Discussion
of Issues
Issue
1:
Is the
quality of service provided by North Peninsula Utilities Corporation
satisfactory?
Recommendation:
Yes.
NPUC has been responsive to customer complaints, and intends to complete the
pro forma plant improvements discussed in Issue 4 to be in compliance with the
DEP, and to help ensure customer satisfaction. Therefore, staff recommends that
the quality of service be considered satisfactory. (Thompson)
Staff Analysis:
Pursuant
to Section 367.081(2)(a)1, F.S., and Rule 25-30.433(1), Florida Administrative
Code (F.A.C.), in wastewater rate cases, the Commission shall determine the
overall quality of service provided by the utility. For a wastewater only
utility, the determination is made from an evaluation of the utility’s attempt
to address customer satisfaction. The Rule further states that outstanding
citations, violations, and consent orders on file with the DEP and the county
health department, along with any DEP and county health department officials’
testimony concerning quality of service shall be considered. In addition, any
customer testimony, comments, or complaints received by the Commission are also
reviewed. The operating condition of the wastewater system is addressed in
Issue 2.
The Utility’s Attempt to Address Customer
Satisfaction
Staff reviewed the complaints filed in the Commission’s Consumer
Activity Tracking System (CATS), filed with the DEP, and received by the
Utility from July 1, 2013, through June 30, 2018. Staff has also performed a
supplemental review of the complaints filed in CATS and with the DEP during the
course of this docket, and following the customer meeting held on May 8, 2019.
Table 1-1 shows the number of complaints reviewed by source and subject.
Table 1-1
Number of Complaints by
Source and Subject
|
Subject of Complaint
|
CATS Records
|
DEP Records
|
Utility Records
|
Total
|
|
Overflows Outside Utility Property
|
2
|
1
|
9
|
12
|
|
Plant Noise
|
1
|
2
|
4
|
7
|
|
Plant Odor
|
1
|
3
|
5
|
9
|
|
Plant Fencing
|
-
|
-
|
1
|
1
|
|
Equipment State
|
1
|
1
|
1
|
3
|
|
Other
|
-
|
-
|
1
|
1
|
|
Total*
|
5
|
7
|
21
|
33
|
*A single customer complaint may be
counted multiple times if it fits into multiple categories.
One complaint
was filed in CATS during the specified timeframe on September 15, 2017. The
customer reported that wastewater had overflowed into several front yards in the
neighborhood. The Utility’s response stated that the problem was caused by losing
power during Hurricane Irma. Once the storm subsided, the Utility pumped down
the lift station until power was restored. When the storm and river water
receded from the customer’s property, the Utility pumped out the swale and
disinfected the area to resolve the issue. Two additional complaints have been
received during the course of this docket. One complaint was from the same
customer and they again reported that wastewater had overflowed into their
yard. They stated that this has happened five times since 2006, and that the
Utility has not upgraded its equipment to resolve this issue. They stated that
the Utility did not respond to the issue for over 24 hours; therefore, lime
became caked onto their new pavers. The Utility’s response stated that a power
surge appeared to damage the alarm system that advises the Utility of issues.
The Utility hired an electrician to repair this issue. Regarding the customer’s
statement about NPUC taking over 24 hours to respond to the issue, the Utility
stated that the septic company’s truck broke down on the way to clean the customer’s
area. The Utility asserted that the customer did not want an employee from the
Utility to clean their pavers; therefore, a septic company cleaned them at a
later date. The other complaint was related to pump noise and odor. The Utility
requested that a Volusia County Environmental Specialist test the noise levels
at the facility, and the Utility was determined to be in compliance with the
Volusia County noise ordinance. Regarding the odor, the Utility stated that it
could have been caused by periodic pumping of sludge, which is a part of normal
operation, or equipment failures which are repaired as quickly as possible. These
complaints have been closed.
The Utility
received a total of 16 customer complaints during the specified timeframe and
two during the course of this docket. The majority of complaints received were
related to overflows, odor, and noise. NPUC stated that overflows outside the
Utility property have been few, but those that occurred were due to electrical
power failures, mechanical problems, or storms/hurricanes. The Utility has replaced
parts for the control system to the lift stations and installed surge
protectors for control panels, and it intends to continue to make upgrades to its
electrical system and mechanical equipment through pro forma plant improvements
discussed in Issue 4. Regarding plant odor, the Utility stated that this is due
to periodic sludge pumping as previously noted or mechanical problems which are
repaired as soon as possible. Staff did not notice any excessive odors during
the site visit; however, as noted by the Utility, the odor does tend to be more
prominent in the direction of the wind. Regarding plant noise, NPUC is in
compliance with the Volusia County noise ordinance as stated above. However,
the Utility has installed sound deadening fences to help with this issue. Other
complaints received and resolved by the Utility include a fallen fence, a
damaged manhole, and depression in a customer’s yard due to a cracked clay pipe.
The DEP provided four complaints during this timeframe related to odor, noise
and equipment state, and one during the course of this docket related to an
overflow. The complaint received related to an overflow overlapped one of the
complaints received by the Utility during the course of this docket. The DEP
investigated these issues, and the complaints were closed.
A customer
meeting was held on May 8, 2019. Sixteen customers were in attendance and six
customers provided oral comments. At the meeting, customers expressed concerns
regarding the issues discussed above as well as rate concerns. The customers
discussed the necessity of plant equipment improvements to control plant noise,
odor, and overflows. The condition of the wastewater facility will be addressed
in Issue 2.
Conclusion
NPUC has been responsive to customer complaints, and
intends to complete the pro forma plant improvements discussed in Issue 4 to be
in compliance with the DEP, and to help ensure customer satisfaction.
Therefore, staff recommends that the quality of service be considered satisfactory.
Issue
2:
Are
the infrastructure and operating conditions of North Peninsula Utilities
Corporation’s wastewater system in compliance with DEP regulations?
Recommendation:
NPUC
is not currently in compliance with the DEP, but is working to address the
issues noted in the DEP Consent Order through the pro forma plant improvements
discussed in Issue 4. The Utility also plans to address other plant
improvements necessary to ensure that its facilities and equipment are in safe,
efficient, and proper condition. (Thompson)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each wastewater
utility to maintain and operate its plant and facilities by employing qualified
operators in accordance with the rules of the DEP. Rule 25-30.433(2), F.A.C.,
requires consideration of whether the infrastructure and operating conditions
of the plant and facilities are in compliance with Rule 25-30.225, F.A.C. In
making this determination, the Commission must consider testimony of the DEP
and county health department officials, compliance evaluation inspections,
citations, violations, and consent orders issued to the utility, customer
testimony, comments, and complaints, and utility testimony and responses to the
aforementioned items.
Wastewater System Operating Condition
NPUC’s wastewater system is an existing 210,000 gallons
per day (gpd) design capacity and 181,000 gpd annual average daily flow (AADF)
permitted capacity domestic wastewater treatment plant (WWTP). Staff reviewed
NPUC’s compliance evaluation inspections conducted by the DEP to determine the
Utility’s overall wastewater facility compliance. A review of the March 7, 2017
inspection, indicated that NPUC’s wastewater treatment facility was in
compliance with the DEP’s rules and regulations. However, as a result of the
March 20, 2018, inspection NPUC was issued a Consent Order from the DEP to
address noted disrepairs. The Consent Order requires NPUC to immediately
implement preventative measures to ensure system failure does not occur due to
deteriorating facility components while reconstruction is under way. This
includes but is not limited to: (1) repairing the holes and corrosion in the
tanks; (2) repairing the travelling bridge at Plant #3; (3) repairing or
replacing the damaged splitter box; and (4) repairing the clarifier skimmer at
Plant #3. The Utility is working to address the deficiencies noted in the
Consent Order from the DEP through the pro forma plant improvements discussed
in Issue 4. NPUC is required to provide quarterly progress updates to the DEP,
and the most recent update is included as Attachment A. As of now, the work
completed by NPUC to address noted deficiencies includes having partially
repaired holes in the tanks, and having repaired the damaged splitter box.
