Case Background
On June 10, 2020, Okaloosa Waterworks, Inc. (Okaloosa)
filed a Petition for Variance or Waiver of Rule 25-30.120, Florida Administrative
Code (F.A.C.) (Waiver Petition). Rule 25-30.120, F.A.C., states, in part, that
a utility is obligated to remit regulatory assessment fees (RAFs) for any year
in which it is subject to the Florida Public Service Commission’s (Commission)
jurisdiction on or before December 31 of that year. The waiver is sought in
connection with Okaloosa’s application for an original water certificate and
a pass through increase of regulatory assessment fees (Certificate and Pass Through
Application) also filed in this docket.
The utility was previously owned by the Blackman Community
Water System (Blackman), a not-for-profit corporation providing service solely
to its members, originally formed in December 2004. U.S.
Water Services Corporation (U.S. Water) acquired the utility via public auction
on February 12, 2020. U.S. Water subsequently transferred ownership of the
utility to Okaloosa, which was incorporated under the laws of Florida on
February 13, 2020.
Okaloosa provides water service to approximately 228
residential customers consisting of single-family residential homes and 9
general service customers in northern Okaloosa County, near Baker, Florida. All of the customers are water only, and have 5/8” x
¾" meters. According to Okaloosa, Blackman’s Board of Directors
established the utility’s current rates and charges on August 8, 2016. Okaloosa
states that it has been charging these same rates and charges as Blackman since
its acquisition of the utility.
Pursuant to Section 120.542(5), Florida Statutes (F.S.), staff
published notice of Okaloosa’s Waiver Petition in the Florida Administrative
Register on June 15, 2020. In accordance with Rule 28-104.003(1), F.A.C.,
interested persons have 14 days after the publication of the notice to submit
written comments. The Commission has not received any written comments pertaining
to the Waiver Petition, and the time for such comments has expired.
On July 9, 2020, after an initial review of the Waiver
Petition, staff sent Okaloosa a request for additional information related to
its request for rule variance or waiver, pursuant to Section 120.54(7), F.S. Okaloosa responded with this additional
information on July 13, 2020.
This recommendation addresses Okaloosa’s Waiver Petition. Issues
relating to Okaloosa’s Certificate and Pass Through Application will be
addressed in a subsequent staff recommendation. The Commission has jurisdiction
over this matter pursuant to Sections 367.071 and 120.542, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve Okaloosa’s request for
waiver or variance of Rule 25-30.120, F.A.C.?
Recommendation:
Yes, Okaloosa has demonstrated that the
purpose of the underlying statutes of Rule 25-30.120, F.A.C., will be, or has
been, achieved by other means, and that the strict application of the rule
would place a substantial hardship on Okaloosa. Therefore,
staff recommends that the Commission approve Okaloosa’s Waiver Petition, and
temporarily waive the requirements of Rule 25-30.120, F.A.C., until such time
as 1) the Commission establishes approved rates for Okaloosa and Commission
staff administratively approves a pass through of RAFs pursuant to Section
367.081(4)(b), F.S., or 2) within three months of the Commission’s vote
regarding Okaloosa’s Waiver Petition, whichever occurs first. (Schrader)
Staff Analysis:
As stated above, Okaloosa filed a Waiver
Petition seeking a waiver or variance of a requirement of Rule 25-30.120, F.A.C.
The rule requires that a utility pay RAFs for a given year if the utility is
subject to the Commission’s jurisdiction as of December 31 of that year or is subject
to such jurisdiction during any part of that year. Okaloosa’s Waiver Petition seeks
a temporary waiver or the variance of this RAF payment obligation until such
time as Okaloosa is authorized to increase its rates pursuant to Section
367.081(4)(b), F.S. That section allows water and wastewater utilities to
automatically revise rates, with verified notice to the Commission 45 days
prior to implementing such revision, when the utility is subject to changes to
certain specified costs—including RAFs. The effect of approving this Waiver
Petition would be to permanently
waive any RAFs that would have been otherwise due from Okaloosa to the
Commission for the months it has owned and operated the utility, until the date
Okaloosa’s Certificate and Pass Through Application is approved.
Section 120.542(2), F.S., authorizes the Commission to
grant waivers or variances from its rules when the petitioner subject to the
rule has demonstrated that 1) the purpose of the underlying statute will be or
has been achieved by other means, and 2) a strict application of the rule would
cause the applicant substantial hardship or would violate principles of
fairness. “Substantial hardship,” as defined in Section 120.542, F.S., means that
the petitioner has demonstrated economic, technological, legal, or other
hardship. A violation of “principles of fairness” occurs when the an agency’s
literal application of a rule would affect a particular person in a manner
significantly different from the way it would affect other persons who are similarly
situated and subject to that rule.
