Discussion
of Issues
Issue 1:
Is the quality of service provided by West Lakeland
Wastewater, LLC satisfactory?
Recommendation:
Yes. West Lakeland has been responsive to customer
complaints and is currently in compliance with the DEP; therefore, staff
recommends that the quality of service be considered satisfactory. (Wooten)
Staff Analysis:
Pursuant to Section 367.081(2)(a)1, F.S., and Rule
25-30.433(1), 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 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 September
1, 2013, through October 31, 2018. Staff performed a supplemental review of
complaints filed in CATS within the period following the May 22, 2019 customer
meeting. Table 1-1 below shows the number of complaints categorized by
complaint type and source.
Table 1-1
Number of Complaints by Type
and Source
|
Complaint Type
|
CATS Record
|
DEP Records
|
Utility Records
|
Total
|
|
Billing Issues
|
7
|
0
|
8
|
15
|
|
Odor Issues
|
3
|
2
|
2
|
7
|
|
Equipment/Facility
Condition
|
1
|
0
|
1
|
2
|
|
Total*
|
11
|
2
|
11
|
24
|
*A
single customer complaint may be counted multiple times if it fits into
multiple categories.
The CATS recorded 11 complaints during the five years
prior to the test year, the most recent from 2015. Seven complaints were
related to improper billing and four were related to quality of service, all of
which were resolved in a timely manner. The DEP received two complaints, in
2015 and 2016, regarding odor from the wastewater treatment plant (WWTP). The utility
addressed the 2015 odor complaint to the DEP’s satisfaction and the complaint
was closed. The
second odor complaint was substantiated after a DEP inspection and will be more
thoroughly discussed in Issue 2. The utility received 11 complaints during the
past five years, one related to equipment condition concerns, two related to
odor issues and eight related to billing credit inquiries, which were resolved
by the utility.
A customer meeting was held on May 22, 2019. Approximately
20 customers were in attendance and seven customers provided oral comments. At
the meeting, a majority of customers cited facility odor issues, and a few
customers were concerned with the condition of the facility. When West Lakeland
was asked what would be done to address the concerns from the customer meeting,
the utility denied a current odor issue, but proposed an odor control program.
Staff notes that as the utility is currently in compliance with DEP, the
proposed odor control program should only be implemented, if necessary, for
future odor complaints.
Conclusion
West Lakeland has been responsive to customer complaints
and is currently in compliance with the DEP, therefore staff recommends that the
quality of service be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of West
Lakeland Wastewater, LLC wastewater system in compliance with DEP regulations?
Recommendation:
Yes. The West Lakeland wastewater system is
currently in compliance with the DEP. (Wooten)
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
West Lakeland’s wastewater system is a Type III contact
stabilization domestic wastewater treatment facility with a permitted plant
capacity of 70,000 gallons per day (gpd) based on a Three-Month Rolling Average
Daily Flow (3MRADF). This facility is operated to provide secondary treatment
with basic disinfection. On July 17, 2019, DEP conducted a compliance
evaluation inspection (CEI) designed to verify the utility’s compliance with
applicable requirements and schedules for chemical and biological
self-monitoring programs. During the inspection, the DEP noted minor deficiencies
with effluent quality, effluent disposal and the Sanitary Sewer Overflow
Survey. All deficiencies were corrected, and the DEP states that as of August
26, 2019, the utility is in compliance.
As discussed in Issue 1, the DEP received two odor
complaints. On March 1, 2016, the DEP noted an odor complaint regarding the
wastewater facility that when investigated, was deemed accurate by the
inspector. This odor complaint and confirmation was referenced during the DEP’s
March 4, 2016 CEI. Because of the odor emanating from the facility, the DEP
determined that the utility was in violation of Rule 62-600.400(2)(a), F.A.C.,
and therefore out of compliance. There was no odor detected during the DEP’s
most recent inspection of the facility, conducted on July 19, 2019.
Conclusion
The West Lakeland wastewater system is currently in
compliance with the DEP.
Issue 3:
What are the used and useful percentages (U&U)
of West Lakeland Wastewater, LLC WWTP and collection systems?
Recommendation:
West Lakeland’s WWTP and wastewater collection
system should both be considered 100 percent U&U. Also, staff recommends
that a 20.7 percent adjustment to purchased power and chemicals should be made
for excessive infiltration and inflow (I&I). (Wooten)
Staff Analysis:
The West Lakeland wastewater system was constructed
in 1972. The utility’s last SARC was in 2012. The
collection system is composed of polyvinyl chloride (PVC) pipes and there are three
lift stations in the service area. West Lakeland’s WWTP is permitted by the DEP
as a 70,000 gpd facility. According to the utility, its wastewater collection
system is comprised of 1,835 feet of 4-inch PVC force mains and 13,376 feet of 6-inch
PVC collecting mains. There are 12 manholes present throughout the service
area. Liquid chlorine disinfection is applied prior to wastewater effluent
flowing into the percolation ponds and spray field.
