Discussion
of Issues
Issue 1:
Should an interim revenue increase be approved?
Recommendation:
Yes. Lake Yale should be authorized to collect
interim revenues as indicated below:
|
|
Test Year
Revenues
|
$ Increase
|
Revenue
Requirement
|
% Increase
|
|
Water
|
$68,906
|
$0
|
$68,906
|
0.00%
|
|
Wastewater
|
$55,021
|
$9,966
|
$64,987
|
18.11%
|
Test year revenues are sufficient to cover staff-adjusted operation
and maintenance (O&M) expenses for the water system, but not the wastewater
system. As such, an interim revenue increase is warranted for the wastewater
system but not the water system. (Richards, D. Brown)
Staff Analysis:
On June 19, 2020, Lake Yale filed an application requesting
an interim revenue increase in its wastewater rates. Section 367.0814(4), F.S.,
details the criteria for evaluating a request for an interim rate increase for staff-assisted
rate cases.
Section 367.0814(4), F.S., states:
The Commission may, upon its own motion, or upon
petition from the regulated utility, authorize the collection of interim rates
until the effective date of the final order. Such interim rates may be based
upon a test period different from the test period used in the request for permanent
rate relief. To establish interim relief, there must be a demonstration that
the operation and maintenance expenses exceed the revenues of the regulated
utility, and interim rates shall not exceed the level necessary to cover
operation and maintenance expenses as defined by the Uniform System of Accounts
for Class C Water and Wastewater Utilities (1996) of the National Association
of Regulatory Utility Commissioners.
Staff has reviewed the Utility’s O&M expenses in
relation to its revenues. Based on the Utility’s filing, staff recommends that
Lake Yale has demonstrated a prima facie entitlement
to an interim rate increase in accordance with Section 367.0814(4), F.S.
Revenue Increase
In order to establish interim rate relief as prescribed by
Section 367.0814(4), F.S., staff used the Utility’s revenues reflected in its
2019 Annual Report for the test year ended December 31, 2019. The filed
revenues exceeded O&M expenses for the water system, but not for the
wastewater system. Thus, staff recommends an interim increase for the
wastewater system only. The test year revenues for wastewater are $55,021, and
the test year O&M expenses for wastewater are $64,539. The difference
between the Utility’s reported revenues and O&M expenses for wastewater is
$9,518.
In addition, the interim wastewater increase should be
grossed up to include regulatory assessment fees (RAFs). The Commission has
previously determined that it would be inappropriate to approve an increase in
a Utility’s rates to cover its operating expenses and deny that same utility
the funds to pay RAFs.
Furthermore, by approving an interim rate increase that allows for the payment
of RAFs, the Utility should be able to fully cover its O&M expenses. The
RAFs associated with the interim increase equal $448.
In total, Lake Yale should be allowed an interim
wastewater revenue increase of $9,966 ($9,518 + $448) to produce revenues
sufficient to cover O&M expenses and additional RAFs. Thus, staff
recommends the appropriate interim revenue requirement should be $64,987. This
is an 18.11 percent increase above the Utility’s wastewater test year revenues.
Table 1-1 illustrates staff’s interim increase calculation.
Table 1-1
Determination of Interim
Increase
|
|
Water
|
Wastewater
|
|
1. Utility Test Year O&M Expenses
|
$62,611
|
$64,539
|
|
2. Less: Utility Test Year Revenues
|
$68,906
|
$55,021
|
|
3. Revenues to Cover O&M Expenses
|
($6,295)
|
$9,518
|
|
4. Interim Revenue Increase
|
$0
|
$9,518
|
|
5. RAFs on Interim Rate Increase
|
$0
|
$448
|
|
6. Total Interim Revenue Increase ($)
|
$0
|
$9,966
|
|
7. Total Interim Revenue Increase (%)
|
0.00%
|
18.11%
|
Source: Utility’s 2019 Annual Report and
staff’s calculations.
Issue 2:
What are the appropriate interim wastewater rates?
Recommendation:
The interim rate increase of 18.11 percent should be
applied as an across-the-board increase to the wastewater service rates in
effect as of December 31, 2019. The rates, as shown on Schedule No. 1, should
be effective for service rendered on or after the stamped approval date on the
tariff sheets pursuant to Rule 25-30.475(1), Florida Administrative Code
(F.A.C.). The Utility should file revised tariff sheets and a proposed customer
notice to reflect the Commission-approved rates. In addition, the approved
rates should not be implemented until the required security has been filed,
staff has approved the proposed customer notice, and the notice has been
received by the customers. The Utility should provide proof of the date the
notice was given within 10 days of the date of the notice. (Sibley)
Staff Analysis:
Staff recommends that wastewater
interim service rates for Lake Yale be designed to allow the Utility the
opportunity to generate annual operating revenues of $64,987 for wastewater.
