Discussion
of Issues
Issue 1:
Is the quality of service provided by Lighthouse
satisfactory?
Recommendation:
Yes. Lighthouse has been responsive to customer
complaints, and is working to address the issues noted in the DEP Consent Order
through the pro forma plant improvements discussed in Issue 4. Therefore, staff
recommends that the overall quality of service for Lighthouse be considered
satisfactory. (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 the utility’s product (water) and the utility’s attempt to
address customer satisfaction (water and wastewater). The rule states that the
most recent chemical analyses, outstanding citations, violations, and consent
orders on file with the DEP and the county health department, along with any
DEP and county health department officials’ testimony concerning quality of
service shall be considered. In addition, any customer testimony, comments, or
complaints shall also be considered.
Quality of the Utility’s Product
In evaluating the quality of Lighthouse’s product, staff
reviewed the Utility’s compliance with the DEP’s primary and secondary drinking
water standards. Primary standards protect public health, while secondary
standards regulate contaminants that may impact the taste, odor, and color of
drinking water. As provided in Lighthouse’s MFRs, the Utility entered into a
Consent Order with the DEP on July 9, 2018, which was amended on May 23, 2019,
for exceedances of the maximum contaminant levels (MCLs) for disinfection
byproducts. In order to address the MCL exceedances outlined in the Consent
Order, the Utility plans to install tank aerators and ventilators in its ground
storage tanks, along with a chlorinator at its booster station. The Utility
stated that its plans and permit application were submitted to the DEP on
January 14, 2020. These pro forma plant additions are discussed in more detail
in Issue 4.
Lighthouse has no other outstanding citations or
violations on file with the DEP. Additionally, the most recent chemical
analyses for all other contaminants, as required by the DEP, were completed in
2017, and were in compliance with the DEP’s drinking water standards. The
Utility’s next chemical analyses are due to be completed in 2020.
Staff held a noticed customer meeting on January 23, 2020,
to receive customer comments regarding the quality of service. At the meeting,
seven customers spoke, two of which provided comments on the water quality. One
customer remarked positively about the water, and the second customer stated
that their ice was cloudy. As stated above, staff reviewed Lighthouse’s most
recent chemical analyses, including secondary standards which would affect the
color, and all results were below the MCLs. The other comments made at the
customer meeting are discussed below.
The Utility’s Attempt to Address Customer
Satisfaction
Table 1-1 is a summary of the complaints made at the
customer meeting, as well as complaints from the Commission’s complaint
tracking system, the DEP, and Lighthouse over the past five years.
Table 1-1
Number of Complaints by Type
and Source
|
Complaint
Type
|
Customer
Meeting
|
Commission
Records
|
DEP
Records
|
Utility
Records
|
|
No Service
|
0
|
0
|
0
|
4
|
|
Water Pressure
|
4
|
2
|
0
|
0
|
|
Water Quality
|
2
|
0
|
1
|
0
|
|
Boil Water Notice
|
1
|
0
|
2
|
0
|
|
Repairs
|
0
|
1
|
0
|
0
|
|
Billing
|
0
|
1
|
0
|
0
|
|
Rate Case/Increase
|
3
|
0
|
0
|
0
|
|
Total*
|
11
|
4
|
3
|
4
|
*A single customer complaint
may be counted more than once if it fits into multiple categories
Customer Meeting
The majority of the customers at the customer meeting
spoke about low water pressure issues and inquired about the infrastructure
improvements that the Utility requested in this rate proceeding. Three
customers made comments regarding the rate case, including the Utility’s rate
structure and general questions. Additionally, one customer voiced a desire for
the Utility to issue boil water notices electronically, instead of its current
method of issuing notices through the mail or via a newspaper publication. The
customer stated that this could better ensure all customers received the boil
water notices. At this time, Lighthouse has not requested cost recovery for
implementing a new noticing system, and it appears that the Utility is issuing
boil water notices in accordance with DEP requirements.
Following the customer meeting, Lighthouse indicated that
the Utility made contact with multiple customers who spoke at the meeting to
explain the status of the pro forma project, as well as address the water
pressure concerns that were raised. As stated above, Lighthouse is actively
working with the DEP to address the requirements outlined in the Consent Order.
As part of its pro forma request in this rate proceeding, the Utility is
seeking to install tank aerators and ventilators to resolve the disinfection
byproducts exceedances. In addition, the Utility also plans to replace the high
service pumps at one of its water treatment plant (WTP) sites, which should
help to improve the water pressure.
Complaints
A review of the Commission’s complaint tracking system
revealed four complaints in the previous five-year period. Two of the
complaints were made in 2018, one related to low water pressure and one related
to billing. The Utility responded that the low pressure was due to a mechanical
failure, and the billing complaint was closed after the customer’s meter was
tested. The other two complaints were made in 2019, with one customer filing a
complaint that they were unable to access a shut off valve, and a second
customer experiencing low water pressure. For the shut off valve complaint, the
customer was informed that the valve was for Utility use, but a shut off valve
could be installed on the customer’s side of the meter for personal use.
Regarding the low water pressure complaint, the customer was contacted and
Lighthouse explained the planned improvements for the system, which should help
with the low-pressure issues. Additionally, no customer correspondence was
filed in the docket.
The Utility provided six complaints, two of which were the
2018 complaints received by the Commission and are discussed above. The other
four complaints were made in 2018 following Hurricane Michael, regarding
service outages. All of these were initially received by the PSC as consumer
contacts, and were forwarded to the Utility for resolution.
Furthermore, staff contacted the DEP requesting complaints
regarding Lighthouse for the prior five years, and three complaints were
provided. One of the complaints was a complaint received by the Commission in
2019 for low water pressure and is discussed above. The other two complaints
were made in 2017 and 2018, regarding instances where boil water notices were
not issued. The DEP stated that the customer in 2017 was informed that boil
water rescission notifications may have inadvertently been sent to some
customers that were not affected by the boil water notice. For the second
complaint, the Utility advised the DEP that construction had taken place in the
area, but pressure was never lost in the system and no boil water notice was
issued.
Conclusion
Lighthouse has been responsive to customer complaints and
is working to address the issues noted in the DEP Consent Order through the pro
forma plant improvements discussed in Issue 4. Therefore, staff recommends that
the overall quality of service for Lighthouse be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of
Lighthouse's water system in compliance with DEP regulations?
