Discussion
of Issues
Issue 1:
Is the quality of service provided by Gator
satisfactory?
Recommendation:
Yes. The utility is in-compliance with the
Department of Environmental Protection (DEP) and has been responsive to its
customer complaints. Therefore, the quality of service provided by Gator should
be considered satisfactory. (Lewis, Knoblauch)
Staff Analysis:
Pursuant
to Rule 25-30.433(1), Florida Administrative Code (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 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 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 Utility's Product
In
evaluation of Gator's product quality, staff reviewed the utility's compliance
with the DEP 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. The most recent chemical
analyses were performed on October 3, 2018, and the results were in-compliance
with the DEP’s standards. These chemical analyses are performed every three
years; therefore, the next scheduled analysis should be completed in 2021.
The Utility's Attempt to Address Customer
Satisfaction
Staff reviewed the Commission’s complaint records from January
2014 through January 2020. The Commission received six complaints from 2014 to
2017 while the utility was known as Kincaid Hills Water Company. During this
time, DEP also received a total of four complaints with two occurring in 2014
and two occurring in 2017. In July 2014, the DEP received two complaints
regarding low water pressure and chlorine residue. Both complaints were
investigated and closed with no further action. One of the DEP complaints
received in 2017 concerned lawn maintenance at the water treatment plant with
the other concerning the placement of a meter on customer property. All of
these complaints were received prior to the utility’s transfer to Gator in December
2018. There have been no customer complaints received against the utility from
2018 through January 2020.
Gator reported that it had received 89 customer complaints from 2014
through 2019. The utility stated that the majority of the calls were concerning
low pressure or no water due to line breaks. The low pressure calls were prior
to the completion of the water plant rehabilitation projects. The water
treatment plant, wells, and tanks were deteriorated and needed to be replaced.
In addition, numerous complaints concerned line breaks, which have been
repaired. As a result of these repairs, the utility states that the water
pressure issues have subsided.
Staff
held a customer meeting on November 13, 2019 at the Headquarters Branch Library.
Four customers attended and three spoke. One customer acknowledged his
satisfaction with the decrease in service outages while two customers were
dissatisfied with the proposed increase in the water rates. The Commission has
not received any additional customer complaints or concerns through January 31,
2020.
Conclusion:
The utility is in-compliance with
DEP and has been responsive to its customer complaints. Therefore, the quality
of service provided by Gator should be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of
Gator's water system in compliance with DEP regulations?
Recommendation:
Yes. The utility’s water treatment facility is
currently in-compliance with DEP regulations. (Knoblauch, Lewis)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each water
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 any testimony of the
DEP and county health department officials, sanitary surveys, citations, violations,
and consent orders issued to the utility, customer testimony, comments, and
complaints, and utility testimony and responses to the aforementioned items.
Water System Operating Conditions
Gator’s water system has a design capacity of 236,400 gallons
per day (gpd). The utility’s water system has two wells with a combined pumping
capacity of 400 gallons per minute (gpm). On October 3, 2018, the utility was
issued a permit from the DEP for removal of the existing storage and hydro-pneumatic
tanks, and installation of a new 5,000 gallon capacity hydro-pneumatic tank.
Additionally, the site piping and appurtenances were replaced, along with the
utility’s emergency generator. Staff reviewed Gator’s sanitary surveys conducted
by the DEP to determine the utility’s overall water facility compliance. A
review of the inspection conducted on July 24, 2019, indicated that Gator’s
water treatment facility was in compliance with the DEP’s rules and
regulations.
Conclusion
Gator’s water treatment facility is currently in
compliance with DEP regulations.
Issue 3:
What are the used and useful (U&U) percentages
of Gator's water treatment plant (WTP) and water distribution system?
Recommendation:
Staff recommends that Gator’s WTP and water
distribution system be considered 100 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, Lewis)
Staff Analysis:
Gator’s WTP has two wells rated at a combined 400
gpm. The utility’s water system does not have a storage tank, but has one
hydro-pneumatic tank totaling 5,000 gallons in capacity. The distribution
system is composed of varying sizes, from 2 to 6 inch, polyvinyl chloride (PVC)
and asbestos cement (AC) pipes.
Water Treatment Plant Used and Useful
This is the utility’s first staff-assisted rate case since
receiving its grandfather certificate in 1993.
Therefore, this is the first determination of used and useful percentages by
the Commission.
Rule
25-30.4325, F.A.C., addresses the method by which the U&U of a water system
is determined. The formula for calculating U&U for the WTP is given by [2 x
(Maximum Day Peak Demand – EUW)/1,440 + Fire Flow + Growth] / Firm Reliable
Capacity. Peak demand is based on a peak hour for a water treatment system with
no storage capacity. The formula for calculating peak hour demand is given by
[((SMD-EUW)/1,440) x 2], where SMD is the single maximum day in the test year
where there is no unusual occurrence on that day, such as a fire or line break.
Based on the Monthly Operating Reports that the utility files with the DEP, the
SMD in the test year was 191,150 gpd. As discussed below, there appears to be
no EUW. Therefore,
the peak
hour demand is calculated to be 265 gpm [((191,150 gpd – 0)/1,440) x 2].
The
utility does not currently own any fire hydrants; consequently, there is no
Fire Flow.
Growth allowance is based on the requirements outlined in Rule 25-30.431,
F.A.C., which states that a linear regression analysis using average equivalent
residential connections (ERCs) for the last 5 years should be used to determine
growth. Staff attempted to obtain ERC data for the period of 2014-2018;
however, no data was available for 2017. Instead, staff utilized data from
2013-2016 and 2018 to perform a linear regression over 5 years, and the growth
was calculated to be 14 gpm. Firm Reliable Capacity assumes loss of the largest
capacity well (250 gpm) and is therefore 150 gpm. This calculation results in a
U&U greater than 100 percent; as such, staff recommends the WTP be
considered 100 percent U&U.
Excessive Unaccounted for Water
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., staff
considers several factors. These include (1) the causes of EUW, (2) any
corrective action taken, or (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 39,264,456 gallons during the test year. In response to a staff data
request, the utility indicated that it purchased no water and estimated
9,637,134 gallons for other uses, such as flushing or water line breaks, during
the test year. According to the billing data, the utility sold 25,735,000
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, 3,892,322 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 9.9 percent; therefore, 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
The water distribution system is evaluated based on ERCs
consisting of growth, customer demand, and system capacity. The customer demand
is 335 ERCs for the test year and the system capacity is 365 ERCs, resulting in
a U&U percentage of 92 percent for the distribution system. However, the utility
provided that there are only four vacant lots in the service territory; thus,
the system is virtually built out. Considering all of the water mains are
required to adequately serve the existing customers, and consistent with prior
Commission practice, staff recommends the distribution system be considered 100
percent U&U.
Conclusion
Staff recommends that Gator’s WTP and water distribution
system be considered 100 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 4:
Should the Commission approve a year-end rate base
for Gator and if so, what is the appropriate year-end rate base?
