Discussion
of Issues
Issue 1:
Is the quality of service provided by Brendenwood
satisfactory?
Recommendation:
Yes. The utility is passing all DEP primary and
secondary standards and has been responsive to its customer complaints.
Therefore, the quality of service provided by Brendenwood should be considered
satisfactory. (Lewis)
Staff Analysis:
Pursuant to Section 367.081(2)(a), F.S., and Rule
25-30.433(1), Florida Administrative Code (F.A.C.), the Commission, in every
rate case, shall make a determination of the quality of service provided by the
utility by evaluating the quality of the utility’s product (water) and the
utility’s attempt to address customer satisfaction (water and wastewater). The
Rule states that the most recent chemical analyses, outstanding citations,
violations, and consent orders on file with the state’s Department of
Environmental Protection (DEP) and the county health departments, along with
any DEP and county health department officials’ testimony concerning quality of
service shall be considered. In addition, any customer testimony, comments, or
complaints shall also be considered. The operating condition of the water
system is addressed in Issue 2.
Quality of Product
In
evaluating Brendenwood’s product quality, staff reviewed the utility's
compliance with the DEP 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. The
most recent chemical analyses were performed on February 24, 2021, and the
results were in compliance with the DEP’s standards. These chemical analyses
are performed every three years; therefore, the next scheduled analysis should
be completed in 2024.
The Utility’s Attempt to
Address Customer Satisfaction
Staff reviewed the complaints
filed in the Commission’s Consumer Activity Tracking System for the test year
and four years prior. The Commission received one complaint in August 2016,
regarding a higher than expected bill. The utility responded to the customer,
conducted a meter test, which indicated the meter was working properly, and
offered to adjust the customer’s bill, which the customer accepted. As a
result, this complaint was closed. The DEP received one customer inquiry during
the same five-year period in February 2020, regarding the utility’s compliance
with drinking water standards. The customer was provided instructions on how to
search the DEP’s website in order to review the utility’s compliance history
and the inquiry was subsequently closed.
The utility
reported receiving fifty-one complaints directly from its customers during the
five- year period. The complaints concerned issues with: meter readings (7),
condition of the meter (3), low water pressure or no water (19), water main
breaks (2), leaks at the meter or on the customer’s side (15), and water
quality (5). The complaints were investigated and closed by the utility.
Staff conducted a virtual customer meeting on October 20, 2021. No customers
attended the customer meeting. Representatives from the utility and OPC were in
attendance. No customer comments have been filed in the docket file.
Conclusion
The utility is passing all DEP primary and secondary standards and
has been responsive to its customer complaints. Therefore, the quality of
service provided by Brendenwood should be considered satisfactory.
Issue 2:
Are the infrastructure and operating condition of
Brendenwood's water system in compliance with DEP regulations?
Recommendation:
Yes. Brendenwood’s water system is currently in
compliance with DEP regulations. (Lewis)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each water and wastewater
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 for water systems and
compliance evaluation inspections for wastewater systems, 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
Brendenwood’s
water system has a permitted design capacity of 108,000 gallons per day (gpd).
The utility’s water system is supplied by one well with a rated pumping
capacity of 150 gallons per minute (gpm). The treated water is pumped into a
3,000 gallon hydropneumatic storage tank before entering the distribution
system. Staff reviewed the Sanitary Survey conducted by the DEP on January 30,
2019. The water treatment plant (WTP) was in compliance with no deficiencies
indicated. A review of DEP’s records did not show any warning letters or
consent orders issued to the utility.
Conclusion
Based on the above, Brendenwood’s water system
is currently in compliance with DEP regulations.
Issue 3:
What are the used and useful (U&U) percentages
for Brendenwood's WTP and water distribution system?
Recommendation:
Brendenwood’s WTP and water distribution system
should be considered 100 percent U&U. Additionally, there appears to be no
excessive unaccounted for water (EUW); therefore, staff recommends that no
adjustment be made to operating expenses for chemicals and purchased power.
(Lewis)
Staff Analysis:
Brendenwood’s WTP consists of one well at a rated
pumping capacity of 150 gpm. The utility’s water system does not have a storage
tank, but has one hydropneumatic tank totaling 3,000 gallons in capacity. The
distribution system is composed of approximately 3,550 feet of 2 inch and 3,350
feet of 4 inch polyvinyl chloride pipes.
