Discussion
of Issues
Issue 1:
Is the quality of service provided by Placid Lakes
satisfactory?
Recommendation:
Yes. Staff recommends the overall quality of service
provided by Placid Lakes be considered satisfactory. (Knoblauch, Doehling)
Staff Analysis:
Pursuant to Rule 25-30.433(1), F.A.C., the Commission, in every rate case, “shall
make a determination of the quality of service provided by the utility by
evaluating the quality of the utility’s product (water) and the utility’s
attempt to address customer satisfaction (water and wastewater).” The rule
states that the most recent chemical analyses, outstanding citations,
violations, and consent orders on file with the Department of Environmental
Protection (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 shall also be considered.
Quality of the Utility’s Product
In the evaluation of Placid Lakes’ product quality, staff
reviewed the utility’s compliance with the DEP’s primary and secondary drinking
water standards. Primary standards protect public health, while secondary
standards regulate contaminants that may impact the taste, odor, and color of
drinking water. As provided in Placid Lakes’ MFRs, the utility entered into a
consent order with the DEP on November 19, 2018, for exceedances of the maximum
contaminant levels (MCLs) for disinfection byproducts. In response to a staff
data request, the utility indicated that a new hydrogen peroxide treatment
system, to address the disinfection byproducts exceedances, was accepted by the
DEP on April 17, 2019, and was placed into service in early May 2019.
Based on the most recent test results dated May 16, 2019,
and following the installation of the new treatment system, the disinfection
byproducts were below the MCLs. The utility appears to have met the conditions
of the consent order, and in correspondence with staff, the DEP stated that
Placid Lakes is no longer on quarterly monitoring for disinfection byproducts. The
most recent chemical analyses results for all other contaminants were dated May
5, 2017, and were in compliance with the DEP’s drinking water standards.
Staff requested complaints from the DEP for the test year
and four years preceding the test year, and received four complaints. One of
the complaints, dated April 20, 2017, cited a concern regarding the level of
phosphate in the water; however, the DEP reported that the results had been
incorrectly interpreted and no further action was recorded. Two of the
complaints, made in 2018 and 2019, stated issues with the taste, odor, and
residue in the water, while the last complaint was made in 2018 and questioned
the safety of the water due to the noticing of disinfection byproducts
exceedances. The utility was issued a construction permit by the DEP for plant
improvements to address the formation of disinfection byproducts, as well as
taste and odor issues from hydrogen sulfide. Additionally, the DEP requested
that the utility increase its distribution system flushing until the
improvements were complete.
In its MFRs, Placid Lakes provided 66 work orders in
response to customer complaints that the utility received directly for the
period of 2014-2018. Out of the 66 work orders, six were related to the color
or smell of the water, and one work order was related to water quality testing.
The utility addressed the color and smell issues with flushing, and indicated
that the water quality test was checked by utility personnel. The remaining 59
work orders were regarding flushing and are discussed below.
The Utility’s Attempt to Address Customer
Satisfaction
Staff reviewed the Commission’s complaint records for the
test year and four years prior, and found four complaints. The complaints were
received in 2014, 2016, 2017, and 2018, and were all related to billing. The
complaints were forwarded to the utility for resolution, and each complaint has
been closed. Correspondence from one customer dated July 22, 2019, was filed in
the docket. The letter stated that Placid Lake’s customers were told that the
water was unsafe to drink the previous year, and no update on the water status
had been provided. Based on DEP records, notices were mailed out on August 15,
2018, advising of the disinfection byproducts exceedances. However, as
discussed above, the utility has implemented a new treatment system in order to
address the issues with disinfection byproducts.
A customer meeting was held on April 30, 2018, where two
customers provided comments. One customer discussed a reoccurring issue
regarding a water leak at their meter, and the second customer voiced concerns
about inadequate flushing. In response, the utility provided that for the
customer who had experienced water leaks, the leak had been repaired by
replacing the valve inside the meter box. In regards to flushing, the utility
stated that it has 160 blow-off locations at the end of lines, and 30 of the
locations are automatically flushed once a month. The remaining 130 locations
are flushed twice a year to every 3 months, or more often if needed.