Recommendation:
Yes. The Commission should approve a
year-end rate base for Gator. The appropriate year-end test year rate base is
$548,722. (Wilson, T. Brown, Knoblauch)
Staff Analysis:
The
appropriate components of a utility’s rate base include utility plant in
service, contributions in aid of construction (CIAC), accumulated depreciation,
amortization of CIAC, and working capital. This utility has never had a SARC
before the Commission. The utility's rates, charges, and customer deposits were
approved in the original grandfather certificate in 1993.
The rates were subsequently amended through three price index increases. The utility
requested the test year ended March 31, 2019, for the instant case. Commission
audit staff determined that the utility’s books and records are in compliance
with the National Association of Regulatory Utility Commissioners’ Uniform
System of Accounts (NARUC USOA). A summary of each component of rate base and
staff’s recommended adjustments are discussed below.
Year-End Rate Base
In its application, the utility requested a year-end rate base for
its water system in order to have an opportunity to recover its allowed rate of
return on the significant capital improvements that were made during the test
year to install a new well and make additional plant improvements to address water
quality concerns. In the transfer order, the Commission approved net utility
plant in service in the amount of $92,804, and total rate base of $63,321. In
the utility’s 2018 annual report, Gator reported total plant in service of
$466,889 and net plant of $205,755. This represents an increase in net plant in
service of more than 120 percent. Subsequent to the acquisition of the
utility, Gator made substantial improvements to the water system. The utility
repaired numerous water main breaks over the past year totaling over $67,000 to
date. In addition, during 2018, Gator replaced over 250 meters that were
inoperable at a cost of over $40,000. If an average rate base is used, the utility
will not be afforded the opportunity to recover its allowed rate of return on
the new investment and will be put in the position of requesting a subsequent
SARC at a later date.
The Commission has the authority to apply a year-end rate base,
but should only apply a year-end rate base in extraordinary circumstances. Staff
believes extraordinary circumstances exist in the instant case. Following
the recent transfer of the utility, Gator stated that the water system was in
immediate need of repairs. A complete rehabilitation of the existing WTP was completed,
which included a new hydro-pneumatic tank, generator, well pump, disinfection
system, disinfection shed, storage unit, and supply mains. The
year-end rate base will provide the utility with an opportunity to recover the
investment made to improve water quality and provide for compensatory rates for
this utility in this rate case. The Commission has previously authorized the
use of a year-end rate base in other cases involving significant test year
improvements.
Therefore, staff recommends that the Commission approve a year-end rate base
for Gator.
Utility Plant in Service (UPIS)
The utility recorded a test year UPIS balance of $468,703.
Based on audit staff’s review of the utility’s books and records, no adjustments
were necessary to reflect the appropriate UPIS test year balances. However, the
utility also filed three separate requests for consideration of pro forma plant
in this docket. The first project, included with the utility’s initial filing,
totaled $158,790 for a rehabilitation and replacement project of the water
treatment plant. The utility provided staff with invoices. The second, filed on
July 29, 2019, was for the replacement of water mains on two of the streets in
the service territory that have experienced a high number of leaks and the
addition of three new fire hydrants for added fire protection for the
customers. The utility received three bid proposals for the project, and the
bid with the lowest cost of $204,650 was selected. The third request, dated
September 23, 2019, was for $13,204 related to emergency repairs. The utility
provided staff with invoices for the repairs. In total, Gator has requested
recovery of $376,644 ($158,790 + $204,650 + $13,204) in pro forma plant in this
docket.
Staff calculated pro forma plant
retirements based on Commission practice that a factor of 75 percent of
replacement cost be used for retirements. Staff believes the amount of
retirement to plant in service and accumulated depreciation reflected in the
adjusted test year should be calculated based on either the 75 percent
methodology or on the actual balance in the impacted plant in service account
as of March 31, 2019, if that balance would be negative as a result of the 75
percent methodology. Therefore, when a retirement results in a negative plant
balance, staff limited the retirement amount to the test year plant balance so
there would be no negative plant. This situation occurred in five plant
accounts in this docket, as reflected in Table 4-1 on the following page.
Table 4-1
Capped Pro Forma Plant Retirements
|
|
Staff
|
TY
|
|
|
Plant
|
Calculated
|
Plant
|
|
|
Account
|
Retirement
|
Balance
|
Difference
|
|
304
|
$35,566
|
$12,500
|
($23,066)
|
|
309
|
$28,325
|
$1,500
|
($26,825)
|
|
310
|
$27,427
|
$18,300
|
($9,127)
|
|
330
|
$25,990
|
$24,905
|
($1,085)
|
|
333
|
$62,187
|
$5,716
|
($56,471)
|
Source: Audit
Report and staff calculations.
Table 4-2 reflects staff’s recommended UPIS adjustments,
by account.
Table 4-2
Pro Forma UPIS Adjustments
|
|
Pro Forma
|
Pro Forma
|
|
Account
|
Plant
|
Retirement
|
|
304
|
$47,422
|
$12,500
|
|
307
|
1,980
|
1,485
|
|
309
|
37,766
|
1,500
|
|
310
|
36,569
|
18,300
|
|
311
|
639
|
479
|
|
320
|
400
|
300
|
|
330
|
34,653
|
24,905
|
|
331
|
123,893
|
92,920
|
|
333
|
82,916
|
5,716
|
|
334
|
656
|
492
|
|
335
|
9,750
|
0
|
|
Total
|
$376,644
|
$158,597
|
Staff also made corresponding adjustments to accumulated
depreciation (elsewhere in this issue), while depreciation expense and TOTI
adjustments for taxes related to pro forma plant are discussed in Issue 7.
Staff’s adjustments to UPIS result in a net increase of $218,047 ($376,644 -
$158,597). Therefore, staff recommends a UPIS balance of $686,750 ($468,703 +
$218,047).
Land & Land Rights
The utility recorded a test year land balance of $8,000.
The Commission approved a land balance of $8,000 in the utility's 2018 transfer
docket.
There have been no additions to land since the transfer; therefore, no
adjustments are necessary. Staff recommends a land and land rights balance of
$8,000.
Used & Useful
As discussed in Issue 3, Gator’s WTP and distribution system
are considered 100 percent U&U. Therefore, no U&U adjustments are
necessary.
Accumulated Depreciation
Gator recorded a test year accumulated depreciation
balance of $265,341. Staff increased accumulated depreciation by $167 to
reflect depreciation pursuant to Rule 25-30.140, F.A.C. In addition, staff made adjustments to
accumulated depreciation based on the pro forma plant recommended in UPIS. Like
the capped retirements discussed above, staff believes pro forma accumulated
depreciation adjustments should be limited to the actual account balance when
the adjustment would exceed the accumulated depreciation balance as of March
31, 2019. This situation impacted the same five accounts discussed above, as
reflected in Table 4-3 below.