Used and Useful
Wastewater Treatment Plant
In the utility’s last SARC in 2012, the WWTP was found to
be 100 percent U&U. There has been no change in service area or plant
additions in the past five years and there are no plans for expansion; therefore,
consistent with the Commission’s decision in 2012, the WWTP should be
considered 100 percent U&U.
Wastewater Collection
During the previous rate case, the wastewater collection
system was found to be 100 percent U&U. The service area has had no growth
in the past five years or change in capacity; therefore, consistent with the Commission’s
decision in 2012, the collection system should be considered 100 percent
U&U.
Infiltration and Inflow
Rule 25-30.432, F.A.C., provides that in determining the
amount of U&U plant, the Commission will consider I&I. 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. There was no adjustment made for I&I in the utility’s previous
rate case.
Using the pipe lengths of the utility’s collection system,
the infiltration allowance is calculated to be 3,027,703 gallons per year. Ten
percent of the total gallons sold to customers is allowed for inflow, which totals
2,106,070 gallons. The sum of these amounts is the total allowable I&I which is
5,133,773 gallons per year. The amount calculated for estimated return is 11,563,096 gallons
per year. In order to find the total amount of wastewater allowed, the total allowable
I&I and the estimated return are summed, yielding 16,696,869 gallons per
year. Finally, this total is compared to the total wastewater actually treated
during the test year, which is 21,060,700 gallons. The actual amount exceeds
the allowable amount with an excess I&I of 4,363,831 gallons and therefore
there is 20.7 percent excessive I&I. Therefore staff recommends that a 20.7
percent adjustment to purchased power and chemicals should be made for
excessive I&I.
Conclusion
West Lakeland’s WWTP and wastewater collection system
should both be considered 100 percent U&U. Also, staff recommends that a
20.7 percent adjustment to purchased power and chemicals should be made for
excessive infiltration and inflow.
Issue 4:
What is the appropriate average test year rate base
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate average test year rate base for West
Lakeland for ratemaking purposes is zero. (D. Andrews, Wooten)
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. 20120270-SU.
Staff selected the test year ended October 31, 2018, for the instant rate case.
A summary of each component and the recommended adjustments follows.
Utility Plant in Service (UPIS)
The utility recorded $274,694
for UPIS. Based on the staff audit and supporting documentation, staff
recommends several adjustments to UPIS resulting in a net increase of $492. In
addition, staff decreased UPIS by $6,470 to include an averaging adjustment. The utility also requested several pro forma plant
projects, as discussed by staff below.
Table 4-1
Pro Forma
Plant Items
|
Project
|
Acct. No.
|
Description
|
Amount
|
|
Rebuild Electrical
and Blower Housing Building
|
354
|
Self-build,
Materials List quote
|
$1,176
|
|
|
|
Retirement
|
($882)
|
|
Shut Off Valves (3
inch and 4 inch)
|
363
|
3 inch and 4 inch
shut off valves (22)
|
$672
|
|
Replace Pump #1
|
371
|
Replace Pump #1 at
lift station
|
$5,900
|
|
|
|
Retirement
|
($4,425)
|
|
Replace Pump #2
|
371
|
Replace Pump #2 at
lift station
|
$5,900
|
|
|
|
Retirement
|
($4,425)
|
|
Replace Effluent
Lift Station existing Electrical Panel
|
380
|
Install new DEP
rated electrical panel
|
$5,591
|
|
|
|
Retirement
|
($4,194)
|
|
New Computer
|
390
|
Purchased additional
Computer
|
$65
|
|
|
|
Retirement
|
($0)
|
|
Utility Truck
|
391
|
Replacement 2018
Ford F-250 for totaled 2003 Ford Ranger
|
$3,124
|
|
|
|
Retirement
|
($250)
|
Source:
Responses to staff data requests
The utility’s requested pro forma includes rebuilding the
electrical and blower housing building, that is in a state of disrepair and
must be rebuilt. The utility received two verbal estimates for replacing the
electrical and blower housing building, both in excess of $10,000. In order to
reduce utility costs, the utility has opted to self-build the electrical and
blower housing building using utility staff. The materials are estimated to
cost $1,176. Staff recommends that these pro forma project costs are
appropriate.