Recommendation:
Yes. Lighthouse’s water treatment facility is
currently in compliance with DEP regulations. (Knoblauch)
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 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 Infrastructure and Operating
Conditions
Lighthouse has two wells with a combined pumping capacity
up to 810 gallons per minute (gpm). However, one of the wells is out of service
due to storm damage, leaving the remaining well with a pumping capacity rated
up to 410 gpm. The Utility has one ground storage tank with an aerator, a
ground booster tank, a hydropneumatic tank, and a booster hydropneumatic tank.
As discussed in Issue 1, the Utility will be installing
tank aerators and ventilators in its ground-storage tanks, and a chlorinator at
one of its water treatment plants to address the exceedances noted in the DEP
Consent Order. Staff reviewed Lighthouse’s most recent sanitary survey, which
determines the Utility’s overall water facility compliance and is conducted by
the DEP. A review of the sanitary survey dated August 29, 2018, indicated that
Lighthouse’s water treatment facility was in compliance with the DEP’s rules
and regulations.
Conclusion
Lighthouse’s water treatment facility infrastructure and
operating conditions are currently in compliance with DEP rules and
regulations.
Issue 3:
What adjustments, if any, should be made to account
for the audit adjustments related to rate base?
Recommendation:
Based on the audit adjustments agreed to by the
Utility, the following adjustments should be made to rate base and net
operating income as set forth in staff’s analysis below.
|
Plant
|
$136,039
|
|
Accumulated Depreciation
|
($148,937)
|
|
CIAC
|
$41,275
|
|
Accum. Amortization of CIAC
|
($5,256)
|
|
Depreciation Expense
|
$6,396
|
|
CIAC Amortization Expense
|
$1,303
|
(Norris, Thurmond)
Staff Analysis:
Staff’s audit report was filed on February 3, 2020.
In its response to the staff audit report, Lighthouse agreed to the audit
adjustments as set forth in the tables below.
Table 3-1
|
Audit Finding
|
Description of Adjustment
|
|
Audit Finding No. 1
|
This finding is due largely to the following: 1) to
reflect Commission-ordered adjustments (COAs) from the last rate case, 2) to
reflect reclassifications from O&M expenses to plant, 3) to remove
amounts due to lack of support documentation, and 4) to reflect plant
retirements.
|
|
Audit Finding No. 2
|
This finding primarily reflects corresponding adjustments
to Audit Finding No. 1
|
|
Audit Finding No. 3
|
This finding reflects unsupported additions to
contributions in aid of construction (CIAC), along with recalculated
adjustments to Accumulated Amortization of CIAC and CIAC amortization.
|
Source: Staff audit report
In response to Audit Finding No. 1, the Utility disagreed
with the inclusion of a COA adjustment to Account 304 – Structures and
Improvements, as it maintained that the adjustment had already been made, and
provided documentation for adjustments made to Account 333 – Services to
reflect unsupported plant additions. Additionally, in further correspondence
related to Audit Finding No. 2, the Utility subsequently responded that an
agreed upon retirement for its booster station was a mischaracterization and that
the asset should not have been retired. Lighthouse also provided a response to
Audit Finding No. 3 disagreeing with the total amount of CIAC documentation and
included additional documentation for an unsupported addition. Upon review of
the Utility’s explanations and support, staff agrees with the Utility’s
proposed adjustments to staff’s audit report.
Staff’s recommended adjustments to rate base and
corresponding adjustments to depreciation and CIAC amortization expense are
reflected in the table below.
Table 3-2
Audit Adjustments
|
Audit Finding
|
Plant
|
Accum. Depr.
|
CIAC
|
Accum. Amort. of CIAC
|
Depreciation
Expense
|
CIAC Amortization
Expense
|
|
1
|
$136,039
|
|
|
|
|
|
|
2
|
|
($148,937)
|
|
|
$6,396
|
|
|
3
|
|
|
$41,275
|
($5,256)
|
|
$1,303
|
Source: Staff audit report and Utility response
Issue 4:
What adjustments, if any, should be made to the
Utility's pro forma plant?
Recommendation:
No adjustments are necessary to the Utility’s pro forma
plant request. However, adjustments should be made to decrease both pro forma
accumulated depreciation and depreciation expense by $19,272. Additionally, pro
forma property taxes should be increased by $13,522. (Knoblauch, D. Andrews)
Staff Analysis:
Lighthouse originally provided a cost estimate for
pro forma plant additions totaling $383,600.
The Utility stated that it sought bids through a news publication and received
one bid for the project from an engineering firm. The engineering firm was awarded
the project, and an evaluation of Lighthouse’s existing water system and
alternatives for future improvements was completed by the firm. However, this
improvement plan was prepared in April 2018, and the Utility was subsequently
impacted by Hurricane Michael in October 2018. As a result, the plant additions
being requested by Lighthouse in this rate proceeding do not address all of the
improvements delineated in the improvement plan. Instead, the Utility’s request
is limited to addressing DEP compliance issues and restoring Lighthouse’s
system to pre-hurricane conditions.
To address the DEP Consent Order, the Utility will be
installing tank aerators and ventilators in its ground-storage tanks to address
the disinfection byproducts exceedances. Additionally, a chlorinator would be
installed at the booster station to aid in resolving the exceedance issue. In
order to restore the system to pre-hurricane conditions, the Utility provided
cost estimates for repair and replacing equipment that was damaged by Hurricane
Michael, including a new 8 inch well and high service pumps. Furthermore, the
addition of the new well and pumps should help to address the low water
pressure problems that were voiced by customers, as discussed in Issue 1.
In response to a staff data request and deficiency letter,
the Utility updated its request from $383,600 to $994,000. This was a result of
the Utility determining that the well, which was damaged during the hurricane,
could not be repaired and a new well would need to be installed. Lighthouse
stated that it expected construction for the improvements to begin once funding
was secured in the first quarter of 2020. Additionally, the Utility stated that
“substantial portions of the improvement project are anticipated to be completed
and in service by December 31, 2020.”
Subsequently, the Utility provided an updated schedule showing that the DEP
Consent Order plant additions and the new well are estimated to be completed in
the fourth quarter of 2020.
The remaining improvements are estimated to be completed by the end of the
second quarter of 2021, which exceeds 24 months from the end of the historic
test year. However, pursuant to Section 367.081(2)(a)2., F.S., the Commission
has the authority to approve a longer period for pro forma consideration. Based
on the totality of the Utility’s circumstances since its initial limited
proceeding filing, staff recommends the inclusion of all the Utility’s
requested pro forma plant projects be recognized in this proceeding.
