Discussion
of Issues
Issue 1:
Should the Commission approve Lakeside Waterworks,
Inc.'s application for a LARI?
Recommendation:
Yes. The Commission should approve Lakeside's
application for a LARI in the amount of 20 percent. This equates to an increase
of $13,097. Pursuant to Rule 25-30.457(12), F.A.C., the utility should be
required to hold any revenue increase granted subject to refund with interest
for a period of 15 months after the filing of its annual report for the year
the adjustment in rates was implemented. If overearnings occur, such
overearnings, up to the amount held subject to refund, with interest, should be
disposed of for the benefit of the customers. After the increased rates are in
effect, pursuant to Rule 25-30.360(6), F.A.C., the utility should be required
to file reports with the Office of Commission Clerk no later than the 20th of
every month indicating the monthly and total amount of money subject to refund
at the end of the preceding month. The report filed must also indicate the
status of the security being used to guarantee repayment of any potential
refund. (Wilson, T. Brown)
Staff Analysis:
Pursuant to Rule 25-30.457, F.A.C., any utility
eligible to file for a staff-assisted rate case (SARC) may petition the
Commission for a rate increase of up to 20 percent applied to metered or flat
recurring rates as an alternative to a rate case. This Rule was designed to
streamline the rate increase process for qualifying small water or wastewater
companies, by establishing an abbreviated procedure for a limited rate increase
that is less time consuming and thus less costly for utilities, their
customers, and the Commission. This Rule is similar to the rules governing
price index and pass-through increases in that neither an engineering review
nor a financial audit of the utility's books and records is required.
Rule 25-30.457, F.A.C., was adopted on March 15, 2005. The
Rule was amended in 2008, 2014, and 2018. Under provisions of this Rule, the
Commission has previously approved six LARI applications: two in 2006,
and four in 2019. Staff
has undertaken rulemaking in regard to the LARI Rule, and expects to bring a
recommendation before the Commission in the first half of 2020. The most recent
LARI rulemaking workshop was conducted on October 30, 2019.
On July 25, 2019, Lakeside filed its application requesting
a LARI of 20 percent pursuant to Rule 25-30.457, F.A.C. The application met the
initial requirements of the Rule, and September 19, 2019, was established as
the official filing date.
Staff reviewed the utility’s application pursuant to the
criteria listed in Rule 25-30.457(5), F.A.C., and recommends that Lakeside
qualifies for staff assistance pursuant to subsection (1) of this Rule, and,
the utility’s books and records appear to be organized consistent with Rule
25-30.110, F.A.C. Staff also verified that the utility is current on the filing
of regulatory assessment fees and annual reports. The utility has been in
operation over a year and filed additional relevant information in support of
eligibility.
According to the utility, for the 12-month period ended May 31,
2019, the net operating income was approximately $1,423, which represents an
approximate rate of return of 0.68 percent. The Commission approved an overall
rate of return of 8.45 percent in Lakeside’s last SARC Order.
Based on its calculations, Lakeside believes that it may be entitled to
approximately a 22.71 percent increase if it filed for a SARC.
Since rate base was last established, Lakeside has expended capital in its
water plant in the amount of $70,405 from March 30, 2016 through May 31, 2019.
Staff notes that a large portion of that amount appears to have been added in
2018 alone. In addition, operating expenses have increased by approximately 5
percent since the utility’s last SARC.
Despite the fact that the utility received a rate increase less
than two years from the date of filing of its petition, Lakeside’s water system
was under earning based on information provided in the utility's 2017 and 2018
Annual Reports. Staff also notes that at the time the last rate case was addressed
by this Commission, a utility representative indicated that the utility had an
additional $40,000 worth of pro forma plant investment that was not included in
the rate case. It was also noted that additional projects remained and the utility
would likely need to file a limited proceeding within the year. No limited
proceeding was filed by the utility in 2018 or 2019. Based on the
information described above, staff recommends approval of the utility’s
petition.
The data presented in the application was based upon
annualized revenues by customer class and meter size for the 12-month period
ended May 31, 2019. Based on annualized revenues of $65,679, a 20 percent
increase would result in an annual increase in revenues of $13,097. This
produces total annual service revenues of $78,776.
Pursuant to Rule 25-30.457(12), F.A.C., the utility is
required to hold any revenue increase granted subject to refund with interest
in accordance with Rule 25-30.360, F.A.C., for a period of 15 months after the
filing of its 2020 Annual Report as it is the year the adjustment in rates will
be implemented.
After the increased rates are in effect, pursuant to Rule
25-30.360(6), F.A.C., the utility must file reports with the Office of
Commission Clerk no later than the 20th of every month indicating the monthly
and total amount of money subject to refund at the end of the preceding month.
The report filed must also indicate the status of the security being used to
guarantee repayment of any potential refund.
Staff reviewed the personal financial statements of the
primary shareholder, who is the president of Lakeside Waterworks, Inc.
The president has provided a personal guarantee of any rate increase approved
in this docket. Based on
the above, staff believes that in this circumstance the company’s president has
demonstrated the financial ability to guarantee the refund, if necessary.