Following the conclusion of the customer meeting, a third
customer provided a water sample, which was given to the utility and photos of
the sample were placed in the docket. In response to staff’s third data
request, Placid Lakes indicated that an abnormal break had occurred, and there was
a chance of sediment and loose iron pieces traveling into the lines. However,
the utility stated that it had repeatedly flushed the lines and has “passed all
testing at the lab deeming the water safe for human consumption.”
As discussed above, Placid Lakes provided 66 work orders
in response to customer complaints that the utility received for the period of
2014-2018. Out of the 66 work orders, all but 7 identified inadequate flushing
as the area of concern, and these complaints were addressed by the utility with
additional flushing of the lines. As discussed previously, the seven other work
orders were related to the quality of the water.
Conclusion
Placid Lakes has taken action to address the disinfection
byproduct exceedances addressed in a DEP consent order dated November 19, 2018.
Based on the most recent test results for disinfection byproducts and chemical
analyses, all contaminants were in compliance with the DEP’s drinking water
standards. Additionally, the utility appears to be responding adequately to the
concerns of its customers. Therefore, staff recommends the overall quality of
service provided by Placid Lakes be considered satisfactory.
Issue 2:
What are the used and useful (U&U) percentages
for Placid Lakes' water treatment plant (WTP), storage, and distribution
system?
Recommendation:
Staff recommends Placid Lakes’ WTP and storage be
considered 100 percent U&U, and the water distribution system be considered
79.09 percent U&U. There appears to be no excessive unaccounted for water
(EUW); therefore, staff recommends that no adjustment be made to operating
expenses for chemicals and purchased power. (Knoblauch)
Staff Analysis:
Placid Lakes’ WTP has three wells rated at a
combined total of 1,550 gallons per minute (gpm) pumping capacity. The
utility’s water system has two ground storage tanks with a total capacity of
300,000 gallons, and three hydropneumatic tanks with a total capacity of 45,000
gallons. The distribution system is comprised of varying sizes of polyvinyl
chloride (PVC) and asbestos-cement pipes.
The U&U for Placid Lakes’ water treatment plant,
storage, and distribution system were last determined in Order No. PSC-13-0646-PAA-WU. In
that Order, the Commission found Placid Lakes’ water treatment plant and
storage to be 100 percent U&U. For the distribution system, the Commission
determined the U&U to be 79.09 percent using a non-traditional methodology.
Water Treatment Plant and Storage Used and
Useful
As noted above, the Commission found both the WTP and the
storage to be 100 percent U&U in the prior rate proceeding. The utility has
not increased the capacity of its WTP or storage since its last rate case.
Therefore, consistent with the Commission’s previous decision, staff recommends
the utility’s WTP and storage be considered 100 percent U&U.
Excessive Unaccounted for Water (EUW)
Rule 25-30.4325, F.A.C., defines EUW as “unaccounted for
water in excess of 10 percent of the amount produced.” Unaccounted for water is
all water produced that is not sold, metered, or accounted for in the records
of the utility. In determining whether adjustments to plant and operating
expenses are necessary in accordance with Rule 25-30.4325(10), F.A.C., due to
EUW, staff considers several factors. These include (1) the causes of EUW, (2)
any corrective action taken, and (3) the economical feasibility of a proposed
solution. EUW is calculated by subtracting both the gallons sold to customers and
the gallons used for other services, such as flushing, from the total gallons
pumped for the test year.
The Monthly Operating Reports indicate that the utility
pumped 102,783,000 gallons during the test year. In its MFRs, the utility
indicated that it purchased no water and estimated 11,964,000 gallons for other
uses, such as flushing, valve exercises, and customer leak adjustments.
According to the staff audit report, the utility sold 84,389,000 gallons of
water for the test year. When both the gallons sold and water used for other
uses is subtracted from the total gallons pumped, 6,430,000 gallons are
unaccounted for. The formula for unaccounted for water is given by gallons of
unaccounted for water / (total gallons pumped + gallons purchased). The resulting
unaccounted for water is 6.3 percent; since this is less than 10 percent, there
is no excessive unaccounted for water. Accordingly, staff recommends no
adjustment to purchased power and chemical expenses due to EUW.
