Case Background
Rule
25-30.457, Florida Administrative Code (F.A.C.), Limited Alternative Rate
Increase, was adopted in 2005 pursuant to Section 367.0814(9), Florida Statutes
(F.S.), as an alternative to the staff assisted rate case procedure for water
or wastewater utilities. The rule is
applicable to water and wastewater utilities whose total gross annual operating
revenues are $300,000 or less. The purpose of the rule is to allow small
utilities to obtain a limited amount of rate relief more quickly than would
occur in rate cases filed under Rule 25-30.455, Staff Assistance in Rate Cases,
or Rule 25-30.456, Staff Assistance in Alternative Rate Setting, thus resulting
in less costly regulation through lower rate case expense and reduction in
Commission staff labor.
At the April 2,
2019 Commission Conference, the Commission heard three petitions for limited
rate increase. The Office of Public Counsel (OPC)
participated at that Commission Conference and, although not opposing the
requested rate increase in those dockets, OPC raised concerns about Rule
25-30.457, F.A.C. OPC stated that it did not believe that the rule had an
objective cost-based method by which to approve increases or to set specific
rates. OPC stated that it had raised
these concerns with the Office of General Counsel and anticipated developing
suggestions and possible rule amendments to address its concerns.
On May 15, 2019,
staff held a noticed, informal meeting with interested persons to discuss the
possible amendment of Rule 25-30.457, F.A.C. Attending the meeting and
providing comments were OPC; Investor Owned Utilities, consisting of eighteen
utilities (“Collective Utilities”); U.S. Water Services Corporation; and Florida
Utility Services. The Notice of Rule Development for amending Rule 25-30.457,
F.A.C., was published in the Florida Administrative Register on October 9,
2019, and a staff rule development workshop was held on October 30, 2019.
Post-workshop comments were submitted by OPC. The Commission has jurisdiction
pursuant to Sections 350.127(2), 367.0814, 367.121, and 120.54, F.S.
Discussion
of Issues
Issue 1:
Should the Commission propose the amendment of Rule
25-30.457, F.A.C., Limited Alternative Rate Increase?
Recommendation:
Yes, the Commission should propose the amendment of
Rule 25-30.457, F.A.C., as set forth in Attachment A of this recommendation. The
Commission should also certify Rule 25-30.457, F.A.C., as a minor violation
rule. (Cowdery, T. Brown, Norris,
Coston, Guffey)
Staff Analysis:
Staff is recommending that Rule 25-30.457, F.A.C,
should be amended to clarify rule requirements and better organize the rule. In
addition, staff is recommending restructuring of the rule to specifically
identify what information is needed in the application, including an
explanation of the reasons why the utility is asking for the rate increase. The
recommended rule amendments are set forth in Attachment A. The substantive recommended rule amendments
are discussed in more detail below.
Draft Subsection (2) – The Application
Under the current Rule 25-30.457,
F.A.C., an applicant is required to file information required by subsections
(7) – (9) of the rule. In addition,
paragraphs (5)(a) – (h) of the current rule provide that in determining whether
to grant or deny the petition, the Commission will consider certain other
criteria, such as whether the petitioner has filed annual reports, paid
applicable regulatory assessment fees, or has at least one year of experience
in utility operation.
OPC argued that subsection (5)
fails to establish adequate standards for agency decisions because the rule
does not state whether or not the criteria listed must be met by the utility,
thus giving the Commission too much discretion in granting or denying rate
increases. OPC gave as an example paragraph (5)(g), which states that the
Commission, in determining whether to grant or deny the petition, must consider
whether the utility was granted a rate case increase within the 2-year period
prior to receipt of the limited alternative rate increase petition. OPC points out that it is not clear whether
the utility would or would not qualify for a rate increase if it had been
granted a rate case increase within the past two years.
In order to address this concern,
the draft rule adds a new subsection (2) that lists all the information that must be contained in the limited
alternative rate increase application. The requirements in paragraphs
(2)(a)-(f) and (i) are currently required in existing rule subsections
(7)-(9). Attachment A, pages 10-11. In addition, staff is recommending that the
following information, currently listed in subsection (5) as criteria to be
considered, should be required in the application in new subsection (2) of the
draft rule:
(j) A statement that the utility is currently in compliance
with its annual report filing in accordance with Rule 25-30.110(3), F.A.C.;
(k) A statement that the utility has paid all required
regulatory assessment fees or is current on any approved regulatory assessment
fee payment plan;
(l) A statement that an order in a rate proceeding that
established the utility’s rate base, capital structure, annual operating
expenses and revenues has been issued for the utility within the 7-year period
prior to the official date of filing of the application; and
(m) Any additional relevant information in support of the
application and reasons why the information should be considered.