According to the utility, untimely payments by some
ratepayers is a recurring problem. When a late payment occurs and after
multiple warnings, the utility would cap the wastewater lines of the customer
to discontinue service. Capping a customer’s wastewater line involves the
utility renting equipment to access the wastewater line and upon receiving a
customer’s payment would require an equipment rental to access the line again
and restore service. In an effort to efficiently address these concerns, the
utility has begun installing shut off valves on customers’ wastewater lines to
avoid the interruption of service revenues and the continual cost of capping
and uncapping. In response to staff’s data request, the utility stated that 4
shut off valves were installed between 2017 and 2018, with the intention to
install the remaining 311 by the end of 2019. In a later response, the utility
stated that approximately 18 shut off valves had been installed as of June 30,
2019, for a total of 22. The utility further stated no additional valves were
planned to be installed between July 1, 2019, and September 1, 2019. The
utility indicated that the shut off valve installation program would be a
continuous process throughout 2019, but has shown little action towards
completing installation of the remaining 293 shut off valves. Staff recommends that
the costs for the currently installed 22 shut off valves are appropriate.
The utility recently replaced a malfunctioned pump, that
required immediate replacement; and therefore, there were no bids. In an effort
to accommodate future replacement needs and redundancy, a second similar pump
was purchased simultaneously. The utility installed the pumps which required a
new effluent lift station electrical panel also be installed. The utility received
two quotes for the electrical panel, constructed with either stainless steel or
fiberglass, and chose the less expensive fiberglass material for the
replacement. Staff recommends that these pro forma project costs are
appropriate.
The utility is requesting an additional computer for
office use. The utility provided an invoice to install. The total purchase
price of the computer was $650, and it will be allocated across all of the
sister utilities. Staff recommends that these pro forma project costs are
appropriate.
The utility is requesting a replacement truck in this rate
case, as the previous Commission-approved truck was totaled in an accident.[8] The utility
received three quotes and chose the lowest of the 3 quotes. The total purchase
price of the replacement truck is $37,436, and it will be allocated across all
of the sister utilities. The utility received an insurance payout of $6,204 to
offset the cost of the new truck. Staff netted the insurance payout and cost of
the new vehicle before allocating $3,124 ($37,436 - $6,204 * 0.10) to West
Lakeland.
West
Lakeland requested four additional pro forma projects: a replacement lawnmower;
a wastewater plant cleaning; a new van; and, a program to address the excessive
infiltration and inflow. The utility withdrew its request for the wastewater
plant cleaning project, and failed to provide a response to staff’s data request
seeking information regarding the additional projects. Without sufficient
information, staff is unable to determine the appropriateness of the three additional
pro forma projects; therefore, these projects are not included within staff’s
pro forma recommendation.
Table
4-2
Pro Forma Plant
|
Acct.
|
Addition
|
Retirement
|
Dep Exp.
|
Net Plant
|
Net A/D Adj.
|
|
354
|
$1,176
|
($882)
|
$11
|
$294
|
($871)
|
|
363
|
672
|
0
|
19
|
672
|
19
|
|
371
|
5,900
|
(4,425)
|
99
|
1,475
|
(898)
|
|
371
|
5,900
|
(4,425)
|
99
|
1,475
|
(898)
|
|
380
|
5,591
|
(4,194)
|
93
|
1,397
|
(4,100)
|
|
390
|
65
|
0
|
4
|
65
|
4
|
|
391
|
3,124
|
(250)
|
479
|
2,874
|
229
|
|
|
$22,428
|
($14,176)
|
$804
|
$8,252
|
($6,515)
|
Source: Utility response to
staff data requests
Staff made an adjustment increasing UPIS by $22,428 to reflect pro
forma plant additions which were offset by a decrease of $14,176 to reflect pro
forma plant retirements. Staff recommends an average UPIS balance of $276,968 ($274,694
+ $492 - $6,470 + $22,428 - $14,176).
Land & Land Rights
The utility recorded a test year land balance of $356.
Based on staff’s review, no adjustments are necessary. Therefore, staff
recommends that the land and land rights balance remain $356.
Accumulated Depreciation
West Lakeland recorded a test year accumulated
depreciation balance of $249,723. 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. As a result, staff increased accumulated depreciation by $943.