Water Distribution System Used and Useful
In Placid Lakes’ 2000 Rate Case, the Commission found the
utility’s distribution system to be 76.37 percent U&U. In
that case, the Commission considered all lines larger than six inches in
diameter as 100 percent U&U. Smaller lines were evaluated by comparing the
number of connected lots to the number of lots the lines are able to serve.
These percentages were then multiplied by the original installed cost of the
line, and the sum of these values was compared to the original installed cost
of the distribution system, to generate a U&U percent value of 76.37
percent. The Commission noted that without these additional considerations, the
U&U would have been 54.99 percent.
In Placid Lakes’ 2008 and 2013 Rate Cases, the Commission
determined the utility’s distribution system to be 79.09 percent U&U
relying on the method of evaluation discussed above. In
Placid Lakes’ 2013 Rate Case, the Commission found that the same evaluation
should be used due to a lack of changed conditions in the utility’s service territory.
In its MFRs, Placid Lakes asserted that its distribution
system should be considered 100 percent U&U. To support its assertion, the
utility stated that there are no areas of the water transmission or
distribution system which could be wholly removed without impacting the ability
to reliably serve customers.
In the current rate case, the utility has not presented,
nor has staff identified, a change in the conditions of the utility’s service
territory. Therefore, staff recommends that the Commission continue to rely on
the method of evaluation first established in the 2000 Rate Case. Using this
evaluation, the distribution U&U is calculated to be below the previously
approved 79.09 percent. It is Commission practice to not decrease the U&U
below a previously approved percentage assuming there have been no changes to
the system. Therefore, staff recommends a distribution system U&U of 79.09
percent, consistent with the Commission’s previous decision.
Conclusion
Staff recommends Placid Lakes’ WTP and storage be
considered 100 percent U&U, and the water distribution system be considered
79.09 percent U&U. There appears to be no EUW; therefore, staff recommends
that no adjustment be made to operating expenses for chemicals and purchased
power.
Issue 3:
Should adjustments be made to Placid Lakes' Pro Forma
Plant additions?
Recommendation:
Yes. The appropriate pro forma net plant additions
are $58,716. This results in a decrease of $14,180 from the utility’s amended
request. Corresponding adjustments should also be made to increase Accumulated
Depreciation by $33,122 and decrease depreciation expense by $738.
Additionally, pro forma property taxes should be increased by $233. (Knoblauch,
Smith II)
Staff Analysis:
In its MFRs,
Placid Lakes requested cost recovery of four pro forma projects; however, one
of the projects was withdrawn per the utility’s request. The utility’s original
request for all four projects was $209,656, which was reduced to $159,865 once
the fourth project was withdrawn from consideration.
Placid Lakes provided the cost for a meter
replacement program totaling $38,681, which is a continuation of a previously-approved
meter replacement program.[6] The
utility is replacing old meters with radio read devices that provide back-flow
prevention, as required by the DEP. The utility estimated it will replace six
meters per month for a total of 144 meters over two years. This is consistent
with the number of meters approved in the utility’s last rate case, and appears
to also be consistent with the annual number of meters Placid Lakes has
replaced over the last six years. The utility provided invoices totaling
$36,372 for the meters, as well as meter boxes and parts, which will not be
required for every meter replacement. Additionally, $2,310 was included as the
cost of labor for two employees to complete the 144 meter replacements. The
utility requested 75 percent of the replacement cost be utilized for retirement
purposes totaling $27,279. However, the utility’s requested retirement amount
did not include the labor associated with the project; therefore, staff
believes the correct retirement should be $29,011.
As discussed in Issue 1, Placid Lakes entered
into a consent order with the DEP in response to disinfection byproduct
exceedances. The utility indicated it would implement a new hydrogen peroxide
water treatment system, which was accepted by the DEP on April 19, 2019. The
new system was placed into service on May 1, 2019; and based on the most recent
results, the utility is in compliance with DEP disinfection byproduct
standards. No bids were obtained for this project as Placid Lakes stated that a
“plan to correct water quality issues was designed by Florida Rural Water
Association.”[7] The
parts needed for the project were purchased by the utility, and the labor was
largely performed by its employees. The invoices for the hydrogen peroxide
system were provided to staff at a total cost of $25,000.
