Discussion
of Issues
Issue 1:
Is the quality of service provided by HC Waterworks
satisfactory?
Recommendation:
No. While the Utility is in compliance with the DEP
and customer complaints have declined overall since 2016, there are still many
customer complaints on the pressure, color, and smell of the water provided by
HC. Pursuant to Rule 25-30.433(1)(d), F.A.C., customer testimony, comments, and
complaints shall be considered in the determination of the quality of service
provided by the Utility. Therefore, the overall quality of service should be
considered unsatisfactory due to the high number of customer complaints and the
Utility’s Return on Equity (ROE) should be reduced by 50 basis points. (Lewis,
Johnson, Knoblauch)
Staff Analysis:
Pursuant to Rule 25-30.433(1),
F.A.C., the Commission, in every rate case, shall make a determination of the
quality of service provided by the Utility by evaluating the quality of the
Utility’s product (water) and the Utility’s attempt to address customer
satisfaction (water and wastewater). The rule states that the most recent
chemical analysis, 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, and complaints
shall also be considered.
Quality of Utility's Product
HC’s water system consists of two independent water
systems: the Leisure Lakes system and the Lake Josephine system. Previously, HC
was composed of three water systems, but in October 2002, the Sebring Lakes
system was interconnected with the Lake Josephine system. This connection was
originally intended to only provide water to the Lake Josephine customers as
necessary. However, due to system pressurization problems in the Lake Josephine
water system, in 2010, the valve between the two systems was permanently
opened. Since the permanent opening of the valve, the Lake Josephine and
Sebring Lakes systems have been treated as one system by the DEP and the
Commission; therefore, throughout this recommendation the Lake Josephine and
Sebring Lakes systems are referred to as the Lake Josephine system.
In
evaluating HC's product quality, staff reviewed the Utility's compliance with
the DEP’s primary and secondary drinking water standards. Primary standards
protect public health, while secondary standards regulate contaminants that may
impact the taste, odor, and color of drinking water.
Lake Josephine
As discussed
in Order No. PSC-15-0282-PAA-WS, the previous owner attempted to address water
quality issues primarily related to hydrogen sulfides. In 2012, the DEP
approved the installation of AdEdge filtration systems at both the Lake
Josephine and Leisure Lakes WTPs. However, the filters did not resolve the
issues associated with disinfection byproducts reflected in the color, odor,
and taste of the finished water. HC also instituted a flushing program, but it
did not abate the problem either. On December 23, 2016, the DEP issued the Utility
a permit to install packed tower aeration systems to remove hydrogen sulfides,
in another effort to address HC’s water quality issues.
On April 20, 2017, the DEP
conducted a sanitary survey at the Lake Josephine WTP. On May 19, 2017, the DEP
sent a warning letter to HC indicating the Utility was not in compliance with
Rule 62-555.350(2), F.A.C., which states that the Utility shall maintain its
necessary public water system components in good operating condition. HC was not in compliance with this rule since the manganese
dioxide from its AdEdge filters was turning the potable water brown. The
warning letter directed HC to arrange a meeting with the DEP within 15 days, to
discuss the Sanitary Survey and the Utility’s plans to resolve the manganese
dioxide issue. It appears the DEP and the Utility came to an agreement, no
enforcement action was taken, and the DEP closed its inquiry, on July 3, 2019. The
DEP conducted a Sanitary Survey on January 29, 2020, at the Lake Josephine WTP.
On March 30, 2020, the DEP issued its results and found two minor deficiencies:
cracks in the pad at Well #1, and a protective screen was absent from the vent
at Well #2. On April 6, 2020, the Utility indicated to staff that these deficiencies
have been corrected.
The
DEP performed a chemical analysis at the Lake Josephine WTP on November 27,
2018, testing for compliance with all primary and secondary water standards.
The WTP was deemed in compliance on December 17, 2018. On August 3, 2019, and
November 19, 2019, partial chemical analyses were conducted and the WTP was
again deemed in compliance both times. Full testing of primary and secondary
water standards are performed every three years; therefore, the next scheduled
analysis should be completed in 2021.
Leisure Lakes
The DEP
conducted a Sanitary Survey on November 21, 2017, at the Leisure Lakes
WTP. On January 18, 2018, the DEP issued
the results and indicated the Utility was deficient with respect to Rule
62-555.350(2), F.A.C., and the Utility was cited for not keeping the WTP in
good working condition. On October 1, 2018, the DEP executed a Consent Order
against HC because of exceedances in the level of haloacetic acids, a primary
water standard. Haloacetic acids are a type of chlorination disinfection by-product
that are formed when the chlorine used to disinfect drinking water reacts with the
naturally occurring organic matter in water. The Utility was required to make
quarterly updates on its efforts to resolve the issue. On April 15,
2020, the DEP determined that all conditions of the Consent Order have been
completed.
The
DEP performed a chemical analysis at the Leisure Lakes WTP on October 3, 2018,
testing for compliance with all primary and secondary water standards. The WTP
was deemed in compliance on October 31, 2018. On August 18, 2019, a partial
chemical analysis was conducted at the Leisure Lakes WTP which was deemed in
compliance. Full testing of primary and secondary water standards are performed
every three years; therefore, the next scheduled analysis should be completed
in 2021.
The Utility's Attempt to Address Customer
Satisfaction
Staff
reviewed the complaints filed in the Commission’s Consumer Activity Tracking
System (CATS), with the DEP, and with the Utility from January 2015 through
December 2019. Customer complaints are
categorized as either billing or service issues. Customer complaints regarding
billing disputes or meter readings are considered billing issues; whereas
customer complaints regarding water outages, pressure, leaks, and quality are
considered service issues. Table 1-1 provides the number of complaints by type,
source, and year.
Table 1-1
Number of Complaints by Type, Source,
and Year
|
Year
|
CATS Records
|
DEP Records
|
Utility Records
|
Total
|
|
|
Billing
|
Service
|
Billing
|
Service
|
Billing
|
Service
|
|
|
2015
|
3
|
2
|
0
|
23
|
56
|
280
|
364
|
|
2016
|
5
|
1
|
0
|
22
|
87
|
393
|
508
|
|
2017
|
4
|
1
|
0
|
11
|
83
|
206
|
305
|
|
2018
|
5
|
3
|
0
|
41
|
94
|
192
|
335
|
|
2019
|
1
|
5
|
0
|
2
|
52
|
109
|
169
|
|
Total*
|
18
|
12
|
0
|
99
|
372
|
1,180
|
1,681
|
*A
single customer complaint may be counted multiple times if it fits into
multiple categories, was reported to multiple agencies, or was reported
multiple times.