Water Treatment Plant
Used & Useful
Rule
25-30.4325(4), F.A.C., states that a water treatment system is considered 100
percent used and useful if the service territory the system is designed to
serve is built out and there is no apparent potential for expansion of the
service territory or the system is served by a single well. The utility has
shown no growth in customers and appears to be built out. Brendenwood is also
served by a single well. Further, in the utility’s previous rate case, the
Commission deemed the water treatment plant 100 percent U&U.
Water Distribution
System Used and Useful
The water
distribution system is evaluated based on ERCs consisting of growth, customer
demand, and system capacity. During the test year, 59 customers were being
served. The utility provided system maps that indicated there are only 59 lots
in the development/service territory. Therefore, the service territory should
be considered built out. The Commission previously deemed the U&U of the
distribution system as 100 percent. Considering all of the water mains are
required to adequately serve the existing customers, and consistent with prior
Commission practice, staff recommends the 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.
EUW is defined 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. A review of the
utility’s Monthly Operating Reports, 2020 Annual Report, and audited billing
data indicate that Brendenwood treated 7,596,497 gallons and sold 6,895,000
gallons with 353,000 gallons used for flushing during the test year. The
resulting calculation ([7,596,497 – 6,895,000 – 353,000]/ 7,596,497) for
unaccounted for water is approximately 4.6 percent; therefore, there is no EUW.
Staff recommends that no adjustments should be made to purchased power and
chemicals.
Conclusion
Brendenwood’s WTP and water
distribution system should both be considered 100 percent U&U.
Additionally, there appears to be no EUW; therefore, staff recommends that no
adjustment be made to operating expenses for chemicals and purchased power.
Issue 4:
What is the appropriate average test year rate base
for Brendenwood?
Recommendation:
The appropriate average test year rate base for
Brendenwood is $38,447. (D. Brown, Richards)
Staff Analysis:
The
appropriate components of the utility’s rate base include utility plant in
service (UPIS), land, accumulated depreciation, contributions-in-aid-of-construction
(CIAC), accumulated amortization of CIAC, and working capital. The
utility’s rate base was established as part of its transfer proceeding, in
Docket No. 20140120-WU.[10] Staff selected the
test year ended December 31, 2020, for the instant rate case. Commission audit
staff determined that the utility's books and records are in compliance with
the National Association of Regulatory Utility Commissioners' Uniform System of
Accounts (NARUC USOA). A summary of each component and staff’s recommended
adjustments are discussed below.
Utility Plant in Service
(UPIS)
The utility recorded $48,200 for
UPIS. Staff decreased UPIS by $28 to reflect an averaging adjustment.
Therefore, staff recommends a UPIS balance of $48,172 ($48,200 - $28).
Land & Land Rights
The utility
recorded a test year land value of $1,100. The Commission approved a land
balance of $1,100 in the utility's 2014 transfer docket.[11]
There have been no additions to land since the transfer; therefore, no
adjustments are necessary. Staff recommends a land and land rights balance of
$1,100.
Used & Useful
As discussed in Issue 3,
Brendenwood’s WTP and distribution system are considered 100 percent U&U.
Therefore, no U&U adjustments are necessary.
Accumulated Depreciation
Brendenwood recorded an
accumulated depreciation balance of $14,563. As a result of the staff audit,
staff increased accumulated depreciation by $1,414 to reflect the recalculation
of accumulated depreciation using audited UPIS plant balances. Staff decreased
accumulated depreciation by $1,335 to reflect an adjustment to remove over
depreciation of Account 320 – Water Treatment Equipment. Additionally, staff
decreased accumulated depreciation by $365 to reflect an averaging adjustment.
Staff's adjustments to this account result in a net decrease of $286 ($1,414 -
$1,335 - $365). Therefore, staff recommends an accumulated depreciation balance
of $14,277 ($14,563 - $286).
Contributions in Aid of Construction (CIAC)
The
utility recorded a test year CIAC balance of $1,577. The Commission approved a
CIAC balance of $1,577 in the utility’s 2014 transfer docket.[12] There have been no
additions to CIAC since the transfer; therefore, no adjustments are necessary.
Staff recommends a CIAC balance of $1,577.
Accumulated
Amortization of CIAC
Brendenwood
recorded accumulated amortization of CIAC of $1,577. The Commission approved an
accumulated amortization of CIAC balance of $1,577 in the utility’s 2014 transfer
docket.[13]
There have been no additions to accumulated amortization of CIAC since the
transfer; therefore, no adjustments are necessary. Staff recommends an
accumulated amortization CIAC balance of $1,577.