As stated in Okaloosa’s Waiver Petition, Blackman was founded
as an exempt cooperative and was not subject to the Commission’s jurisdiction
until being acquired by U.S. Water and subsequently transferred to Okaloosa. Thus, the cost of RAFs was not accounted for
in Blackman’s rates.
The particular
provision of Rule 25-30.120, F.A.C., for which Okaloosa is seeking a waiver or
variance from is the obligation, under subsection (2), that requires all
utilities under the Commission’s jurisdiction during a particular calendar year
pay to RAFs for that year. The underlying statutory provisions pertaining to the
payment of RAFs and Rule 25-30.120, F.A.C., are Sections 367.145 and 350.113,
F.S. Of note, Subsections 367.145(1) and (3), F.S., state that:
(1) The commission shall set by rule a
regulatory assessment fee that each utility must pay in accordance with
s. 350.113(3);
. . . .
(3) Fees collected by the commission
pursuant to this section may only be used to cover the cost of regulating water
and wastewater systems. Fees collected by the commission pursuant to chapters
364 and 366 may not be used to pay the cost of regulating water and wastewater
systems.
Section 350.113, F.S., specifies the
purposes and management of the Commission’s Florida Public Service Regulatory
Trust Fund, which is where RAFs are deposited. Of specific relevance here, 350.113(3),
F.S., states, in part, that RAFs “to the extent practicable, be related to the
cost of regulating” each type of regulated utility.
Sections 367.145 and 350.113, F.S., convey that the
purpose of assessing RAFs is to fund the cost of the Commission’s regulation of
utilities. Central to Okaloosa’s argument is that RAFs are not included in its
current rates due to those rates being established by Blackman’s Board in 2016,
which is prior to the utility becoming subject to the Commission’s jurisdiction
in February 2020. Regulated utilities can request that the cost of RAFs be
included in their rates utilizing the pass through provisions in Section
367.081(4)(b), F.S. The Commission has previously stated that pass through
items cannot be approved without the utility first having “approved rates” established
by the Commission. Therefore,
as Okaloosa notes, a pass through of RAFs is not permissible until such time as
it receives its water certificate and the Commission establishes approved rates
for Okaloosa. For that reason, Okaloosa argues it is placed at an unfair
financial disadvantage due to its inability to collect RAFs in its current rates.
Okaloosa contends that the Commission has incurred minimal
to no costs of regulating the utility under Chapter 367, F.S., absent the
review of Okaloosa’s Certificate and Pass Through Application in this docket. Okaloosa
also notes that it has paid the applicable filing fee of $1,500 as required by
Section 367.145(2), F.S., and Rule 25-30.020, F.A.C., for the processing of its
filing. Additionally, as Okaloosa points out in its July 13, 2020 response to
staff,
the Commission has previously granted a waiver of RAFs for water utilities in
similar situations.
Based on the foregoing analysis and the information
provided within Okaloosa’s Waiver Petition, staff believes that Okaloosa has
met the requirements of Section 120.542, F.S., in regard to temporarily waiving
the requirements of Rule 25-30.120, F.A.C. Okaloosa has demonstrated that the
purpose of the of the statutes underlying Rule 25-30.120, F.A.C. will be, or
has been, achieved by other means, because minimal Commission regulation of the
utility has been required to this point. Further, staff believes the strict
application of Rule 25-30.120, F.A.C., would place a substantial hardship on
Okaloosa by requiring it to pay regulatory expenses for which it is not
currently compensated through rates. Therefore, staff recommends that the
Commission approve Okaloosa’s Waiver Petition, and temporarily waive the
requirements of Rule 25-30.120, F.A.C., until such time as 1) the Commission
establishes approved rates for Okaloosa and Commission staff administratively
approves a pass through of RAFs pursuant to Section 367.081(4)(b), F.S., or 2)
within three months of the Commission’s vote regarding Okaloosa’s Waiver
Petition, whichever occurs first.
Issue 2:
Should this docket be closed?
Recommendation:
This docket should remain open pending the
Commission’s final decision regarding Okaloosa’s Certificate and Pass Through
Application. If no person whose substantial interests are affected by the
proposed agency action for the rule waiver files a protest within 21 days of
the issuance of the order, a consummating order should be issued. (Schrader)
Staff Analysis:
This docket should remain open pending the
Commission’s final decision regarding Okaloosa’s Certificate and Pass Through
Application. If no person whose substantial interests are affected by the
proposed agency action for the rule waiver files a protest within 21 days of
the issuance of the order, a consummating order should be issued.