The complaints from the
Commission’s CATS records associated with billing issues are mainly
attributable to improper billing disputes and the service issues are mainly
attributable to water quality and pressure. The service issue complaints
received by the DEP address the color, odor, and pressure of the water and
peaked in 2018. The Utility received the most service related complaints
compared to those received from CATS and the DEP. Of the 1,180 service related
complaints received by the Utility, shown in Table 1-1, the majority were
regarding water outages (448 complaints) and water quality (470 complaints).
However, water outage complaints received by the Utility decreased annually
from 167 complaints in 2015 to 41 complaints in 2019. The water quality complaints
received by the Utility peaked in 2016 with 228 complaints and decreased to 35
complaints in 2019. In addition, customer comments provided at the customer
meeting expressed frustration with the water quality and are discussed in
greater detail below.
The noticed customer meeting was held on February 20, 2020, at the
Highlands County Administration Building, in Sebring, Florida. Approximately 35
customers attended and 18 customers spoke. The majority of the 18 customers who
spoke noted dark colored water around the time the Utility had to temporarily
by-pass Lake Josephine’s aeration treatment system to fix a hole in the ground
storage tank on January 29, 2020. When the aeration system was by-passed, the
hydrogen sulfides were not being removed. However, this problem was resolved
once the aeration system came back online and extensive flushing was performed.
Four customers also stated their experience with water pressure issues.
Additionally, several customers stated they recently experienced customer
service issues when contacting the Utility for assistance. Specifically, one
customer stated they were hung-up on while making a service request and two
others stated their requests were not acted upon by the Utility. Five customers
mentioned they had not received boil water notices (BWNs) in the past, but
instead, only received notice rescinding the BWNs.
Similar to the comments made at the
customer meeting for the Utility’s previous rate case in 2015, many customers
at the 2020 customer meeting expressed their discontent with the water quality;
specifically, odor and color. In addition, three
customers noted skin irritation when bathing which they attribute to the
chemicals in the water. The customers also described their water having
particulates such as sand and clay. A few customers described the overall water
quality as poor. Additionally, customers expressed that the cost of the water
far exceeds its quality and they have no choice but to purchase bottled water,
further stating the Utility should not receive a rate increase, but instead
should be fined.
A representative from Highlands County attended the meeting
and on April 7, 2020, a letter was filed with the Commission on behalf of the
Highlands County Board of County Commissioners. The letter summarized the
customer comments from the customer meeting and asked the Commission to investigate
HC’s water quality. Additionally, prior to filing its letter with the
Commission, on February 18, 2019, a representative from Highlands County also
filed a complaint with the DEP on behalf of several customers; the complaint
included water contamination concerns related to finding bugs in the water and
several customers developing stomach issues. Last, as of April 16, 2020, the Commission received comments from 12 customers which have been
placed in the docket file. These customer comments also discuss poor water
quality and objections to the overall rate increase.
After the customer meeting, the Utility reached out to the
customers who spoke by sending the utility manager to each home on March 9 and
10, 2020.
The Utility reported the majority of the customers were Lake Josephine
customers that were upset with the water quality issues that arose during the
time of the tank repair when the aeration system had to be temporarily
by-passed, around January 29, 2020. The Utility further stated the majority of
the customers were appreciative of the in-person visit and expressed that water
quality has improved. The Utility filed a
response to the Highlands County letter on April 9, 2020.
In the letter, the Utility summarized its actions to address the water quality
issues, including installation of the aeration treatment systems, and its
follow up with customers after the customer meeting, as discussed above.
As discussed above, in the
Utility’s last rate case, HC attempted to correct its water quality issues. To
address the foul odor of its water, HC converted its WTPs to chloramines for
disinfection, and tests conducted subsequent to each conversion show that the
conversions were effective in bringing the contaminant levels to well below the
DEP standards. While the chloramine conversion provided the appropriate
disinfection, the secondary considerations of taste and odor worsened for
customers. The chloramines used to keep the disinfection byproduct levels low
were less effective than free chlorine at disinfection. Since many Leisure
Lakes customers are seasonal, the water in some areas of the service territory could
become stagnant. This allowed the hydrogen sulfides to reform in the
distribution system. Therefore, DEP issued a permit to add the packed aeration
filters to both systems in 2016.
In HC’s previous rate case, the
Commission deemed the quality of service provided by the Utility as
satisfactory. In that case, there were 111 complaints and majority of the
complaints were regarding the overall rate increase. While the Utility's
customer complaints have declined since 2016, the overall volume of complaints
have increased since the Utility's last rate case, with the majority of
complaints regarding the water quality. The appropriate agency, the DEP, has
issued Consent Orders and has been working with the Utility to improve HC’s
water quality over the past several years, as discussed previously. HC is
currently in compliance with the DEP and all of the Utility’s system
improvements have been in place since 2018. Additionally, staff reviewed HC’s
complaint records from CATS, the DEP, and the Utility from January 2020 through
April 2020, and found additional complaints addressing the pressure, color, and
smell of the water.
The Commission has discretion when
determining the most appropriate action for a Utility whose quality of service
is determined to be unsatisfactory. In past cases, the Commission has reduced
ROE between 25 and 100 basis points.
In addition, the Commission has reduced the utility president’s or officer’s
salary.
Staff recognizes the Utility is in compliance with the DEP and the overall
customer complaints have been declining since 2016; however, due to the volume
of customer complaints reviewed in the instant docket, staff recommends the
Utility's quality of service be deemed unsatisfactory and its ROE reduced by 50
basis points.
Conclusion
While the Utility is in compliance with the DEP and
customer complaints have declined overall since 2016, there are still many
customer complaints on the pressure, color, and smell of the water provided by
HC. Pursuant to Rule 25-30.433(1)(d), F.A.C., customer testimony, comments, or
complaints shall be considered in the determination of the quality of service
provided by the Utility. Therefore, the overall quality of service should be
considered unsatisfactory due to customer complaints and the Utility’s ROE should
be reduced by 50 basis points.