Table 4-3
Capped Pro Forma Acc. Depreciation Adjustments
|
|
Staff
|
TY
|
|
|
Calculated
|
Acc. Dep.
|
|
Account
|
Acc. Dep. Adj.
|
Balance
|
|
304
|
$35,566
|
$6,497
|
|
309
|
$28,325
|
$316
|
|
310
|
$27,427
|
$18,300
|
|
330
|
$25,990
|
$20,984
|
|
333
|
$62,187
|
$82
|
Source: Audit Report and
staff calculations.
Table 4-4 reflects staff’s recommended accumulated
depreciation adjustments, by account.
Table 4-4
Pro Forma Acc. Depreciation Adjustments
|
|
Recommended
|
|
Account
|
Acc. Dep. Adj.
|
|
304
|
$6,497
|
|
307
|
1,485
|
|
309
|
316
|
|
310
|
18,300
|
|
311
|
479
|
|
320
|
300
|
|
330
|
20,984
|
|
331
|
92,920
|
|
333
|
82
|
|
334
|
492
|
|
335
|
(244)
|
|
Total
|
$141,611
|
Staff’s adjustments to accumulated depreciation result in
a net decrease of $141,444 (-$167 + $141,611). Therefore, staff recommends an
accumulated depreciation balance of $123,897 ($265,341 - $141,444).
Contribution in Aid of Construction (CIAC)
The utility recorded a test year CIAC balance of $165,685.
Based on staff’s review, no adjustment is necessary. Therefore, staff recommends
that the appropriate balance is $165,685.
Accumulated Amortization of CIAC
The utility recorded a test year accumulated amortization
of CIAC balance of $134,990. Based on staff’s review, accumulated amortization
of CIAC should be reduced by $686. Therefore, staff recommends that the
appropriate balance is $134,304 ($134,990 - $686).
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 removed the rate case expense balance of $661 for this calculation
resulting in an adjusted O&M expense balance of $73,997 ($74,658 - $661).
Applying this formula approach to the adjusted O&M expense balance, staff recommends
a working capital allowance of $9,250 ($73,997/8).
Rate Base Summary
Based on the
foregoing, staff recommends that the appropriate year-end test year rate base
is $548,722. 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 of equity and overall
rate of return for Gator?
Recommendation:
The appropriate return on equity (ROE) is 7.85
percent with a range of 6.85 percent to 8.85 percent. The appropriate overall rate of
return is 7.85 percent. (Wilson, T. Brown)
Staff Analysis:
Gator’s
capital structure consists of $356,836 in common equity. The utility has
no customer deposits. Audit staff determined that no test year adjustments were
necessary. The utility’s capital structure has been reconciled with staff’s
recommended rate base. The appropriate ROE is 7.85 percent based upon the
Commission-approved leverage formula currently in effect.
Staff recommends a ROE of 7.85 percent, with a range of 6.85 percent to 8.85
percent, and an overall rate of return of 7.85 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate amounts of test year
revenues for Gator's water system?
Recommendation:
The appropriate test year revenues for Gator’s water
system are $56,781. (Bruce)
Staff Analysis:
Gator recorded test year revenues of $56,351. The
water revenues included $51,833 of service revenues and $4,518 of miscellaneous
revenues. In order to determine the appropriate test year revenues, staff
applied the number of billing determinants by the rates in effect as of January
4, 2019. As a result, staff determined that service revenues should be $52,255,
which is an increase of $422.
Staff also made an adjustment to the miscellaneous
revenues. During the test year, the utility incorrectly recorded the number of
late payments. Therefore, staff increased miscellaneous revenues by $8 for late
payment charges to reflect miscellaneous revenues of $4,526. Based on the
above, the appropriate test year revenues for Gator’s water system, including
miscellaneous revenues are $56,781 ($52,255 +$4,526).
Issue 7:
What is the appropriate amount of operating expense
for Gator?
Recommendation:
The appropriate amount of operating expense for
Gator is $112,971. (Wilson, T. Brown, Knoblauch)
Staff Analysis:
Gator recorded operating expense of $89,965 for the
test year ended March 31, 2019. The test year O&M expenses have been
reviewed, including invoices, canceled checks, and other supporting
documentation. Staff has made a few adjustments to the utility's operating
expenses as summarized below.
Operation
& Maintenance Expense
Salaries
and Wages – Officers (603)
The utility recorded salaries and wages – officers expense
of $5,000 in the test year to reflect the president's monthly salary
of $417. According to the utility's 2018 annual report, Gator's officers also
include an accounting manager who does not receive a salary included in this
amount. In addition, the utility indicated in audit work papers that the
president only receives compensation through distribution of retained earnings
if there are any net operating profits from operations that are not used for
continuing operations or capital improvements. Staff made no adjustments
to this account. As such, staff recommends salaries and wages – officers expense
for the test year of $5,000.
Purchased
Power (615)
The utility recorded purchased power expense of $12,923 in
the test year. Supporting documentation confirming the purchased power expense was
provided. Staff made no adjustments to this account. As
such, staff recommends purchased power expense for the test year of $12,293.
Chemicals Expense (618)
The utility recorded chemicals expense of $669 in the test
year. Supporting documentation confirming the chemicals expense was
provided. Staff made no adjustments to this account. As
such, staff recommends chemicals expense for the test year of $669.
Contractual Services – Accounting (632)
The utility recorded contractual services – accounting expense of
$400. Supporting documentation confirming the accounting expense was used for
preparing and filing the corporate tax preparation was provided. Staff made no
adjustments to accounting expense. Therefore, staff recommends contractual
services – accounting expense for the test year of $400.
Contractual Services – Legal (633)
The utility recorded contractual services – legal expense
of $300 in the test year. Supporting documentation confirming the
legal expense was provided. Staff made no adjustments to this account. As
such, staff recommends contractual services – legal expense for the test
year of $300.
Contractual Services – Testing Expense (635)
The utility recorded contractual services – testing expense
of $157 in the test year. This expense only included notices for two boil water
notices. Normal testing is included in the operations contract with U.S.
Water Services Corporation (USWSC or U.S. Water). As a
result, staff made no adjustments. Staff recommends contractual
services – testing expense for the test year of $157.
Contractual Services - Other
Expense (636)
During the test year, the utility
recorded contractual services - other expense of $49,732. Gator receives all of
its operational and administrative services under a contract with an affiliated
company, USWSC. Pursuant to the contract, Gator employed the services of USWSC
to perform various functions: administrative management, operations,
maintenance, and billing/collection for the utility. These include management
and financial oversight, water system operations, maintenance, and customer
service. The USWSC contract dated February 24, 2018, was originally in the
amount of $49,732. According to the utility, this contract amount has increased
to $50,906 as a result of an index increase.[12]
This represents a known and measurable increase of $1,174 ($50,906 - $49,732)
over the amount included in the test year.