To ensure overearnings will not
occur due to the implementation of this rate increase, the Commission will
conduct an earnings review of the Lakeside's annual report for the year the
adjustment in rates was implemented. If overearnings occur, such overearnings,
up to the amount held subject to refund, with interest, will be disposed of for
the benefit of the customers.
Issue 2:
What are the appropriate monthly service rates for
Lakeside Waterworks, Inc.?
Recommendation:
The existing service rates for Lakeside should be
increased by 20 percent in accordance with Rule 25-30.457, F.A.C. The
appropriate service rates are shown on Schedule No. 1. The utility should file
tariff sheets and a proposed customer notice to reflect the Commission-approved
rates. The approved rates should be effective for service rendered on or after
the stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1),
F.A.C. In addition, the rates should not be implemented until staff has
approved the proposed customer notice. The utility should provide proof of the
date notice was given no less than 10 days after the date of the notice.
(Sibley)
Staff Analysis:
Based on staff’s recommended approval of the utility’s
LARI in Issue 1, the existing service rates for Lakeside should be increased by
20 percent in accordance with Rule 25-30.457, F.A.C. Therefore, staff
calculated rates by applying the 20 percent increase across-the-board to the
existing base facility and gallonage charges. The utility’s existing water
rates and the staff recommended rates are shown on Schedule No. 1. The utility
should file tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475(1), F.A.C. In addition, the rates should not be implemented
until staff has approved the proposed customer notice. The utility should
provide proof of the date notice was given no less than 10 days after the date
of the notice.
Issue 3:
Should the recommended rates be approved for
Lakeside Waterworks, Inc. on a temporary basis, subject to refund, in the event
of a protest filed by a party other than the utility?
Recommendation:
Yes. Pursuant to Rule 25-30.457(15), F.A.C., in the
event of a protest of the Proposed Agency Action (PAA) Order by a substantially
affected person other than the utility, Lakeside should be authorized to
implement the rates established in the LARI PAA Order on a temporary basis
subject to refund upon the utility filing a staff-assisted rate case
application within 21 days of the date the protest is filed.
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 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. If the
recommended rates are approved on a temporary basis, the incremental increase
collected by the utility will be subject to the refund provisions outlined in
Rule 25-30.360, F.A.C. Pursuant to Rule 25-30.457(17), F.A.C., if the utility
fails to file a SARC application within 21 days in the event there is a
protest, the application for a LARI will be deemed withdrawn. (Wilson) (Final
Agency Action)
Staff Analysis:
This recommendation proposes an increase in water
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 Rule 25-30.457(15), F.A.C., in the event of a protest of the PAA
Order by a substantially affected person other than the utility, Lakeside
should be authorized to implement the rates established in the LARI PAA Order
on a temporary basis subject to refund upon the utility filing a SARC
application within 21 days of the date the protest is filed.
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 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. If the
recommended rates are approved on a temporary basis, the incremental increase
collected by the utility will be subject to the refund provisions outlined in
Rule 25-30.360, F.A.C. Pursuant to Rule 25-30.457(17), F.A.C., if the utility
fails to file a SARC application within 21 days in the event there is a
protest, the application for a LARI will be deemed withdrawn.
Issue 4:
Should this docket be closed?
Recommendation:
No. In the event of a protest, Lakeside
Waterworks may implement the rates established in the PAA Order on a temporary
basis, subject to refund with interest, upon the utility’s filing of a SARC
application within 21 days of the date the protest is filed. If Lakeside
Waterworks fails to file a SARC within 21 days, the utility’s petition for
a LARI will be deemed withdrawn pursuant to Rule 25-30.457(17), F.A.C. If no
person whose substantial interests are affected by the proposed agency action
files a protest within 21 days of the issuance of the PAA Order, a Consummating
Order should be issued. The docket should remain open for staff’s verification
that the revised tariff sheets which reflect the Commission-approved rates, and
the customer notice, have been filed by Lakeside Waterworks and approved
by staff, and so that staff may conduct an earnings review of the utility pursuant
to Rule 25-30.457(12), F.A.C. Upon staff’s approval of the tariff and
completion of the earnings review process as set forth in Rule
25-30.457(12)-(14), F.A.C., this docket should be closed administratively.
(Weisenfeld)
Staff Analysis:
In the event of a protest, Lakeside Waterworks
may implement the rates established in the PAA Order on a temporary basis,
subject to refund with interest, upon the utility’s filing of a SARC
application within 21 days of the date the protest is filed. If Lakeside
Waterworks fails to file a SARC within 21 days, the utility’s petition for
a LARI will be deemed withdrawn pursuant to Rule 25-30.457(17), F.A.C. If no
person whose substantial interests are affected by the proposed agency action
files a protest within 21 days of the issuance of the PAA Order, a Consummating
Order should be issued. The docket should remain open for staff’s verification
that the revised tariff sheets which reflect the Commission-approved rates, and
customer notice, have been filed by Lakeside Waterworks and approved by
staff, and so that staff may conduct an earnings review of the utility pursuant
to Rule 25-30.457(12), F.A.C. Upon staff’s approval of the tariff and
completion of the earnings review process as set forth in Rule
25-30.457(12)-(14), F.A.C., this docket should be closed administratively.