Issue 2:
Are the infrastructure and operating conditions of
HC Waterworks, Inc.’s water systems in compliance with DEP regulations?
Recommendation:
Yes. HC’s water system infrastructure and operating
conditions are currently in compliance with the DEP. (Johnson)
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 Operating Conditions
As discussed in Issue 1, HC’s water system consists of two
independent water systems: the Leisure Lakes system and the Lake Josephine
system. Previously, HC was composed of three water systems, but in October
2002, the Sebring Lakes system was interconnected with the Lake Josephine
system. The Lake Josephine and Sebring Lakes systems are treated as one system
by the DEP and the Commission.
Lake Josephine
Lake Josephine’s water system has a permitted design
capacity of 600,000 gallons per day (gpd). The Lake Josephine water system has
four wells with respective pumping capacities of 250, 400, 400, and 400 gallons
per minute (gpm). This water system also has two ground storage tanks with
capacities of 71,000 gallons and 15,000 gallons, along with a hydropneumatic
storage tank with a 10,000-gallon capacity.
Staff reviewed the Lake Josephine
sanitary surveys conducted by the DEP to determine the Utility’s overall water
facility compliance. A review of the inspection conducted on January 29, 2020,
indicated that the water treatment facility had two minor compliance violations
with the DEP’s rules and regulations. The violations were a slight crack in the well pad and a protective screen was
off a well. On April 6, 2020, the Utility indicated that these
violations have been corrected.
Leisure Lakes
Leisure Lakes’ water system has a permitted plant design
capacity of 72,000 gpd. Leisure Lakes’ water system has two wells with respective
pumping capacities of 200 and 50 gpm, and a ground storage tank with a 50,000
gallons capacity.
HC and the DEP entered into a Consent Order, on October 1,
2018. This Consent Order required HC to install a packed tower aeration
system/forced draft degasification tower and install a 4,000-gallon hydropneumatic
(pressure) tank, among other modifications. The construction of the forced
draft aeration system is the remedy for the non-compliance issues from 2017
that resulted in the October 1, 2018 Consent Order.
Staff reviewed Leisure Lakes’ sanitary surveys conducted
by the DEP to determine this system’s overall water facility compliance. Also,
staff received an email from the DEP, dated February 6, 2020, in which the DEP
stated, “In regard to the Leisure Lakes Consent Order, all the corrective
action items listed in the consent order have been completed.” After completing
items in the Consent Order, the Leisure Lakes WTP is currently in compliance with
the DEP.
Conclusion
Staff believes that HC’s water
system infrastructure and operating conditions are currently in compliance with
the DEP.
Issue 3:
Should the audit adjustments to rate base to which
the Utility agrees be made?
Recommendation:
Yes. Plant should be decreased by $7,383 and accumulated
depreciation should be decreased by $1,021. A corresponding adjustment should
be made to decrease depreciation expense by $261. (Thurmond)
Staff Analysis:
Staff’s audit report was filed on February 3, 2020.
HC did not file a formal response to the audit because it did not oppose any of
the findings. The audit adjustments are set forth in Table 3-1.
Table 3-1
Audit Adjustments
|
Audit Adjustment
|
Description
|
Plant
|
Accumulated Depreciation
|
Depreciation Expense
|
|
Finding 1
|
Commission-Ordered Adjustments
|
($7,383)
|
$1,021
|
($261)
|
Source: Staff Audit Report
Issue 4:
Should further adjustments be made to test year rate
base?
Recommendation:
Yes, plant should be increased by $31,138 and
accumulated depreciation should be decreased by $7,707. A corresponding
adjustment should be made to decrease depreciation expense by $1,463. (Johnson,
Knoblauch, Thurmond)
Staff Analysis:
Staff has reviewed the test year rate base
components along with support documentation. Staff believes further adjustments
are necessary to HC’s rate base, as discussed below.
Test Year Plant Additions
Highlands County and the FDOT
initiated a road widening project, and notified HC that its water mains, in the
right-of-way of Lake Josephine Drive, would need to be relocated. In its MFRs,
HC requested $516,589 for a water main relocation project within its Lake
Josephine system. The Utility received two bids and the lowest bidder was
selected. The selected bidder was also the contractor utilized by Highlands
County; therefore, the contractor was already on-site. The water main
relocation project was completed in January 2018, and the Utility provided
invoices for an actual project cost of $514,039, including engineering and
permitting costs.
In its MFRs, HC recorded $493,015
for a water quality improvement project at its Lake Josephine WTP required by
the DEP. In May 2017, HC met with the DEP to discuss ongoing water quality
issues with its Lake Josephine system. The Utility stated that the DEP had
indicated it was prepared to issue a Consent Order if HC did not promptly
address the hydrogen sulfide in the water. In September 2017, the DEP issued a
construction permit to the Utility for the addition of a new treatment system
at the Lake Josephine WTP. The new treatment system implemented was a packed
tower aeration treatment system for removal of hydrogen sulfide. The Utility
received three bids for the aeration project and the Utility chose the lowest
bidder, U.S. Water Services Corporation (USWSC). The aeration tower was completed
and placed into service in June 2018; having received partial clearance from
the DEP. The DEP indicated that all portions of the project would need to be
completed before granting full clearance. Some of the remaining portions of the
project included the installation of a new hydropneumatic tank, chemical
pumping skids, telemetry system, upgraded electrical controls, and bypass
piping. These remaining portions were all completed in 2019. Based on the
invoices provided by the Utility, the total cost for the project was $547,980.
The Utility stated that some expenditures had inadvertently not been included
in its filing, but the correct project cost was $547,980, which included
engineering and permitting costs.
As both the Lake Josephine water main relocation project
and the Lake Josephine water quality improvement project were required by
governmental agencies, staff believes the projects were necessary. The Utility
obtained multiple bids for each project, and invoices supporting the costs were
reviewed by staff. Therefore, staff recommends approval of the Lake Josephine water
main relocation project and the Lake Josephine water quality project at a cost
of $514,039 and $547,980, respectively.
Based on the additional amount and reclassification of plant
additions in the test year, plant should be increased by $31,138 and
accumulated depreciation should be decreased by $67. A corresponding adjustment
should be made to decrease depreciation expense by $74. Staff notes that the
adjustments are based on using a half-year convention for test year additions
and the use of a simple average rate base for the test year.