On August 9, 2019, Gator submitted
documentation containing additional information related to its outside
contractual services agreement with USWSC.[13]
According to Gator, USWSC currently operates in 60 of Florida’s 67 counties,
providing service to over 1,000 utility systems and services to over 1,000,000
customers daily. USWSC’s president and majority shareholder has been in the
water and wastewater utility management and operations industry for over 30
years. Gator contracts with USWSC for the following services:
- Water Operations
- Meter Reading
- System Maintenance and Repairs
- Billing and Collections
- Customer Service
- Regulatory Affairs
- Testing
- Accounting
- Office Space and Equipment
According to Gator, each of the service
contracts that USWSC enters into with a utility “are different and are priced
differently depending on numerous factors.”[14]
These factors include the number of employees needed and the number of hours
required per system for successful operation. Additional considerations include
whether USWSC provides chemicals, power, offices, vehicles, etc., or if these
items are provided by the utility.
Staff notes that similar relationships
currently exist for three other regulated utilities in Marion County; BFF Corp.
(BFF), C.F.A.T. H2O, Inc. (CFAT), and Tradewinds Utilities, Inc. (Tradewinds).
All have contractual service agreements with MIRA International, Inc. (MIRA).
Their respective agreements cover similar services to those included in the
agreement between Gator and USWSC. In addition to a relationship established by
their contractual service agreements, the same individuals own the three
utilities listed above and MIRA. As such, the relationship is similar to that
of Gator and USWSC.
As detailed in Table 7-1 below, based
on the three most recent annual reports, CFAT has an average O&M expense of
$267.92 per ERC, and Tradewinds has an average O&M expense of $215.60 per
ERC. BFF is a wastewater only utility and is not included in staff’s comparison
below. Gator was not included in the table because only the 2018 Annual Report
was available due to a recent change in ownership.
Table 7-1
Comparable Water O&M
Expense Per ERC
|
Annual Report
Year
|
CFAT
(227 ERCs)
|
Tradewinds
(616 ERCs)
|
|
2016
|
$222.31
|
$197.94
|
|
2017
|
$278.85
|
$239.02
|
|
2018
|
$302.61
|
$209.84
|
|
3-Year Average
|
$267.92
|
$215.60
|
Source: CFAT and Tradewinds 2016-2018 Annual
Reports, staff calculations.
Under staff’s proposed revenue
requirement, Gator’s O&M expense is $213.31 per ERC. This proposed expense
is 20.38 percent less than that of CFAT and 1.06 percent less than Tradewinds.
Additional support offered by Gator
included the “2016 American Water Works Association Benchmarking Performance
Indicators for Water and Wastewater” (AWWA Benchmark) and an independent third-party contract and
benchmarking review commissioned by the Florida Governmental Utility Authority
(FGUA), which was issued in 2013. According to the AWWA Benchmark, the median
O&M expense per account of the 44 water companies surveyed is $430.71,
including customer service costs. This figure is 101.92 percent higher than the
per ERC O&M expense ($213.31) staff is recommending for Gator.
The contract and
benchmarking review commissioned
by FGUA was undertaken to review charges by USWSC
in comparison to similar water and wastewater utilities throughout the United States. The FGUA
study concluded that the USWSC costs on a per account basis fell within the top
quartile (lower cost) of other utilities.[16] These were charges to FGUA by USWSC. While the utility has represented that there was a
flaw in the data presented in the 2013 study, staff’s greater concern is the
age of some of the underlying data, which can be tied to AWWA’s 2011 Benchmarking Performance Indicators. As such, staff believes that the 2016
Benchmarking Performance Indicators are a more appropriate reference point.
In its filing, Gator asserted that if
it was required to establish a stand-alone utility with personnel for
maintenance, customer service, accounting, regulatory compliance, etc., the
cost would exceed that of the current USWSC contract.[17]
As the utility noted in its supplemental filing, O&M expenses would be
incurred regardless of the size of the customer base. In regard to the appropriateness
of utility contracts with affiliated companies, the utility cited GTE v. Deason, 642 So. 2d 545 (Fla.
1994), in which the Florida Supreme Court stated:
The mere fact that a utility is doing business
with an affiliate does not mean that unfair or excess profits are being
generated, without more. Charles F. Phillips, Jr., The Regulation of Public Utilities 254-255 (1988). We believe the
standard must be whether the transactions exceed the going market rate or are otherwise
inherently unfair . . . [i]f the answer is “no,” then the PSC may not reject
the utility’s position.[18]
Staff compared Gator to six “sister”
water utilities that had rate cases approved in the last five years, by
calculating a three-year average O&M expense per ERC using information
contained in each utility’s 2016, 2017, and 2018 Annual Reports.[19] Staff then compared Gator
to five non-U.S. Water affiliated water utilities using the same criteria.
Based on that criteria, the average O&M expense per ERC of the sister
utilities was $331.47. The average O&M expense per ERC for the non-U.S.
Water utilities was $486.71. Gator would have O&M expense of $213.31 per
ERC under staff’s recommended revenue requirement. Table 7-2 reflects the
O&M expense per ERC for Gator, and the average O&M expense per ERC for
its U.S. Water sister utilities, and non-U.S. Water utilities.
Table 7-2
Water O&M Expense
Per ERC
|
Utility
|
O&M Exp./ERC
|
|
U.S. Water Sister Utilities (3-Yr. Avg.)
|
$331.47
|
|
Non-U.S. Water Utilities (3-Yr. Avg.)
|
$486.71
|
|
Gator (Staff Recommended)
|
$213.31
|
Source: 2016-2018
Annual Reports and staff calculations.
Based on staff’s review, Gator’s
proposed expense is 35.65 percent less than that of the sister utilities and 56.17
percent less than that of the non-U.S. Water utilities.
Staff notes that the Commission has
previously approved similar USWSC agreements and related costs in prior cases
involving nine of Gator’s sister utilities during eleven rate case proceedings.[20] Two sister utilities, LP
Waterworks, Inc. and Lakeside Waterworks, Inc., each had two SARCs in which
this Commission reviewed and approved expenses related to USWSC management
services contracts. In addition to this docket, two additional sister utilities
with similar contracts have SARCs pending at this time,[21]
and a third has a file and suspend rate case pending.[22]
In addition, staff believes that USWSC
and its employees bring considerable management and operational experience at a
comparably reasonable cost. As a result, staff believes that Gator’s customers
are realizing operational and cost benefits that might not be realized if the utility
operated on a stand-alone basis. Staff notes that the utility, through its
contract with USWSC, has made significant plant improvements that should result
in improved quality of service.
Based on the discussion above, staff
believes Gator’s contractual services agreement with USWSC appears reasonable
when compared to other utilities with similar agreements. The agreement also
appears reasonable when compared to O&M expenses of industry peers as
reflected in the AWWA Benchmark. Staff believes that Gator’s USWSC contract is
appropriate, the adjusted cost is reasonable, and should be included in the utility’s
proposed rates because it is known, measurable, and already in effect.