Staff also made an averaging adjustment to accumulated depreciation that
resulted in a decrease of $1,538. Further, staff made corresponding adjustments
to accumulated depreciation based on the pro forma plant additions and
retirements resulting in an additional decrease of $6,515. Staff’s adjustments
result in a net decrease to accumulated depreciation of $7,110 ($6,515 + $1,538
- $943). Staff recommends an accumulated depreciation balance of $242,613
($249,723 - $7,110).
Contributions In Aid of Construction (CIAC)
The utility recorded a CIAC balance of $221,480. Based on
staff’s review, no adjustment is necessary. Therefore, staff recommends that
the appropriate balance is $221,480.
Accumulated Amortization of CIAC
The utility recorded a test year accumulated amortization
of CIAC balance of $132,041. Staff reduced accumulated amortization of CIAC by
$667 to make an adjustment based on composite depreciation rates. Staff also
made an averaging adjustment to accumulated amortization of CIAC that resulted
in a decrease of $1,228. As such, staff recommends an accumulated amortization
of CIAC balance of $130,146 ($132,041 - $667 - $1,228).
Working Capital Allowance
Working capital is defined as the short-term investor-supplied
funds that are necessary to meet operating expenses. Consistent with Rule
25-30.433(3), F.A.C., staff used the one-eighth of the operation and
maintenance (O&M) expense formula approach for calculating the working
capital allowance. Section 367.081(9), F.S., prohibits a utility from earning a
return on the unamortized balance of rate case expense. As such, staff has
removed the rate case expense balance of $390 for this calculation resulting in
an adjusted O&M expense balance of $114,295 ($114,685 - $390). Applying
this formula approach to the adjusted O&M expense balance, staff recommends
a working capital allowance of $14,287 ($114,295 / 8).
Rate Base Summary
Applying all of the above adjustments results in a
negative rate base of $42,335. In
accordance with Commission practice, staff has adjusted the rate base to zero
for ratemaking purposes. Based
on the forgoing, staff recommends that the appropriate test year average rate
base is zero. 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 West Lakeland Wastewater, LLC?
Recommendation:
The appropriate return on equity (ROE) is 10.55
percent with a range of 9.55 percent to 11.55 percent. (D. Andrews)
Staff Analysis:
West Lakeland has negative equity and negative rate
base. As discussed in Issue 8, staff is recommending the operating ratio
methodology be used in this case.
Although the traditional rate of return does not apply in this case due
to the negative rate base, staff recommends that an ROE still be established
for this utility. The appropriate ROE for the utility is 10.55 percent based
upon the Commission-approved leverage formula currently in effect.[10] Staff
recommends an ROE of 10.55 percent, with a range of 9.55 percent to 11.55
percent.
Issue 6:
What are the appropriate test year revenues for the
wastewater system of West Lakeland Wastewater, LLC?
Recommendation:
The appropriate test year revenues for West Lakeland
are $136,394. (Bethea)
Staff Analysis:
West Lakeland recorded total test year revenues of $131,916,
which included $126,092 of service revenues and $5,823 of miscellaneous
revenues. Based on staff’s review of the utility’s billing determinants and the
rates that were in effect during the test year, staff determined service
revenues should be increased by $3,924 to reflect annualized test year service
revenues of $130,016.[11] In
addition, staff increased miscellaneous revenues by $555 to reflect revenues
collected as a result of miscellaneous services occurrences during the test
year. Therefore, staff increased miscellaneous revenues by $555 to reflect
total miscellaneous revenues of $6,378 ($5,823 + $555). Based on the above, the
appropriate test year revenues for West Lakeland are $136,394 ($130,016 +
$6,378).
Issue 7:
What is the appropriate amount of operating expense
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate amount of operating expense for West
Lakeland is $125,951. (D. Andrews, Wooten)
Staff Analysis:
West Lakeland recorded operating expense of $113,723
for the test year ended October 31, 2018. The test year O&M expenses have
been reviewed, including invoices and other supporting documentation. Staff has
made the following adjustments to the utility's operating expenses as discussed
below.
Operation & Maintenance Expense
Salaries and Wages – Employees (701)
Florida Utility Services 1 (FUS1) is a service company
that owns and operates Commission regulated utilities, including West Lakeland.
The current staffing level and salaries for FUS1 employees were last evaluated
by the Commission in Order No. PSC-2018-0439-PAA-WU. As
of September 30, 2018, FUS1 now manages 14 utilities with a total of 3,114
customers. West Lakeland recorded salaries and wages – employees expense of
$21,934. Staff increased this expense by $623 to reflect the appropriate
allocations for current employees’ annualized salaries. West Lakeland’s
allocation is 10 percent unless otherwise noted.