Conclusion
NPUC is not currently in compliance with the DEP, but is
working to address the issues noted in the DEP Consent Order through the pro
forma plant improvements discussed in Issue 4. The Utility also plans to
address other plant improvements necessary to ensure that its facilities and
equipment are in safe, efficient, and proper condition.
Issue
3:
What
are the used and useful (U&U) percentages of North Peninsula Utilities
Corporation's WWTP and collection system?
Recommendation:
NPUC’s
WWTP and collection system should both be considered 100 percent U&U. Additionally,
staff recommends no adjustment to purchased power and chemicals should be made
for excessive infiltration and inflow (I&I). (Thompson)
Staff Analysis:
NPUC’s wastewater system
was constructed in 1979. As stated in Issue 2, NPUC’s wastewater facility is
permitted by the DEP as a 181,000 gpd AADF facility. The collection system is
composed of vitrified clay pipes (VCP) and polyvinyl chloride (PVC) pipes, and
there are two lift stations in the service area. NPUC’s wastewater collection
system comprises 5,420 feet of 6 inch PVC force mains, 10,305 feet of 8 inch
VCP collecting mains, and 10,777 feet of 8 inch PVC collecting mains. There are
approximately 87 manholes in the service area.
Rates were last established for
NPUC in Docket No. 20000715-SU, and the Utility’s U&U for its WWTP and
collection system were last determined in that docket as well. In
that docket, the Commission determined the Utility’s WWTP and collection system
to be 100 percent U&U.
Infiltration and Inflow
Infiltration typically results from groundwater entering a
wastewater collection system through broken or defective pipes and joints;
whereas, inflow results from water entering a wastewater collection system
through manholes or lift stations. By convention, the allowance for
infiltration is 500 gpd per inch diameter pipe per mile, and an additional 10
percent of residential water billed is allowed for inflow. Rule 25-30.432,
F.A.C., provides that in determining the WWTP amount of U&U, the Commission
will consider I&I.
Since all wastewater collection
systems experience I&I, the conventions noted above provide guidance for
determining whether the I&I experienced at a WWTP is excessive. Staff
calculates the allowable infiltration based on system parameters, and
calculates the allowable inflow based on water sold to customers. The sum of
these amounts is the allowable I&I. Staff next calculates the estimated
amount of wastewater returned from customers. The estimated return is
determined by summing 80 percent of the water sold to residential customers
with 90 percent of the water sold to non-residential customers. Adding the
estimated return to the allowable I&I yields the maximum amount of
wastewater that should be treated by the wastewater system without incurring
adjustments to operating expenses. If this amount exceeds the actual amount
treated, no adjustment is made. If it is less than the gallons treated, then
the difference is the excessive amount of I&I.
The allowance for infiltration
was calculated as 6,953,527 gallons per year. However, as discussed in Issue
10, the Utility has a flat rate billing structure, and the format of the
metered water data provided would require a significant amount of time to
determine the water usage per customer. Therefore, staff was unable to determine
the allowance for inflow and thus the total allowable I&I, or the maximum
amount of wastewater allowed to be treated.
Used and Useful Percentages
As noted above, the Commission
previously found both the WWTP and collection system to be 100 percent U&U.
The Utility has not increased the capacity of its WWTP, but it has expanded its
territory since rates were last established. The Utility has currently only
connected four new customers since the territory amendment, but has additional
connection capacity of 288 equivalent residential connections (ERCs). However,
the Utility has not built additional facilities to address the increased
capacity of its collection system. Therefore, consistent with the Commission’s
previous decision, staff recommends the Utility’s WWTP and collection system be
considered 100 percent U&U.
Conclusion
NPUC’s WWTP and collection system should be considered 100 percent
U&U. Additionally, staff recommends no adjustment to purchased power and
chemicals should be made for excessive I&I.
Issue
4:
What
is the appropriate average test year rate base for North Peninsula Utilities
Corporation?
Recommendation:
The
appropriate average test year rate base for the Utility is $232,047.
(Richards, Thompson)
Staff Analysis:
The
appropriate components of the Utility’s rate base include utility plant in
service (UPIS), land, accumulated depreciation,
contributions-in-aid-of-construction (CIAC), accumulated amortization of CIAC,
and working capital. The last proceeding that established balances for rate
base was Docket No. 20000715-SU.[5] Staff selected the test year
ended June 30, 2018, for the instant rate case. A summary of each component and
the recommended adjustments follows.
Utility
Plant in Service (UPIS)
The Utility
recorded $960,499 for UPIS. Staff recommends a UPIS balance of $892,604 which
represents a reduction of $67,895. The staff audit identified several
adjustments resulting in a net decrease to UPIS of $77,595 to reflect the
appropriate balances and additions that were not booked. Staff increased UPIS
by $1,462 for the connection of a new customer. Staff also made an averaging
adjustment to decrease UPIS by $5,409. Staff made an adjustment increasing UPIS
by $47,088 to reflect pro forma plant additions offset by a decrease of $33,441
to reflect pro forma plant retirement. Staff recommends an average UPIS balance
of $892,604 ($960,499 - $77,595 + $1,462 - $5,409 + $47,088 - $33,441).
Pro
Forma Plant Additions
Table 4-1 shows NPUC’s pro forma plant projects, some of
which were explicitly mandated by the DEP Consent Order. Other projects are
plant improvements necessary for the Utility to continue to provide reliable
service to its customers, consistent with the DEP Consent Order and Rule
25-30.225, F.A.C. The wastewater treatment facility is located on a narrow
peninsula between the Atlantic Ocean and the Halifax River in Ormond Beach,
Florida. According to the Utility, weather and saltwater conditions have led to
the corrosion of the wastewater facility. The Utility asserts that the area
frequently experiences strong storms, and that the facility has dealt with two
major hurricanes in recent years. During the site visit, staff corroborated the
corrosive condition of the facility.
As contemplated by Section
367.081(2)(a)2, F.S., staff has included pro forma items that have been
completed or are anticipated to be completed by June 30, 2020, 24 months after
the end of the test year. The Replace Travelling Bridge Return at Plant #3 was explicitly
mandated for completion in the DEP Consent Order. The other items mandated for
completion by the DEP are operation and maintenance (O&M) pro forma items;
therefore, these and other O&M pro forma expense items are included in
Table 7-3 in Issue 7. Table 4-2 is a cost breakdown of the pro forma plant
projects.
Table 4-1
Pro-Forma Plant Items
|
Project
|
Acct. No.
|
Amount
|
Retirement
|
|
Replace Lift Station #1 Panel and New Electrical Equipment
|
371
|
$8,000
|
($6,000)
|
|
New Sludge Return Troughs in Plant #1
|
380
|
$7,911
|
($5,933)
|
|
Repaired and Replaced Parts for Control Systems to Lift
Station
|
371
|
$1,670
|
($1,253)
|
|
Replace Air Supply Lines in Clarifiers
|
380
|
$3,447
|
($2,585)
|
|
Installed New Motors for the Treatment Plant and Lift
Station #2
|
371
|
$2,360
|
($1,770)
|
|
Two New Mechanical Gear Drives
|
380
|
$8,105
|
($6,079)
|
|
Installed New Ultrasonic Flow Meter
|
364
|
$2,500
|
($0)
|
|
Installed Surge Protectors for Control Panels
|
380
|
$686
|
($515)
|
|
Replaced Main Circuit Board and Flying Lead Transformer
|
380
|
$315
|
($236)
|
|
Replaced Bad Wire to Subpanel and All Damaged Components
|
380
|
$3,660
|
($2,745)
|
|
Rebuilt Pump for Lift Station #2
|
371
|
$1,315
|
($986)
|
|
Installed New Magnetic Contactor
|
380
|
$468
|
($351)
|
|
Replace Travelling Bridge Return at Plant #3*
|
380
|
$5,275
|
($3,956)
|
|
Replaced Entrance Gate
|
354
|
$1,375
|
($1,031)
|
Source:
Responses to staff data requests. *DEP mandated item.