Therefore, staff recommends contractual services - other expense for the test
year of $50,906
Insurance Expense (655)
The utility recorded insurance expense of $1,256 in the
test year. Staff increased this amount by $251 to reflect the annualized expense
to the utility. Therefore, staff recommends insurance expense for the
test year of $1,507 ($1,256 + $251).
Regulatory Commission Expense (665)
The utility did not record any regulatory commission
expense in this account. Rule 25-30.433(9), F.A.C., requires that non-recurring
expenses be amortized over a five-year period unless a shorter or longer period
of time can be justified. Accordingly, staff increased this account by $300
($1,500 / 5) to reflect the five-year amortization of the 2018 certificate
transfer application filing fee.
Regarding the instant case, the utility is required by Rule
25-22.0407, F.A.C., to provide notices of the customer meeting and notices of
final rates in this case to its customers. For noticing, staff estimated $728
for postage expense, $331 for printing expense, and $66 for envelopes. This
results in $1,125 ($728 + $331 + $66) for the noticing requirement. The utility
paid a $1,000 rate case filing fee. The utility requested travel and lodging
expense of $250 to attend the customer meeting and $250 to attend the
Commission Conference. Staff increased the utility’s customer meeting
travel expense by $137 to reflect mileage and actual lodging cost for two utility
employees to attend. This results in travel expense of $387 ($250 + $137) for
the customer meeting. Staff also reduced the cost of travel to attend the Commission
Conference in order to reflect the actual cost of lodging for one employee and
appropriate mileage.
Staff believes that the travel for the Commission Conference should be shared
with Merritt Island Utility Company and The Woods Utility Company. The
utilities are sister utilities of Gator which have SARCs scheduled for the same
Commission Conference. As such, staff believes it is appropriate to split
travel costs to the Commission Conference equally between the three utilities,
or $130 ($389 / 3) per utility. This results in a reduction of $120 ($130 -
$250) for Gator’s travel expense to the Commission Conference. As such, staff
recommends travel expense of $517 ($387 + $130). Staff notes that the
Commission previously approved rate case related travel expenses ranging from
$413 to $1,570 in the nine most recent dockets for Gator’s sister utilities.
Based on staff’s review, the requested travel expense appears reasonable.
Based on the discussion above, staff recommends total rate case
expense of $2,642 ($1,125 + $1,000 + $517), which amortized over four years is
$661. Based on the discussion above, staff's total adjustment to this account
is an increase of $961 ($300 + $661). As such, staff's recommendation for
regulatory commission expense is $961.
Bad
Debt Expense (670)
The utility recorded $5,404 in this account for test year
bad debt expense, which equals 3.46 percent of staff's recommended revenue
requirement. While Commission practice
is to calculate bad debt expense using a three-year average, three years of
records are not yet available for the current owners. The utility provided
staff with updated bad debt expense of $1,185 for the utility in 2019.
Generally, the basis for determining bad debt expense has been whether the
amount is representative of the bad debt expense to be incurred by the utility.
As such, staff believes the utility's updated 2019 bad debt expense is
reasonable and is likely to be representative of the utility's expected bad
debt expense going forward. This represents a decrease of
$4,219 ($1,185 - $5,404) over the amount included in the test year. The
updated amount equals 0.76 percent of staff’s recommended revenue requirement.
Therefore, staff recommends bad debt expense for the test year of $1,185.
Miscellaneous Expense (675)
The utility recorded miscellaneous expense of $650. Supporting
documentation confirming the miscellaneous expense was used for an annual
operating license fee through the Florida Department of Environmental
Protection and the utility’s annual report was provided. Staff made no
adjustments to this account. As such, staff recommends miscellaneous
expense for the test year of $650.
Operation & Maintenance Expense Summary
Based on the above adjustments, staff recommends that
O&M expense be decreased by $1,833, resulting in total O&M expense of
$74,658. Staff’s recommended adjustments to O&M expense are shown on
Schedule No. 3-C.
Depreciation Expense (Net of
Amortization of CIAC)
The utility's records reflect test year depreciation of $16,307
and CIAC amortization of $6,788, for a net depreciation expense of $9,519
($16,307 - $6,788). Staff calculated depreciation expense using the prescribed
rates set forth in Rule 25-30.140, F.A.C., and determined test year
depreciation expense to be $16,334, resulting in an increase to this account of
$27. Staff also increased this account by $7,106 to reflect the incremental
increases in depreciation expense related to several pro forma projects, net of
retirements. These projects were previously discussed in Issue 4. Staff’s total
adjustment to depreciation expense is a net increase of $7,133 ($27 + $7,106).
Accordingly, staff recommends depreciation expense of $23,440 ($16,307 +
$7,133). In addition, staff calculated test year CIAC amortization expense of
$6,041. Accordingly, staff decreased this account by $747 ($6,788 - $6,041).
This results in net depreciation expense of $17,399 ($23,440 - $6,041). Therefore,
staff recommends net depreciation expense of $17,399.
Taxes Other Than Income (TOTI)
Gator recorded a TOTI balance of $3,955 during the test
year, comprised of $2,705 for Regulatory Assessment Fees (RAFs) and $1,250 for
property taxes. Staff decreased the RAFs by $150 to reflect the adjusted test
year revenues. Staff also decreased this account by $416 to reflect the
appropriate test year property taxes. The utility also requested consideration
of pro forma taxes of $10,032.
In 2018, Gator’s property taxes were $834 and no tangible taxes were assessed.
Based on the utility’s 2019 Alachua County tax notices,
Gator’s property taxes will increase and tangible taxes will be applied. Staff
increased tax expense by $8,792 to reflect the appropriate amount of property tax
going forward, based on the utility’s current tax notices less a four percent
discount for early payment. Additionally, staff increased this account by
$4,266 to reflect the incremental increase in property taxes associated with
the pro forma projects discussed in Issue 4. This results in a net increase of
$12,492 (-$150 - $416 + $8,792 + $4,266) to TOTI.
In addition, as discussed in Issue 8, revenues have been
increased by $99,265 to reflect the change in revenue required to cover
expenses and allow the recommended operating margin. As a result, TOTI should
be increased by $4,467 to reflect RAFs of 4.5 percent on the change in
revenues. Staff’s adjustments result in an increase of $16,959 ($12,492 +
$4,467). Therefore, staff recommends TOTI of $20,914 ($3,955 + $16,959).
Income Tax
The utility is a Subchapter S Corporation and therefore
did not record any income tax expense for the test year. Staff recommends no
adjustment to income tax expense.
Operating Expenses Summary
The application of staff=s recommended adjustments to Gator’s
test year operating expenses results in operating expenses of $112,971.
Operating expenses are shown on Schedule No. 3-A. The related adjustments are
shown on Schedule Nos. 3-B and 3-C.
Issue
8:
What is the appropriate revenue requirement for
Gator?