As such, staff recommends no adjustments be made to the
Utility’s pro forma plant projects. However, the Utility incorrectly calculated
the accumulated depreciation and depreciation expense associated with some of
the pro forma plant projects. Based on the useful life for plant accounts
prescribed by Rule 25-30.140(2)(a), F.A.C., staff recommends decreasing both
accumulated depreciation and depreciation expense by $19,272. Additionally, the
Utility did not include pro forma property taxes in its filing. Therefore, pro
forma property taxes should be increased by $13,522.
Issue 5:
What are the used and useful (U&U) percentages
of Lighthouse's WTP, storage, and distribution system?
Recommendation:
Staff recommends Lighthouse’s WTP, storage, and
distribution system be considered 100 percent U&U. Staff recommends that a
6.8 percent adjustment to operating expenses for chemicals and purchased power
should be made for excessive unaccounted for water (EUW). (Knoblauch)
Staff Analysis:
Lighthouse’s WTP has two wells with a combined
pumping capacity of up to 810 gpm. However, one of the wells is out of service
due to storm damage, leaving the remaining well pumping capacity rated up to
410 gpm. The Utility has one ground storage tank with an aerator, which has a
capacity of 316,000 gallons, along with a ground booster tank with a capacity
of 209,000 gallons. Also in service are a hydropneumatic tank with a capacity
of 5,000 gallons, and a booster hydropneumatic tank with a capacity of 10,000
gallons. The distribution system is comprised of varying sizes of polyvinyl chloride
(PVC) pipes.
The U&U for Lighthouse’s WTP, storage, and
distribution system were last determined in the 2010 Rate Case Order. In that
Order, the Commission found Lighthouse’s WTP water and storage to be 100
percent U&U. For the distribution system, the Commission determined the
U&U to be 82 percent.
Water Treatment Plant Storage Used and Useful
As noted above, the Commission found both the WTP and the
storage to be 100 percent U&U in the prior rate proceeding. The Utility is
currently only able to utilize one of its wells, and pursuant to Rule
25-30.4325(4), F.A.C., a water treatment system is considered 100 percent
U&U if the system is served by a single well. However, as discussed in
Issue 4, a new well with a pumping capacity of 450 gpm is included as part of
Lighthouse’s requested pro forma plant projects. In determining the WTP
U&U, staff has imputed the addition of the new well.
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 [Peak Demand – EUW + Fire Flow + Growth] / Firm
Reliable Capacity. Peak demand is based on a peak day for a water treatment
system with storage capacity. Peak day demand 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 single maximum day in the test year was 701,200 gpd. As discussed
below, the EUW was calculated to be 6.8 percent or 28,953 gpd.
The fire flow requirement is 60,000 gpd, and the Utility
did not request a growth allowance. The firm reliable capacity assumes loss of
the largest capacity well and is therefore 410 gpm or 393,600 gpd, based on 16
hours of pumping for systems with storage capacity. This calculation results in
a U&U greater than 100 percent; as such, staff recommends the WTP be
considered 100 percent U&U.
Lighthouse has two ground storage tanks with a combined
usable storage capacity of 525,000 gallons. Pursuant to Rule 25-30.4325,
F.A.C., usable storage capacity less than or equal to the peak day demand shall
be considered 100 percent U&U; thus, the Utility’s storage is 100 percent
U&U. Therefore, consistent with the Commission’s previous decision, staff
recommends the Utility’s WTP and storage be considered 100 percent U&U.
Excessive Unaccounted for Water (EUW)
Rule 25-30.4325(1)(e), 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 economic 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 154,498,000 gallons during the test year, and purchased 2,187,000
gallons from the City of Port St. Joe. In response to data requests, the Utility
indicated that it estimated 25,100,000 gallons for other uses, such as
flushing, overflow of the aerators, and extinguishing four fires that occurred
in the test year. Based on staff’s analysis, the Utility sold 105,199,000
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 and purchased,
26,386,000 gallons are unaccounted for. The formula for unaccounted for water
is given by [gallons of unaccounted for water / (total gallons pumped + gallons
purchased)]. The resulting unaccounted for water is 16.8 percent; therefore,
the excessive unaccounted for water is 6.8 percent. Accordingly, staff
recommends that a corresponding adjustment to operating expenses for purchased power
and chemical expenses be made.
Water Distribution System Used and Useful
In the 2010 Rate Case Order, the Commission found the
Utility’s distribution system to be 82 percent U&U. The order stated that
the “U&U analysis for the water distribution system is typically based on a
comparison of the lots connected to the distribution system with the total
number of lots within the distribution system.” However, it was determined that
the number of lots that could potentially connect to the distribution system
could not be identified due to the nature of the service territory. The service
territory consists of dispersed small developments, as well as coastal areas
that are not intended to be developed. Instead, the capacity of the WTP was
used as a proxy to estimate the capacity of the lines in the distribution
system, which was compared to the number of connections being served.
In the present case, the Utility is proposing to use this
same method with its current number of connections and WTP capacity. In its
MFRs, the Utility provided that the current number of connections it is able to
serve is 1,994 connections. This value was developed by an engineering
consultant, which was the same consultant utilized in the prior rate case. The
number of active customer connections at the end of the test year was 1,883
connections. This results in a distribution system U&U of 94 percent.
However, the Utility asserted that all of the distribution system assets and
equipment are in use and any potential connections are dispersed through the
system, thus the distribution system should be considered 100 percent U&U.
Consistent with the Commission’s prior decision, staff
agrees with utilizing the same method for calculating the U&U of the
distribution system. Based on a review of Lighthouse’s system maps, there
appears to be vacant lots interspersed throughout the distribution system.
However, due to the nature of the service area and the location of the various
developments served by the Utility, the distribution lines appear to be in use
and needed to serve the existing customers. Additionally, while the Utility did
not request a growth allowance, there does appear to be potential growth in the
area. In its MFRs, the Utility provided the number of residential customers
over the past five years, which increased from 1,625 at the end of 2014 to
1,865 in 2018. Therefore, staff recommends the distribution system be
considered 100 percent U&U.
Conclusion
Staff recommends Lighthouse’s WTP, storage, and
distribution system be considered 100 percent U&U. The excessive
unaccounted for water was calculated to be 6.8 percent, thus staff recommends
that a corresponding adjustment be made to operating expenses for purchased
power and chemical expenses.
Issue 6:
What is the appropriate working capital allowance?