In addition, the utility requested the allocation of two
new maintenance technicians to West Lakeland. A sister company made a similar
request for two new Maintenance Technicians in Docket No. 20170230-WU; however,
the Commission determined that the two Maintenance Technicians should not be allocated
to Orange Land Utilities, LLC as the utility utilized contractors for the
system’s operations. Furthermore, staff cited the ability of the President and
Operations Supervisor to provide sufficient additional field support. In the
present case, West Lakeland indicated that the services provided by contractors
are limited to water and wastewater operations and governmental reporting
requirements. Additionally, the President has increased administrative work duties
due to the increase in customers, utility systems and employees. Similarly, the
Operations Supervisor has increased supervisory responsibilities that were once
performed by the President.
FUS1 has changed operations from employees being assigned
to a specific utility system to the Operations Supervisor assigning employees
based upon work load for each of the 14 utility systems. Maintenance
Technicians will be working on all of FUS1’s systems, meaning all maintenance
and repairs of FUS1 utility systems will be performed by FUS1 employees and
other contract vendors as needed. Staff believes that the change in FUS1’s
operations and increased duties of both the President and Operations Supervisor
necessitates additional employees to provide service to the utility systems.
Staff further believes that the two additional Maintenance Technicians are
needed and should be allocated to all of the FUS1’s systems, including West
Lakeland. Based on the requested salary of $37,900 and the ten-percent
allocation for West Lakeland, staff increased salary and wages – employees
expense by $7,580 ($37,900 x 2 x 0.10) As such, staff recommends salaries and
wages – employees expense of $30,137 ($21,934 + $623 + $7,580).
Salaries and Wages – Officers (703)
West Lakeland recorded salaries and wages – officers
expense of $7,670. In Order No. PSC-2018-0439-PAA-WU, the President was
approved a salary of $80,000.
As such, staff annualized the approved salary which results in a salaries and
wages – officers expense of $8,000 ($80,000 x 0.10). West Lakeland’s allocation
is 10 percent unless otherwise noted. Therefore, staff recommends an increase
of $330 ($8,000 - $7,670).
Pensions and Benefits (704)
West Lakeland recorded pensions and benefits expense of
$1,034. In its response to staff’s second data request, the utility indicated
that it incurred pensions and benefits expense in the amount of $500 per month,
allocated across all systems. The utility also indicated that the requested two
new maintenance technicians would receive benefit expense at $500 per month per
person. These expenses would result in an annual pensions and benefits expense
of $1,800 ($500 x 3 x 12 x 0.10). Therefore, staff recommends an increase of
$766 ($1,800 - $1,034).
Sludge Removal (711)
West Lakeland recorded sludge removal expense of $8,732.
Staff decreased sludge removal expense by $92 to remove the payment of late
fees. Therefore, staff recommends sludge removal expense of $8,640 ($8,732 -
$92).
Purchased Power (715)
The utility recorded purchased power expense of $10,930.
Staff increased this account by $1,108 to reflect the proper test year period
and to account for provided bills not yet booked during the test year. As
discussed in Issue 2, staff made an adjustment to decrease purchased power and
chemical expenses by 20.7 percent for excessive I&I. This results in a
decrease of $2,492 to purchased power expense. As such, staff recommends purchased
power expense of $9,546 ($10,930 + $1,108 - $2,492).
Fuel for Power Production Expense (716)
West Lakeland recorded fuel for power production expense
of $105 for the test year. Staff decreased this expense by $13 to remove power
production purchases that were not substantiated with invoices. As such, staff
recommends a fuel for power production expense of $92 ($105 - $13).
Chemicals Expense (718)
The utility recorded chemicals expense of $1,721. Staff
decreased chemicals expense by $843 to reallocate professional testing services
provided by a vendor to contractual services – other expense. As discussed
above and in Issue 2, staff made an adjustment to decrease purchased power and
chemical expense by 20.7 percent for excessive I&I. This results in a
decrease of $182 to chemicals expense. As such, staff recommends chemicals
expense of $696 ($1,721 - $843 - $182).
Materials and Supplies Expense (720)
West Lakeland recorded materials and supplies expense of $5,025.
Staff reduced materials and supplies expense by $153 to reflect actual invoices
and proper allocations for West Lakeland. Therefore, staff recommends materials
and supplies expense of $4,872 ($5,025 - $153).
Contractual Services – Professional (731)
The utility recorded contractual services - professional expense
of $504. In a letter dated September 3, 2019, the utility requested pro forma
contractual services expense for accounting services. Through correspondence
with the utility, staff determined that the contract accounting services would
be used primarily for work related to filing the Owner’s personal tax returns.