Working Capital
Allowance
Working
capital is defined as the short-term investor-supplied funds that are necessary
to meet operating expenses. Consistent with Rule 25-30.433(3), F.A.C., staff
used one-eighth of the operation and maintenance expense (less rate case
expense) formula for calculating the working capital allowance. Section
367.081(9), F.S., prohibits a utility from earning a return on the unamortized
balance of rate case expense. As such, staff removed the rate case expense
balance of $288 for this calculation resulting in an adjusted O&M expense
balance of $27,614 ($27,902 - $288). Applying this formula, staff recommends a
working capital allowance of $3,452 ($27,614 ÷ 8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base is $38,447. Rate base is shown on
Schedule No. 1-A. The related adjustments are shown on Schedule No. 1-B.
Issue 5:
What is the appropriate return on equity and overall
rate of return for Brendenwood?
Recommendation:
The appropriate return on equity (ROE) is 7.85
percent with a range of 6.85 percent to 8.85 percent. The appropriate overall
rate of return is 7.85 percent. (D. Brown, Richards)
Staff Analysis:
Brendenwood’s
reported capital structure consists of $30,645 in common equity. The utility
has no customer deposits.
The utility’s capital structure has been
reconciled with staff’s recommended rate base. The appropriate ROE is 7.85
percent based upon the Commission-approved leverage formula currently in
effect.[14] Staff recommends a ROE of 7.85
percent, with a range of 6.85 percent to 8.85 percent, and an overall rate of
return of 7.85 percent. The ROE and overall rate of return are shown on
Schedule No. 2.
Issue 6:
What are the appropriate amount of test year
revenues for Brendenwood's water system?
Recommendation:
The appropriate test year revenues for Brendenwood’s
water system are $29,939. (Bethea)
Staff Analysis:
Brendenwood recorded test year revenues of $28,510.
The water revenues included $27,951 of service revenues and $559 of
miscellaneous revenues. Staff annualized service revenues by applying the
number of billing determinants to the rates in effect as of June 9, 2019. As a
result, staff determined that service revenues should be $29,380, which is an
increase of $1,429. Staff determined that miscellaneous revenues should be
$559. Based on the above, the appropriate test year revenues for Brendenwood
water system, including miscellaneous revenues are $29,939 ($29,380 + $559).
Issue 7:
What is the appropriate test year operating expense
for Brendenwood?
Recommendation:
The appropriate amount of operating expense for
Brendenwood is $32,034. (D. Brown, Richards)
Staff Analysis:
The
utility recorded operating expense of $31,679. The test year operation and
maintenance (O&M) expenses have been reviewed by staff, including invoices
and other supporting documentation. Staff has made several adjustments to the
utility’s operating expenses as discussed below.
Operation
and Maintenance Expenses
Salaries and Wages – Officers and Directors
(603)
The utility recorded salaries and wages expense for
officers and directors of $2,650. According to the utility's 2020 Annual
Report, Brendenwood's officers also include an accounting manager who does not
receive a salary. In response to audit staff, the utility indicated that the
president only receives compensation through distribution of retained earnings
if there are any net operating profits from operations that are not used for
continuing operations or capital improvements. Staff made no
adjustments, and therefore recommends salaries and wages expense for officers
and directors of $2,650.
Purchased Power (615)
Brendenwood
recorded purchased power expense of $1,878. Supporting
documentation confirming the purchased power expense was provided and reviewed
by staff. Staff made no adjustments, and therefore recommends purchased
power expense of $1,878.
Chemicals (618)
The utility recorded chemicals
expense of $182. Supporting documentation confirming the
chemicals expense was provided and reviewed by staff. Staff made no
adjustments, and therefore recommends chemicals expense of $182.
Contractual
Services – Accounting (632)
Brendenwood recorded contractual
services - accounting expense of $400. Supporting documentation
confirming the accounting expense was for preparing and filing the 2019
corporate tax return was provided. Staff made no adjustments, and
therefore recommends contractual services - accounting expense of $400.
Contractual
Services – Legal (633)
The utility recorded contractual
services - legal expense of $300. Supporting documentation was
provided by the utility indicating the legal fees are for filing with the
Florida Secretary of State, and to prepare shareholder and director annual
minutes. Staff made no adjustments, and therefore recommends contractual
services - legal expense of $300.