Recommendation:
The appropriate revenue requirement is $156,046
resulting in an annual increase of $99,265 (174.82 percent). (Wilson, T. Brown)
Staff Analysis:
Gator should be allowed an annual increase of
$99,265 (174.82 percent). The calculations are shown in Table 8-1:
Table 8-1
Revenue Requirement
|
Adjusted Rate Base
|
|
$548,722
|
|
Rate of Return (%)
|
|
x 7.85%
|
|
Return on Rate Base
|
|
$43,075
|
|
Adjusted O&M Expense
|
|
74,658
|
|
Depreciation Expense (Net)
|
|
17,399
|
|
Taxes Other Than Income
|
|
20,914
|
|
Revenue Requirement
|
|
$156,046
|
|
Less Adjusted Test Year Revenues
|
|
56,781
|
|
Annual Increase
|
|
$99,265
|
|
Percent Increase
|
|
174.82%
|
Issue 9:
What are the appropriate rate structures and rates
for Gator'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 sheet pursuant to Rule 25-30.475(1), F.A.C.
In addition, the approved rates should not be implemented until staff has
approved the proposed customer notice and the notice has been received by the
customers. The utility should provide proof of the date notice was given within
10 days of the date of the notice.
Furthermore, due to the magnitude of the revenue
requirement increase, staff believes it is important to monitor whether the
customers reduce consumption as expected. Therefore, staff recommends the
utility should be ordered to prepare monthly reports detailing the number of
bills rendered, the consumption billed, and the revenues billed. The utility
should also provide the corresponding purchased power invoices. The reports
should be filed in the docket file, on a quarterly basis, for a period of twelve
months beginning the first billing period after the approved rates go into
effect. To the extent the utility makes adjustment to consumption in any month
during the reporting period, the utility should be ordered to file a revised
monthly report for that month within 30 days of any revision. Staff will
monitor and evaluate whether any adjustments to rates are necessary. (Bruce)
Staff Analysis:
Gator is located in Alachua County within the St.
Johns River Water Management District. This area has been designated as a water
use caution area (WUCA). The utility provides water service to approximately
331 residential customers and four general service customers. Approximately 20
percent of the residential customer bills during the test year had zero
gallons, indicating a non-seasonal customer base. The average residential water
demand is 6,181 gallons per month. The average water demand excluding zero
gallon bills is 7,683 gallons per month. Currently, the utility’s water rate
structure consists of a monthly base facility charge (BFC) and uniform
gallonage charge for the residential and general service customers.
Staff performed an analysis of
the utility’s billing data in order to evaluate the appropriate rate structure
for the residential water customers. 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.
In this case, staff recommends
that 33 percent of the water revenues be generated from the BFC, which will
provide sufficient revenues to design gallonage charges that send pricing
signals to customers using above the non-discretionary level. The average people
per household served by the water system is 3; therefore, based on the number
of people per household, 50 gallons per day per person, and the number of days
per month, the non-discretionary usage threshold should be 5,000 gallons per
month.
Staff’s review of the billing analysis indicates that the discretionary usage
above 5,000 represents 30 percent of the bills, which account for approximately
53 percent of the water demand. This is considered high discretionary usage for
this customer base. Staff also recommends a BFC and a four-tier inclining block
rate structure, which includes separate gallonage charges for discretionary and
non-discretionary usage for residential water customers. The rate blocks are:
(1) 0-5,000 gallons; (2) 5,001-10,000 gallons; (3) 10,000-15,000 gallons and (4)
all usage in excess of 15,000 gallons per month. This rate structure sends the
appropriate pricing signals because it targets customers with high consumption
levels and minimizes price increases for customers at non-discretionary levels.
In addition, the fourth tier provides an additional pricing signal to customers
using in excess of 15,000 gallons of water per month, which represents
approximately 30 percent of the usage. General service customers should be
billed a BFC and uniform gallonage charge.
Based on staff’s recommended revenue increase of 190 percent,
which excludes miscellaneous revenues, the residential consumption can be
expected to decline by 12,681,000 gallons resulting in anticipated average
residential demand of 3,065 gallons per month. Staff recommends a 50.4 percent reduction in
test year residential gallons for ratesetting purposes. Typically, staff makes
corresponding adjustments to variable costs, which are consistent with the
percentage reduction in consumption. However, the utility expressed concern
that there may not be a direct relationship between the consumption repressed
and the adjustments to variable costs. Staff recognizes that the utility may
experience a revenue short fall if there is not a direct relationship as
anticipated. Therefore, staff recommends only a 25 percent reduction to
purchased power and chemical expenses. As a result, the corresponding
reductions for purchased power is $3,184, $165 for chemicals, and $158 for RAFs
to reflect the anticipated repression, which results in a post repression
revenue requirement of $141,739.
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 sheet pursuant to Rule 25-30.475(1), F.A.C. In
addition, the approved rates should not be implemented until staff has approved
the proposed customer notice and the notice has been received by the customers.
The utility should provide proof of the date notice was given within 10 days of
the date of the notice.
Furthermore, due to the magnitude of the revenue
requirement increase, staff believes it is important to monitor whether the
customers reduce consumption as expected. Therefore, staff recommends the
utility should be ordered to prepare monthly reports detailing the number of
bills rendered, the consumption billed, and the revenues billed. The utility
should also provide the corresponding purchased power invoices. The reports
should be filed in the docket file, on a quarterly basis, for a period of twelve
months beginning the first billing period after the approved rates go into
effect. To the extent the utility makes adjustment to consumption in any month
during the reporting period, the utility should be ordered to file a revised
monthly report for that month within 30 days of any revision. Staff will
monitor and evaluate whether any adjustments to rates are necessary.
Issue 10:
What are the appropriate initial customer deposits
for Gator's water system?
Recommendation:
The appropriate initial customer deposit should be $66
for the residential 5/8 inch x 3/4 inch meter size. The initial customer
deposits for all other residential meter sizes and all general service meter
sizes should be two times the average estimated bill for water. The approved
initial customer deposits should be effective for services 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 deposits until authorized to change them by the Commission in a
subsequent proceeding. (Bruce)
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.[29] Currently, the utility’s initial deposit for
residential water is $25 for the 5/8 inch x 3/4 inch meter size and two times
the average estimated bill for the general service meter sizes. However, this
amount does not cover two months’ average bills based on staff’s recommended
rates. The utility’s average monthly residential water usage after repression
is 3,065 gallons per customer. Therefore, the average residential monthly bill based
on staff’s recommended rates is approximately $32.90.
Staff recommends the appropriate
initial customer deposits should be $66 for the residential 5/8 inch x 3/4 inch
meter size for water. The initial customer deposits for all other residential
meter sizes and all general service meter sizes should be two times the average
estimated bill for water. The approved initial customer deposits should be
effective for services 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 deposits until authorized to change
them by the Commission in a subsequent proceeding.
Issue 11:
Should Gator be authorized to collect Non-Sufficient
Funds (NSF) charges?