Attachment A, page 9.
Staff recommends that certain
subsection (5) criteria currently considered by the Commission in determining
whether to grant or deny a petition should not be required as part of the
application for rate increase. Specifically, a utility should not be required
to organize its books and records consistent with Rule 25-30.110, have at least
one year of experience in utility operation, or have had a rate case increase
within the 2-year period prior to the Commission’s receipt of the application.
Staff does not believe that these criteria are relevant in deciding whether a
small utility should be granted a rate increase under the Rule 25-30.457,
F.A.C. The determination of whether a rate increase should be granted is based
on whether the utility’s revenue requirements are sufficient to allow it to
earn a fair rate of return on its rate base. For these reasons, staff
recommends that the criteria in paragraphs (5)(a), (b), (e), and (g) in the
current rule should be deleted.
OPC was also concerned that Rule
25-30.457, F.A.C., does not sufficiently require the utility to identify the
reasons why a rate increase is needed or what percentage increase would be
appropriate. To address this concern, staff recommends adding the following new
application requirements:
(2)(g) A statement
providing the specific basis or bases for the requested rate increase.
(h) If the requested
rate increase is based upon the utility’s underearning or the utility’s
expectation to underearn, a statement explaining why the utility is, or is expected
to, underearn its authorized rate of return.
Staff believes that these requirements should give the
customers and the Commission an understanding of why a rate increase is being
requested. In addition, as part of its review of limited alternative rate
increase applications, staff reviews the utility’s annual reports, past rate
orders, and utility responses to staff requests for information such as anticipated capital plant
improvements, replacements, and repairs, and known and measurable changes in
operating expenses. This information forms a basis for making staff’s
recommendation on whether a utility is entitled to an increase, and if so, how
much of an increase. Overall, staff believes that the recommended draft rule clearly
specifies what information a utility must provide in its application and that
the Commission will have the information it needs to make an informed decision.
Draft Subsections (7) and (8) – Revenue held
subject to refund and staff earnings review
Under subsection (12) of the
current rule, the utility is required to hold any revenue increase subject to
refund with interest under Rule 25-30.360, F.A.C., for a period of 15 months
after the filing of the utility’s annual report for the year the increased
rates were implemented. Under current subsection (13), a staff earnings review
of the utility’s annual report is conducted to determine any potential
overearnings. Security for money collected subject to refund is required, and
the utility must provide a monthly report on the total amount of money collected
subject to refund and the status of the security being used to guarantee
repayment of the money.
At the informal meeting and in
its comments, Collective Utilities stated that under the current rule, the
period of time a rate increase is held subject to refund can be significantly
long, depending on the timing of when the rates are implemented compared to
when its annual report is filed. If a rate increase is implemented early in the
year, the annual report for the year the rates were implemented would be filed
the following March or April. The rate increase revenues would need to be held
for a period of an additional 15 months after that, meaning the increased
revenues may need to be held subject to refund for more than two years.
Collective Utilities also raised
the issue that small Class C water and wastewater utilities often have
difficulty obtaining appropriate security. For this reason, Collective
Utilities argued, limited alternative rate increase applications should be treated
like price index increases that, under Section 367.081(4)(d), F.S., are not
required to have a bond or corporate undertaking. Collective Utilities stated that, in
addition, utilities that receive price index increases are not required to
comply with Rule 25-30.360(6), F.A.C., which requires monthly reports showing
the monthly and total amount of money collected subject to refund and the status
of the security being used to guarantee repayment of any potential refund. Collective
Utilities states that this monthly reporting should not be required for limited
alternative rate increases because the long reporting time period is
burdensome, it is unknown what refund amount, if any, may be required, and the
refund may be significantly less than the increase that was granted. Further,
Collective Utilities states that Commission staff, in reviewing a limited
alternative rate increase application, conducts a thorough evaluation and
analysis to determine whether a utility should receive a rate increase and what
percentage should be approved.