Contractual
Services – Testing (635)
Brendenwood
recorded contractual services – testing expense of $31. This
expense reflects the cost of boil water clearance testing on two occasions in
January 2020. Staff made no adjustments, and therefore recommends
contractual services - testing expense of $31.
Contractual
Services – Other (636)
The utility recorded contractual
services – other expense of $19,965. Brendenwood receives all of its
operational and administrative services under a contract with an affiliated
company, U.S. Water Services Corporation (USWSC or U.S. Water). Pursuant to the
contract, USWSC performs various functions: administrative management,
operations, maintenance, and billing/collection for the utility. USWSC’s
president and majority shareholder has been in the water utility management and
operations industry for over 30 years. Brendenwood specifically contracts with
USWSC for the following services:
- Water Operations
- Meter Reading
- System Maintenance and Repairs
- Billing and Collections
- Customer Service
- Regulatory Affairs
- Testing
- Accounting
- Office Space and Equipment
The current USWSC contract, which
took effect on April 1, 2017, established a cost of $18,913 annually. With a
current cost of $19,965, this represents a 5.56 percent increase over three
years (($19,965 - $18,913) ÷ $18,913). This is below the compound annual
Commission approved index increase of 5.91 percent over the same period.[15]
Due to the low number of customers
(59 ERCs) served by this utility, the cost of the USWSC contract for
Brendenwood equates to $350 per ERC ($19,965 ÷ 57 ERCs). Despite the higher
cost on a per ERC basis, staff believes Brendenwood’s contractual services
agreement with USWSC is reasonable and beneficial to the utility and its
customers. In previous dockets, U.S. Water has indicated, “if the actual costs
were recovered through the actual number of ERCs, the amount per ERC would be
higher.”[16] Staff
believes that USWSC and its employees bring considerable management and
operational experience at a comparatively reasonable cost; the utility’s
customers are experiencing operational benefits that might not be realized if
Brendenwood operated on a stand-alone basis. If Brendenwood were required to
establish a stand-alone utility with personnel for maintenance, customer
service, accounting, regulatory compliance, etc., the cost would likely exceed
that of the current USWSC contract. For example, it would be highly impractical
to assume that all of these operational, administrative, and managerial
services could be performed by a single individual for only $19,965 a year. By
virtue of the USWSC contract, the customers of Brendenwood benefit from the
services of multiple qualified employees on a fractional basis, which is cost
prohibitive on a stand-alone system.
In regard to the appropriateness
of utility contracts with affiliated companies, staff cites GTE v Deason, 642 So. 2d 545 (Fla.
1994), in which the Florida Supreme Court found:
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 . . .
[i]f the answer is “no”, then the PSC may not reject the utility’s position.
Staff notes that in prior cases
involving seven of Brendenwood’s sister utilities over the past five years, the
Commission approved similar USWSC agreements and associated costs.[17] In those
cases, the cost of the USWSC contract on a per ERC basis ranged from $152 to
$427.
In the
instant case, staff believes that the contract reflects the market conditions
of the utility’s service area. Absent the USWSC contract, staff believes the
costs to provide service would 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 of the utility’s proposed rates.
Therefore, staff recommends test year contractual services – other expense of
$19,965.
Insurance Expense – General
Liability (657)
The
utility recorded insurance expense of $1,184 for the test year. On
October 20, 2021, the utility provided an updated invoice reflecting a premium
of $1,343 for the period October 2021 through October 2022.[18]
To reflect the increase in premium, staff increased this account by $159
($1,343 - $1,184). Staff believes including the
adjustment is appropriate because the increased premium is known, measurable,
and already in effect. As such, staff recommends insurance expense for the test
year of $1,343 ($1,184 + $159).
Regulatory
Commission Expense (665)
Per
Brendenwood’s filed application, the utility estimated regulatory expense to be
$280 for the test year. Regarding the instant case, the utility is required by
Rule 25-22.0407, F.A.C., to provide notices of the customer meeting, final
rates, and four-year rate reduction. Staff calculated noticing costs to be
$171. Additionally, the utility paid a $500 filing fee.[19]
Using the 2021 IRS mileage rate, at 428 miles round-trip, staff calculated
travel to the Commission Conference to be $240.[20]
Staff did not include any travel to the customer meeting, since it was held
remotely. Additionally, staff estimated $240 for lodging expense for two
utility representatives, using the average lodging rate for Tallahassee. Staff
recommends noticing costs, filing fee, and travel expenses of $1,151 ($171 +
$500 + $240 + $240), which amortized over four years is $288 ($1,151 ÷ 4 years)
per year. This represents an $8 increase to the utility’s recorded expense of
$280. Therefore, staff recommends regulatory commission expense of $288 ($280 +
$8).