The utility also included costs for a WTP
control system in its MFRs totaling $60,512. The utility explained that it had
experienced problems with the previous control system over the past seven
years, and Placid Lakes’ prior contractor was unable to resolve the issue.
Following a major failure of the control system in November 2018, the utility
contacted a new contractor who was able to provide a quote for an interim
control system. The interim control system would provide basic functionality;
however, it would not have all of the capabilities of the old system. In
response to a data request, the utility stated that due to the emergency nature
of the control system failure, only one bid was obtained for the project.
Placid Lakes determined that the interim system was operating properly, and
decided to update its original request to include the cost for a complete inner
panel at an additional cost of $35,672, bringing the project total to $96,184.
The utility also requested 75 percent of the replacement cost be utilized for
the retirement of the old control system at an amount of $72,138.
Staff believes that the proper documentation
was provided to support the costs of the meter replacements, hydrogen peroxide
water treatment system, and the WTP control system projects. The projects
appear to be reasonable as the meter replacement program is largely a
continuation of its previously approved program, and the hydrogen peroxide
system was required to address the disinfection byproduct exceedances and the
DEP consent order. Additionally, the new WTP control system was needed as the
previous control system was failing. Therefore, staff recommends approval of
the three pro forma projects totaling $159,865, as shown in Table 3-1.
Table 3-1
Pro Forma
|
Project
|
Addition
|
Retirement
|
Net Plant
|
Net A/D
Adj.
|
Net Dep
Exp
|
Prop
Tax
|
|
Meter Replacement Program
|
$38,681
|
($29,011)
|
$9,670
|
$26,431
|
$645
|
$50
|
|
Hydrogen Peroxide System
|
25,000
|
0
|
25,000
|
(1,138)
|
1,138
|
89
|
|
Control System
|
96,184
|
(72,138)
|
24,046
|
67,329
|
1,202
|
94
|
|
Staff Recommended Totals
|
$159,865
|
($101,149)
|
$58,716
|
$92,622
|
$2,985
|
$233
|
|
MFR Amounts
|
209,656
|
(136,760)
|
72,896
|
125,744
|
3,723
|
0
|
|
Adjustments
|
($49,791)
|
$35,612
|
($14,180)
|
($33,122)
|
($738)
|
$233
|
Source: Utility’s MFRs and staff’s calculations
Based on the above, the appropriate pro forma net plant
additions are $58,716. This results in a decrease of $14,180 from the utility’s
amended request. Corresponding adjustments should also be made to increase Accumulated
Depreciation by $33,122 and decrease depreciation expense by $738.
Additionally, pro forma property taxes should be increased by $233.
Issue 4:
What is the appropriate Working Capital allowance?
Recommendation:
The appropriate Working Capital allowance is
$69,556. This results in a reduction of $139 to the utility’s requested Working
Capital allowance. (Smith II)
Staff Analysis:
Rule 25-30.433(3), F.A.C., requires that Class B
utilities use the formula method, or one-eighth of operation and maintenance
(O&M) expenses, to calculate the Working Capital allowance. The utility has
properly calculated its allowance for Working Capital using the one-eighth of
O&M expenses method. However, as detailed in Issue 9, staff has recommended
adjustments to Placid Lakes’ O&M expense. As a result, staff recommends
that Working Capital of $69,556 be approved. This reflects a decrease of $139
to the utility’s requested Working Capital allowance of $69,695.
Issue 5:
What is the appropriate rate base for the test year
ended December 31, 2018?
Recommendation:
Consistent with other recommended adjustments, the
appropriate rate base for the test year ended December 31, 2018, is $585,815.
This results in a reduction of $194,441 to the utility’s requested rate base.