Table 4-2
Pro Forma Plant
|
Acct.
|
Addition
|
Retirement
|
Dep
Exp.
|
Net
Plant
|
A/D
Adj.
|
|
354
|
$1,375
|
$1,031
|
$13
|
$331
|
$1,019
|
|
364
|
$2,500
|
$0
|
$500
|
$2,000
|
($500)
|
|
371
|
$13,345
|
$10,009
|
$223
|
$3,114
|
$9,786
|
|
380
|
$29,868
|
$22,401
|
$498
|
$6,969
|
$21,903
|
|
|
$47,088
|
$33,441
|
$1,233
|
$12,414
|
$32,207
|
Source: Responses to staff
data requests.
Although the DEP explicitly
mandated certain items for completion in the Consent Order, it required NPUC to
“Immediately implement preventative measures to ensure system failure does not
occur due to deteriorating facility components while the process of
reconstruction is under way, including but not limited to . . .” those specific
items. Also, Rule 25-30.225, F.A.C., requires each wastewater utility to
construct, maintain, and operate its plant in such a way that ensures all of
the utility’s facilities and equipment are in proper condition for rendering
safe and adequate service. The items requested in addition to the DEP mandated
items are also necessary for the upkeep of the facility. Table 4-3 shows the
status of completion for each pro forma project.
Table 4-3
Pro Forma Project Status of
Completion
|
Project
|
Completed
|
To Be Completed by 12/31/2019
|
To Be Completed by 1/31/2020
|
|
Replace Lift Station #1 Panel and New Electrical Equipment
|
|
X
|
|
|
New Sludge Return Troughs in Plant #1
|
|
X
|
|
|
Repaired and Replaced Parts for Control Systems to Lift
Station
|
X
|
|
|
|
Replace Air Supply Lines in Clarifiers
|
|
X
|
|
|
Installed New Motors for the Treatment Plant and Lift
Station #2
|
X
|
|
|
|
Two New Mechanical Gear Drives
|
|
X
|
|
|
Installed New Ultrasonic Flow Meter
|
X
|
|
|
|
Installed Surge Protectors for Control Panels
|
X
|
|
|
|
Replaced Main Circuit Board and Flying Lead Transformer
|
X
|
|
|
|
Replaced Bad Wire to Subpanel and All Damaged Components
|
X
|
|
|
|
Rebuilt Pump for Lift Station #2
|
X
|
|
|
|
Installed New Magnetic Contactor
|
X
|
|
|
|
Replace Travelling Bridge Return at Plant #3*
|
|
X
|
|
|
Replaced Entrance Gate
|
X
|
|
|
|
Repair Holes in Tank*
|
|
X
|
|
|
Repaired Splitter Box*
|
X
|
|
|
|
Repair Clarifier Skimmer at Plant #3*
|
|
X
|
|
|
Sanitary Manhole Repair
|
|
|
X
|
|
Repair Holes in Bulkhead & Sidewall of Plant #1
|
|
X
|
|
Source: Responses to staff
data requests. *DEP mandated item.
As stated in Issue 2, the work completed by NPUC to
address the deficiencies noted in the DEP Consent Order includes having
partially repaired holes in the tanks, and having repaired the damaged splitter
box. Work is currently under way to complete the remaining projects mandated by
the DEP, and the Utility intends to have each completed by the end of December
2019 as shown in Table 4-3.
Staff requested that all bids
received be provided for each requested pro forma project. Two bids were
provided for the Sanitary Manhole Repair, Replace Lift Station #1 Panel and New
Electrical Equipment, and Replaced Entrance Gate projects, and the least cost
bidder was selected. For the DEP mandated items, New Sludge Return Troughs in
Plant #1, Two New Mechanical Gear Drives, Replace Air Supply Lines in
Clarifiers, and Repair Holes in Bulkhead & Sidewall of Plant #1 pro forma
projects, the Utility stated that additional bids were requested; however,
other vendors were unwilling to provide bids against a vendor that is familiar
with the facility. The Utility asserts that the vendor completing these
projects has worked with the facility since operations began and has a thorough
understanding of the needed improvements.
All other projects listed in
Table 4-3 were emergency items requiring immediate attention; therefore, the
Utility did not have time to request multiple bids. Due to the deadline of January 23, 2020,
contemplated in the DEP Consent Order for the completion of all mandated items,
and the requirements of Rule 25-30.225, F.A.C., staff recommends that these
project costs are appropriate.
Land &
Land Rights
The
Utility recorded a test year land value of $46,800. Based on staff’s review, no
adjustments are necessary. Therefore, staff recommends that the land and land
rights balance remain $46,800.
Accumulated
Depreciation
The
Utility recorded an accumulated depreciation balance of $926,024. Staff
recommends an accumulated depreciation balance of $735,029, which represents a
reduction of $190,995. Staff recalculated the accumulated depreciation balance
using the prescribed depreciation rates set forth in Rule 25-30.140, F.A.C.,
and included depreciation associated with plant additions and retirements.
Staff has decreased accumulated depreciation by $158,547 to reflect the
appropriate test year starting balance of $767,477. Staff’s balance includes
adjustments the Utility should have recorded, and adjustments to correct
accounts that the Utility continued to depreciate past the life of the asset.
Staff increased accumulated depreciation by $21 for the connection of a new
customer. Staff also made an averaging adjustment to accumulated depreciation
that resulted in a decrease of $262. Further, staff made corresponding
adjustments to accumulated depreciation based on the pro forma plant additions
and retirements resulting in an additional decrease of $32,207. Staff’s
adjustments result in an accumulated depreciation balance of $735,029 ($926,024
– $158,547 + $21 – $262 – $32,207).
Contributions
In Aid of Construction (CIAC)
The
Utility recorded a CIAC balance of $640,994. Staff recommends a CIAC balance of
$641,725, which represents an increase of $731. In June 2018, a new customer
was connected to the Utility’s force main, however, the Utility did not reflect
a customer connection during the test year. As a result, staff increased CIAC
by $1,462 ($762 main extension charge and a $700 inspection fee). Additionally,
staff decreased CIAC by $731 to reflect an averaging adjustment. Staff
recommends the appropriate CIAC balance is $641,725 ($640,994 + $1,462 – $731).
Accumulated
Amortization of CIAC
The
Utility recorded accumulated amortization of CIAC of $640,994. Staff recommends
accumulated amortization of CIAC of $641,015, which represents an increase of
$21. Prior to adding the new customer connection, CIAC was fully amortized in
the year ended 2007. Staff increased accumulated amortization of CIAC by $21 to
reflect the new connection. Staff recommends accumulated amortization of CIAC
balance of $641,015 ($640,994 + $21).
Working
Capital Allowance
Working
capital is defined as the short-term funds that are necessary to meet operating
expenses of the Utility. Consistent with Rule 25-30.433(2), F.A.C., staff used
the one-eighth of the O&M expense formula approach for calculating the
working capital allowance. Staff also removed the unamortized balance of rate
case expense of $1,147 ($4,589 ÷ 4)
pursuant to Section 367.081(9), F.S.[6]
Applying this formula, staff recommends a working capital allowance of $28,381
($227,050 ÷ 8),
based on the adjusted O&M expense of $227,050 ($228,197 – $1,147).