The contract accounting services would also be used for reviewing annual
reports. However, the utility already has contractual services included in the
test year for preparing annual reports. As such, staff recommends disallowing this
pro forma expense. Therefore, staff recommends contractual services –
professional expense of $504.
Contractual Services – Other (736)
The utility recorded contractual services - other expense
of $25,007. Staff increased contractual services – other expense by $912 to
reflect the provided invoices and to reallocate the invoices mistakenly charged
to chemicals expense. In its response to staff’s first data request, the utility
indicated that it had made an agreement with the water provider (City of
Lakeland) to receive meter readings each month. The utility had contractual
services expense of $3,693 during the test year to manually read all meters.
Staff reduced contractual services – other expense by $3,693 as this expense is
no longer incurred. As such, staff recommends contractual services – other
expense of $22,226 ($25,007 + $912 - $3,693).
Rent Expense (740)
The utility recorded rent expense of $2,087. In response
to staff’s third data request, the utility provided a lease for a new office
beginning on February 1, 2019. The new office lease indicates $2,700 a month
for rent. After allocation, this results in an annual rent expense of $3,240
($2,700 x 12 x 0.10) for West Lakeland. Therefore, staff recommends an increase
of $1,153 ($3,240 - $2,087).
Transportation Expense (750)
The utility recorded transportation expense of $3,855.
Based on staff’s review, no adjustment is necessary. Therefore, staff
recommends transportation expense of $3,855.
Insurance Expense (755)
West Lakeland recorded insurance expense of $5,153 for the
test year. In a letter dated June 24, 2019, the utility requested pro forma
expense to recover an increase in workman’s comp expense. The new workman’s
comp policy that the utility provided indicated an annual expense of $8,149.
West Lakeland’s allocation of this expense is $815 ($8,149 x 0.10). The utility’s
letter also indicated that there was $644 in the test year for workman’s comp.
Staff recommends an increase to insurance expense of $171 ($815 – $644) to make
up the difference. Therefore, staff recommends that the appropriate insurance
expense is $5,324 ($5,153 + $171).
Regulatory Commission Expense (765)
West Lakeland recorded regulatory
commission expense of $1,500 for the filing fee for the current docket. The
filing fee for the current docket is only $1,000. Therefore, West Lakeland has
applied for a refund of $500.
Staff has calculated a total of $1,558 in regulatory commission expense for the
current docket. This amount includes the $1,000 filing fee and $558 in noticing
costs for the instant case. On February 21, 2019, West Lakeland requested the
recovery of $190 of rate case expense for attorney fees associated with the
review of staff’s first data request. According to Section 367.0814(3), F.S.,
the Commission may not award rate case expense for the recovery of attorney
fees before the initial staff report is made available to the customers.
Therefore, the utility’s request for the recovery of $190 in legal fees should
be denied. Pursuant to Section 367.081(8), F.S., the recommended total rate
case expense of $1,558 should be amortized over four years, as the utility did
not request a different amortization period be used. This represents an annual
expense of $390 ($1,558 / 4). As such, staff recommends regulatory commission
expense of $390, which results in a decrease of $1,110 ($1,500 - $390).
Bad Debt Expense (770)
The utility recorded bad debt expense of $1,531. Based on
the utility’s annual reports, bad debt expense decreased significantly after
the test year. The utility reported bad debt expense of $1,485 in 2016, $1,531
in 2017, and $159 in 2018. Staff recommends using a three year average to
adjust for the decrease in bad debt expense. This results in bad debt expense
of $1,058 ($1,485 + $1,531 + $159 / 3), which is a decrease of $473. Therefore,
staff recommends bad debt expense of $1,058.
Miscellaneous Expense (775)
The utility recorded miscellaneous expense of $7,633.