Bad Debt
Expense (670)
Brendenwood
recorded bad debt expense of $89 for the test year. Staff notes that it is
Commission practice to calculate bad debt expense using a three-year average
when the information is available. Based on the utility’s Annual Reports,
Brendenwood recorded bad debt expense of $2,027, $280, and $89, for the years
2018, 2019, and 2020, respectively. Staff believes that the 2018 amount of
$2,027 is an anomaly, and therefore requested the utility provide updated bad
debt expense for 2021. In response, the utility reported bad debt expense of
$99 through August 2021.[21] Staff annualized this
amount, resulting in 2021 annualized bad debt expense of $149. Staff used a
three-year average of $280, $89, and $149 to calculate bad debt expense of $173
(($280 + $89 + $149) ÷ 3). This represents an increase of $84 to the utility’s
recorded expense of $89. Therefore, staff recommends bad debt expense of $173
($89 + $84).
Miscellaneous
Expense (675)
The utility
recorded miscellaneous expense of $692. This expense is the 2020 Drinking Water
Annual Operating License fee paid to the Florida Department of Environmental
Protection. Staff made no adjustments, and therefore recommends miscellaneous
expense of $692.
Operation and Maintenance Expense Summary
The
utility recorded O&M expenses of $27,651 for the test year. Based on the
above adjustments, staff recommends that the O&M expense balance be
increased by $251, resulting in a total O&M expense of $27,902 ($27,651 +
$251). Staff’s recommended adjustments to O&M expense are shown on
Schedule No. 3-C.
Depreciation Expense
The utility’s records reflect test year depreciation expense of
$2,095. As a result of the staff audit, an adjustment was made to increase
depreciation expense by $133. This increase to depreciation expense impacted
Acct. 320 – Water Treatment Equipment, which as discussed in Issue 4, was
already over-depreciated. Staff calculated depreciation expense using the
prescribed rates set forth in Rule 25-30.140, F.A.C., and removed the auditor’s
adjustment. Therefore, staff recommends net depreciation expense of $2,095.
Taxes Other Than Income (TOTI)
Brendenwood
recorded TOTI of $1,933 for the test year. As a result of the staff audit, an
adjustment was made to decrease this amount by $131 to reflect the audited
amounts paid in 2020. Staff increased TOTI by $64 to reflect the appropriate Regulatory
Assessment Fees (RAFs) based on corrected utility test year
revenues. Staff reviewed the 2021 Lake County Tax records and decreased TOTI by
$59 to reflect the utility’s 2021 property taxes.[22]
Staff’s adjustment reflects the four percent discount for early payment that is
typically recognized by the Commission.
As discussed in Issue 6, water
revenues have been increased by $5,774 to reflect the change in revenue
required to cover expenses and allow an opportunity to earn the recommended
rate of return. As a result, TOTI should be increased by $230 to reflect RAFs
of 4.5 percent of the change in revenues. Therefore, staff is recommending TOTI of $2,037
($1,933 - $131 + $64 - $59 + $230).
Income Tax
The utility
is a Subchapter S Corporation and therefore did not record any income tax
expense for the test year. As such, no adjustment to income tax expense is
required.
Operating Expenses Summary
The application of staff’s recommended
adjustments to the utility’s test year operating expenses result in a total
operating expense of $32,034. Operating expenses are shown on Schedule No. 3-
and the related adjustments are shown on Schedule No. 3-B.
Issue 8:
What is the appropriate revenue requirement for
Brendenwood?
Recommendation:
The appropriate revenue requirement is $35,052
resulting in an annual increase of $5,113 (17.08 percent). (Bethea, D. Brown)
Staff Analysis:
Brendenwood should be
allowed an annual increase of $5,113 (17.08 percent). This should allow the
utility the opportunity to recover its expenses and a 7.85 percent rate of
return on its investment. The calculations are shown in Table 8-1:
Table 8-1
Revenue Requirement
|
Rate Base
|
|
$38,447
|
|
Rate of Return (%)
|
|
x 7.85%
|
|
Return on Rate Base
|
|
$3,018
|
|
O&M Expense
|
|
27,902
|
|
Depreciation Expense (Net)
|
|
2,095
|
|
Taxes Other Than Income
|
|
2,037
|
|
Revenue Requirement
|
|
$35,052
|
|
Less Adjusted Test Year Revenues
|
|
29,939
|
|
Annual Increase
|
|
$5,113
|
|
Percent Increase
|
|
17.08%
|
Issue 9:
What are the appropriate rate structure and rates
for Brendenwood's water system?