(Smith II)
Staff Analysis:
In its MFR’s, the Utility requested a rate base of
$780,256. Staff’s adjustments recommended in Issue 3 and Issue 4 resulted in
decreases to net Pro Forma Plant of $14,180 and Working Capital of $139,
respectively. Additionally, the Utility did not make a U&U adjustment in
its MFRs. Therefore, as discussed in Issue 2, staff recommends reducing Utility
Plant in Service by $275,431 and Accumulated Depreciation by $95,308 to reflect
the appropriate U&U percentage. This results in a total decrease in rate
base of $194,441 ($14,180 + $275,431 - $95,308 + 139). Based on staff’s
recommended adjustments, the appropriate rate base is $585,815. The schedule
for rate base is attached as Schedule No. 1-A and the adjustments are shown on
Schedule No. 1-B.
Issue 6:
What is the appropriate return on equity (ROE)?
Recommendation:
Based on the Commission leverage formula currently
in effect, the appropriate return on equity (ROE) is 8.76 percent. Staff recommends
an allowed range of plus or minus 100 basis points be recognized for ratemaking
purposes. (Smith II)
Staff Analysis:
The utility requested an ROE of 9.07 percent. The utility
utilized the 2018 leverage formula in its filing. However, staff applied the
2019 leverage formula to the utility’s capital structure in the instant case
resulting in an ROE of 8.76.[8] The ROE is
calculated using an equity ratio of 66.50 percent, based on investor sources. This
application of the leverage formula is consistent with past decisions when the
leverage formula has been updated during a rate case.[9]
Staff recommends the appropriate ROE is 8.76 percent with an allowed range of
7.76 percent to 9.76 percent.
Issue 7:
What is the appropriate weighted average cost of
capital including the proper components, amounts, and cost rates associated
with the capital structure for the test year ended December 31, 2018?
Recommendation:
The appropriate weighted average cost of capital for
the test year ended December 31, 2018, is 6.33 percent. (Smith II)
Staff Analysis:
In its filing, the utility requested weighted
average cost of capital (WACC) of 6.67 percent. However, as discussed in Issue
6, staff used the 2019 leverage formula, resulting in a lower ROE, and thus a
lower WACC.
Placid Lake’s capital structure consists of $432,580 in
common equity, $217,868 of long-term debt at a cost rate of 3.45 percent,
$37,450 in customer deposits at a cost rate of 2.00 percent, and $28,711 in
deferred income taxes. A staff audit determined that no test year adjustments
were necessary. The utility’s capital structure has been reconciled with
staff’s recommended rate base which reduced the common equity balance to
$345,595, and reduced the long-term debt balance to $174,058. The appropriate
ROE is 8.76 percent based upon the Commission-approved leverage formula
currently in effect.
Staff recommends the appropriate WACC is 6.33 percent with an allowed range of
5.74 percent to 6.92 percent. The appropriate WACC, including the proper
components, amounts, and cost rates is shown on Schedule No. 2.
Issue 8:
What are the appropriate test year revenues?
Recommendation:
The appropriate test year revenues for Placid Lakes
Utilities, Inc. are $701,884. (Ramos)
Staff Analysis:
Placid Lakes recorded total test year revenues of
$668,899. The utility’s test year revenues included $661,082 of service
revenues and $7,817 of miscellaneous service revenues. In order to calculate
the appropriate service revenues, staff utilized the utility’s rates in effect
during the test year as well as the bills and gallons provided by the utility
within its MFRs. As a result, the appropriate service revenues are $677,567,
which results in an increase of $16,485 ($677,567 - $668,899) to the utility’s
service revenues.
For miscellaneous revenues, the utility did not reflect
miscellaneous revenues associated with late payment charges in its MFRs. Staff
requested the utility provide a schedule reflecting miscellaneous revenues
associated with the late payment charges. The utility indicated that it was
unable to provide a schedule detailing the late payment revenues by month when
asked by staff due to the way the occurrences were inputted into the utility’s
billing system. However, the utility has corrected this feature within its
billing system on a going-forward basis. Therefore, staff believes it is
appropriate to estimate the late payment charge revenues the utility collected
during the test year in order to accurately account for the utility’s total
test year miscellaneous revenues. The utility indicated that it administers
approximately 275 late payment charges per month. Based on the utility’s five
dollar late payment charge and 275 occurrences each month during the test year,
this results in additional miscellaneous revenues of $16,500. As a result, the
appropriate miscellaneous revenues are $24,317 ($16,500 + $7,817). Based on the
above, staff recommends that the appropriate test year revenues for Placid
Lakes are $701,884 ($677,567 + $24,317).