Recommendation:
The appropriate working capital allowance is
$72,127. As such, working capital should be decreased by $8,954. (D. Andrews)
Staff Analysis:
Rule 25-30.433(3), F.A.C., requires that Class B
utilities use the formula method, or one-eighth of operation and maintenance
(O&M) expenses, to calculate the working capital allowance. The Utility
properly calculated working capital using the formula method. However, as
discussed in subsequent issues, staff is recommending adjustments to
Lighthouse’s O&M expenses. As a result, staff recommends working capital of
$72,127. This reflects a decrease of $8,954 to the Utility’s requested working
capital allowance of $81,081.
Issue 7:
What is the appropriate rate base for the test year
ended December 31, 2018?
Recommendation:
Consistent with staff’s other recommended
adjustments, the appropriate rate base for the test year ended December 31,
2018, is $1,535,766. (D. Andrews)
Staff Analysis:
Consistent with other recommended adjustments in
this Recommendation, the appropriate simple average rate base for the test year
ended December 31, 2018, is $1,535,766. Staff’s recommended schedule for rate
base is shown on Schedule No. 1-A and the adjustments are shown on Schedule No.
1-B.
Issue 8:
What is the appropriate return on equity?
Recommendation:
Based on the Commission leverage formula currently
in effect, the appropriate return on equity (ROE) is 10.55 percent with an
allowed range of plus or minus 100 basis points. (D. Andrews)
Staff Analysis:
The Utility requested a ROE of 10.55 percent.
Consistent with Commission practice, staff has set the Utility’s negative
common equity balance to zero. Based on the Commission leverage formula
currently in effect, the appropriate ROE is 10.55 percent.
Staff recommends an allowed range of plus or minus 100 basis points be
recognized for ratemaking purposes.
Issue 9:
What is the appropriate weighted average cost of
capital, including the proper components, amounts, and cost rate associated
with the capital structure for the test year ended December 31, 2018?
Recommendation:
The appropriate weighted average cost of capital for
the test year ended December 31, 2018 is 8.01 percent. (D. Andrews)
Staff Analysis:
In its filing, Lighthouse requested an overall cost
of capital of 8.01 percent. The Utility’s capital structure consists of debt.
In its filing, Lighthouse reflected a cost rate of 8.01 percent for debt. The
Utility was unable to provide any loan documentation for the purpose of the
debt in time for the staff audit to review. In response to the audit, the
Utility provided promissory notes for loans from four of its five lenders. All
five of the lenders are listed as directors of the Utility. Lighthouse indicated
that it believes the last promissory note was lost as a result of Hurricane
Michael. Staff has reviewed the available promissory notes associated with
these loans.
In its filing for a limited proceeding, Lighthouse was
planning to fund the pro forma projects through the Florida’s Drinking Water
State Revolving Fund (Fund). However, the Utility’s request for funding through
the Fund was eventually denied. Lighthouse has indicated that it has attempted
to obtain funding through bank loans. However, the Utility was unable to secure
bank loans, in part due to the COVID-19 pandemic. Subsequently, Lighthouse has
indicated that it will obtain additional loans from its directors in order to
fund the additions to pro forma plant at the same cost rate as the existing
loans. Staff recommends that the appropriate cost rate for debt is 8.01
percent.
Based upon the proper components, amounts, and cost rates
associated with the capital structure for the test year ended December 31,
2018, staff recommends a weighted average cost of capital of 8.01 percent.
Schedule No. 2 details staff’s recommended overall cost of capital.
Issue 10:
What are the appropriate test year revenues for
Lighthouse’s water system?
Recommendation:
The appropriate test year revenues are $757,270,
which is an increase of $57,722 to the Utility’s adjusted test year revenues.
(Bruce)
Staff Analysis:
In its revised MFRs, Lighthouse’s adjusted test year
revenues were $699,548. The adjusted test revenues were the result of the
Utility applying a four percent reduction to its per book balance of $728,696,
which resulted in a decrease of $29,148. The Utility reduced test year revenues
to account for the decrease in customers due to storm related damage from
Hurricane Michael in 2018.
At the noticed customer meeting, attendees commented that
some customers had returned to the service area, and there was new
construction. As a result, staff requested the Utility provide billing data for
the year ended December 31, 2019. The billing data indicated that the billing
determinants were more in line with pre-Hurricane Michael billing determinants.
Prior to filing its file and suspend rate request, the Utility filed a limited
proceeding, in 2018,
which was pre-Hurricane Michael. The billing determinants provided in the
limited proceeding docket were based on the year ended December 31, 2017. In
comparing the test year usage in this docket (year ended December 31, 2018) to
the 2017 data, the usage decreased by approximately five percent from 2017 to
2018.
However, when comparing 2017 usage to 2019 usage, it was relatively the same.
Therefore, staff believes the 2019 billing data would reflect a more accurate
depiction of test year revenues post-Hurricane Michael.
The Utility had a price index increase that became
effective November 6, 2019. Staff annualized the rate increase using the 2019
billing determinants and determined service revenues should be $753,373. Staff
did not make adjustments to the miscellaneous revenues of $3,897, which are
reflected in the Utility’s MFRs. Based on the above, the appropriate test year
revenues are $757,270 ($753,373 + $3,897), which is an increase of $57,722
($757,270 - $699,548) to the Utility’s adjusted test year revenues.
Issue 11:
What adjustments, if any, should be made to the
account for the audit adjustments related to operating expenses?
Recommendation:
Based on the audit adjustments agreed to by
Lighthouse, O&M expense should be decreased by $38,285 and taxes other than
income (TOTI) should be reduced by $2,294. (D. Andrews)
Staff Analysis:
In its response to the staff audit report,
Lighthouse agreed to adjustments to reduce O&M expense by $15,546. The
Utility suggested that the remaining adjustments of $28,423 were related to
Hurricane Michael and should be capitalized and amortized. In a recent order,
the Commission amortized nonrecurring expenses incurred due to a hurricane over
five years. Through
subsequent correspondence, the Utility agreed that amortizing the expenses
related to Hurricane Michael over five years is appropriate. This results in
test year expenses related to Hurricane Michael of $5,685 ($28,423 / 5).
Therefore, staff recommends a decrease to O&M expense of $43,970 ($15,546 +
$28,423) to reflect the audit adjustments and an increase of $5,685 to reflect
the amortization of Hurricane Michael expenses, for a net reduction to O&M
expenses of $38,285.