Recommendation:
The recommended rate structure 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 sheets pursuant to Rule 25-30.475(1),
F.A.C. In addition, the approved rates should not be implemented until staff
has approved the proposed customer notice and the notice has been received by
the customers. The utility should provide proof of the date notice was given within
10 days of the date of the notice. (Bethea)
Staff Analysis:
Brendenwood
is located in Lake County within the SJRWMD. This area has been designated as a
water use caution area. The utility provides water service to 58 residential customers
and one general service customer. Approximately 7 percent of the residential
customer bills during the test year had zero gallons, indicating a non-seasonal
customer base. The average residential water demand is 10,001 gallons per
month. The average water demand excluding zero gallon bills is 10,703 gallons
per month. Currently, the utility’s water rate structure consists of a monthly
base facility charge (BFC) and a three-tier inclining block rate
structure, which includes separate gallonage charges for discretionary and
non-discretionary usage for residential water customers. The rate blocks are:
(1) 0-5,000 gallons; (2) 5,001-10,000 gallons; and (3) all usage in excess of
10,000 gallons per month. General service rate structure consists of a
monthly BFC and a gallonage charge.
Staff
performed an analysis of the utility’s billing 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.
In this case, staff recommends
that 30 percent of the water revenues be generated from the BFC, which will
provide sufficient revenues to design gallonage charges that send pricing
signals to customers using above the non-discretionary level. The average
people per household served by the water system is 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.[23] Staff’s
review of the billing analysis indicates that the discretionary usage above
4,000 gallons represents 58 percent of the bills, which account for
approximately 68 percent of the water demand. This is considered high
discretionary usage for this customer base.
In addition to the BFC
allocation, staff also recommends a BFC and a three-tier inclining block rate
structure, which includes separate gallonage charges for discretionary and
non-discretionary usage for residential water customers. The rate blocks are:
(1) 0-4,000 gallons; (2) 4,001-10,000 gallons; and (3) all usage in excess of
10,000 gallons per month. This rate structure sends the appropriate pricing
signals because it targets customers with high consumption levels and minimizes
price increases for customers at non-discretionary levels. In addition, the
third tier provides an additional pricing signal to customers using in excess
of 10,000 gallons of water per month, which represents approximately 39 percent
of the usage. General service customers should be billed a BFC and a gallonage
charge.
Based on
staff’s recommended revenue increase of 17.4 percent, which excludes
miscellaneous revenues, the residential consumption can be expected to decline
by 445,000 gallons resulting in anticipated average residential demand of 9,352
gallons per month. Staff recommends a 6.5 percent reduction in test year
residential gallons for ratesetting purposes. As a result, the corresponding
reductions for purchased power expense is $121, $12 for chemicals expense, and
$6 for RAFs to reflect the anticipated repression, which results in a post
repression revenue requirement of $34,354.
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 sheets pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved
rates should not be implemented until staff has approved the proposed customer
notice and the notice has been received by the customers. The utility should
provide proof of the date notice was given within 10 days of the date of the
notice.
Issue 10:
Should the requested initial customer deposits for
Brendenwood be approved?
Recommendation:
The appropriate initial customer deposit should be
$84 for the single family residential 5/8 inch x 3/4 inch meter size for water.
The initial customer deposit 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., contains
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. Historically, the
Commission has set initial customer deposits equal to two times the average
estimated bill.[24] Currently, the utility does not have initial
customer deposits. Based on the staff recommended water rates and the post
repression average residential demand of 9,352, the appropriate initial customer
deposit should be $84 to reflect an average residential customer bill for two
months. Under staff’s recommended rates, the monthly average residential bill
is $42.
Staff recommends that the appropriate initial customer
deposit should be $84 for the single family 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 11:
Should the miscellaneous service charges be revised
to conform to amended Rule 25-30.460, F.A.C.?
Recommendation:
Yes. Staff recommends the miscellaneous service
charges be revised to conform to the recent amendment to Rule 25-30.460, F.A.C.