Accumulated Depreciation
In the Utility’s prior rate case, accumulated depreciation
was removed for specific plant accounts without balances. One of these
accounts, transportation, still maintained an accumulated depreciation balance
in the current test year, along with depreciation expense. Consistent with the
Commission’s prior decision, staff reduced accumulated depreciation by $7,640
to reflect the removal of this balance. Staff also made a corresponding
adjustment to decrease depreciation expense by $1,389.
Conclusion
Based on the adjustments above, plant should be increased
by $31,138, accumulated depreciation should be decreased by $7,707
($67+$7,640), and depreciation expense should be decreased by $1,463
($74+$1,389).
Issue 5:
What are the used and useful (U&U) percentages
of HC Waterworks, Inc.’s water treatment plant (WTP), storage, and water
distribution system?
Recommendation:
HC’s WTP should be considered 89.9 percent U&U,
and its storage should be considered 100 percent U&U. The Utility’s water
distribution system should be considered 100 percent U&U. Additionally,
staff recommends an adjustment of 2.23 percent be made to purchased power and
chemical expenses for excessive unaccounted for water (EUW). To reflect
the appropriate U&U percentages, staff recommends an increase to plant of
$35,793 and an increase to accumulated depreciation of $7,419. Additionally,
CIAC and accumulated amortization of CIAC should be decreased by $1,944 and
$219, respectively. Collectively, these adjustments decrease the Utility’s
non-U&U component by $30,098 ($35,793 - $7,419 + $1,944 + $219).
Corresponding adjustments should be made to increase net depreciation expense
by $929. Further, a corresponding adjustment should be made to increase
property tax by $504. (Johnson, Knoblauch, Thurmond)
Staff Analysis:
HC’s three WTPs, and their associated storage and
distribution systems, were initially owned and operated independently of one
another. In their respective rates cases over the years, the Commission has
assigned each system different U&U percentages. However, in its last rate
case, the Commission combined the systems using a weighted average to obtain a
single U&U percentage for the total system and staff utilized this same
methodology in the instant docket.
Used and Useful Percentages
Rule 25-30.4325, F.A.C.,
addresses the method by which the U&U of a water system is determined. HC’s
U&U percentages were last determined in Docket No. 20140158-WS. In that
docket, the Commission determined the Utility’s WTP to be 89.9 percent U&U and
water storage to be 100 percent U&U. Additionally, the Utility’s water
distribution system should be considered 100 percent U&U, due to the lack
of vacant lots. HC’s water service area has had insignificant growth (less than
one percent) for the past five years, and the Utility has not expanded its
territory. Therefore, consistent with the Commission’s previous decision, staff
recommends the Utility’s WTP be considered 89.9 percent and water storage be
considered 100 percent U&U, and the Utility’s water distribution system be
considered 100 percent U&U.
Excessive Unaccounted for Water
Rule
25-30.4325, F.A.C., additionally provides factors to be considered in
determining whether adjustments to operating expenses are necessary for EUW. Rule
25-30.425(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. 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.
According to
HC’s records, the Utility pumped a combined total of 53,224,000 gallons during
the test year. In its MFRs, the Utility indicated that it purchased no water
and estimated 12,944,919 gallons for other uses, including flushing for
maintenance, filter backwash, main/service line breaks or customer leak
adjustments. In the Utility’s response to staff’s third data request, HC
reported that there was an additional 585,000 gallons that were utilized for those
other uses.
According to staff’s billing determinants, the Utility sold 33,186,000 gallons of
water during the test year. Thus, staff calculated the total amount of
unaccounted for water to be 6,508,081 gallons, or 12.23 percent
(6,508,081/53,224,000), yielding an EUW of 2.23 percent. As such, staff
recommends that a 2.23 percent adjustment to purchased power and chemical
expenses be made for excessive EUW.
Conclusion
HC’s WTP should be considered 89.9 percent U&U, and
its storage should be considered 100 percent U&U. The Utility’s water
distribution system should be considered 100 percent U&U. Additionally,
staff recommends an adjustment of 2.23 percent to be made to purchased power
and chemical expenses for EUW.
In its filing,
HC made non-U&U adjustments to decrease rate base by $107,752, depreciation
expense by $6,614, and property tax expense by $354. However, it did not
include an adjustment to CIAC in its proposed adjustment. To reflect the
appropriate non-U&U percentages applied to all components of rate base,
staff recommends an increase of plant of $35,793 and an increase to accumulated
depreciation of $7,419. Additionally, CIAC and accumulated amortization of CIAC
should be decreased by $1,944 and $219, respectively. Collectively, these
adjustments decrease the Utility’s non-U&U component by $30,098 ($35,793 -
$7,419 + $1,944 + $219). Corresponding adjustments should be made to increase net
depreciation expense by $929. Further, a corresponding adjustment should be
made to increase property tax by $504.
Issue 6:
Should any adjustments be made to the Utility’s pro
forma plant?
Recommendation:
Yes. Pro forma plant should be increased by $56,499.
Corresponding adjustments should also be made to increase accumulated
depreciation by $14,030 and depreciation expense by $14,030. Additionally,
property taxes should be increased by $3,219. (Johnson, Knoblauch, Thurmond)
Staff Analysis:
In its MFRs, HC requested
$525,970 for a water quality project at its Leisure Lakes WTP. HC and the DEP
entered into a Consent Order, for the Leisure Lakes system, on October 1, 2018,
for disinfection byproduct exceedances. The Utility also stated that like Lake
Josephine, there were elevated levels of hydrogen sulfide in the water for the
Leisure Lakes’ system. As such, the Utility decided to implement the same
packed tower aeration treatment system for Leisure Lakes that was being
utilized at the Lake Josephine WTP. As with Lake Josephine, the Utility
received three bids for the Leisure Lakes aeration project, and the Utility
chose the lowest bidder, USWSU. The aeration system received clearance from the
DEP and was placed into service in September 2019. Based on the invoices
provided by the Utility, the total cost for the project will be $582,468.