Rate Base
Summary
Based on
the foregoing, staff recommends that the appropriate average test year rate
base is $232,047. Rate base is shown on Schedule No. 1-A. The related
adjustments are shown on Schedule No. 1-B.
Issue
5:
What
is the appropriate return on equity and overall rate of return for North
Peninsula Utilities Corporation?
Recommendation:
The
appropriate return on equity (ROE) is 10.55 percent with a range of 9.55
percent to 11.55 percent. The appropriate rate of return is 6.70 percent.
(Richards)
Staff Analysis:
The Utility has negative
common equity of $940,160 on its 2018 annual report due to a negative retained
earnings balance. In accordance with Commission practice, staff set the
negative common equity to zero.[7] The
Utility does not have any customer deposits on its books. The Utility also
recorded a long-term debt balance of $1,093,091.
The Utility’s capital structure
has been reconciled with staff’s recommended rate base. The appropriate ROE for
the Utility is 10.55 percent based upon the Commission-approved leverage
formula currently in effect.[8] Staff
recommends an ROE of 10.55 percent with a range of 9.55 percent to 11.55
percent, and an overall rate of return of 6.70 percent. The overall rate of return
is the Utility’s weighted average cost of long-term debt. The long-term debt is
comprised of multiple notes at different rates, which equates to a weighted
average of 6.70 percent, as detailed in Table 5-1. The ROE and overall rate of
return are shown on Schedule No. 2.
Table 5-1
Long-Term Debt – Weighted
Average
|
Loan
|
Amount
|
% of
Total
|
Int.Rate
|
Weighted
Cost
|
|
Intracoastal Bank
|
$727,307
|
66.54%
|
6.70%
|
4.46%
|
|
Line of Credit – PNC
|
17,136
|
1.57%
|
10.29%
|
0.16%
|
|
Business Card – PNC
|
13,696
|
1.25%
|
14.58%
|
0.18%
|
|
SeaCoast Bank
|
68,896
|
6.30%
|
6.08%
|
0.38%
|
|
Intracoastal Bank
|
218,968
|
20.03%
|
6.08%
|
1.22%
|
|
Pro Forma Project Loan
|
47,088
|
4.31%
|
7.00%
|
0.30%
|
|
Total
|
$1,093,091
|
100.00%
|
|
6.70%
|
Source: Audit Report and
Utility responses to staff data requests.
Issue
6:
What
are the appropriate test year revenues for North Peninsula Utilities
Corporation?
Recommendation:
The
appropriate test year revenues for NPUC’s wastewater system are $243,777.
(Bruce)
Staff Analysis:
NPUC does not keep a formal
general ledger, but rather an excel spreadsheet of the check register. As a
result, staff used the regulatory assessment fee (RAF) form as a basis for the
test year revenues. The RAF forms reflected test year revenues of $242,291.
Staff also evaluated the billing determinants and the number of miscellaneous
occurrences during the test year. The Utility had a price index increase subsequent
to the test year. The Utility’s billing determinants and the rates that became
effective after the test year result in annualized test year service revenues
of $241,705. In addition, the Utility had 306 test year late payment
occurrences. Applying the Utility’s approved miscellaneous service charges to
the number of occurrences during the test year result in miscellaneous revenues
of $2,072. Thus, test year revenues
should be $243,777 ($241,705 + $2,072). Staff made an adjustment of $1,486
($243,777 - $242,291) to reflect the appropriate test year revenues. Based on
the above, staff recommends that the appropriate test year revenues for NPUC’s
wastewater system are $243,777.
Issue
7:
What
is the appropriate test year operating expense for North Peninsula Utilities
Corporation?
Recommendation:
The
appropriate amount of operating expense for the Utility is $254,765.
(Richards)
Staff Analysis:
The
Utility recorded total operating expense of $322,537. The test year O&M
expenses have been reviewed by staff, including invoices and other supporting
documentation. Staff has made the following adjustments to the Utility’s
operating expenses as discussed below.
O&M
Expenses
Sludge Removal (711)
The
Utility recorded sludge removal expense of $22,860. Staff reviewed invoices
provided by the Utility and agrees with the amount. Staff recommends no
adjustment to sludge removal expense.
Purchased Power (715)
The
Utility recorded purchased power expense of $12,245. Staff decreased purchased
power expense by $949 to remove out of test year amounts. Staff also decreased
this amount by $33 to reflect removal of late fees. Therefore, staff recommends
purchased power expense of $11,263 ($12,245 – $949 – $33).
Chemicals (718)
The
Utility recorded chemicals expense of $5,776. Staff decreased chemicals expense
by $389 to remove out of test year amounts. Therefore, staff recommends
chemicals expense of $5,387 ($5,776 – $389).
Materials and Supplies (720)
The
Utility recorded materials and supplies expense of $613 for two orders of File
Cards. Staff believes these cards are for billing the customers. Staff reviewed
the invoices provided by the Utility in response to staff’s second data request
and agrees with this amount; therefore, staff recommends no adjustment to
materials and supplies expense.[9]
Contractual Services – Engineering
(731)
The
Utility recorded contractual services – engineering expense of $800. The
Utility retained the services of Cadenhead Environmental Engineering Services,
Inc. (Cadenhead) to prepare a Florida Department of Environmental Protection
(FDEP) permit renewal application. In response to staff’s fifth data request,
the Utility paid Cadenhead $1,600 to prepare and submit the renewal application
to FDEP, which was paid in two installments of $800.[10]
The application fee due to FDEP was $3,000 paid on March 2, 2018. The permit
covers a five-year period. Staff increased engineering expense by $120 to
reflect the total expense of $4,600 ($1,600 + $3,000) amortized over five
years. Therefore, staff recommends contractual services – engineering expense
of $920 ($4,600 / 5).
Contractual Services – Accounting
(732)
The
Utility recorded contractual services – accounting expense of $4,500. In
response to staff’s second data request, the Utility stated that Martin, Klayer
and Associates provided bookkeeping and accounting services for $1,350 plus
$750 for preparation of the Utility’s tax return, IRS Form 1120S.[11] The bookkeeping and
accounting services provided by Martin, Klayer and Associates took place
outside of the test year and appear duplicative of the services provided by
Willdan Financial Services, therefore staff recommends removing $1,350.
The
Utility contracts with Willdan Financial Services to provide the following
services at a cost of $2,400:
- Prepare
the Annual Report for the year in an Excel compatible format for
submission to the Florida Public Service Commission.
- Coordinate
with Utility staff to prepare and submit the required Annual Report
paperwork and copies to the Commission.
- Prepare
any necessary true-up journal entries to be posted by the Utility to its
accounting records.
- Prepare
any necessary monthly journal entries including those for depreciation and
amortization expense.
- Prepare
Annual Indexing application and file with the Commission.
Staff
recommends contractual services – accounting expense of $3,150 ($750 + $2,400)
Contractual Services – Legal (733)
The
Utility recorded contractual services – legal expense of $1,030. This expense
was for a one time legal matter. Staff removed this amount due to lack of
supporting documentation from the Utility. In response to staff’s seventh data
request the Utility stated it contracts with Doran Sims Wolfe & Ciocchetti
for legal expenses which relate to collection activities on behalf of NPUC.[12] On average, the Utility
pays $150 for these collection activities four times a year. Therefore, staff
recommends contractual services – legal expense of $600 ($150 × 4).