Recommendation:
Yes. Gator should be authorized to collect NSF
charges. Staff recommends that Gator revise its tariffs to reflect the NSF
charges currently set forth in Section 68.065, F.S. The NSF charges should be
effective on or after the stamped approval date on the tariff sheets pursuant
to Rule 25-30.475(1), F.A.C. Furthermore, the charges should not be implemented
until staff has approved the proposed customer notice. The utility should
provide proof of the date the notice was given within 10 days of the date of
the notice. (Bruce)
Staff Analysis:
Section 367.091, F.S., requires that rates, charges, and customer
service policies be approved by the Commission. The Commission has authority to
establish, increase, or change a rate or charge. Staff believes that Gator
should be authorized to collect NSF charges consistent with Section 68.065,
F.S., which allows for the assessment of charges for the collection of
worthless checks, drafts, or orders of payment. As currently set forth in
Sections 68.065(2), F.S., the following NSF charges may be assessed:
1. $25, if the
face value does not exceed $50.
2. $30, if the
face value exceeds $50 but does not exceed $300.
3. $40, if the face value exceeds $300, or 5 percent of the face
amount of the check, whichever is greater.
Approval of NSF charges is consistent with prior
Commission decisions.[30]
Furthermore, NSF charges place the cost on the cost-causer, rather than
requiring that the costs associated with the return of the NSF checks be spread
across the general body of ratepayers. As such, staff recommends that Gator
revise its tariffs to reflect the NSF charges currently set forth in Section
68.065, F.S. The NSF charges should be effective after the stamped approval
date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C. In addition,
the NSF charges should not be implemented until staff has approved the proposed
customer notice. The utility should provide proof of the date the notice was
given within 10 days of the date of the notice.
Issue 12:
Should Gator’s request to implement a $6.50 late
payment charge be approved?
Recommendation:
Yes. The utility’s request to implement a $6.50 late
payment charge should be approved. Gator should be required to file a proposed
customer notice to reflect the Commission-approved charge. The approved charge
should be effective on or after the stamped approval date on the tariff sheet
pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved charge should
not be implemented until staff has approved the proposed customer notice and
the notice has been received by customers. The utility should provide proof of
the date notice was given no less than 10 days after the date of the notice.
(Bruce)
Staff Analysis:
Gator is requesting a $6.50 late payment
charge to recover the cost of labor, supplies, postage, and RAFs associated
with processing late payment notices. Gator’s current late payment charge is $2.00.
However, the utility is requesting $6.50 for its late payment charge, which is
consistent with Commission practice and its sister utilities managed by U.S.
Water.
The purpose of this charge is not only to provide an incentive for customers to
make timely payment, thereby reducing the number of delinquent accounts, but
also to place the cost burden of processing delinquent accounts solely upon
those who are cost causers. Section 367.091, F.S., authorizes the Commission to
establish, increase, or change a rate or charge other than monthly rates or
service availability charges.
Gator calculated the actual costs for its late payment charges to
be $8.07. The utility indicated that it will take approximately 15 minutes per
account to research, compile, and produce late notices. The delinquent customer
accounts will be processed by the administrative contract employee, which
results in labor cost of $7.00 ($28.00 x 0.25hr). This is consistent with prior
Commission decisions where the Commission has allowed 10-15 minutes per account
per month for the administrative labor associated with processing delinquent
customer accounts.
However, $8.07 would be the highest late payment charge amongst all other water
and wastewater utilities regulated by the Commission.
Therefore, the utility is requesting a charge of $6.50, consistent with recent
Commission decisions. The utility's calculation for its actual costs associated
with a late payment charge is shown in Table 12-1.
Table 12-1
Late Payment Charge Cost Justification
|
Activity
|
Cost
|
|
Labor
|
$7.00
|
|
Supplies
|
$0.22
|
|
Postage
|
$0.49
|
|
Markup for RAFs
|
$0.36
|
|
Total Cost
|
$8.07
|
Source: Utility’s
cost justification documentation
Based on the above, Gator's request to implement a $6.50 late
payment charge should be approved. The utility should be required to file a
proposed customer notice to reflect the Commission-approved charge. The
approved charge should be effective on or after the stamped approval date on
the tariff sheet pursuant to Rule 25-30.475(1), F.A.C. In addition, the
approved charge should not be implemented until after staff has approved the
proposed customer notice and the notice has been received by customers. The utility
should provide proof of the date notice was given no less than 10 days after
the date of the notice.
Issue 13:
Should Gator's miscellaneous service charges be
revised?
Recommendation:
Yes. The miscellaneous service charges identified in
Table 13-5 are appropriate and should be approved. The charges should be
effective on or after the stamped approval date on the tariff pursuant to Rule
25-30.475, F.A.C. In addition, the approved charges should not be implemented
until staff has approved the proposed customer notice and the notice has been
received by the customers. The utility should provide proof of the date notice
was given within 10 days of the date of the notice. (Bruce)
Staff Analysis:
Gator’s current miscellaneous service charges were
approved on July 13, 1993. Section
367.091, F.S., authorizes the Commission to change miscellaneous service
charges. The utility’s request to revise its miscellaneous charges was
accompanied by its reason for requesting the charges, as well as the cost
justification required by Section 367.091(6), F.S. The requested charges are
consistent with those recently approved for its sister companies LP and Country
Walk. The
calculations for charges for miscellaneous service charges, shown in the tables
below, are rounded to the nearest tenth. The utility’s current and staff’s
recommended miscellaneous service charges are shown in Table 13-5.
Initial
Connection Charge
The initial connection charge is levied for
service initiation at a location where service did not exist previously. A
Gator representative makes one trip when performing the service of an initial
connection. Based on labor and transportation to and from the service
territory, staff recommends initial connection charges for Gator’s water system
of $31.10 for normal hours and $36.20 for after hours. Staff’s calculations are
shown below in Table 13-1.
Table 13-1
Initial
Connection Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($28/hr x1/4hr)
|
$7.00
|
Labor (Administrative)
($28/hr x1/4hr)
|
$7.00
|
|
Labor (Field)
($30.42/hr x 1/3 hr)
|
$10.14
|
Labor (Field)
($45.63/hr x 1/3 hr)
|
$15.21
|
|
Transportation
($0.535/mile x 26 miles-to/from)
|
$13.91
|
Transportation
($0.535/mile x 26 miles-to/from)
|
$13.91
|
|
Total
|
$31.05
|
Total
|
$36.12
|
Normal
Reconnection Charge
A normal reconnection charge is levied for the transfer of
service subsequent to a customer requested disconnection. A normal reconnection
requires two trips, which includes one to turn service on and the other to turn
service off. Based on labor and transportation to and from the service
territory, staff recommends normal reconnection charges for Gator’s water
system of $57.10 for normal hours and $64.70 for after hours. Staff
calculations are shown in Table 13-2.