In order to address the
regulatory lag described above, staff is recommending that rather than wait for
the utility to file an annual report before conducting an earnings review, as
described in the current rule, staff would conduct an earnings review of the
twelve-month period following the implementation of the revenue increase. As
part of this new process, utilities would be required to file a Limited
Alternative Rate Increase Earnings Review form within 90 days of the end of the
twelve-month period, subject to an extension of time for good cause. The new
form requires the utility to file rate base schedules, current cost of capital,
operating income, and operation and maintenance expense. Attachment A, pages 14-19.
When submitted to the Commission, the
attached form would include information that should be readily available to the
utility as part of its normal business and financial operations. In turn, staff
would be able to identify any potential over-earnings earlier than under the
current rule.
Further, staff believes that any revenue increase granted
under Rule 25-30.457, F.A.C., should be held subject to refund with interest in
accordance with subsection 25-30.360(4), F.A.C., but that a utility should not
be required to provide security for money collected subject to refund or file
monthly refund reports with the Commission. The inclusion of the security
requirement may have inadvertently prevented small water and wastewater
utilities from being able to use the rule. Similarly, the monthly reporting
requirement may have been burdensome to some small water and wastewater
utilities. Neither the security
requirement nor the monthly reporting requirement is required as part of an index
increase, which Rule 25-30.457, F.A.C., was designed to emulate. The removal of
these requirements may enable additional utilities to use the limited
alternative rate increase process in rate setting. Use of this process is meant
to provide a more stable revenue stream, and, thus, a more financially sound
utility, which benefits both the utilities and their customers.
Minor Violation
Rules Certification
Pursuant to Section 120.695, F.S., the agency head must
certify for each rule filed for adoption whether any part of the rule is
designated as a rule the violation of which would be a minor violation. Rule
25-30.457, F.A.C., is currently listed on the Commission’s website as a rule
for which a violation would be minor because violation of the rule would not
result in economic or physical harm to a person or have an adverse effect on
the public health, safety, or welfare or create a significant threat of such
harm. The amendments to the rule would not change its status as a minor
violation rule. Thus, staff recommends that the Commission certify Rule
25-30.457, F.A.C., as a minor violation rule.
Statement of
Estimated Regulatory Costs
Pursuant to Section 120.54(3)(b), F.S., agencies are
encouraged to prepare a statement of estimated regulatory costs (SERC) before
the adoption, amendment, or repeal of any rule. The SERC is appended as
Attachment B to this recommendation.
The SERC concludes that the rule will not likely directly
or indirectly increase regulatory costs in excess of $200,000 in the aggregate
in Florida within one year after implementation. Further, the SERC economic analysis concludes
that the rule will not likely have an adverse impact on economic growth,
private sector job creation or employment, private sector investment, business
competitiveness, productivity, or innovation in excess of $1 million in the
aggregate within five years of implementation. Thus, the rule does not require
legislative ratification pursuant to Section 120.541(3), F.S. In addition, the
SERC states that the rule will not have an adverse impact on small business and
will have no impact on small cities or counties. The SERC concludes that any
transactional costs likely to be incurred by small utilities using the rule
would be completely offset by the savings incurred. No regulatory alternatives
were submitted pursuant to paragraph 120.541(1)(a), F.S. None of the
impact/cost criteria established in paragraph 120.541(2)(a), F.S., will be
exceeded as a result of the recommended amendments to Rule 25-30.457, F.A.C.
Conclusion
Based on the foregoing, staff recommends the Commission
propose the amendment of Rule 25-30.457, F.A.C., as set forth in Attachment A.
Staff also recommends that the Commission certify Rule 25-30.457, F.A.C., as a
minor violation rule.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no requests for hearing, information
regarding the SERC, proposals for a lower cost regulatory alternative, or JAPC
comments are filed, the rule should be filed with the Department of State, and
the docket should be closed. (Cowdery)
Staff Analysis:
If no requests for hearing,
information regarding the SERC, proposals for a lower cost regulatory
alternative, or JAPC comments are filed, the rule may be filed with the
Department of State and the docket should be closed.
25-30.457 Limited Alternative Rate Increase.
(1)
As an alternative to a staff assisted rate case as described in Rrule
25-30.455, F.A.C., or to staff assistance in alternative rate setting as
described in Rrule 25-30.456, F.A.C., water utilities whose total
gross annual operating revenues are $300,000 or less for water service and
wastewater utilities whose total gross annual operating revenues are $300,000
or less for wastewater service may file
with the Office of Commission Clerk an application petition the
Commission for a limited alternative rate increase of up to 20 percent
applied to metered or flat recurring rates of all classes of service by
filing with the Office of Commission Clerk the information required by
subsections (7), (8) and (9) of this rule.