Staff decreased this account by $462 to properly reflect the amount from provided
invoices and the appropriate allocation to West Lakeland. In addition, West
Lakeland has requested the recovery of deferred legal fees approved in Order
No. PSC-16-0030-PAA-SU. The utility’s initial request was based on legal
invoices totaling $6,250, with the last invoice dated July 31, 2015. Rule
25-30.433, F.A.C, states that nonrecurring expenses shall be amortized over a
five-year period unless a shorter or longer period can be justified. West
Lakeland requested an amortization period of three years because of the length
of time that has passed since the fees were incurred. Upon discovery of
additional invoices, the legal fees totaled $29,017 with the last invoice dated
November 30, 2017. Staff recommends a 4-year amortization period because the legal
expenses were incurred over the course of four years. Additionally, these legal
expenses are analogous to rate case expense, which are amortized over four
years unless a longer or shorter period can be justified. Therefore, staff
increased miscellaneous expense by $7,254 ($29,017 / 4). In the utility’s
response to staff’s third data request, the utility requested pro forma expense
to recover repairs to a computer. The invoice provided indicated that $128 was
expensed for computer consulting. After allocation, West Lakeland’s
miscellaneous expense was increased by $13 ($128 x 0.10). Additionally, in
reviewing pro forma plant for installation of shut off valves, staff determined
that $134 was included in expenses during the test year for West Lakeland. Therefore,
staff reduced miscellaneous expense by $134. As such, staff recommends
miscellaneous expense of $14,304 ($7,633 - $462 + $7,254 + $13 - $134).
Operation and Maintenance Expense Summary
Based on the above adjustments, staff recommends that O&M
expense should be increased by $10,264, resulting in total O&M expense of $114,685.
Staff’s recommended adjustments to O&M expense are shown on Schedule No.
3-C.
Depreciation Expense (Net of Amortization of
CIAC)
West
Lakeland recorded depreciation expense of $4,484 during the test year. Staff
recalculated depreciation expense for the test year and as such, decreased the
expense by $1,408. Staff further calculated depreciation expense for the pro
forma plant additions and retirements that the utility requested. These additions
result in an increase of $804. This
results in a depreciation expense of $3,880 ($4,484 - $1,408 + $804).
In
addition, West Lakeland recorded amortization expense of $3,672. Staff
decreased amortization of CIAC by $1,187 to reflect appropriate amortization
expense based on composite rates. This results in an amortization expense of
$2,485 ($3,672 - $1,187). Therefore, staff recommends net depreciation expense
of $1,395 ($3,880 - $2,485).
Taxes Other Than Income (TOTI)
West Lakeland recorded a TOTI balance of $8,490 during the
test year. Staff increased TOTI by $73
to reflect the increase to annualize the director’s salary, and by $580 to
reflect the increase to salaries and wages expense for the new technicians.
Staff increased the Regulatory Assessment Fees (RAFs) by $273 to reflect the
adjusted test year revenues. Staff decreased property tax expense by $65 to
reflect the appropriate amount of property tax. In addition, staff increased
TOTI by $58 to reflect the appropriate business tax receipts. Staff also
increased TOTI by $73 as a corresponding adjustment to the annualized salary
expense. Staff increased TOTI by $580 to correspond to the addition of two
maintenance technicians. Staff increased TOTI by $312 corresponding to property
tax for pro forma projects. This results in a net increase of $1,231 ($273 -
$65 + $58 + $73 + $580 + $312).
In addition, as discussed in Issue 9, revenues have been
increased by $3,318 to reflect the change in revenue required to cover expenses
and allow the recommended operating margin. As a result, TOTI should be
increased by $149 to reflect RAFs of 4.5 percent on the change in revenues.
Staff’s adjustments result in a net increase of $1,380 ($1,231 + $149).
Therefore, staff recommends TOTI of $9,870 ($8,490 + $1,380).
Operating Expenses Summary
The application of staff=s
recommended adjustments to West Lakeland’s test year operating expenses results
in operating expenses of $125,951. Operating expenses are shown on Schedule No.
3-A. The related adjustments are shown on Schedule Nos. 3-B and 3-C.
Issue 8:
Should the Commission utilize the operating ratio
methodology as an alternative method of calculating the wastewater revenue
requirement for West Lakeland Wastewater, LLC and, if so, what is the
appropriate margin?
Recommendation:
Yes. The Commission should utilize the operating
ratio methodology for calculating the revenue requirement for West Lakeland.
The margin should be 12 percent of O&M expense. (D. Andrews)
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 that 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 and 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 on West Lakeland’s operating expenses plus a margin of 12 percent. 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 zero. Furthermore, the application of the
operating ratio methodology does not change the utility’s qualification for a
staff assisted rate case. As such, West Lakeland 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 expense for determining the revenue
requirement.
Issue 9:
What is the appropriate revenue requirement for West
Lakeland Wastewater, LLC?