Contractual Services – Management
Fees (734)
The
Utility recorded Contractual Services – management fee of $135,487. This
expense is paid to Peninsula Management Incorporated (PMI) based on a contract
between NPUC and PMI to handle the administrative and management functions of
the Utility. The President and Vice President of the Utility are also the
owners of PMI. The first time an expense was approved for the PMI contract by
the Commission was in Docket No. 19960984-SU.[13]
The approved amount was $20,000. The PMI contract consists of two parts;
Overhead and Administration, and a Management Fee. The Management Fee is
compensation for the President and Vice President of NPUC who are also the
owners. Staff recommends $29,812 for the Overhead and Administration portion of
the contract, plus $62,273 for the Officer Salary portion of the contract, for
a total Management Fee of $92,085 ($29,812 + $62,273).
Overhead and Administration
The
Utility recorded $33,960 for the overhead and administration portion of the PMI
contract. In attachment 4 of the Utility’s response to staff’s second data
request, the Utility provided a list of the services and costs included in the
PMI contract classified as Overhead and Administration.[14]
Staff recommends two adjustments to the overhead and administration expense: a
reduction of $3,600 for Miscellaneous Expenses and a reduction of $548 to
Vehicle Expense. Table 7-1 summarizes the overhead and administration costs
included in the PMI contract and staff’s adjusted amounts.
Table 7-1
PMI
Contract – Overhead and Administration
|
Service
|
Per
Utility
|
Staff
Adj.
|
Per Staff
|
|
Office
Rental
|
$6,600
|
$0
|
$6,600
|
|
Employee
Salary
|
$12,960
|
$0
|
$12,960
|
|
Utilities,
Insurance, Supplies & Equipment
|
$4,800
|
$0
|
$4,800
|
|
Miscellaneous
Expenses
|
$3,600
|
($3,600)
|
$0
|
|
Auto
Expense
|
$6,000
|
($548)
|
$5,452
|
|
Total:
|
$33,960
|
($4,158)
|
$29,812
|
Source: Staff’s second and
fifth data requests.
Office Rental
The
Utility shares office space with HW Peninsula, LLC which is also owned by
NPUC’s owners. In response to staff’s fifth data request, the Utility provided
a copy of the office lease dated December 1, 2009, which is currently in
effect.[15] According to the Utility,
NPUC’s portion of the office rental is $6,600 per year. Staff believes this
amount for office rental is reasonable and therefore, recommends no adjustment
to the office rental portion of the contract with PMI.
Employee Salary
There is
one employee who is paid through the PMI contract. This employee is responsible
for many of the daily administrative duties necessary for NPUC such as billing,
customer service, customer receipts and accounts receivable. In addition, the
employee is responsible for setting up new customer accounts and closing
cancelled customer accounts. The Utility, through PMI, pays an annual salary of
$12,960 for this employee. Staff believes this amount as a salary for one
employee is reasonable, and therefore, recommends no adjustment to the employee
salary portion of the contract with PMI.
Utilities, Insurance, Supplies and
Equipment
According
to the Utility, the annual costs for office utilities, insurance, supplies,
equipment, accounting and office up-keep is $4,800. Staff believes this amount
is reasonable for a business this size, and therefore, recommends no adjustment
to NPUC’s office utilities, insurance, supplies and equipment portion of the
contract with PMI.
Miscellaneous Expenses
PMI
charges the Utility $3,600 to cover miscellaneous expenses. In response to
staff’s fifth data request, the Utility stated that miscellaneous expenses
include, “various miscellaneous expenses incurred throughout the year including
printing supplies (ink and toner), small equipment purchases (i.e. dot-matrix
printer for bills, laptops), incidentals, office supplies, etc.”[16] Staff believes the $3,600
for miscellaneous expenses is duplicative of what is included in supplies and
equipment above and unsupported, therefore staff recommends removing the $3,600
for miscellaneous expense.
Auto Expense
The
Utility does not own any vehicles. NPUC/PMI owners and its employee use their
personal vehicles for Utility purposes. PMI charges NPUC $6,000 per year for
vehicle expense. In response to staff’s first data request, the Utility logs
approximately 9,400 miles of travel annually.[17]
The Internal Revenue Service (IRS) standard mileage rate for 2019 is $0.58 per
mile driven for business use. Based on the IRS standard, staff believes the appropriate
vehicle expense is 9,400 miles times $0.58 per mile, or $5,452 annually.
Therefore, staff decreased the vehicle expense by $548 ($6,000 – $5,452).
Management Fee
The
management fee portion of the PMI contract is the combined compensation paid to
the President and Vice President of NPUC. During the test year ended June 30,
2018, PMI billed NPUC $101,527 for the compensation portion of the management
fee. The amount is determined on a per ERC basis and is currently based on 603
ERCs. The most recent PMI contract includes a management fee of $14.18 per ERC
which was last increased in 2017. In response to staff’s seventh data request,
NPUC stated that in a typical month, the President works an average of 100
hours and the Vice President works an average of 15 hours on Utility matters,
for a total of 115 hours per month.[18]
Based on a typical work month of approximately 173 hours, 115 hours equates to
66 percent of one full-time officer. Staff believes compensation of $101,527
for two officers that collectively work 115 hours per month is unreasonable.
Using
the 2018 American Water Works Association (AWWA) Small Utility Survey, staff
determined the position of Small System General Manager with a salary range of
$64,143 to $93,680 was representative of the duties performed by NPUC’s
President and Vice President as described in the Utility’s response to staff’s
seventh data request.[19] A salary range for a
President and Vice President was not listed in the 2018 AWWA Small Utility
Survey. Considering that NPUC’s President and Vice President combine to
contribute 66 percent of one full-time officer, a reasonable salary range would
be between $42,638 ($64,143 X 0.66) and $62,273 ($93,680 X 0.66). The
Commission has approved president/owner salaries of $78,709,[20] $72,704,[21] and $63,200,[22] in recent SARC dockets
similar to this rate case. Accordingly, staff believes compensation of $62,273
for the President and Vice President combined is reasonable and recommends a
reduction of $38,804 to the Utility’s requested amount of $101,527.
Contractual Services – Testing
(735)
The
Utility recorded a contractual services' – testing fee of $12,588. The Utility
contracts with Wetherell Treatment Systems to perform state required tests as
detailed in Table 7-2 below totaling $10,288. The Utility also contracts with
Pace Analytical Services for other EPA regulated testing totaling $2,300. Staff
agrees with this amount and therefore recommends no adjustment to contractual
services – testing expense.
Table 7-2
State
Required Tests performed by Wetherell Treatment Systems
|
Description
|
Amount
|
|
Effluent
CBOD and TSS Tests
|
$4,248
|
|
Fecal
Coliform Tests
|
$1,540
|
|
Nitrate
Tests
|
$1,080
|
|
TDS
and Chloride Analysis
|
$1,680
|
|
Nitrogen
Tests
|
$1,020
|
|
Phosphorus
Tests
|
$720
|
|
Total
|
$10,288
|
Source: Utility response to staff data requests
Contractual Services – Other (736)
The
Utility recorded contractual services – other of $34,788. The Utility contracts
outside individuals for the supervision and repairs of the treatment plant, in
addition to the operation of the plant. The Utility recorded $25,317 for
supervision and repairs of the plant. Staff reviewed all of the invoices and
verified the expenses. Staff increased this amount by $95 to reflect the total
amount reflected on the invoices. Staff recommends a total of $25,412 ($25,317
+ $95) for plant supervision and repairs.
The
plant operator generally works 12 hours per week. In an email to staff, the
Utility advised that they entered into a new agreement with the plant operator,
which increased the pay rate from $9,471 ($15.18 hourly) to $12,480 ($20.00
hourly) in order to more closely reflect the average pay rate for a state
licensed plant operator.[23] This increase represents an
additional $3,009 ($12,480 – $9,471) annually. Staff believes the increased pay
rate of $12,480 is reasonable and therefore recommends an increase of $3,009.