Considering that the Leisure Lakes water quality project
was required by the DEP, staff believes the project is needed. The Utility
obtained multiple bids for the project, and invoices supporting the costs were
reviewed by staff. Therefore, staff recommends approval of Leisure Lakes' water
quality project at a cost of $582,468. The Utility stated that the bid amount
requested for the project did not include engineering costs, and the updated
project cost is $582,468.
In total, pro forma plant should
be increased by $56,499. Corresponding adjustments should also be made to
increase accumulated depreciation by $14,030 and depreciation expense by
$14,030. Additionally, property taxes should be increased by $3,219.
Issue 7:
What is the appropriate working capital allowance?
Recommendation:
The appropriate working capital allowance is $49,885.
As such, the working capital allowance should be increased by $1,586. (Thurmond)
Staff Analysis:
Rule 25-30.433(3), F.A.C., requires Class B
utilities to use the formula method, or one-eighth of operation and maintenance
(O&M) expenses, to calculate the working capital allowance. The Utility has
properly filed its allowance for working capital using the formula method.
Staff recommended adjustments to HC’s O&M expenses. As a result, staff
recommends working capital of $49,885. This reflects an increase of $1,586 to
the Utility’s requested working capital allowance of $48,299.
Issue 8:
What is the appropriate rate base for the test year
ended June 30, 2019?
Recommendation:
Consistent with staff’s other recommended
adjustments, the appropriate rate base for the test year ended June 30, 2019,
is $3,116,734. (Thurmond)
Staff Analysis:
In its MFRs, the Utility requested a rate base of
$3,010,098. Based on staff’s previously recommended adjustments, the
appropriate rate base is $3,116,734. The schedule for rate base is attached as
Schedule No. 1-A, and the adjustments are shown on Schedule No. 1-B.
Issue 9:
What is the appropriate return on equity?
Recommendation:
Based on the Commission’s leverage formula currently
in effect and staff’s recommended adjustment for unsatisfactory quality of
service discussed in Issue 1, the appropriate return on equity (ROE) is 9.17
percent with an allowed range of plus or minus 100 basis points. (Thurmond)
Staff Analysis:
The ROE included in the Utility’s MFRs is 9.67
percent. Based on the current leverage formula in effect and the equity ratio
of 49.79 percent, the appropriate ROE is 9.67 percent.
However, as discussed in Issue 1, staff is recommending a reduction of 50 basis
points for unsatisfactory quality of service. Therefore, the appropriate ROE is
9.17 percent. Staff recommends an allowed range of plus or minus 100 basis
points be recognized for ratemaking purposes.
Issue 10:
What is the appropriate weighted average cost of
capital based on the proper components, amounts, and cost rates associated with
the capital structure for the test year ended June 30, 2019?
Recommendation:
The appropriate weighted average cost of capital for
the test year ended June 30, 2019, is 7.14 percent. (Thurmond)
Staff Analysis:
In its filing, HC requested an overall cost of
capital of 7.39 percent. The Utility’s capital structure consists of long term
debt, common equity, and customer deposits. Based upon the proper components,
amounts, and cost rates associated with the capital structure, staff recommends
a weighted average cost of capital of 7.14 percent. Schedule No. 2 details
staff’s recommended overall cost of capital.
Issue 11:
What are the appropriate test year revenues for HC
Waterworks’ water system?
Recommendation:
The appropriate test year revenues for HC’s water
system are $561,027, which is a decrease of $14,708 to the Utility’s recorded
test year revenues. (Bethea)
Staff Analysis:
According to the Utility’s MFRs, the Utility reflected
total test year revenues of $575,735 for water. The water revenues included
$559,693 of service revenues, $10,237 of miscellaneous revenues, and $5,805 of
guaranteed revenues.
The Utility made adjustments to its billing data to account
for duplicate bills that occurred as a result of move in/move outs and prorated
bills for a rate change. For move ins/move outs, there is a final bill for the
old customer and bill for the new customer at the same address. The billing
analysis reflected both bills when there should only be one bill per address.
The Utility’s rates were increased for a price index rate adjustment in the
first month of the test year. The change in the base facility charge was
prorated and reflected as two separate charges on a customer’s bill. However, the two separate charges were
recognized as two separate bills in the Utility’s billing analysis. Staff
agrees with the Utility’s adjustments because the two scenarios overstate the Utility’s
billing determinants. Subsequent to the test year, the Utility’s rates decreased
reflecting the expiration of amortized rate case expense. Since there was a
rate change subsequent to the test year, staff has annualized the test year
service revenues using the adjusted billing determinants and the rates that
became effective August 6, 2019. Staff determined water test year service
revenues to be $550,790, which is a decrease of $8,903 ($559,693 -
$550,790).
In addition, the Utility included guaranteed revenues as part
of its test year revenues. The revenues were actually a result of the Utility
assessing its allowance for funds prudently invested (AFPI) charges. AFPI is
considered below the line for ratemaking purposes. As a result, staff decreased
test year revenues by $5,805. Staff had no adjustments to miscellaneous
revenues.
Based on the above, the appropriate test year revenues for
HC’s water system are $561,027 ($550,790 +$10,237), which is a decrease of
$14,708 ($8,903 + $5,805) to the Utility’s recorded test year revenues.
Issue 12:
Should further adjustments be made to the Utility’s
O&M expense?
Recommendation:
Yes. O&M expense should be increased by $9,503.
(Johnson, Knoblauch, Thurmond)
Staff Analysis:
Based on its review of test year O&M expense,
staff recommends several adjustments to the Utility’s O&M expense as
summarized below.
Purchased Power
In its filing, HC reflected purchased power expense of
$47,237, which included a pro forma increase of $7,262. The Utility stated that
the new water treatment system at the Leisure Lakes WTP would increase
purchased power. This is because the water would have “to be pumped twice, once
through the aeration then back out of the storage tank into the distribution
system.”
However, the Utility did not provide any invoices or documentation to support
the requested adjustment of $7,262. Therefore, staff recommends no adjustment
to purchased power expense for the Leisure Lakes new water treatment system.
However, as discussed in Issue 5, staff recommends an adjustment of 2.23 percent be
made to purchased power expense for EUW. As such, staff recommends
reducing purchased power by $1,053 (2.23 percent x $47,237).
