Discussion
of Issues
Issue 1:
Should the Commission approve TKCB’s application for
a LARI?
Recommendation:
Yes. The Commission should approve TKCB’s
application for a LARI with staff’s modifications. The increase for the utility
is 19.75 percent, which results in an increase in revenues of $19,668. Pursuant
to Rule 25-30.457(7), F.A.C., the utility is required to hold any revenue
increase granted subject to refund. To ensure overearnings will not occur due
to the implementation of the rate increase, staff will conduct an earnings
review of the 12-month period following the implementation of the revenue
increase. If overearnings occur, such overearnings, up to the amount held
subject to refund, with interest, must be disposed of for the benefit of the
customers. If staff determines that the utility did not exceed the range of its
last authorized return on equity, the revenue increase will no longer be held
subject to refund. (Casper, Kistner, Richards)
Staff Analysis:
Pursuant to Rule 25-30.457, F.A.C., any utility
eligible to file for a staff-assisted rate case may petition the Commission
for a rate increase of up to 20 percent applied to metered or flat recurring
rates as an alternative to a rate case. This Rule was designed to stream-line
the rate increase process for qualifying water or wastewater utilities by
establishing an abbreviated procedure for a limited rate increase that is less
time consuming and thus less costly for utilities, their customers, and the
Commission. This Rule is similar to the rules governing price index and
pass-through increases, in that neither an engineering review nor a financial
audit of the utility's books and records is required.
On June 25, 2021, TKCB notified
the Commission of its intent to implement a LARI pursuant to Rule 25-30.457,
F.A.C. Staff determined the utility’s application met the initial requirements
of the rule, and established August 12, 2021 as the official filing date. Staff
verified that the utility is current on the filing of regulatory assessment
fees and annual reports. TKCB has had rates established within the last seven
years, pursuant to Rule 25-30.457(2)(l), F.A.C., and was under earning based on
information provided in its 2020 Annual Report.[2]
The filing contained additional relevant information in support of the utility’s
application.
On September 27, 2021, the utility
sent to all customers a Notice for the Solicitation of Comments (Notice) that
provided a summary of the rate request, the current and proposed rates,
detailed instructions on how comments may be filed with the Commission prior to
the Commission Conference, and instructions if a customer wished to comment at
the Commission Conference. Also, attached to the Notice was a customer comment
card that customers could complete and mail to the Commission. As of October 14,
2021, no customers have submitted comments.
Utility’s Requested Increase
As part of its filing, the utility requested $2,245 in plant
improvements. Staff believes the instant LARI docket is not the appropriate
rate application to address plant improvements. On July 21, 2021, the utility
agreed with staff and opted to forgo the inclusion of the plant adjustments in
this proceeding.[3] Therefore, staff did not
include recovery associated with the requested plant increase amounts in this
docket.
The main
driver behind this LARI request is the fact that on February 10, 2021, TKCB’s
prior plant operator notified the utility that he “would no longer service the
WWTP, effective immediately.”[4] This
required the utility to find a new plant operator in a short period of time.
TKCB entered into a contract with the new plant operator, Accurate Utilities,
Inc., effective March 1, 2021. Accurate Utilities, Inc. determined that the
previous operator had not been maintaining the plant to adequate standards.
This determination impacted several operations and maintenance (O&M)
expense accounts, both in regards to rectifying previous issues and
appropriately servicing the plant going forward.[5]
In its application, the utility
requested O&M expense increases totaling $17,509. Based on the
documentation provided by the utility, staff believes the requested increases
have been supported by the utility and are appropriate. A summary of the
increases is provided in the table below.
Table 1-1
Summary of Expense
Increases
|
|
Recommended
|
|
Account
|
Increase
|
|
Sludge Removal (711)
|
$6,500
|
|
Chemicals (718)
|
3,922
|
|
Materials and Supplies (720)
|
2,650
|
|
Contractual Services – Billing (730)
|
202
|
|
Contractual Services – Testing (735)
|
995
|
|
Contractual Services – Other (736)
|
3,240
|
|
Total
|
$17,509
|
Source: Utility’s application,
response to data request, and staff calculations.
In addition
to the O&M increase detailed above, the utility also requested rate case
expense in its application. Staff calculated rate case expense to be $5,095 for
the instant docket, which amortized over four years is $1,274 ($5,095 ÷ 4
years) per year.