Issue 9:
Should adjustments be made to the utility's O&M
expenses?
Recommendation:
Yes. O&M expense should be increased by $2,904
to reflect an increase to chemical expense. (Knoblauch, Smith II)
Staff Analysis:
Staff reviewed the utility’s requested O&M
expenses. In particular, staff compared the requested expenses in the instant
case to the Commission-approved amounts in the utility’s last rate case. The
requested expenses in the instant case represent a slight increase. However,
when applying the Commission-approved index factors to the previously approved
expenses, the request in the instant case represents an overall decrease in
O&M expenses. Therefore, staff believes these expenses are reasonable.
Placid Lakes recorded chemical expense of $13,427 in its
MFRs for the test year. The utility made a normalization adjustment to this
amount of $3,317, resulting in a chemical expense of $16,744. The utility made
a normalization adjustment to account for purchase timing differences. Staff
reviewed purchases made over a period of three years and believes that a
normalization adjustment is appropriate in this case. However, based on
calculations using the values provided by Placid Lakes, staff recommends a
normalization adjustment of $3,110 to the test year amount. This results in a
reduction of $207 to the utility's requested amount of chemical expense.
In addition to the
normalization adjustment discussed above, staff recommends adjustments to
reflect the addition of a new water treatment system which was placed
in-service after the test year. Based on three months of operation, the utility
indicated that chemical costs will increase by a total amount of $3,112. This
increase includes costs for hydrogen peroxide which was not needed to operate
the previous water treatment system.
Based on the discussion above, staff recommends an
adjustment $2,905 (-$207+$3,112) to the Utility’s request of $16,744. The
resulting chemical expense is $19,648 ($16,744+$2,905).
Issue 10:
What is the appropriate amount of rate case expense
for the current case?
Recommendation:
The appropriate amount of rate case expense is
$30,664. This expense should be recovered over four years for an annual expense
of $7,666. Therefore, annual rate case expense should be reduced by $4,020.
(Smith II)
Staff Analysis:
In its filing, Placid Lakes requested $46,744 for
current rate case expense with a four-year amortization amount of $11,686.
In Staff’s
Third Data Request, staff requested an update of the actual rate case expense
incurred, with supporting documentation, as well as the estimated amount to
complete the case.
The utility submitted a revised estimated rate case expense, as of October 11,
2019, through completion of the PAA process of $31,008.
Table 10-1 below illustrates the utility’s requested rate case expense along
with staff’s recommended adjustments.
Pursuant to Section
367.081(7), F.S., the Commission shall determine the reasonableness of rate
case expense and shall disallow all rate case expense determined to be
unreasonable. Staff has examined the requested actual expenses, supporting
documentation, and estimated expenses as listed above for the current rate
case. Based on its review, staff believes the following adjustments to Placid
Lakes’ rate case expense estimate are appropriate.
The first
adjustment to rate case expense is to remove ineligible and duplicative legal
expenses. In the utility’s update of actual legal fees and costs, fees
associated with work on the utility’s MFR deficiencies ($494) were noted, but
not removed. The Commission has previously disallowed rate case expense associated with correcting MFR deficiencies
because of duplicative filing costs.[13]
The second
adjustment relates to pay for a retired employee who assisted the utility in
preparing for the rate case. The utility submitted 5 months of timesheets for
the retired employee. Those timesheets reflected a total of 30 hours. However,
in its calculations for rate case expense, the utility only included 26 hours.
Therefore, staff recommends increasing rate case expense by $150 ($37.43 x 4).
Placid Lakes
initially included expenses of $2,250 for customer and legal notices. Placid
Lakes is responsible for sending three notices: the initial notice, the customer
meeting notice, and the notice of the final rate increase. In its update of
rate case expense, the utility documented a cost of $1,122 for each notice.