Staff
also increased this amount by $3,715 to reflect expenses amortized over five
years associated with pro forma projects shown in Table 7-3 below.
Table 7-3
Pro Forma O&M Items
|
Project
|
Acct. No.
|
Amount
|
|
Repair Holes in Tank*
|
380
|
$4,606
|
|
Repair Splitter Box*
|
380
|
$1,675
|
|
Repair Clarifier Skimmer at Plant #3*
|
380
|
$1,826
|
|
Sanitary Manhole Repair
|
363
|
$2,468
|
|
Repair Holes in Bulkhead & Sidewall of Plant #1
|
380
|
$8,000
|
|
Total
|
-
|
$18,575
|
Source: Responses to staff data
requests. *DEP mandated item.
Table 7-4
details the services provided by contractual services – other. Staff recommends
contractual services – other expense of $41,607 ($25,412 + $12,480 + $3,715).
Table 7-4
Services
Provided in Contractual Services – Other
|
Description
|
Amount
|
|
Treatment
Plant Supervision and Repairs
|
$25,412
|
|
Salary
for Treatment Plant Operator
|
$12,480
|
|
Pro
forma Expenses
|
$3,715
|
|
Total
|
$41,607
|
Source:
Utility response to staff data requests.
Insurance – General Liability (757)
The
Utility recorded insurance – general liability expense of $2,252. Staff
decreased this amount by $30 to reflect removal of late fees charged to the
Utility. Therefore, staff recommends insurance – general liability expense of
$2,222 ($2,252 – $30).
Rate Case Expense (766)
The
Utility paid a filing fee of $1,000 on September 5, 2018. The Utility, in its
SARC filing, did not record any rate case expense. By Rule 25-22.0407, F.A.C.,
the Utility is required to mail notices of the customer meeting, notices of
final rates in this case, and notices of four-year rate reduction to its
customers. For these notices, staff has estimated $714 for postage expense,
$346 for printing expense, and $65 for envelopes, resulting in a noticing
expense of $1,125 ($714 + $346 + $65).
Staff
estimated $200 for lodging expense for the Utility to send a representative to
the Commission Conference. The distance from Ormond Beach to Tallahassee is 456
miles round trip.[24] Using the 2019 IRS approved
business travel rate of $0.58 per mile, mileage expense is $264 (456 x $0.58).
Total travel expense to attend the Commission Conference is estimated to be
$464 ($200 + $264).
The
Utility has retained the services of Willdan Financial Services to assist with
this rate case and submitted three invoices each for $1,000 dated February 11,
2019; April 17, 2019; and July 1, 2019.[25]
Florida Statute 367.0814 F.S. states:
The
Commission may award rate case expenses for attorney fees or fees of other
outside consultants if such fees are incurred for the purpose of providing consulting
or legal services to the Utility after the initial staff report is made
available to customers and the Utility.
The
Staff Report was filed on April 9, 2019, therefore only the costs incurred on
the April 17, and July 1 invoices are eligible for recovery through rates.[26] Staff recommends a
consultant fee of $2,000.
Based on
the above, staff recommends total rate case expense of $4,589 ($1,000 + $1,125
+ $464 + $2,000), which amortized over four years results in a rate case
expense of $1,147 ($4,589 ÷
4).
Regulatory Commission Expense –
Other (767)
The
Utility incurred expenses in a previous Service Territory
Expansion in Docket No. 20130209-SU which have not been recovered through
rates. The expansion was due, in part, to a DEP plan to move residents living
on the peninsula off of their current septic tank system and on to a sewage
system. In December of 2015, Volusia County enacted an ordinance that requires
mandatory connection to municipal or investor owned wastewater facilities
within five years when such facilities become available.[27]
Rule 25-30.433, F.A.C., states that non-recurring expenses shall be amortized
over a five-year period unless a shorter or longer period can be justified.
Staff believes using a four-year amortization period is appropriate as the
expenses were incurred over a four-year period from 2013 to 2016. If a longer
amortization period were to be used, full recovery of the expenses would not be
realized until after 2023.
In
response to an inquiry by staff, the Utility reported a cost of $145,481, which
amortized over four years, equates to $36,370 annually for legal and
engineering expenses related to Docket No. 20130209-SU.[28]
The Utility retained the services of GAI Consultants and Hartman Consultants,
LLC to provide engineering services. Additionally, the Utility retained Holland
& Knight and Dean Mead to provide legal services. Staff has verified
invoices for GAI Consultants and agrees with the invoiced amount of $24,721.
Staff also verified invoices for Hartman Consultants, LLC in the amount of
$38,440.[29]
In reference
to the $52,605 billed by Holland & Knight, the Utility indicated NPUC has
an outstanding balance of $25,459 for the services provided by Holland &
Knight. The Utility advised staff it has been in discussions with Holland &
Knight to write-off all or a portion of the outstanding balance. As of December
31, 2018, there is an outstanding balance due to Holland & Knight of
$25,459. Therefore, staff recommends allowing only the paid portion to Holland
& Knight of $27,146 ($52,605 – $25,459) be eligible for recovery. The
Utility reported a cost of $29,714 for legal services provided by Dean Mead.
Staff
recommends a total amount of $120,022 ($24,721 + $38,440 + $27,146 + $29,714)
be amortized over four years for an annual amount of $30,005 ($120,022 ÷ 4). This amount represents an adjustment of
$6,365.
Miscellaneous Expense (775)
The
Utility recorded miscellaneous expense of $7,067. In response to staff’s fifth
data request, staff discovered that a $1,000 payment to the City of Ormond
Beach was a one-time deposit necessary for the Utility to provide water to a
worksite in response to Hurricane Irma.[30]
This amount was nonrecurring and the Utility received a refund of the deposit.
Staff recommends removing the $1,000.
The
Utility uses Roto-Rooter at various times throughout the year to help clear
lines and perform other services as necessary. Two invoices were submitted by
the Utility for work performed at residential addresses, one for $604 which was
work performed due to Hurricane Irma including a $9 interest payment for a past
due amount, and $650 for root clearing from a customer’s wastewater lines.
These invoices totaled $1,254 ($604 + $650). Staff removed the $9 interest
payment and amortized the remaining $1,245 ($1,254 – $9) over five years for an
annual amount of $249 ($1,245 ÷
5).
In
response to staff’s second data request, the Utility submitted an invoice for
Woody’s Septic Tank for $1,313.[31] According to the invoice,
the services provided by Woody’s Septic Tank fell outside of the test year.
Staff recommends removing the full amount of $1,313.
The
Utility records $2,555 annually for postage as part of their billing expenses.
With 433 customers, this amount equates to approximately $0.49 ($2,555 ÷ 12 ÷
433) per customer per month. Staff agrees with this postage rate per customer.
Staff agrees with all other costs associated with miscellaneous expense as
detailed in Table 7-4. Therefore, staff recommends miscellaneous expense of
$3,749 ($7,067 – $1,000 – $1,005 – $1,313)
Table 7-4
Miscellaneous
Expenses
|
Description
|
Per
Utility
|
Staff Adj
|
Per Staff
|
|
City
of Ormond Beach (Hydrant Meter Deposit)
|
$1,000
|
($1,000)
|
$0
|
|
Roto-Rooter
|
$1,254
|
($1,005)
|
$249
|
|
Woody’s
Septic Tank
|
$1,313
|
($1,313)
|
$0
|
|
Postage
|
$2,555
|
$0
|
$2,555
|
|
Annual
Billing Software License
|
$520
|
$0
|
$520
|
|
Tools
and Supplies
|
$275
|
$0
|
$275
|
|
Florida
Department of State (Corporation Renewal)
|
$150
|
$0
|
$150
|
|
Total
|
$7,067
|
($3,318)
|
$3,749
|
Source: Utility response to staff data requests.