Conclusion
The data presented in the
application was based on annualized revenues by customer class and meter size
for the period ended December 31, 2020, the most recent 12-month period. As
discussed above, staff recommends an increase of $17,509 to O&M expenses
and an allowance for rate case expense of $1,274 totaling $18,783 ($17,509 +
$1,274). As a result of staff’s recommended increase, there is a corresponding
increase to regulatory assessment fees (RAF) of $885. As summarized in Table
1-2, this results in a total increase of $19,668.
Table
1-2
Summary of Recommended
Adjustments
|
Increase
|
|
Total
|
Adjustment
|
Total Revenue
|
|
to O&M
|
RCE
|
Increase
|
For RAFs
|
Increase
|
|
$17,509
|
$1,274
|
$18,783
|
$885
|
$19,668
|
Source: Staff calculations.
Based on annualized revenues of
$99,605, the recommended increase of $19,668 represents a 19.75 percent
increase, resulting in total annual service revenues of $119,273, as shown in
Table 1-3.
Table 1-3
Staff Recommended
Increase
|
2020 Annualized
|
Annual
|
Revenue
|
Percentage
|
|
Revenue
|
Service Revenue
|
Increase
|
Increase
|
|
$99,605
|
$119,273
|
$19,668
|
19.75%
|
Source: Utility’s application and staff calculations.
Pursuant to Rule
25-30.457(7), F.A.C., the utility is required to hold any revenue increase
granted subject to refund in accordance with Rule 25-30.360(4), F.A.C.
To ensure
overearnings will not occur due to the implementation of these rate increases,
staff will conduct an earnings review of the 12-month period following the
implementation of the revenue increase. At the end of the 12-month period, each
utility has 90 days to complete and file Form PSC 1025 (03/20), entitled
“Limited Alternative Rate Increase Earnings Review.” In the event a utility
needs additional time to complete the form, the utility may request an
extension of time supported by a statement of good cause that must be filed
with Commission staff within seven days prior to the 90-day deadline. If
staff’s earnings review demonstrates that the utility exceeded the range of its
last authorized rate of return on equity, such overearnings, up to the amount
held subject to refund, with interest, shall be disposed of for the benefit of
the customers. If staff determines that the utility did not exceed the range of
its last authorized return on equity, the revenue increase will no longer be
held subject to refund.
Based on the information described above, staff recommends
approval of the utility’s application with the modifications discussed above.
Issue 2:
What are the appropriate monthly service rates for
TKCB?
Recommendation:
The existing service rates for TKCB should be
increased by 19.75 percent in accordance with Rule 25-30.457, F.A.C. The
appropriate service rates are shown on Schedule No. 1. The utility should file
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 sheets pursuant to Rule 25-30.475(1),
F.A.C. In addition, the rates should not be implemented until staff has
approved the proposed customer notice. The utility should provide proof of the
date notice was given no less than 10 days after the date of the notice. (Bruce)
Staff Analysis:
Based on staff’s recommended approval of the
utility’s LARI in Issue 1, the existing service rates for TKCB should be
increased by 19.75 percent in accordance with Rule 25-30.457, F.A.C. Therefore,
staff calculated rates by applying the 19.75 percent increase across-the-board
to the existing base facility and gallonage charges. The utility’s existing
wastewater rates and the staff recommended rates are shown on Schedule No. 1.
The utility should file 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 sheets
pursuant to Rule 25-30.475(1), F.A.C. In addition, the rates should not be
implemented until staff has approved the proposed customer notice. The utility
should provide proof of the date notice was given no less than 10 days after
the date of the notice.
Issue 3:
What is the appropriate amount by which rates
should be reduced four years after the published effective date to reflect the
removal of the amortized rate case expense as required by Section 367.081(8),
F.S.?
Recommendation:
The rates should be reduced as shown in
Schedule No. 1, to remove rate case expenses grossed-up for RAFs and amortized
over a four-year period. 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. TKCB should be required to file revised
tariffs and proposed customer notices setting forth the lower rates and the
reason for the reductions no later than one month prior to the actual date of
the required rate reductions. If the utility files this reduction in
conjunction with price index or pass-through rate adjustments, separate data
should be filed for the price index and/or pass-through increase or decrease
and the reductions in the rates due to the amortized rate case expenses.
(Bruce, Casper, Richards) (Procedural Agency Action)
Staff Analysis:
Section 367.081(8), F.S., requires that the rates be reduced
immediately following the expiration of the recovery period by the amount of
the rate case expense previously included in rates. These reductions will
reflect the removal of revenue associated with the amortization of rate case
expense and the gross-up for RAFs. The total reduction for TKCB is $1,334
($1,274 ÷ .955).