This results in a total of $3,366 for notices.
Based upon the adjustments
above, staff recommends that Placid
Lakes’ revised rate case expense of $31,008 be decreased by $344 ($494 - $150)
for a total of $30,664. A breakdown of rate case expense is as follows:
Table 10-1
Rate Case Expense
|
|
|
Utility
|
|
|
|
|
MFR B-10
|
Revised Actual
|
Staff
|
|
|
|
Estimated
|
and Estimated
|
Adjs
|
Total
|
|
Attorney’s Fees (Dean Mead)
|
$38,000
|
$21,394
|
($494)
|
$20,900
|
|
Retired Employee
|
2,994
|
973
|
150
|
1,123
|
|
Filing Fee
|
3,500
|
3,500
|
0
|
3,500
|
|
Customer Notices, Postage
|
2,250
|
3,367
|
0
|
3,367
|
|
Travel
|
0
|
1,774
|
0
|
1,774
|
|
Total
|
$46,744
|
$31,008
|
($344)
|
$30,664
|
|
Annual Amortization
|
$11,686
|
|
|
$7,666
|
Source: Staff Calculations
The recommended total rate case
expense above should be amortized over four years, pursuant to Section
367.081(8), F.S. Based on the above, staff recommends that annual rate case
expense be reduced by $4,020 ($11,686 - $7,666).
Issue 11:
What is the appropriate revenue requirement for the
test year ended December 31, 2018?
Recommendation:
Staff recommends the following revenue requirement
be approved. (Smith II)
|
Test Year Revenues
|
$ Increase
|
Revenue
Requirement
|
% Increase
|
|
$701,884
|
$60,335
|
$762,219
|
8.60%
|
Staff Analysis:
In its filing, Placid Lakes requested a revenue
requirement of $766,015, which represents a revenue increase of $97,116, or 14.52
percent. Consistent with staff’s recommendations concerning the underlying rate
base, cost of capital, and operating income issues, staff recommends a revenue
requirement of $762,219. This represents an increase of $60,335, or 8.60
percent. Staff’s recommended revenue requirement is shown in Table 11-1.
Table 11-1
Revenue Requirement
|
Adjusted Rate Base
|
|
$585,815
|
|
Rate of Return (%)
|
|
x 6.33%
|
|
Return on Rate Base
|
|
$37,082
|
|
Adjusted O&M Expense
|
|
556,447
|
|
Depreciation Expense (Net)
|
|
63,849
|
|
Taxes Other Than Income
|
|
73,915
|
|
Income Taxes
|
|
31,028
|
|
Revenue Requirement
|
|
$762,219
|
|
Less Adjusted Test Year Revenues
|
|
701,884
|
|
Annual Increase
|
|
$60,335
|
|
Percent Increase
|
|
8.60%
|
Issue 12:
What is the appropriate rate structure and rates for
the utility's water system?
Recommendation:
The recommended rate structures and monthly water
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 provided customers have received
notice pursuant to Rule 25-30.475, F.A.C. The utility should provide proof of
noticing within 10 days of rendering its approved notice. (Ramos)
Staff Analysis:
Placid Lakes is located in Highlands County within
the SWFWMD. The utility’s water system provides service to 1,973 residential
and 34 general service customers. Approximately 8 percent of the residential
customer bills during the test year had zero gallons, which indicates a
non-seasonal customer base. The average residential water demand during the
test year was 3,480 gallons per month, which is a 1.8 percent decrease since
the utility’s last rate case.
Currently, the utility’s water system rate structure
consists of a base facility charge (BFC) and three tier inclining block rate
structure for residential customers. The rate blocks are: (1) 0-10,000 gallons;
(2) 10,001-20,000 gallons; and (3) usage in excess of 20,000 gallons. General
service customers are billed a BFC and a uniform gallonage charge.