(2) The application for limited alternative
rate increase must contain the following information:
(a)
The name of the utility as it appears on the utility’s certificate and the
address of the utility’s principal place of business;
(b)
The type of business organization under which the utility’s operations are
conducted;
(c)
If the utility is a corporation, the date of incorporation and the names and
addresses of all persons who own five percent or more of the utility’s stock;
(d)
If the utility is not a corporation, the names and addresses of the owners of
the business;
(e)
A schedule showing the annualized revenues by customer class and meter size for
the most recent 12-month period using the rates in effect at the time the
utility files its application;
(f)
A schedule showing the current and proposed rates for all classes of customers;
(g)
A statement providing the specific basis or bases for the requested rate
increase;
(h)
If the requested rate increase is based upon the utility’s underearning or the
utility’s expectation to underearn, a statement explaining why the utility is,
or is expected to, underearn its authorized rate of return;
(i)
A statement that the figures and calculations upon which the change in rates is
based are accurate and that the change will not cause the utility to exceed its
last authorized rate of return on equity;
(j)
A statement that the utility is currently in compliance with its annual report
filing in accordance with Rule 25-30.110(3), F.A.C.;
(k)
A statement that the utility has paid all required regulatory assessment fees
or is current on any approved regulatory assessment fee payment plan;
(l)
A statement that an order in a rate proceeding that established the utility’s
rate base, capital structure, annual operating expenses and revenues has been
issued for the utility within the 7-year period prior to the official date of
filing of the application; and
(m)
Any additional relevant information in support of the application and reasons
why the information should be considered.
(3) Within 30 days of the application’s filing
date, Commission staff will notify the utility in writing that the application
requirements of subsection (2) of this rule have been met or that the
requirements of subsection (2) have not been met with an explanation of the
application’s deficiencies.
(2) Within 30 days of receipt of the
completed petition, the Commission will evaluate the petition and determine the
petitioner’s eligibility for a limited alternative rate increase.
(3)
The Commission will notify the petitioner in writing as to whether the petition
is accepted or denied. If the petition is accepted, staff assistance in
alternative rate setting will be initiated. If the petition is denied, the
notification of petition denial will state the deficiencies in the petition
with reference to the criteria set out in subsection (5) of this rule.
(4)
The date of Commission staff’s written notification to the utility that the
requirements of subsection (2) of this rule have been met will be considered
the date of official acceptance by the Commission of the application. The
official date of filing is established as will be 30 days after
the official acceptance by the Commission of the application date of the
written notification to the petitioner of the Commission’s acceptance of the petition.
The application is deemed denied if the utility does not remit the filing
fee as required by paragraph 25-30.020(2)(f), F.A.C., within 30 days after the
official acceptance of the application.
(5)
In determining whether to grant or deny the petition, the Commission will
consider the following criteria:
(a)
Whether the petitioner qualifies for staff assistance pursuant to subsection
(1) of this rule;
(b)
Whether the petitioners’ books and records are organized consistent with rule
25-30.110, F.A.C, so as to allow Commission personnel to verify costs and other
relevant factors within the 30-day time frame set out in this rule;
(c)
Whether the petitioner has filed annual reports;
(d)
Whether the petitioner has paid applicable regulatory assessment fees;
(e)
Whether the petitioner has at least one year of experience in utility
operation;
(f)
Whether the petitioner has filed additional relevant information in support of
eligibility together with reasons why the information should be considered;
(g)
Whether the utility was granted a rate case increase within the 2-year period
prior to the receipt of the petition under review;
(h)
Whether a final order in a rate proceeding that established the utility’s rate
base, capital structure, annual operating expenses and revenues has been issued
for the utility within the 7-year period prior to the receipt of the petition
under review.
(6)
The Commission will deny the petition if the petitioner does not remit the
filing fee, as provided by paragraph 25-30.020(2)(f), F.A.C., within 30 days
after official acceptance of the petition.