Staff recommends that the rates should be reduced to
remove rate case expense grossed-up for RAFs and amortized over a four-year period.
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. TKCB should be required to file revised tariffs and proposed
customer notices setting forth the lower rates and the reason for the
reductions no later than one month prior to the actual date of the required
rate reductions. If the utility files these reductions in conjunction with
price index or pass-through rate adjustments, separate data should be filed for
the price index and/or pass-through increases or decreases and the reductions
in the rates due to the amortized rate case expenses.
Issue 4:
Should the recommended rates be approved for TKCB on
a temporary basis, subject to refund, in the event of a protest filed by a
party other than the utility?
Recommendation:
Yes. Pursuant to Rule 25-30.457(9), F.A.C., in the
event of a protest of the Proposed Agency Action (PAA) Order by a substantially
affected person other than the utility, the utility should be authorized to
implement the rates established in the LARI PAA Order on a temporary basis
subject to refund upon filing a SARC application within 21 days from the date
the protest is filed. The utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. The 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
temporary rates should not be implemented until staff has approved the proposed
notice, and the notice has been received by the customers. If the recommended
rates are approved on a temporary basis, the incremental increase collected by
the utility will be subject to the refund provisions outlined in Rule
25-30.360, F.A.C. Pursuant to Rule 25- 30.457(9), F.A.C., if the utility fails
to file a SARC application within 21 days in the event there is a protest, the
application for a LARI will be deemed withdrawn. (Casper, Richards) (Procedural
Agency Action)
Staff Analysis:
This recommendation proposes an increase in rates. A
timely protest might delay what may be a justified rate increase resulting in
an unrecoverable loss of revenue for the utility. Therefore, pursuant to Rule
25-30.457(9), F.A.C., the utility should be authorized to implement the rates
established in the LARI PAA Order on a temporary basis subject to refund upon
filing a SARC application within 21 days from the date the protest is filed.
The utility should file revised tariff sheets and a proposed customer notice to
reflect the Commission-approved rates. The 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 temporary rates should
not be implemented until staff has approved the proposed notice, and the notice
has been received by the customers. If the recommended rates are approved on a
temporary basis, the incremental increase collected by the utility will be
subject to the refund provisions outlined in Rule 25-30.360, F.A.C. Pursuant to
Rule 25-30.457(9), F.A.C., if the utility fails to file a SARC application
within 21 days in the event there is a protest, the application for a LARI will
be deemed withdrawn.
Issue 5:
Should this docket be closed?
Recommendation:
No. In the event of a protest, TKCB may implement
the rates established in the PAA Order on a temporary basis, subject to refund
with interest, upon the utility’s filing of a SARC application within 21 days
of the date the protest is filed. If TKCB fails to file a SARC within 21 days,
the utility’s petition for a LARI will be deemed withdrawn pursuant to Rule
25-30.457(9), F.A.C. If no person whose substantial interests are affected by
the proposed agency action files a protest within 21 days of the issuance of
the PAA Order, a Consummating Order should be issued. The docket should remain
open for staff’s verification that the revised tariff sheets which reflect the
Commission-approved rates, and the customer notice, have been filed by TKCB and
approved by staff, and so that staff may conduct an earnings review of the
utility pursuant to Rule 25-30.457(8), F.A.C. Upon staff’s approval of the
tariff and completion of the earnings review process as set forth in Rule
25-30.457(8)(a), F.A.C., this docket should be closed administratively. (Trierweiler)
Staff Analysis:
In the event of a protest, TKCB may implement the
rates established in the PAA Order on a temporary basis, subject to refund with
interest, upon the utility’s filing of a SARC application within 21 days of the
date the protest is filed. If TKCB fails to file a SARC within 21 days, the
utility’s petition for a LARI will be deemed withdrawn pursuant to Rule
25-30.457(9), F.A.C. If no person whose substantial interests are affected by
the proposed agency action files a protest within 21 days of the issuance of
the PAA Order, a Consummating Order should be issued. The docket should remain
open for staff’s verification that the revised tariff sheets which reflect the
Commission-approved rates, and the customer notice, have been filed by TKCB and
approved by staff, and so that staff may conduct an earnings review of the
utility pursuant to Rule 25-30.457(8), F.A.C. Upon staff’s approval of the
tariff and completion of the earnings review process as set forth in Rule
25-30.457(8)(a), F.A.C., this docket should be closed administratively.