Table 13-2
Normal
Reconnection Charge Calculation
|
Activity
|
Normal Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($28/hr x1/4hr x 2)
|
$14.00
|
Labor (Administrative)
($28/hr x1/4hr)
|
$14.00
|
|
Labor (Field)
($30.42/hr x 1/4 hr x 2)
|
$15.21
|
Labor (Field)
($45.63/hr x 1/4hr x 2)
|
$22.82
|
|
Transportation
($0.535/mile x 26 miles-to/from x 2)
|
$27.82
|
Transportation
($0.535/mile x 26 miles-to/from x 2)
|
$27.82
|
|
Total
|
$57.03
|
Total
|
$64.64
|
Violation
Reconnection Charge
The violation
reconnection charge is levied prior to reconnection of an existing customer
after discontinuance of service for cause. The service performed for violation
reconnection requires two trips, which includes one trip to turn off service
and a subsequent trip to turn on service once the violation has been remedied.
Based on labor and transportation to and from the service territory, staff
recommends violation reconnection charges for Gator’s water system of $57.10
for normal hours and $64.70 for after hours. Staff’s calculations are shown in
Table 13-3.
Table 13-3
Violation Reconnection Charge Calculation
|
Activity
|
Normal
Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($28/hr x1/4hr x 2)
|
$14.00
|
Labor (Administrative)
($28/hr x1/4hr x 2)
|
$14.00
|
|
Labor (Field)
($30.42/hr x 1/4 hr x 2)
|
$15.21
|
Labor (Field)
($45.63hr x 1/4 hr x 2)
|
$22.82
|
|
Transportation
($0.535/mile x 26 miles-to/from) x 2
|
$27.82
|
Transportation
($0.535/mile x 26 miles-to/from) x 2
|
$27.82
|
|
Total
|
$57.03
|
Total
|
$64.64
|
Premises
Visit Charge
The premises visit
charge is levied when a service representative visits premises at the
customer’s request for complaint resolution and the problem is found to be the
customer’s responsibility. In addition, the premises visit charge can be levied
when a service representative visits a premises for the purpose of
discontinuing service for nonpayment of a due and collectible bill, and does
not discontinue service because the customer pays the service representative or
otherwise makes satisfactory arrangements to pay the bill. A premises visit
requires one trip.
Based on labor and
transportation to and from the service territory, staff recommends a premises
visit charges of $31.10 for normal hours and $36.20 for after hours. Staff’s
calculations are shown in Table 13-4.
Table 13-4
Premises
Visit Charge Calculation
|
Activity
|
Normal
Hours Cost
|
Activity
|
After
Hours Cost
|
|
Labor (Administrative)
($28.00/hr x1/4hr)
|
$7.00
|
Labor (Administrative)
($28.00/hr x1/4hr)
|
$7.00
|
|
Labor (Field)
($30.42/hr x 1/3 hr)
|
$10.14
|
Labor (Field)
($45.63/hr x 1/3 hr)
|
$15.21
|
|
Transportation
($0.535/mile x 26 miles-to/from)
|
$13.91
|
Transportation
($0.535/mile x 26 miles-to/from)
|
$13.91
|
|
Total
|
$31.05
|
Total
|
$36.12
|
Table 13-5
Miscellaneous Service Charges
|
|
Current
|
Staff
Recommended
|
|
Normal
and After Hours
|
Normal
Hours
|
After
Hours
|
|
Initial Connection Charge
|
$15.00
|
$31.10
|
$36.20
|
|
Normal Reconnection Charge
|
$15.00
|
$57.10
|
$64.70
|
|
Violation Reconnection Charge
|
$15.00
|
$57.10
|
$64.70
|
|
Premises Visit
Charge
|
$10.00
|
$31.10
|
$36.20
|
Conclusion
Based on the above, the miscellaneous service charges
identified in Table 13-5 are appropriate and should be approved. The charges
should be effective on or after the stamped approval date on the tariff
pursuant to Rule 25-30.475, F.A.C. In addition, the approved charges should not
be implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The utility should provide proof of
the date notice was given within 10 days of the date of the notice.
Issue 14:
What is the appropriate amount by which the 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 rate case expense recovery period, pursuant to
Section 367.081(8), F.S. Gator should be required to file revised tariffs and a
proposed customer notice setting forth the lower rates and the reason for the
reduction no later than one month prior to the actual date of the required rate
reduction. If the utility files this reduction in conjunction with a price
index or pass-through rate adjustment, separate data should be filed for the
price index and/or pass-through increase or decrease and the reduction in the
rates due to the amortized rate case expense. (Bruce, Wilson, T. Brown)
(Procedural Agency Action)
Staff Analysis:
Section 367.081(8), F.S., requires that the rates be
reduced immediately following the expiration of the recovery 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 $692.
Staff recommends that 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 rate
case expense recovery period, pursuant to Section 367.081(8), F.S., Gator
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 published effective date to reflect the removal of the amortized
rate case expense.
Issue 15:
Should the recommended rates be approved for Gator
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. Gator 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. (Wilson,
T. Brown) (Procedural Agency Action)
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. Gator 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.
Gator 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 $66,889. 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, Gator should maintain a record of the amount of the
security, and the amount of revenues that are subject to refund. In addition,
after the increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C.,
the utility should file reports with the Commission’s Office of Commission
Clerk no later than the 20th of each month indicating the monthly and total
amount of money subject to refund at the end of the preceding month. The report
filed should also indicate the status of the security being used to guarantee
repayment of any potential refund.
Issue 16:
Should Gator be required to notify the Commission,
in writing, that it has adjusted its books in accordance with the Commission's
decision?
Recommendation: Yes. Gator should be required to
notify the Commission, in writing, that it has adjusted its books in accordance
with the Commission’s decision. Gator 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 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 providing good cause should be filed not less than
seven days prior to the deadline. Staff should be given administrative
authority to grant such an extension for up to 60 days.
(Wilson) (Procedural Agency Action)
Staff Analysis:
Gator should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Gator 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 providing good cause should be filed not less than seven days prior to
the deadline. Staff should be given administrative authority to grant such an
extension for up to 60 days.
Issue 17:
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 Proposed Agency Action Order, a consummating order should be
issued. This docket should remain open for staff’s verification that the
revised tariff sheets and customer notices have been filed by the utility and
approved by staff. Also, the docket should remain open to allow the utility to
provide the recommended reporting information. Upon staff’s approval of the
tariff sheets and customer notices, along with staff’s completion of its review
of the recommended reporting information, this docket should be closed
administratively if no adjustments are necessary. (DuVal)
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 Proposed Agency Action Order, a consummating order
should be issued. This docket should remain open for staff’s verification that
the revised tariff sheets and customer notices have been filed by the utility
and approved by staff. Also, the docket should remain open to allow the utility
to provide the recommended reporting information. Upon staff’s approval of the
tariff sheets and customer notices, along with staff’s completion of its review
of the recommended reporting information, this docket should be closed
administratively if no adjustments are necessary.