(7)
Each petitioner for limited alternative rate increase shall provide the
following general information to the Commission:
(a)
The name of the utility as it appears on the utility’s certificate and the
address of the utility’s principal place of business; and,
(b)
The type of business organization under which the utility’s operations are
conducted:
1. If the petitioner is a corporation,
the date of incorporation and the names and addresses of all persons who own
five percent or more of the petitioner’s stock; or
2.
If the petitioner is not a corporation, the names and addresses of the owners
of the business.
(8)
The petitioner shall provide a schedule showing:
(a)
Annualized revenues by customer class and meter size for the most recent
12-month period using the rates in effect at the time the utility files its
petition; and,
(b)
Current and proposed rates for all classes of customers.
(9)
The petitioner shall provide a statement that the figures and calculations upon
which the change in rates is based are accurate and that the change will not
cause the utility to exceed its last authorized rate of return on equity.
(5)(10)
A financial or engineering audit of the utility’s financial or engineering
books and records will shall not be required in determining
whether to approve or deny the application conjunction with the petition
under review.
(6)(11) Based upon the
criteria contained in subsection (2), the Commission will approve, deny, or
approve the application The petition will be approved, denied, or
approved with modifications that may include a reduction or an increase
in the requested rate increase, within 90 days from the official filing
date as established in subsection (4) of this rule.
(7)(12)
Any revenue increase granted under the provisions of this rule shall be held
subject to refund with interest in accordance with subsection rule
25-30.360(4), F.A.C., for a period of 15 months after the filing of
the utility’s annual report required by rule 25-30.110, F.A.C., for the year
the adjustment in rates was implemented. Subsection 25-30.360(6),
F.A.C., does not apply to any money collected subject to refund under this
subsection.
(8)(13)
To insure overearnings will not occur due to the implementation of this rate
increase, Tthe Commission staff will conduct an
earnings review of the twelve-month period following the implementation of
the revenue increase. utility’s annual report to determine any
potential overearnings for the year the adjustment in rates was implemented.
(a)
At the end of the twelve-month period, the utility has 90 days to complete and
file Form PSC 1025 (X/XX), entitled “Limited Alternative Rate Increase Earnings
Review,” which is incorporated into this rule by reference and is available at
[Dep’t of State hyperlink].
(b)
In the event the utility needs additional time to complete the form, the
utility may request an extension of time supported by a statement of good cause
that must be filed with Commission staff within seven days prior to the 90-day deadline. “Good cause” means a showing of financial
hardship, unforeseen events, or other events outside the control of the
utility, but does not include reasons such as management oversight.
(c)(14)
If, within 15 months after the filing of a utility’s annual report the
Commission staff’s earnings review demonstrates finds that the
utility exceeded the range of its last authorized rate of return on equity after
an adjustment in rates, as authorized by this rule, was implemented within the
year for which the report was filed, such overearnings, up to the amount
held subject to refund, with interest, shall be disposed of for the benefit of
the customers. If the Commission staff
determines that the utility did not exceed the range of its last authorized
return on equity, the revenue increase will no longer be held subject to
refund.
(9)(15)
In the event of a protest of the pProposed aAgency
aAction oOrder is protested pursuant to Rrule
28-106.111, F.A.C., by a substantially affected person other than the utility,
the utility must file a staff assisted rate case application pursuant to Rule
25-30.455, F.A.C., within 21 days from the date the protest is filed or the
utility’s application for a limited alternative rate increase will be deemed
withdrawn.
(10)
Upon the utility filing a staff assisted rate case application pursuant to
subsection (9) of this rule:
(a)
unless the Proposed Agency Action Order proposes a rate reduction, Tthe
utility may implement the rates established in the pProposed aAgency
aAction oOrder on a temporary basis subject to
refund with interest in accordance with Rrule 25-30.360, F.A.C.;
upon the utility filing a staff
assisted rate case application pursuant to rule 25-30.455, F.A.C., within 21
days of the date the protest is filed.
(b)(16)
In the event of a protest, Tthe limit on the maximum increase
provided in subsection (1) of this rule will shall no longer
apply; and
(c)
The application will be processed under Rule 25-30.455, F.A.C.
(17)
If the utility fails to file a staff assisted rate case application within 21
days in the event of a protest, the petition for a limited alternative rate
increase will be deemed withdrawn.
Rulemaking Authority 350.127(2),
367.0814, 367.121 FS. Law Implemented 367.0814 FS. History–New 3-15-05, Amended
12-16-08, 8-10-14, 7-1-18,____________.