Chemicals
In its filing, HC reflected chemicals expense of $38,625,
which included a pro forma increase of $3,473. The Utility explained that new
chemicals were required for the water treatment system at the Leisure Lakes
WTP, which was not captured in the test year expense. Invoices for the new
chemicals were provided by the Utility from August 2019 through February 2020
totaling $3,528.
Utilizing these invoices, staff calculated the average monthly cost for the new
chemicals, and subsequently calculated an annual cost of $6,048. Therefore,
staff recommends an increase of $6,048 to chemicals expense. Additionally, as
discussed in Issue 5, staff recommends an adjustment of 2.23 percent be made to chemicals
expense for EUW, which results in a decrease of $996 (2.23 percent x
$44,673). As such staff recommends increasing chemicals by $5,052 ($6,048 -
$996).
Contractual Services-Other
During the test year, the Utility recorded contractual
services - other expense of $263,131. HC receives all of its operational and
administrative services under a contract with an affiliated company, USWSC.
Pursuant to the contract, HC employed the services of USWSC to perform various
functions: administrative management, operations, maintenance, and
billing/collection for the Utility. These include management and financial
oversight, water system operations, maintenance, and customer service.
On January 7, 2020, HC submitted documentation containing
additional information related to its outside contractual services agreement
with USWSC. According to the Utility, USWSC currently operates in 60 of
Florida’s 67 counties, providing service to over 1,000 utility systems, and
over 1,000,000 customers daily. USWSC’s president and majority shareholder has
been in the water utility management and operations industry for over 30 years.
HC contracts with USWSC for the following services:
1.
Water and Wastewater Operations
2.
Meter Reading
3.
System Maintenance and Repairs
4.
Billing and Collections
5.
Customer Service
6.
Regulatory Affairs
7.
Testing
8.
Accounting
9.
Office Space and Equipment
According to the Utility, each of the service contracts
that USWSC enters into with a utility “are different and are priced differently
depending on numerous factors.” These factors include the number of employees
needed and the number of hours required per system for successful operation.
Additional considerations include whether USWSC provides chemicals, power,
offices, vehicles, etc., or if these items are provided by the utility.
Additional support offered by the Utility included the
“2016 American Water Works Association Benchmarking Performance Indicators for
Water and Wastewater” (AWWA Benchmark) and an independent third-party contract
and benchmarking review commissioned by the Florida Governmental Utility
Authority (FGUA), which was issued in 2013. According to the AWWA Benchmark,
the median O&M expense per account of the 44 water companies surveyed is
$430.71, including customer service costs, with a range from $331.25 to
$639.82.
The contract and benchmarking review commissioned by FGUA
was undertaken to review charges by USWSC in comparison to similar water
utilities throughout the United States. The FGUA study concluded that the USWSC
costs on a per account basis fell within the top quartile (lower cost) of other
utilities. These were charges to FGUA by USWSC. While the Utility represented
that there was a flaw in the data presented in the 2013 study, staff’s greater
concern is the age of some of the underlying data, which can be tied to AWWA’s
2011 Benchmarking Performance Indicators. As such, staff believes that the 2016
Benchmarking Performance Indicators are a more appropriate reference point.
Staff also compared HC to five “sister” water utilities
that share common ownership and had a rate case approved in the last five years
by calculating a three-year average O&M per equivalent residential
connection (ERC) expense using information contained in each utility’s 2016,
2017, and 2018 Annual Reports.
Staff then compared HC to five non-USWSC affiliated water utilities using the
same criteria. Table 12-2 reflects the comparative average O&M expense per
ERC for HC, its USWSC sister utilities, and non-USWSC utilities. For comparison
purposes, the average O&M expense per ERC incorporated in staff’s proposed
water revenue requirements are also represented in Table 12-2.
Table 12-2
Water O&M Expense Per
ERC
|
|
Utility O&M
Exp./ERC
|
|
USWSC Sister Utilities (3-Yr. Avg.)
|
$306.60
|
|
Non-USWSC Utilities (3-Yr. Avg.)
|
$486.71
|
|
HC Waterworks (Staff Recommended)
|
$386.19
|
Source: 2016-2018 Annual Reports and staff
calculations.
At the March 3, 2020 Commission Conference, the Commission
approved the USWSC contractual services agreements for three additional
“sister” utilities, based, in part, on comparisons to other utilities with
similar agreements.
The contractual services agreements in those dockets also appeared reasonable
when compared to the O&M expenses per ERC of industry peers as reflected in
the AWWA Benchmark.
Staff notes that the Commission previously approved
similar USWSC agreements and related costs in prior cases involving twelve of
HC’s sister utilities during fourteen rate case proceedings. Two sister
utilities, LP Waterworks, Inc. and Lakeside Waterworks, Inc., each had two
SARCs in which the Commission reviewed and approved expenses related to USWSC
management services contracts. In regard to the appropriateness of utility
contracts with affiliated companies, the Utility cited GTE v. Deason, 642 So. 2d 545 (Fla. 1994), in which the Florida
Supreme Court stated:
The mere fact that a utility is doing business with an
affiliate does not mean that unfair or excess profits are being generated,
without more. Charles F. Phillips, Jr., The Regulation of Public Utilities
254-255 (1988). We believe the standard must be whether the transactions exceed
the going market rate or otherwise inherently unfair . . . if the answer is
“no,” then the PSC may not reject the utility’s position.
GTE v. Deason, 642 So. 2d at 547-548.
On February 7, 2020, HC provided staff an internal audit
conducted in 2018 to capture the actual costs of USWSC that demonstrate the
reasonableness of the contract. After reviewing this audit, staff believes that
despite the higher per ERC cost, HC’s contractual services agreement with USWSC
is reasonable, especially given that the system requires additional resources
to address water quality issues. Staff believes that USWSC and its employees
bring considerable management and operational experience at a comparably
reasonable cost. As a result, staff believes that the Utility’s customers are
experiencing operational benefits that might not be realized if HC was to
purchase and provide these services itself.
Through its contract with USWSC, the Utility asserted that
it made significant plant improvements. In the instant case, staff believes
that the contract reflects the market conditions of the Utility’s service area.
HC asserted that if it was required to hire its own personnel for maintenance,
customer service, accounting, regulatory compliance, etc., the cost would
exceed that of the current USWSC contract. Absent the USWSC contract, staff
believes the costs to provide service would most likely be higher. For the
reasons discussed above, staff believes that the Utility’s contract with USWSC
is reasonable and the cost should be included for recovery in the Utility’s
proposed rates.