Staff performed an analysis of the utility’s billing data
in order to evaluate various BFC cost recovery percentages, usage blocks, and
usage block rate factors for the residential rate class. The goal of the evaluation was to select the
rate design parameters that: 1) produce the recommended revenue requirement; 2)
equitably distribute cost recovery among the utility’s customers; 3) establish
the appropriate non-discretionary usage threshold for restricting repression;
and 4) implement, where appropriate, water conserving rate structures
consistent with Commission practice.
Staff believes an across-the-board increase to the utility’s
existing rates is appropriate because of the low revenue requirement percentage
increase. In addition, the existing rate structure appears reasonable and no
significant repression is anticipated. To determine the appropriate percentage
increase to apply to the service rates, miscellaneous revenues were removed
from the test year revenues ($701,884 - $24,317), resulting in an 8.90 ($60,335
/ $677,567) percent increase to the service rates.
Based on the above, the recommended rate structures and
monthly water 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 provided
customers have received notice pursuant to Rule 25-30.475, F.A.C. The utility
should provide proof of noticing within 10 days of rendering its approved
notice.
Issue 13:
Should the utility's request for a new class of
service for private fire protection be approved?
Recommendation:
Yes, the utility’s request to establish a new class
of service for private fire protection should be approved. Staff’s recommended
monthly private fire protection rates are shown on Schedule No. 4. The utility
should file a proposed tariff sheet 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
provided customers have received notice pursuant to Rule 25-30.475, F.A.C. The
utility should provide proof of noticing within 10 days of rendering its
approved notice. (Ramos)
Staff Analysis:
Shortly after the utility filed its application for
a water rate increase, the utility requested to establish a new class of
service for private fire protection rates as a part of this proceeding by
letter dated July 31, 2019. The utility requested a new class of service for
private fire protection due to a request from a Dollar General store to provide
a 6” fire flow line. The utility is requesting the private fire protection rate
be consistent with Rule 25-30.465, F.A.C., which states that the rate shall be
one-twelfth the current base facility charge of the utility’s meter sizes.
Staff believes the utility’s request is reasonable and should be approved.
While the utility only requested the private fire protection rate for a 6”
meter, staff recommends setting private fire protection rates for the rest of
the utility’s corresponding meter sizes pursuant to Rule 25-30.465, F.A.C.; in
the event another customer requests private fire protection in the future, the
utility would not have to file an additional application with the Commission.
Based on the above, the utility’s request to establish a
new class of service for private fire protection should be approved. Staff’s
recommended monthly private fire protection rates are shown on Schedule No. 4.
The utility should file a proposed tariff sheet 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 provided customers have received notice pursuant to Rule
25-30.475, F.A.C. The utility should provide proof of noticing within 10 days
of rendering its approved notice.
Issue 14:
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 water rates should be reduced, as shown on
Schedule No. 4, to remove rate case expense grossed-up for regulatory
assessment fees 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. Placid
Lakes 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. (Ramos, Smith II)
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, the associated return in Working Capital, and the gross-up for
regulatory assessment fees. The total reduction is $8,091. Using Placid Lakes’
current revenues, expenses, capital structure and customer base, the reduction
in revenues will result in the rate decreases as shown on Schedule No. 4.
The utility 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 15:
Should the utility be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission's decision?
Recommendation:
Yes.
Placid Lakes should be required to notify the Commission, in writing, that it
has adjusted its books in accordance with the Commission’s decision. Placid
Lakes should submit a letter within 90 days of the final order in this docket,
confirming that the adjustments to all applicable National Association of
Regulatory Utility Commissioners (NARUC) Uniform System of Accounts (USOA)
primary 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 within 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. (Smith II)
Staff Analysis:
Placid Lakes should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Placid Lakes should submit a letter within 90 days of
the final order in this docket, confirming that the adjustments to all the
applicable NARUC USOA primary 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 within 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.
Issue 16:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order 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, and the utility
has provided staff with proof that the adjustments for all applicable NARUC
USOA primary accounts have been made. Once these actions are complete, this
docket should be closed administratively. (Simmons)
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, and the
utility has provided staff with proof that the adjustments for all applicable
NARUC USOA primary accounts have been made. Once these actions are complete,
this docket should be closed administratively.