Additionally, in its response to the staff audit report,
Lighthouse agreed with the recommended adjustment to TOTI. The adjustments were
comprised of a decrease of $1,294 to correct regulatory assessment fees (RAFs)
in the test year and a $1,000 decrease to remove the filing fee for the instant
docket. Therefore, TOTI should be decreased by $2,294 ($1,294 + $1,000).
Issue 12:
What adjustments, if any, should be made to the
Utility's test year O&M expenses?
Recommendation:
An adjustment should be made to decrease purchased
power expense by $3,498 and reduce chemicals expense by $557. Rent expense
should be increased by $1,547. Additionally, miscellaneous expense should be
increased by $2,290. (D. Andrews, Knoblauch)
Staff Analysis:
Based on its review of test year O&M expenses,
staff recommends several adjustments to the Utility’s O&M expenses as
summarized below.
Excessive Unaccounted for Water
As discussed in Issue 5, staff is recommending an EUW
adjustment of 6.8 percent. Based on adjustments reflected in Issues 11 and 14,
staff is recommending purchased power expense of $56,221 and chemicals expense
of $8,190. However, as discussed in Issues 5 and 14, EUW applies to purchased
power only for the well and booster station. Staff is recommending purchased
power expense for the well of $51,439. As such, staff recommends reducing
purchased power expense by $3,498 (6.8 percent x $51,439) and chemicals expense
by $557 (6.8 percent x $8,190).
Rent Expense
In its filing, the Utility recorded rent expense of
$14,625. Lighthouse’s rent expense consisted of rent associated with an office
building, at $1,922 per month, and a storage facility, at $749 per month, both
of which the Utility splits evenly with an affiliated real estate company. The
Utility also has a one-time expense of $144 related to a P.O. Box with the United
States Postal Service included in rent expense.
Due to Hurricane Michael, the Utility did not record rent
expense for the office for two months during the test year. Therefore, staff
recommends increasing rent expense by $1,922 to reflect a full year of rent.
There was also an out of period expense associated with the storage facility
recorded in the test year. Therefore, staff recommends reducing rent expense by
$375 ($749 / 2). As a result of the adjustments above, staff recommends an
adjustment to increase rent expense by $1,547 ($1,922 - $375).
Amortized Permit Renewal Expense
The staff audit reclassified $22,901 from plant in service
as deferred debits for expense associated with renewing a consumptive use
permit. The Utility argued, in its response to the audit, that the amortization
expense associated with this permit renewal should be included in O&M
expense. The application for the permit was completed in 2013 and runs through
2023. Staff believes this expense should be amortized over 10 years and should
be included in miscellaneous expense. As such, staff recommends an adjustment
to increase miscellaneous expense by $2,290 ($22,901 / 10).
Issue 13:
What adjustments, if any, should be made to the
Utility's salaries and wages expense?
Recommendation:
An adjustment should be made to reduce salaries and
wages - officers expense by $40,000. (D. Andrews)
Staff Analysis:
In its filing, the Utility recorded salaries and
wages – officers expense of $130,408. Lighthouse recorded $76,000 for directors’
fees during the test year. This represents $750 per month for eight directors
and an extra $500 per director in December as a bonus. This represents an
annual compensation of $9,500 per director. In its last rate case, the Utility
was allowed recovery for four directors with an annual compensation of $6,000
per director.
In response to a staff data request,
Lighthouse indicated that its President’s salary of $54,408 is well below the
range for a general manager of a small water system according the 2019 American
Water Works Association (AWWA Survey). Further, the Utility suggested that
taking four director salaries and adding them to the President’s salary of
$54,408 results in a total management cost well within the range of standard
salaries for a general manager in the AWWA Survey. Staff recommends limiting
the Utility to recovery for four directors, consistent with the last rate case.
Further, staff believes it is not prudent to give annual bonuses to each
director beyond their monthly compensation, and thus recommends eliminating the
annual bonuses. As such, the total recommended directors’ fees are $36,000
($750 x 12 x 4). The duties have not changed for the President or the directors
since the last rate case.
As discussed above, staff recommends an adjustment to
decrease salaries and wages – officers expense by $38,000 ($9,500 x 4) to
reduce the number of directors to four. Additionally, staff recommends an
adjustment to reduce salaries and wages – officers expense by $2,000 ($500 x 4)
to eliminate the bonus for each director. This results in a total reduction to
salaries and wages – officers expense of $40,000 ($38,000 + $2,000).
Issue 14:
Should any adjustments be made to account for the
Utility's pro forma expense?
Recommendation:
Yes. Adjustments should be made to increase
purchased power expense by $4,572 and to increase chemicals expense by $2,295.
(Knoblauch, D. Andrews)
Staff Analysis:
Based on its review of test year O&M expenses,
staff recommends several adjustments to the Utility’s O&M expenses as
summarized below.
Purchased Power
The Utility estimated that its test year purchased power
expense would double, based on the pro forma plant additions. As discussed in Issue 4, the Utility is
planning to add a new 8 inch well and new high service pumps. During the test
year, the Utility was almost entirely limited to one well and recorded $51,649
for purchased power, which included power for the well, pumps, and offices.
Based on staff’s audit, the amount of purchased power for only the operation of
the well and pumps was $46,867 for the test year. In view of the new well,
which will have a larger pumping capacity of 450 gpm compared to the existing
well’s pumping capacity of 410 gpm, the amount of purchased power will likely
increase. However, staff does not believe that the additions will cause the
purchased power expense to double, since the Utility did not provide support showing
the customer demand would double. Except for two months during the test year
when Lighthouse purchased water from the City of Port St. Joe, the Utility was
able to meet demand utilizing its one well. Staff believes that an increase to
purchased power expense proportional to the increase in well pumping capacity
is more appropriate. Therefore, based on the increased well pumping capacity,
staff recommends a purchased power expense amount of $51,439 (450/410 x 46,867)
for the operation of the wells and pumps, an increase of $4,572.
Chemicals
The Utility estimated that chemicals expense would
increase by one-third based on the pro forma plant additions. As discussed in Issue 4, the Utility is
planning to add a chlorinator at its booster station in part to address DEP
compliance issues. During the test year, the Utility recorded $6,884 for
chemicals. In view of the new chlorinator, the amount of chemicals required
will increase; however, the exact quantity and cost of chemicals needed will
not likely be known until the chlorinator is in service. Considering the
chlorinator will be added at a booster station, the amount of chemicals used is
expected to be less than what would be required at the WTP. Therefore, staff
believes a one-third increase to chemicals is reasonable to account for the new
chlorinator, thus staff recommends an increase of $2,295 to chemicals expense.