The USWSC contract amount increased over the test year to
reflect an increase based on the 2018 audit in September 2018 and an index
increase in April 2019 that mirrored the same amount approved by the
Commission. This
results in a total contract amount of $273,067. As approved for its three
sister utilities by the Commission at the March 3, 2020 Commission Conference, staff
believes an adjustment should be made to annualize the increase in the test
year. This adjustment results in an increase of $9,936.
Bad Debt Expense
In its filing, HC reflected bad debt expense of $8,151 in
the test year and included an adjustment to increase the expense by $3,432,
which represented 2 percent of its requested revenue increase. Staff reviewed
the test year amount and compared it to the 3-year average for the Utility. The
difference is immaterial and staff believes the test year amount is reasonable.
Staff believes the Utility’s request to include a factor
for bad debt expense in respect to the revenue increase is also reasonable, as such
a factor is consistent with similar factors used in the gas and electric
industries. It is parallel to the inclusion of regulatory assessment fees (RAFs)
factored into revenue requirement based on the revenue increase. However, staff
believes the percentage applied to the revenue increase should reflect the
Utility’s three-year average, which is 1.37 percent. Staff removed the
Utility’s pro forma increase of $3,432 in order to apply the 1.37 percent to
staff’s final recommended revenue increase addressed in Issue 14. In total,
staff is recommending bad debt expense of $10,657.
Miscellaneous
In its filing, HC reflected miscellaneous expense of
$9,273. However, in its response to staff’s first data request HC stated that $1,000
for FDEP annual permits included in miscellaneous expense should have been
booked to wastewater. Thus, staff recommends a decrease to miscellaneous
expense of $1,000.
Summary
Based on the adjustments discussed above, O&M expense
should be increased by $9,503 (-$1,053 + $5,052 + $9,936 - $3,432 - $1,000).
Issue 13:
What is the appropriate amount of rate case expense?
Recommendation:
The appropriate amount of rate case expense is $7,915.
This expense should be recovered over four years for an annual expense of $1,979.
Therefore, annual rate case expense should be increased by $493. (Thurmond)
Staff Analysis:
In its MFRs, HC requested $5,945 for current rate
case expense. Staff requested an update on the actual rate case expense
incurred, with supporting documentation, as well as the estimated amount to
complete the case. On February 3, 2020, the Utility submitted its last revised
estimate of rate case expense, through completion of the PAA process, which
totaled $7,137.
Table 13-1
HC’s Initial and Revised
Rate Case Expense Request
|
|
MFR B-10 Estimated
|
Actual
|
Additional
Estimated
|
Revised
Total
|
|
Noticing
|
$1,995
|
$1,004
|
$2,008
|
$3,012
|
|
Travel
|
450
|
400
|
225
|
625
|
|
Filing Fee
|
3,500
|
3,500
|
0
|
3,500
|
|
Total
|
$5,945
|
$4,904
|
$2,233
|
$7,137
|
Source: MFR Schedule B-10 and 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 HC’s rate case expense estimate are appropriate.
Noticing
The Utility’s initial filing reflected costs associated
with sending two notices–the customer meeting and final notice. In its revised
estimate, it included an additional amount to reflect the interim notice. Upon review,
staff noted that the Utility failed to include noticing costs for the four-year
rate reduction. Using the noticing costs provided by the Utility, staff
recommends increasing rate case expense by $1,004 to reflect the additional
notice.
Travel
HC’s initial filing reflected estimated travel expenses of
$450. In its update of actual travel expenses, the Utility reflected $400
associated with utility representatives attending the customer meeting and an
additional estimate of $225 to attend the Commission Conference. At the time
the estimate was provided to staff, the Commission Conference was scheduled to
be held in traditional in-person format. After HC filed its estimate, the
Commission Conference was 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
travel expenses associated with attending the Commission Conference should be
removed. Accordingly, staff recommends that rate case expense be reduced by
$225.
Conclusion
Based upon the adjustment
discussed above, staff recommends that HC’s revised rate case expense of $7,137
be increased by $779 ($1,004 - $225) to reflect staff’s adjustment, for a total
of $7,915. A breakdown of staff’s recommended rate case expense is as follows.
Table 13-2
Staff
Recommended Rate Case Expense
|
Description
|
MFR Estimated
|
Utility Revised Actual & Estimated
|
Staff Adjustment
|
Recommended
Total
|
|
Noticing
|
$1,995
|
$3,012
|
$1,004
|
$4,016
|
|
Travel
|
450
|
625
|
(225)
|
$400
|
|
Filing Fee
|
3,500
|
3,500
|
0
|
$3,500
|
|
Total
|
$5,945
|
$7,137
|
$779
|
$7,915
|
Source: MFR Schedule B-10
and responses to staff data requests
In its MFRs, HC requested total rate case expense of
$5,945. When amortized over four years, this represents an annual expense of
$1,486. The recommended total rate case expense of $7,915 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 $1,979. Based on the above, staff recommends that annual rate case
expense be increased by $493 ($1,979 - $1,486) compared to the original request
in the MFRs.
Issue 14:
What is the appropriate revenue requirement for the
test year ended June 30, 2019?
Recommendation:
Staff recommends the
following revenue requirement be approved.
|
Test Year Revenue
|
$ Increase
|
Revenue Requirement
|
% Increase
|
|
$561,027
|
$182,937
|
$743,964
|
32.61%
|
(Thurmond)
Staff Analysis:
In its filing, the Utility requested a revenue
requirement to generate annual revenue of $743,964. This requested revenue
requirement represents a revenue increase of $168,229, or approximately 29.57
percent, over the test year revenues of $575,735 in HC’s initial filing.
Consistent with recommendations concerning rate base, cost of capital, and
operating income issues, the resulting revenue requirement is $775,366. However,
it is Commission practice to limit the revenue requirement to the total amount
sought in a utility’s petition. Therefore,
staff recommends that the appropriate revenue requirement should be $743,964. The
schedule for operating income is attached as Schedule No. 3-A, and the
adjustments are shown on Schedule No. 3-B.