The tariff should be revised to reflect the removal of initial connection and
normal reconnection charges. Brendenwood should be required to file a proposed
customer notice to reflect the Commission-approved charges. The approved charges
should be effective 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 charge should
not be implemented until staff has approved the proposed customer notice and
the notice has been received by customers. The utility should provide proof of
the date notice was given no less than 10 days after the date of the notice.
(Bethea)
Staff Analysis:
Effective
June 24, 2021, Rule 25-30.460, F.A.C., was amended to remove initial connection
and normal reconnection charges.[25] The
definitions for initial connection charges and normal reconnection charges were
subsumed in the definition of the premises visit charge. It was envisioned that
the utility tariffs would be reviewed by staff
on a prospective basis to ensure conformance with the amended rule. Brendenwood
miscellaneous service charges consist of initial connection and normal
reconnection charges. These charges are more than the premises visit charge. Since
the premises visit entails a broader range of tasks, staff believes the
premises visit should reflect the amount of normal reconnection charges of
$15.56. Therefore, staff recommends that the initial connection and normal
reconnection charges be removed, the premises visit be revised to $15.56 and
the definition for the premises visit charge be updated to comply with amended
Rule 25-30.460, F.A.C. The existing and staff recommended miscellaneous service
charges are reflected below.
Existing
Miscellaneous Service Charges
|
|
Normal
Hours
|
|
Initial Connection Charge
|
$15.56
|
|
Normal Reconnection Charge
|
$15.56
|
|
Violation Reconnection Charge
|
$15.56
|
|
Premises Visit Charge
|
$10.38
|
|
(in lieu of disconnection)
|
|
|
Late Payment Charge
|
$5.18
|
|
NSF Charges
|
Pursuant
to Section 68.065, F.S.
|
|
Convenience Charge
|
$2.70
|
|
|
|
Staff Recommended
Miscellaneous Service Charges
|
|
Normal
Hours
|
|
Premises Visit Charge
|
$15.56
|
|
Violation Reconnection Charge
|
$15.56
|
|
Late Payment Charge
|
$5.18
|
|
NSF Charges
|
Pursuant
to Section 68.065, F.S.
|
|
Convenience Charge
|
$2.70
|
Conclusion
Staff recommends the miscellaneous service charges be
revised to conform to the recent revision to Rule 25-30.460, F.A.C. The
recommended miscellaneous service charges are shown on Schedule No. 1-B.
Brendenwood should be required to file a proposed customer notice to reflect
the Commission-approved charges. The approved charges should be effective 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 charge should not be implemented
until staff has approved the proposed customer notice and the notice has been
received by customers. The utility should provide proof of the date notice was
given no less than 10 days after the date of the notice.
Issue 12:
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 on Schedule No.
4, to remove rate case expense grossed-up for RAFs and amortized over a
four-year period. Pursuant to Section 367.081(8), F.S., the decrease in rates
should become effective immediately following the expiration of the rate case
expense recovery period. Brendenwood should be required to file revised tariffs
and a proposed customer notice setting forth the lower rates and rationale no
later than one month prior to the effective date of the new rates. If the utility
files revised tariffs reflecting 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. (Bethea, Casper) (Procedural
Agency Action)
Staff Analysis:
Section 367.081(8), F.S., requires that the rates be
reduced by the amount of the rate case expense previously included in rates
immediately following the expiration of the recovery period. With respect to
Brendenwood, the reduction will reflect the removal of revenue associated with
the amortization of rate case expense and the gross-up for RAFs. The total
reduction is $301.
Staff recommends that the rates should be reduced as shown
on Schedule No. 4, to remove rate case expense grossed-up for RAFs and
amortized over a four-year period. Pursuant to Section 367.081(8), F.S., the
decrease in rates should become effective immediately following the expiration
of the rate case expense recovery period. Brendenwood should be required to
file revised tariffs and a proposed customer notice setting forth the lower
rates and rationale no later than one month prior to the effective date of the
new rates. If the utility files revised tariffs reflecting 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 13:
Should the recommended rates be approved for
Brendenwood on a temporary basis, subject to refund with interest, in the event
of a protest filed by a party other than the utility?
Recommendation:
Yes. Pursuant to Section 367.0814(7), F.S., the
recommended rates should be approved for the utility on a temporary basis,
subject to refund with interest, in the event of a protest filed by a party
other than the utility. Brendenwood should file revised tariff sheets and a
proposed customer notice reflecting the Commission-approved rates. The approved
rates should be effective for services 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.
