$
42,979
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-164.04%
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8.12%
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11
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Placid Lakes
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$
(12,020)
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$
546,969
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-2.20%
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6.80%
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12
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Pluris Wedgefield
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$
64,259
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$
6,336,871
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1.01%
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9.85%
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13
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St. James Island
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8.74%
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14
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Utilities, Inc. of Florida
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$
6,555,469
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$ 114,572,234
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5.72%
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7.54%
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15
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Wildwood Water Company
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$
(33,893)
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$
89,021
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-38.07%
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8.18%
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Source: 2018 Annual Reports