Issue 15:
What are the appropriate rate structures and rates
for HC Waterworks’ 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 this notice. (Bethea)
Staff Analysis:
The Utility is located in Highlands County within
the SWFWMD. HC provides water service to approximately 949 residential and 9
general service customers. One of the general service customers is a 189 unit
RV Park. In addition, the Utility has one private fire protection customer.
Staff determined that approximately 23 percent of the residential customer
bills during the test year had zero gallons, indicating a seasonal customer
base. The average residential water demand is 2,483 gallons per month. The
average water demand excluding zero gallon bills is 3,223 gallons per month. The
Utility’s current water system rate structure for residential customers consists
of a traditional base facility charge (BFC) with separate rate blocks for
non-discretionary and discretionary usage. The rate blocks are: 1) 0-3,000
gallons and 2) all usage in excess of 3,000 gallons. General service customers
are billed based on a BFC and uniform gallonage charge. In addition, the Utility’s
private fire protection services rates are based on one-twelfth of the
Utility’s BFC for the respective meter size pursuant to Rule 25-30.465, F.A.C.
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.
The Utility’s current rates allow
for 47 percent of the revenues to be recovered through the BFC. Due to the
customers’ low average monthly consumption and seasonal customer base, staff
recommends 47 percent of the revenue requirement should continue to be
recovered through the BFC in an effort to maintain revenue stability. 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. This
rate structure sends the appropriate pricing signals to customers using in
excess of 4,000 gallons of water per month, which represents approximately 22 percent
of the usage. 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. General service customers should be billed based on a BFC and uniform
gallonage charge. In addition, the utility’s private fire protection services
rates should be based on one-twelfth of the Utility’s BFC for the respective
meter size, pursuant to Rule 25-30.465, F.A.C.
Furthermore, in the last rate
case, the Commission determined that the BFC for the RV park should be based on
the demand the RV park places on the water system. The
water demand was 2,270,000 in the last rate case. During the test year, the RV park’s
water demand was 3,778,000 gallons, which is an approximately 66 percent increase
since the last rate case. Consistent with the methodology in the last rate case,
the water demand of the RV park compared to the average residential water
demand of 2,483 gallons per month represents approximately 127 ERCs
(3,778,000/2,483/12). This change in ERCs allows the RV park to pay its pro
rata share of cost based on the water demand that it places on the system.
Therefore, staff recommends a BFC based on 127 ERCs for the RV park and a
uniform gallonage charge.
In addition, based on a
recommended revenue increase of approximately 33.2 percent, excluding
miscellaneous revenues, the residential consumption can be expected to decline
by 830,000 gallons resulting in anticipated repressed average residential demand
of 2,409 gallons per month. Staff recommends a 3 percent reduction in total
residential consumption and corresponding reductions of $1,155 for purchased
power, $1,093 for chemicals, and $106 for RAFs to reflect the anticipated repression,
which results in a post-repression revenue requirement of $731,373.
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 this notice.
Issue 16:
What are the appropriate water initial customer
deposits for HC Waterworks?
Recommendation:
The appropriate initial customer deposits should be $108
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 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.
(Bethea)
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 has an initial customer deposit of $99 for the
residential 5/8 inch x 3/4 inch meter size for water. However, this amount does
not cover two months’ average bills based on staff’s recommended rates. The Utility’s
average monthly residential water usage after repression is 2,409 gallons per
customer. Therefore, the average residential monthly bill based on staff’s
recommended rates is approximately $54.
The appropriate initial customer deposits should be $108
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 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 17:
What is the appropriate amount by which rates should
be reduced to reflect the removal of the amortized rate case expense?
Recommendation:
The water rates should be
reduced, as shown on Schedule No. 4, to remove 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.
HC 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. (Procedural Agency Action) (Bethea, Thurmond)
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. HC 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 18:
In determining whether any
portion of the interim water revenue increase granted should be refunded, how
should the refund be calculated, and what is the amount of the refund, if any?
Recommendation:
The appropriate refund amount should be calculated
using the same data used to establish final rates, excluding rate case expense
and other items not in effects during the interim period. The revised revenue
requirements for the interim collection period should be compared to the amount
of interim revenues granted. Based on this methodology, no refund is necessary.(Procedural
Agency Action) (Thurmond)
Staff Analysis:
The Commission authorized HC to collect interim
water rates, subject to refund, pursuant to section 367.082, F.S. The approved
interim revenue requirement of $636,075 represented an increase of $66,364 or
11.65 percent.
According to Section 367.082, F.S., any refund should be
calculated to reduce the rate of return of the Utility during the pendency of
the proceeding to the same level within the range of the newly authorized rate
of return. Adjustments made in the rate case test period that do not relate to
the period that interim rates are in effect should be removed. Rate case
expense is an example of an adjustment which is recovered only after final rates
are established.
In this proceeding, the test period for establishment of
interim and final rates is the 12-month period ended June 30, 2019. HC’s
approved interim rates did not include any provisions for pro forma or
projected operating expenses or plant. The interim increase was designed to
allow recovery of actual interest expense, and the lower limit of the last
authorized range for equity earnings.
To establish the proper refund amount, staff calculated
adjusted interim period revenue requirements utilizing the same data used to
establish final rates. Rate case expense was excluded because this item is
prospective in nature and did not occur during the interim collection period.
Using the principles discussed above, staff calculated an adjusted interim
revenue requirement of $743,964. The adjusted interim revenue requirement of
$743,964 is higher than the interim revenue requirement of $636,075, resulting
in no refund.
Issue 19:
Should the Utility be required to notify,
within 90 days of an effective order finalizing this docket, that it has
adjusted its books for all the applicable National Association of Regulatory
Commissioners Uniform System of Accounts (NARUC 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. HC 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. (Procedural Agency Action) (Thurmond)
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. HC 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 20:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the Proposed Agency Action Order, a Consummating Order should be
issued. The docket should remain open for staff’s verification that the revised
tariff sheets and customer notice have been filed by the Utility and approved
by staff, and the Utility has provided staff with proof that the adjustments
for all applicable NARUC USOA 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 Proposed Agency Action Order, a Consummating Order should be
issued. The docket should remain open for staff’s verification that the revised
tariff sheets and customer notice have been filed by the Utility and approved
by staff, and the Utility has provided staff with proof that the adjustments
for all applicable NARUC USOA accounts have been made. Once these actions are
complete, this docket should be closed administratively.