Conclusion
Based on the adjustments above, staff recommends that
purchased power expense be increased by $4,572 and that chemicals expense be
increased by $2,295.
Issue 15:
What is the appropriate amount of rate case expense
and over what period should it be amortized?
Recommendation:
The appropriate amount of rate case expense is
$96,040. This expense should be recovered over four years for an annual expense
of $24,010. Therefore, annual rate case expense should be increased by $373
from the expense included in the MFRs. (Blocker)
Staff Analysis:
In its MFRs, Lighthouse requested $94,547 for
current rate case expense. Staff requested an update of the actual rate case
expense incurred, with supporting documentation, as well as the estimated
amount to complete the case. On March 5, 2020, the Utility submitted its last
revised estimate of rate case expense, through completion of the PAA process,
which totaled $114,473. A breakdown of the Utility’s requested rate case
expense is as follows:
Table 15-1
Lighthouse Initial and
Revised Rate Case Expense Report
|
Description
|
MFR Estimated
|
Actual
|
Additional Estimated
|
Revised Total
|
|
Legal Fees
|
|
Holland & Knight, LLP
|
$45,650
|
$46,562
|
$8,075
|
$54,637
|
|
Accounting Fees
|
|
Roberson & Associates, P.A.
|
31,950
|
22,620
|
3,236
|
25,856
|
|
Engineering Fees
|
|
Dewberry Engineers, Inc.
|
0
|
987
|
4,916
|
5,903
|
|
Customer Notices
|
16,947
|
843
|
0
|
843
|
|
Limited Proceeding
– Legal Fees
|
0
|
21,024
|
0
|
21,024
|
|
Limited Proceeding
– Accounting Fees
|
0
|
6,210
|
0
|
6,210
|
|
Total
|
$94,547
|
$98,246
|
$16,227
|
$114,473
|
Source: MFR Schedules B-3 and B-10, along with Utility
responses to staff data requests
Pursuant to Section 367.081(7), F.S., the Commission shall
determine the reasonableness of rate case expense and shall disallow all rate
case expense determined to be unreasonable. Staff has examined the requested
actual expenses, supporting documentation, and estimated expenses as listed
above for the current rate case. Based on its review, staff believes the
following adjustments to Lighthouse’s requested rate case expense are appropriate.
Holland & Knight LLP (H&K)
In its MFRs, the Utility included $45,650 in legal fees to
complete the rate case. The Utility provided documentation detailing this
expense through February 11, 2020. The actual fees and costs totaled $46,562
with an estimated $8,075 to complete the rate case, totaling $54,637.
According to invoices, H&K identified and billed the
Utility $8,795 related to the correction of MFR deficiencies. The Commission
has previously disallowed rate case expense associated with correcting MFR
deficiencies because of duplicate filing costs.
Consequently, staff recommends an adjustment to reduce H&K’s actual
legal fees by $8,795.
H&K’s estimate to complete the rate case includes fees
for 19 hours at $425 an hour, totaling $8,075. Staff believes the full amount
of the estimate to complete, $8,075, is reasonable. Based on the above, staff
recommends that the total legal fees from H&K be reduced by $8,795.
Roberson & Associates, P.A. (R&A)
In its MFRs, the Utility included $31,950 in accounting
fees to complete the rate case. The Utility provided documentation detailing
this expense through December 31, 2019. The actual fees total $22,620 with an
estimated $3,236 to complete the rate case, totaling $25,856. Staff reviewed
supporting documentation and found 68.75 hours related to correcting
deficiencies. As stated previously, the Commission has disallowed rate case
expense associated with correcting MFR deficiencies because of duplicate filing
costs. As such, staff recommends that R&A’s actual accounting consultant
fees be reduced by $6,749.
R&A’s estimate to complete the rate case includes fees
for 26 hours at $120. According to R&A’s summary, the consultant estimated
the following:
Table 15-2
R&A’s Estimate Hours to
Complete Case
|
Estimated Hours
|
Activity
|
|
4.00
|
Attend customer meeting in Gulf County; pre- and
post-meeting conferences with client.
|
|
10.00
|
Review Staff and Field Auditors recommendations,
correspondence with client and consultants, respond to recommendations and
resulting conference staff and client.
|
|
9.00
|
Travel to and from Tallahassee; Prepare for and attend
Agenda conference; Discuss Agenda with client and staff.
|
|
2.00
|
Review PAA Order; conference with client and consultants
regarding PAA order.
|
|
1.00
|
Prepare revised tariffs.
|
|
26.00
|
Total
|
Source: Utility’s response to staff’s third data request
At the time the above estimate was provided to staff, the
Commission Conference had not been changed to a teleconference format in
response to COVID-19. As such, estimated costs associated with travel to attend
the Commission Conference are no longer necessary. Staff recommends that
estimated cost to complete be reduced by four hours for travel, or $480 (4 hrs.
x $120/hr.). Also, the $116 of estimated travel expenses associated with
attending the Commission Conference should be removed.
Based on the above, staff recommends that the total
accounting fees for R&A be reduced by $7,345 ($6,749 + $480 + $116).
Dewberry Engineers, Inc. (DEI)
In its MFRs, the Utility did not include any engineering
fees to complete the rate case. The Utility provided documentation detailing
this expense through February 10, 2020. The actual fees total $987 with an estimated
$4,916 to complete the rate case, totaling $5,903.
DEI estimates that a total of 20 hours is needed to
complete the case. According to DEI’s summary, the consultant estimated the
following:
Table 15-3
DEI’s Estimate Hours to
Complete Case
|
Estimated Hours
|
Activity
|
|
5.00
|
Respond to Staff requests for documentation, including
research and correspondence and other information to answer each point in
requests.
|
|
4.00
|
Attend customer meeting in Gulf County; pre- and
post-meeting conferences with client.
|
|
9.00
|
Travel to and from Tallahassee; Prepare for and attend
Agenda conference; Discuss Agenda with client and staff.
|
|
2.00
|
Review PAA Order; conference with client and consultants
regarding PAA Order.
|
|
20.00
|
Total
|
Source: Utility’s response to staff’s third data request
At the time the above estimate was provided to staff, the
customer meeting had already occurred and was not attended by a representative
from DEI. As such, staff recommends that the estimated cost to complete be
reduced by two hours or $480 (2 hrs. x $240/hr.) to reflect a reasonable amount
of time that would have been allotted to attend the customer meeting.