O&M
Expenses Summary
The
Utility recorded O&M expenses of $276,376 for the test year. Based on the
above adjustments, staff recommends that the O&M expense balance be
decreased by $48,179, resulting in a total O&M expense of $228,197
($276,376 - $48,179). Staff’s recommended adjustments to O&M expenses are
shown on Schedule 3-C.
Depreciation
Expense
The
Utility recorded depreciation expense of $27,508 for the test year. Staff
determined that the Utility continued to depreciate plant accounts after they
had been fully depreciated. Staff recalculated depreciation expense using the
prescribed rates set forth in Rule 25-30.140, F.A.C. and reduced depreciation
expense by $22,910. Staff also removed depreciation expense of $41 from account
352 – Franchises which appeared to become fully depreciated after the end of
the test year. Further, staff increased depreciation expense by $1,233
associated with pro forma plant additions. Based on the above, staff recommends
a test year depreciation expense of $5,791 ($27,508 – $22,910 - $41 + $1,233).
Taxes Other
Than Income (TOTI)
The
Utility recorded TOTI of $18,653. Staff increased this amount by $67 to reflect
the appropriate RAFs based on corrected Utility test year revenues. Staff
increased TOTI by $888 to reflect the increased property taxes due to pro forma
plant additions.[32] Staff increased TOTI by
$1,169 to reflect the appropriate RAFs associated with the recommended revenue
increase. Staff is therefore recommending TOTI of $20,777 ($18,653 + $67 + $888
+ $1,169).
Income Tax
The
Utility is a Subchapter S Corporation and therefore did not record any income
tax expense for the test year. NPUC has shown a net loss for the last several
years in its Annual Reports. Staff recommends no adjustment to income tax
expense.
Operating
Expenses Summary
The application of staff’s recommended
adjustments to North Peninsula’s test year operating expenses result in operating
expense of $254,765. Operating expenses are shown on Schedule No. 3-A. The
related adjustments are shown on Schedule No. 3-B.
Issue
8:
Should
the Commission utilize the operating ratio methodology as an alternative method
of calculating the wastewater revenue requirements for NPUC, and, if so, what
is the appropriate margin?
Recommendation:
Yes.
As required by rule, the Commission must utilize the operating ratio
methodology for calculating the revenue requirement for NPUC. The margin should
be 12 percent of O&M expense, capped at $15,000. (Richards)
Staff Analysis:
Rule 25-30.4575(2), F.A.C., requires that the
Commission use the operating ratio methodology if the utility’s rate base is
below 125 percent of O&M expenses. The rule states the Commission will
apply a margin of 12 percent when determining the revenue requirement, up to
$15,000. The operating ratio methodology will be applied when the utility’s
rate base is no greater than 125 percent of O&M expenses. The use of the
operating ratio methodology does not change the utility’s qualification for a
staff assisted rate case under Rule 25-30.455(1), F.A.C.
The operating ratio methodology is an alternative to the
traditional calculation of revenue requirements. Under this methodology,
instead of applying a return on the Utility’s rate base, the revenue
requirement is based NPUC’s total O&M expenses plus a margin of $15,000.
This methodology has been applied in cases in which the traditional calculation
of the revenue requirement would not provide sufficient revenue to protect
against potential variances in revenues and expenses. As discussed in Issues 4
and 7, staff has recommended a rate base of $232,047 and O&M expenses of $228,197.
Based on recommended amounts, NPUC’s rate base is 102 percent of total O&M
expenses. Furthermore, the application of the operating ratio methodology does
not change the Utility’s qualification for a SARC. As such, NPUC meets the
criteria for the operating ratio methodology established in Rule 25-30.4575(2),
F.A.C. Therefore, staff recommends the application of the operating ratio
methodology at a margin of 12 percent of O&M expenses with a cap of $15,000
for determining the wastewater revenue requirement.
Issue
9:
What
is the appropriate revenue requirement?
Recommendation:
The
appropriate revenue requirement is $269,765, resulting in an annual increase of
$25,988 (10.66 percent). (Richards)
Staff Analysis:
NPUC should be allowed an annual increase of
$25,988 (10.66 percent). The calculations are shown in Table 9-1.
Table 9-1
Revenue
Requirement
|
Adjusted
O&M Expense
|
$228,197
|
|
Operating
Margin (%)
|
12.00%
|
|
Operating
Margin ($27,384 capped at $15,000 Cap)
|
$15,000
|
|
Adjusted
O&M Expense
|
$228,197
|
|
Depreciation
Expense (Net)
|
$5,791
|
|
Taxes
Other Than Income
|
$20,777
|
|
Income
Taxes
|
0
|
|
Revenue
Requirement
|
$269,765
|
|
Less
Test Year Revenues
|
243,777
|
|
Annual
Increase
|
$25,988
|
|
Percent
Increase
|
10.66%
|
Issue
10:
What
is the appropriate rate structure and rates for North Peninsula Utilities
Corporation’s wastewater systems?
Recommendation:
The
recommended rate structure and monthly wastewater rates are shown on Schedule
No. 4. 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:
NPUC is located in Volusia County
within the St. Johns River Water Management District. The Utility provides
wastewater service to 428 residential single family homes, four condominium
associations, and a restaurant. Water service is provided by the City of Ormond
Beach. The Utility’s current wastewater rates consist of a monthly flat rate
per ERC for the residential and general service classes, which was approved in
1985.[33] A
residential single family home and condominium unit are billed as one ERC.
However, the restaurant is billed as 14 ERCs.[34] For the condominium associations, the Utility
sends one bill to each condominium association based on the respective number
of ERCs.
In order to evaluate alternative
rate structures, staff requested the Utility provide metered water data. The Utility
provided 12 months of metered water data from the City of Ormond Beach (City);
however, due to the format of the data, it would take a significant amount of
administrative time to identify and isolate the water usage for each customer.
The Utility also expressed concern that it would incur additional costs, on a
prospective basis, for obtaining the monthly metered water usage data from the City
for billing purposes. Therefore, staff does not believe that it is cost
effective to bill based on the metered water usage. Staff recommends that the Utility
continue the current flat rate structure based on ERCs. As a result, staff
calculated 7,200 ERCs for wastewater as shown on Table 10-1. Staff’s
recommended flat rates are shown on Schedule No. 4. Because a single bill is
sent to each condominium association, staff recommends bulk flat rates
based on the respective ERCs.
Table 10-1
Staff’s Calculated ERCs
|
Wastewater
Customers
|
Number
of Units
|
Monthly
ERCs
|
Annual
ERCs
|
|
Residential
|
|
|
|
|
Single Family Residential Homes
|
428
|
428
|
5,136
|
|
|
|
|
|
General Service
|
|
|
|
|
Las Olas Townhomes
|
6
|
6
|
72
|
|
Ocean Air
|
17
|
17
|
204
|
|
Seabridge North
|
65
|
65
|
780
|
|
Seabridge South
|
70
|
70
|
840
|
|
Restaurant
|
1
|
14
|
168
|
|
|
|
|
|
Total ERCs
|
|
600
|
7,200
|
The recommended rate structures and
monthly wastewater rates are shown on Schedule No. 4. 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
11:
What
is the appropriate amount by which rates should be reduced in four years after
the published effective date to reflect the removal of the amortized rate case expense?