Further, prior to implementing any temporary rates, the utility should provide
appropriate financial security.
If the recommended rates are approved on a temporary
basis, the rates collected by the utility should be subject to the refund
provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the
utility should file reports with the Commission’s Office of Commission Clerk no
later than the 20th of each month indicating both the current monthly and total
amount subject to refund at the end of the preceding month. The report filed
should also indicate the status of the security being used to guarantee
repayment of any potential refund. (Casper) (Procedural Agency Action)
Staff Analysis:
This recommendation proposes an increase in rates. A
timely protest might delay a rate increase resulting in an unrecoverable loss
of revenue to the utility. Therefore, pursuant to Section 367.0814(7), F.S., in
the event of a protest filed by a party other than the utility, staff
recommends that the proposed rates be approved on a temporary basis.
Brendenwood should file revised tariff sheets and a proposed customer notice
reflecting 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 temporary
rates should not be implemented until staff has approved the proposed notice,
and it has been received by the customers. The additional revenue produced by
staff’s recommended rates and collected by the utility should be subject to the
refund provisions discussed below.
Brendenwood should be authorized to initiate the temporary
rates upon staff’s approval of an appropriate security for the potential refund
and cost of the proposed customer notice. Security should be in the form of
either a bond or letter of credit in the amount of $4,046. Alternatively, the
utility may establish an escrow agreement with an independent financial
institution.
If the utility chooses a bond for securing the potential
refund, the bond should contain wording to the effect that it will be terminated
only under the following conditions:
1. The
Commission approves the rate increase; or,
2. If the Commission denies the increase,
the utility shall refund the amount collected that is attributable to the
increase.
If the utility chooses a letter of credit for securing the
potential refund, the letter of credit should contain the following conditions:
1. The letter of credit is irrevocable for
the period it is in effect.
2. The letter of credit will be in effect
until a final Commission order is rendered, either approving or denying the
rate increase.
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 prior written authorization 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.
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.
The utility should maintain a record of the amount of the
bond, and the amount of revenues that are subject to refund. In addition, after
the increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the
utility should file reports with the Commission Clerk’s office no later than
the 20th of every month indicating the monthly and total amount of money
subject to refund at the end of the preceding month. The report filed should
also indicate the status of the security being used to guarantee repayment of
any potential refund.
Issue 14:
Should Brendenwood be required to notify the
Commission within 90 days of an effective order finalizing this docket, that it
has adjusted its books for all the applicable National Association of
Regulatory utility Commissioners (NARUC) Uniform System of Accounts (USOA)
associated with the Commission approved adjustments?
Recommendation:
Yes. Brendenwood should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Brendenwood should submit a letter within 90 days of the
Commission’s final order in this docket, confirming that the adjustments to all
applicable NARUC USOA primary accounts have been made to the utility’s books
and records. In the event the utility needs additional time to complete the
adjustments, a notice providing good cause should be filed not less than seven
days prior to the deadline. Upon providing a notice of good cause, staff should
be given administrative authority to grant an extension of up to 60 days.
(Casper) (Procedural Agency Action)
Staff Analysis:
Brendenwood should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Brendenwood should submit a letter within 90 days of the
Commission’s final order in this docket, confirming that the adjustments to all
the applicable NARUC USOA primary accounts have been made to the utility’s
books and records. In the event the utility needs additional time to complete
the adjustments, a notice providing good cause should be filed not less than
seven days prior to the deadline. Upon providing a notice of good cause, staff
should be given administrative authority to grant an extension of up to 60
days.
Issue 15:
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. This docket should remain open for staff’s verification that the
revised tariff sheets and customer notices have been filed by the utility and
approved by staff. Also, the docket should remain open to allow the utility to
provide the recommended reporting information. Upon staff’s approval of the
tariff sheets and customer notices, along with staff’s completion of its review
of the recommended reporting information, this docket should be closed
administratively if no adjustments are necessary. (Jones)
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. This docket should remain open for staff’s verification that the
revised tariff sheets and customer notices have been filed by the utility and
approved by staff. Also, the docket should remain open to allow the utility to
provide the recommended reporting information. Upon staff’s approval of the
tariff sheets and customer notices, along with staff’s completion of its review
of the recommended reporting information, this docket should be closed
administratively if no adjustments are necessary.