Additionally, at the time the above estimate was provided to the staff, the
Commission Conference had not been changed to a teleconference format, as
previously discussed. Costs associated with travel to attend the Commission
Conference are no longer necessary. As such, staff recommends that the
estimated cost to complete be reduced by an additional four hours or $960 (4
hrs. x $240/hr.). Also, the $116 of estimated travel expenses associated with
attending the agenda meeting should be removed.
Based on the above, staff recommends that the total
engineering fees for DEI be reduced by $1,556 ($480 + $960 + $116).
Customer Notice
In its MFRs, Lighthouse included $16,947 of expenses
associated with customer notices. The Utility provided documentation detailing
the actual expense through January 9, 2020. The actual costs total $843 for one
notice. An estimate to complete was not provided by the Utility. Staff believes
it is reasonable to include the cost for two additional notices: a notice to
customers regarding final rates and a notice reflecting the four-year rate case
expense reduction. Using the Utility’s actual cost for the one notice
previously issued in this case results in additional noticing costs of $1,685
($843 x 2). Accordingly, staff recommends that customer notices, printing, and
shipping fees be increased by $1,685.
Limited Proceeding
Lighthouse originally petitioned the Commission for a
limited proceeding to increase its water rates in order to bring its water
system into compliance with applicable water quality standards. Two weeks after the Utility’s filing, the
service area was greatly affected by damage caused by Hurricane Michael,
destroying or damaging large portions of Lighthouse’s distribution system and
substantially impacting its customer base. Additionally, the Utility and OPC
were still continuing to discuss whether a limited proceeding was the
appropriate process for seeking rate relief based on its circumstances. To
avoid any further delay and expense, Lighthouse withdrew its application for a
limited proceeding and subsequently filed a full rate case.
In its update to actual rate case expense, Lighthouse
included documentation to support $27,234 in rate case expense from the limited
proceeding docket. This case differs from the circumstances in the Commission’s
decision in Order No. PSC-16-0525-PAA-WS, issued November 21, 2016, In re:
Application for increase in water rates in Lee County and wastewater rates in
Pasco County by Ni Florida, LLC (Ni Florida). In Ni Florida, the Commission did
not allow for the recovery of rate case expense from another docket where the
utility had withdrawn the corresponding application on its own motion. In Ni
Florida, the utility’s withdrawal of its application was, in part, due to
deficiencies in its own application, changes in ownership, and changes in the
status of certain capital improvements. These were all circumstances over which
the utility had some control.
In the instant docket, however, the circumstances are
different. Here, the previous limited proceeding for which the Utility had
applied was essentially “folded” into this proceeding and the application fee
paid in that proceeding applied to this proceeding. Secondly, circumstances
well beyond the control of the Utility (Hurricane Michael) were at least a
partial factor in moving from a limited proceeding to a full rate case. Based
on the above, staff believes the Utility’s request to recover rate case expense
associated with the limited proceeding docket is reasonable. Adjustments to the
Utility’s request are discussed below.
Legal Fees
Lighthouse provided documentation supporting $21,024 of
legal fees charged by H&K associated with the limited proceeding. Staff
reviewed the supporting documentation and determined that 5.7 hours, or $2,423
(5.7 x $425/hr.), were related to correcting deficiencies. Accordingly, staff
recommends that legal fees related to the limited proceeding should be reduced
by $2,423.
Accounting Fees
The Utility provided documentation supporting $6,210 of
accounting fees charged by R&A associated with the limited proceeding.
Staff reviewed supporting documentation and believes that all expenses are
reasonable. A breakdown of limited proceeding rate case expense is reflected in
the table below.
Table 15-4
Limited Proceeding Rate Case
Expense
|
Description
|
Actual
|
Staff Adjustments
|
Recommended Total
|
|
Limited Proceeding – Legal Fees
|
$21,024
|
($2,423)
|
$18,602
|
|
Limited Proceeding – Accounting Fees
|
6,210
|
0
|
6,210
|
|
Total
|
$27,234
|
$(2,423)
|
$24,812
|
Source: Utility’s responses to staff data requests
Conclusion
Based upon the adjustments discussed above, staff
recommends that Lighthouse’s revised rate case expense of $114,473 be decreased
by $18,434. A breakdown of staff’s recommended rate case expense of $96,040 is
as follows:
Table 15-5
Recommended Rate Case
Expense
|
Description
|
MFR Estimated
|
Utility Revised Act. & Est.
|
Staff Adjustments
|
Recom. Total
|
|
Legal Fees
|
$45,650
|
$54,637
|
($8,795)
|
$45,842
|
|
Accounting Fees
|
31,950
|
25,856
|
(7,345)
|
18,511
|
|
Engineering Fees
|
0
|
5,903
|
(1,556)
|
4,347
|
|
Customer Notices
|
16,947
|
843
|
1,685
|
2,528
|
|
Limited Proceeding - Legal Fees
|
0
|
21,024
|
(2,423)
|
18,602
|
|
Limited Proceeding - Accounting Fees
|
0
|
6,210
|
0
|
6,210
|
|
Total
|
$94,547
|
$114,473
|
($18,434)
|
$96,040
|
Source: MFR Schedules B-3 and B-10, along with Utility
responses to staff data requests
In its MFRs, the Utility requested total rate case expense
of $94,547. When amortized over four years, this represents an annual expense
of $23,637. The recommended total rate case expense of $96,040 should be
amortized over four years, pursuant to Section 367.081(8), F.S., as the Utility
did not request or justify a longer amortization period. This represents an
annual expense of $24,010. Based on above, staff recommends that annual rate
case expense be increased by $373 ($24,010 - $23,637) relative to the Utility’s
original filing.
Issue 16:
What is the appropriate revenue requirement for the
test year ended December 31, 2018?
Recommendation:
The following revenue requirement should be approved.
|
Test Year Revenues
|
$ Increase
|
Revenue Requirement
|
% Increase
|
|
$757,270
|
$154,963
|
$912,233
|
20.46%
|
(D. Andrews)
Staff Analysis:
In its filing, Lighthouse requested a revenue
requirement to generate annual revenue of $984,348. This requested revenue
requirement represents a revenue increase of $284,800 or approximately 40.71
percent.
Consistent with staff’s recommendations concerning rate
base, cost of capital, and operating income issues, staff recommends approval
of rates designed to generate a revenue requirement of $912,233. Staff’s
recommended revenue requirement of $912,233 is $154,963 greater than staff’s
adjusted test year revenue of $757,270. This results in an increase of 20.46
percent. Staff’s recommended revenue requirement will allow the Utility the
opportunity to recover its expenses and earn an 8.01 percent return on its
investment in rate base.