Recommendation:
In
four years, the wastewater rates should be reduced, as shown on Schedule No. 4,
to remove rate case expense grossed-up for RAFs and amortized over a four-year
period. The decrease in rates should become effective immediately following the
expiration of the four-year rate case expense recovery period, pursuant to
Section 367.081(8), F.S. NPUC should be required to file revised tariffs and a
proposed customer notice setting forth the lower rates and the reason for the
reduction no later than one month prior to the actual date of the required rate
reduction. If the Utility files this reduction in conjunction with a price
index or pass-through rate adjustment, separate data should be filed for the
price index and/or pass-through increase or decrease and the reduction in the
rates due to the amortized rate case expense. (Bruce, Richards) (Final Agency Action)
Staff Analysis:
Section 367.081(8), F.S.,
requires that the rates be reduced immediately following the expiration of the
four-year period by the amount of the rate case expense previously included in
rates. The reduction will reflect the removal of revenue associated with the
amortization of rate case expense and the gross-up for RAFs. This results in a
reduction of $1,201.
The wastewater rates should be
reduced, as shown on Schedule No. 4, to remove rate case expense grossed-up for
RAFs and amortized over a four-year period. The decrease in rates should become
effective immediately following the expiration of the four-year rate case
expense recovery period, pursuant to Section 367.081(8), F.S. NPUC should be
required to file revised tariffs and a proposed customer notice setting forth
the lower rates and the reason for the reduction no later than one month prior
to the actual date of the required rate reduction. If the Utility files this
reduction in conjunction with a price index or pass-through rate adjustment,
separate data should be filed for the price index and/or pass-through increase
or decrease and the reduction in the rates due to the amortized rate case
expense.
Issue
12:
Should
the recommended rates be approved for North Peninsula Utilities Corporation on
a temporary basis, subject to refund with interest, in the event of a protest
filed by a party other than the Utility?
Recommendation:
Yes.
Pursuant to Section 367.0814(7), F.S., the recommended rates should be approved
for the utility on a temporary basis, subject to refund with interest, in the
event of a protest filed by a party other than the utility. NPUC 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 sheet, pursuant to
Rule 25-30.475(1), F.A.C. In addition, the temporary rates should not be implemented
until staff has approved the proposed notice, and the notice has been received
by the customers. Prior to implementation of any temporary rates, the utility
should provide appropriate security. If the recommended rates are approved on a
temporary basis, the rates collected by the utility should be subject to the
refund provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the
utility should file reports with the Commission's Office of Commission Clerk no
later than the 20th of each month indicating the monthly and total amount of
money subject to refund at the end of the preceding month. The report filed
should also indicate the status of the security being used to guarantee
repayment of any potential refund. (Richards) (Final Agency Action)
Staff Analysis:
This recommendation proposes an increase in
wastewater rates. A timely protest might delay what may be a justified rate
increase resulting in an unrecoverable loss of revenue to the utility.
Therefore, pursuant to Section 367.0814(7), F.S., in the event of a protest
filed by a party other than the utility, staff recommends that the recommended
rates be approved as temporary rates. NPUC 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 sheet, pursuant to Rule 25-30.475(1), F.A.C. In
addition, the temporary rates should not be implemented until staff has
approved the proposed notice, and the notice has been received by the
customers. The recommended rates collected by the utility should be subject to
the refund provisions discussed below.
NPUC should be authorized to collect the
temporary rates upon staff's approval of an appropriate security for the
potential refund and the proposed customer notice. Security should be in the
form of a bond or letter of credit in the amount of $17,558. Alternatively, the utility could establish an escrow
agreement with an independent financial institution.
If the utility chooses a bond as security, the
bond should contain wording to the effect that it will be terminated only under
the following conditions:
1) The Commission approves the rate increase;
or,
2) If the Commission denies the increase, the
utility shall refund the amount collected that is attributable to the increase.
If the utility chooses a letter of credit as a
security, it should contain the following conditions:
1) The letter of credit is irrevocable for the
period it is in effect, and,
2) The letter of credit will be in effect until
a final Commission order is rendered, either approving or denying the rate
increase.
If security is provided through an escrow
agreement, the following conditions should be part of the agreement:
1) The
Commission Clerk, or his or her designee, must be a signatory to the escrow
agreement; and,
2) No
monies in the escrow account may be withdrawn by the utility without the prior
written authorization of the Commission Clerk, or his or her designee;
3) The
escrow account shall be an interest bearing account;
4) If a
refund to the customers is required, all interest earned by the escrow account
shall be distributed to the customers;
5) If a
refund to the customers is not required, the interest earned by the escrow
account shall revert to the utility;
6) All
information on the escrow account shall be available from the holder of the
escrow account to a Commission representative at all times;
7) The
amount of revenue subject to refund shall be deposited in the escrow account
within seven days of receipt;
8) This
escrow account is established by the direction of the Florida Public Service
Commission for the purpose(s) set forth in its order requiring such account.
Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972),
escrow accounts are not subject to garnishments;
9) The
account must specify by whom and on whose behalf such monies were paid.
In no instance should the maintenance and
administrative costs associated with the refund be borne by the customers.
These costs are the responsibility of, and should be borne by, the utility.
Irrespective of the form of security chosen by the utility, an account of all
monies received as a result of the rate increase should be maintained by the
utility. If a refund is ultimately required, it should be paid with interest
calculated pursuant to Rule 25-30.360(4), F.A.C.
Should the recommended rates be approved by the
Commission on a temporary basis, NPUC should maintain a record of the amount of
the security, and the amount of revenues that are subject to refund. In
addition, after the increased rates are in effect, pursuant to Rule
25-30.360(6), F.A.C., the utility should file reports with the Commission's
Office of Commission Clerk no later than the 20th of each month indicating the
monthly and total amount of money subject to refund at the end of the preceding
month. The report filed should also indicate the status of the security being
used to guarantee repayment of any potential refund.
Issue 13:
Should
North Peninsula Utilities Corporation be required to notify the Commission
within 90 days of an effective order finalizing this docket, that it has
adjusted its books for all the applicable National Association of Regulatory
Utility Commissioners (NARUC) Uniform System of Accounts (USOA) associated with
the Commission approved adjustments?
Recommendation:
Yes.
The Utility should be required to notify the Commission, in writing, that it
has adjusted its books in accordance with the Commission’s decision. NPUC
should submit a letter within 90 days of the final order in this docket,
confirming that the adjustments to all the applicable National Association of
Regulatory Utility Commissioners (NARUC) Uniform System of Accounts (USOA) primary
accounts, as shown on Schedule No. 5, have been made to the Utility’s books and
records. In the event the Utility needs additional time to complete the
adjustments, notice should be provided not less than seven days prior to the
deadline. Upon providing good cause, staff should be given administrative
authority to grant an extension of up to 60 days. (Richards) (Final
Agency Action)
Staff Analysis:
The Utility should be required to notify the
Commission, in writing that it has adjusted its books in accordance with the
Commission’s decision. NPUC should submit a letter within 90 days of the final
order in this docket, confirming that the adjustments to all the applicable
NARUC USOA accounts have been made to the Utility’s books and records. In the
event the Utility needs additional time to complete the adjustments, notice
should be provided not less than seven days prior to deadline. Upon providing
good cause, staff should be given administrative authority to grant an
extension of up to 60 days.
Issue
14:
Should
this docket be closed?
Recommendation:
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 should be issued. The docket should remain open for staff’s
verification that the revised tariff sheets and customer notice have been filed
by the Utility and approved by staff. Once these actions are complete, this
docket should 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 should be
issued. The docket should remain open for staff’s verification that the revised
tariff sheets and customer notice have been filed by the Utility and approved
by staff.
Once these actions are complete, this docket should be
closed administratively.