Since there were no miscellaneous service revenues reported by the Utility for
the test year, this would result in an increase of $9,966 (18.11 percent) to
service rates.
Staff recommends that the wastewater interim rate increase
of 18.11 percent should be applied as an across-the-board increase to the
service rates in effect as of December 31, 2019.
The rates, as shown on Schedule No. 1, should be effective for service rendered
on or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475(1), F.A.C. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. In addition,
the approved rates should not be implemented until the required security has
been filed, staff has approved the proposed customer notice, and the notice has
been received by the customers. The Utility should provide proof of the date
the notice was given within 10 days of the date of the notice.
Issue 3:
What is the appropriate security to guarantee the
interim increase?
Recommendation:
The Utility should be required to open an escrow
account or secure a surety bond or letter of credit to guarantee any potential
refund of revenues collected under interim conditions. If the security provided
is an escrow account, the Utility should deposit $831 into the escrow account
each month. Otherwise, the surety bond or letter of credit should be in the
amount of $6,648. Pursuant to Rule 25-30.360(6), F.A.C., the Utility should
provide a report by the 20th of each month indicating the monthly and total
revenue collected subject to refund. Should a refund be required, the refund
should be with interest and in accordance with Rule 25-30.360, F.A.C.
(Richards, D. Brown)
Staff Analysis:
Pursuant to Section 367.082, F.S., revenues
collected under interim rates shall be placed under bond, escrow, letter of
credit, or corporate undertaking subject to refund with interest at a rate
ordered by the Commission. As recommended in Issue 1, the interim increase for wastewater
is $9,966. In accordance with Rule 25-30.360, F.A.C., staff calculated the
potential refund of revenues and interest collected under interim conditions to
be $6,648. This amount is based on an estimated eight months of revenue being
collected under the recommended interim rates shown on Schedule No. 1.
The criteria for a corporate undertaking include
sufficient liquidity, ownership equity, profitability, and interest coverage to
guarantee any potential refund. Staff reviewed Lake Yale’s financial condition.
Because the Utility has no meaningful liquidity, has negative interest
coverage, has reported significant net losses year over year, and has negative
ownership equity, staff does not believe the Utility can support a corporate
undertaking in the amount requested at this time. Staff recommends Lake Yale be
required to secure a surety bond, letter of credit, or escrow agreement to
guarantee any potential refund.
If
security is provided through an escrow agreement, the following conditions
should be part of the agreement:
1.
The Commission Clerk, or his or her designee, must be a
signatory to the escrow agreement.
2.
No monies in the escrow account may be withdrawn by the
Utility without the express approval of the Commission Clerk, or his or her
designee.
3.
The escrow account shall be an interest-bearing
account.
4.
If a refund to the customers is required, all interest
earned by the escrow account shall be distributed to the customers.
5.
If a refund to the customers is not required, the
interest earned by the escrow account shall revert to the Utility.
6.
All information on the escrow account shall be
available from the holder of the escrow account to a Commission representative
at all times.
7.
The amount of revenue subject to refund shall be
deposited in the escrow account within seven days of receipt.
8.
This escrow account is established by the direction of
the Florida Public Service Commission for the purpose(s) set forth in its order
requiring such account. Pursuant to Cosentino
v. Elson, 263 So. 2d 253 (Fla. 3d DCA 1972), escrow accounts are not
subject to garnishments.
9.
The account must specify by whom and on whose behalf
such monies were paid.
If the security provided is a surety bond or a letter of
credit, said instrument should be in the amount of $6,648. If the Utility
chooses a surety bond as security, the surety bond should state that it will be
released or terminated only upon subsequent order of the Commission. If the
Utility chooses to provide a letter of credit as security, the letter of credit
should state that it is irrevocable for the period it is in effect and that it
will be in effect until a final Commission order is rendered releasing the
funds to the Utility or requiring a refund.
In no instance should the maintenance and administrative
costs associated with the refund be borne by the customers. These costs are the
responsibility of, and should be borne by, the Utility. Irrespective of the
form of security chosen by the Utility, an account of all monies received as a
result of the rate increase should be maintained by the Utility. If a refund is
ultimately required, it should be paid with interest calculated pursuant to
Rule 25-30.360(4), F.A.C.
Issue 4:
Should this docket be closed?
Recommendation:
No. Staff recommends that
this docket should remain open to address the merits of Lake Yale’s staff-assisted
rate case. (Murphy)
Staff Analysis:
Staff recommends that this
docket should remain open to address the merits of Lake Yale’s staff-assisted
rate case.