Issue 17:
What are the appropriate rate structures and rates
for Lighthouse’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. (Bruce)
Staff Analysis:
Lighthouse is located in Gulf County in the
Northwest Water Management District. The Utility provides water service to
approximately 1,837 residential customers and 60 general service customers
including multi-family units, recreational areas, a state park, and
governmental properties. Typically, staff evaluates the seasonality of the
Utility customers based on the percentage of bills at zero gallons, which is 13
percent in this case. However, based on billing data, it appears that the
customers are in residence periodically throughout each month and there are
also vacation rentals. Therefore, staff believes it is appropriate to evaluate
the seasonality based on the percentage of bills at the 1,000 gallon level,
which is 35 percent. As a result, it appears that the customer base is
seasonal. The average residential water demand is 4,199 per month. The average
residential demand excluding zero-gallon bills is 4,825 gallons per month.
Currently, the Utility’s water rate structure consists of a monthly base facility
charge (BFC) and uniform gallonage charge for residential and general service
customers.
As discussed in Issue 10, staff used 2019 billing
determinants to calculate test year revenues. The 2019 usage billing
determinants are five percent greater than the usage reflected in the 2018
billing determinants. By designing rates using the Utility’s 2018 billing
determinants reflected in the MFRs, revenues in excess of staff’s recommended
revenue requirement would be generated immediately upon the rates becoming
effective. Staff believes that 2019 billing determinants should be used to
design rates on a prospective basis in order to reflect known and measurable
post-Hurricane Michael changes in billing determinants.
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.
It has been Commission practice to recover no more than 40
percent of the revenues to be generated from the BFC. However, due to the
seasonality of the customer base, staff recommends that 50 percent of the water
revenues be generated from the BFC.
This will provide revenue stability while customers are out of residence. The
average people per household served by the water system is approximately 2.5;
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 4,000 gallons per month.
Staff recommends a traditional BFC with separate rate blocks for
non-discretionary and discretionary usage for residential water customers. The
rate blocks are: (1) 0-4,000 gallons and (2) all usage in excess of 4,000
gallons. This rate structure restricts repression at non-discretionary levels
of consumption. General service customers should be billed based on a BFC and
uniform gallonage charge.
Based on staff’s recommended revenue increase of 20.6
percent, which excludes miscellaneous revenues, the residential consumption can
be expected to decline by 2,069,000 gallons resulting in anticipated average
residential demand of 4,106 gallons per month. Based on staff’s evaluation of
the billing data, a larger decrease in consumption may seem reasonable due to
the amount of discretionary usage. However, as discussed above, Lighthouse
customers are not all fulltime owner-occupied homes, but instead some are
vacation rental properties. As is the case with the general service class,
these homeowners may pass along increases to their customers. Therefore, to
reflect this expected relative insensitivity to price changes, staff believes a
price elasticity of demand should be -0.2 instead of -0.4, which is normally
used to calculate repression adjustments. Staff’s recommended elasticity
indicates our belief that many of the Utility’s customers will simply pass the
increase in cost to their renters instead of reducing their consumption. Based
on the above, staff recommends a 2.2 percent reduction in test year residential
gallons for ratesetting purposes and corresponding reductions of $986 for
purchased power, $204 for purchased water, $143 for chemicals, and $63 for RAFs
to reflect the anticipated repression. These adjustments result in a post
repression revenue requirement of $906,941.
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
Issue 18:
What are the appropriate initial customer deposits
for Lighthouse’s water system?
Recommendation:
The appropriate initial customer deposit should be
$67 for the residential 5/8 inch by 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.
Currently, the Utility’s initial deposit for residential and general service
water is $25 for the 5/8 inch x 3/4 inch and 1 inch meter sizes and $50 for the
1 1/2 inch and 2 inch meter sizes. However, these amounts do not cover two
months’ average bills based on staff’s recommended rates. The Utility’s average
monthly residential water usage after repression is 4,106 gallons per customer.
Therefore, the average residential monthly bill based on staff’s recommended
rates is approximately $33.25.
Staff recommends the appropriate initial customer deposits
should be $67 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 19:
What is the appropriate amount by which rates should
be reduced to reflect the removal of the amortized rate case expense, as
required by Section 367.081(8), F.S.?
Recommendation:
The water rates should be reduced, as shown on
Schedule No. 4, to remove the annual amortization of rate case expense
grossed-up for RAFs. The decrease in rates should become effective immediately
following the expiration of the rate case expense recovery period. Lighthouse
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, Norris)
Staff Analysis:
The water rates should be reduced, as shown on Schedule
No. 4, to remove the annual amortization of rate case expense grossed-up for
RAFs. 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. Lighthouse should be required to file revised tariffs and a
proposed customer notice setting forth the lower rates and the reason for the
reduction no later than one month prior to the actual date of the required rate
reduction. If the Utility files this reduction in conjunction with a price
index or pass-through rate adjustment, separate data should be filed for the
price index and/or pass-through increase or decrease and the reduction in the
rates due to the amortized rate case expense.
Issue 20:
Should the Utility be required to notify, within 90
days of an effective order finalizing this docket, that is has adjusted its
books for all the applicable National Association of Regulatory Utility
Commissioners (NARUC) Uniform System of Accounts (USOA) associated with the
Commission-approved adjustments?
Recommendation:
Yes. The Utility should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Lighthouse should submit a letter within 90 days of the
final order in this docket, confirming that the adjustments to all the
applicable NARUC USOA accounts have been made to the Utility’s books and
records. In the event the Utility needs additional time to complete the
adjustments, notice should be provided within seven days prior to deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days. (D. Andrews)
Staff Analysis:
The Utility should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Lighthouse should submit a letter within 90 days of the
final order in this docket, confirming that the adjustments to all the
applicable NARUC USOA accounts have been made to the Utility’s books and
records. In the event the Utility needs additional time to complete the
adjustments, notice should be provided within seven days prior to deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days.
Issue 21:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. The docket should
remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the Utility and approved by staff, and the
Utility has notified staff that the adjustments for all the applicable NARUC
USOA primary accounts have been made. Once these actions are complete, this docket
should be closed administratively. (Schrader)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. The docket should
remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the Utility and approved by staff, and the
Utility has notified staff that the adjustments for all the applicable NARUC
USOA primary accounts have been made. Once these actions are complete, this
docket should be closed administratively.