Recommendation:
The appropriate revenue requirement is $139,713
resulting in an annual increase of $3,318 (2.43 percent). (D. Andrews)
Staff Analysis:
West Lakeland should be allowed an annual increase
of $3,318 (2.43 percent). The calculations are shown in Table 9-1:
Table 9-1
Revenue Requirement
|
Adjusted O&M
|
|
$114,685
|
|
Operating Margin (%)
|
|
x 12.00%
|
|
Operating Margin ($15,000 Cap)
|
|
$13,762
|
|
Adjusted O&M Expense
|
|
114,685
|
|
Depreciation Expense (Net)
|
|
1,395
|
|
Taxes Other Than Income
|
|
9,870
|
|
Income Tax
|
|
0
|
|
Revenue Requirement
|
|
$139,713
|
|
Less Adjusted Test Year Revenues
|
|
136,395
|
|
Annual Increase
|
|
$3,318
|
|
Percent Increase
|
|
2.43%
|
Issue 10:
What are the appropriate rate structure and rates
for West Lakeland Wastewater, LLC system?
Recommendation:
Staff recommends that the rate increase of 2.55 percent
for wastewater should be applied as an across-the-board increase monthly to
service rates. The rates, as shown on Schedule No. 4, 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 staff has
approved the proposed customer notice and the notice has been received by the
customers. The utility should provide proof of the date that notice was given
within 10 days of the date of the notice. (Bethea)
Staff Analysis:
The utility provides
service to 315 residential customers and 1 general service customer. Currently,
the residential wastewater rate structure consists of a uniform BFC for all
meter sizes and a gallonage charge with an 6,000 gallon cap per month. The
general service rate structure consists of a BFC by meter size and a gallonage
charge that is 1.2 times higher than the residential gallonage charge. Due to the
relatively low revenue requirement increase (2.55 percent) staff recommends a
continuation of the existing rate structure and the percentage increase be
applied as an across-the-board increase to existing service rates. To determine
the appropriate percentage increase to apply to the service rates,
miscellaneous revenues should be removed from the test year revenues. The
calculation is as follows:
Table 10-1
Service Rate
Increase
|
Wastewater
|
|
Total Test Year Revenues
|
$136,395
|
|
Less: Miscellaneous Revenues
|
$6,378
|
|
Test Year Revenues from Service
Rates
|
$130,016
|
|
Revenues Increase
|
$3,318
|
|
% Service Rate Increase (Line4 /
Line 3)
|
2.55%
|
Based on the above, staff recommends that the rate
increase of 2.55 percent for wastewater should be applied as an across-the-board
increase to monthly service rates. The rates, as shown on Schedule No. 4,
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 staff has approved the proposed customer notice and the
notice has been received by the customers. The utility should provide proof of
the date that 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 four years after the published effective date to reflect the removal
of the amortized rate case expense?
Recommendation:
The 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. West Lakeland 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. (Bethea,
D. Andrews)
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. The total reduction is $408.
The 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. West Lakeland 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:
What are the appropriate initial customer deposits
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate initial customer deposit is $78 for all residential meter sizes. The initial
customer deposits for all general service meter sizes should be two times the
average estimated monthly bill. The approved initial customer deposits should be effective for service
rendered or connections made on or after the stamped approval date on the
tariff sheets pursuant to Rule 25-30.475, F.A.C. The utility should be required
to collect the approved initial customer deposits until authorized to change
them by the Commission in a subsequent proceeding. (Bethea)
Staff Analysis:
Rule 25-30.311, F.A.C., provides the criteria for
collecting, administering, and refunding customer deposits. Customer deposits
are designed to minimize the exposure of bad debt expense for the utility and,
ultimately, the general body of ratepayers. An initial customer deposit ensures
that the cost of providing service is recovered from the cost causer.
Historically, the Commission has set initial customer deposits equal to two
times the average estimated bill.
Currently, the utility has an initial customer deposit of $40. However, this
amount does not cover two months’ average bills based on staff’s recommended
rates. The utility indicated that the average monthly residential water usage
is 3,765 gallons per customer. Therefore, the average residential monthly bill
based on staff’s recommended rates is approximately $39.
Staff
recommends the appropriate initial customer deposit is $78 for all residential
meter sizes. The initial customer deposits for all general service meter sizes
should be two times the average estimated monthly bill. The approved initial
customer deposits should be effective for service rendered or connections made
on or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475, F.A.C. The utility should be required to collect the approved
initial customer deposits until authorized to change them by the Commission in
a subsequent proceeding.
Issue 13:
Should the recommended rates be approved for West
Lakeland Wastewater, LLC 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. West Lakeland 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. (D. Andrews)
Staff Analysis:
This recommendation
proposes an increase in 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. West
Lakeland 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.
West Lakeland 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 $2,242.
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;
2) No
monies in the escrow account may be withdrawn by the utility without the
express approval of the Commission;
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, West Lakeland 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.
