Case Background
Utilities, Inc.
of Florida (UIF or utility) is a Class A utility providing water and wastewater
services to 27 systems in the following counties: Charlotte, Highlands, Lake, Lee,
Marion, Orange, Pasco, Pinellas, Polk, and Seminole. In its 2020 Annual Report,
the utility reported $16,100,458 for wastewater operating revenues.
On June 24,
2021, the utility filed an application to revise its existing allowance for
funds prudently invested (AFPI) charges for its system formerly known as Lake
Utility Services, Inc. (LUSI), along with a tariff sheet reflecting the
proposed AFPI charges. The utility is requesting to revise its existing AFPI
charges for the LUSI wastewater system based on the Commission’s decision in
UIF’s recent rate case proceeding in which the wastewater system was deemed
less than 100 percent used and useful. The utility’s proposed AFPI tariffs were
suspended by Order No. PSC-2021-0319-PCO-SU, issued August 23, 2021, in the
instant docket, pending further investigation. Staff sent out its first data request on
July 22, 2021, and the utility provided its response on August 10, 2021. On
November 15, 2021, the utility filed revised schedules to correct an error in
the calculation of cost of the qualifying assets.
This
recommendation addresses UIF’s request to establish revised AFPI charges for
its LUSI wastewater system. The Commission has jurisdiction pursuant to
Sections 367.081 and 367.091, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should UIF’s request to revise its existing AFPI
charges for LUSI’s wastewater system be approved, and, if so, what are the
appropriate AFPI charges?
Recommendation:
No, UIF’s request to revise its existing AFPI
charges for LUSI’s wastewater system should be denied. The existing tariff
should be revised to reflect that the utility has no remaining equivalent
residential connections (ERCs) upon which to collect AFPI charges. The tariff
should remain in effect only to allow the utility to true-up any prepaid AFPI
charges to coincide with the connection to the system. (Hudson)
Staff Analysis:
Pursuant to Rule 25-30.434, Florida Administrative
Code (F.A.C.), an AFPI charge is a mechanism which allows a utility the
opportunity to earn a fair rate of return on prudently constructed plant held
for future use from the future customers to be served by that plant in the form
of a charge paid by those customers. The AFPI charge is calculated for one ERC
on a monthly basis up to the time the utility reaches the designed capacity of
the plant for which the charge applies. The charges cease when the plant has
reached its designed capacity. The utility’s request for revised wastewater
AFPI charges is a result of its wastewater system being deemed as less than 100
percent used and useful in its last rate proceeding.
The utility’s existing AFPI charges were set in March of
2020 and were based on the test year ended December 31, 2015. At
that time, the utility had 1,658 ERCs to reach design capacity with the utility
having already collected AFPI charges for 1,542 ERCs through developer
agreements. Therefore, as reflected in the order approving the current AFPI
charges, the utility had 116 remaining ERCs (1,658 - 1,542) that were subject
to the collection of AFPI charges.
Based on information provided in response to a staff data request,
staff has determined that the utility has collected AFPI charges for the
remaining 116 ERCs. While the utility has collected AFPI charges for all ERCs,
some ERCs were prepaid and are not connected to the system yet. The appropriate
AFPI charge is the charge in effect at the time of connection to the system.
For those ERCs that were prepaid and remain unconnected to date, the utility
can true-up the AFPI charge to coincide with the actual date of connection. As a
result, staff believes it is appropriate to leave the current tariff in effect
only for purposes of a true-up. Pursuant to the current tariff, the constant
maximum charge of $1,171.57 would apply until all 1,658 ERCs are connected.
In addition to the utility having collected APFI charges for
all 1,658 ERCs included in the calculation, staff does not believe that the
rule contemplates reestablishing AFPI for the same plant upon which AFPI has
previously been set. Recalculating AFPI on the same plant is counterintuitive
to the intent of AFPI. It resets the charges which are significantly lower at
the beginning of the accrual period which results in the utility forgoing
carrying cost that it was otherwise entitled to pursuant to the rule. Staff
believes that only a plant expansion would warrant a recalculation of
AFPI. UIF has not undertaken a plant
expansion.
Staff recognizes that the utility is not at design
capacity based on the determination in its last rate proceeding. However, if
the utility is not at design capacity, it could be a result of the demographics
of the customer base such as seasonality or low average consumption. UIF’s ERC
was defined as 280 gallons per day (gpd). Seasonality and/or low average
consumption could result in an ERC being less gpd in actuality. This could
result in the utility having remaining capacity even after all ERCs
contemplated have connected to the system. Nonetheless, the calculation of
UIF’s existing AFPI charges were designed to collect the cost associated with
plant held for future use from 1,658 ERCs. The utility has collected AFPI for
all 1,658 ERCs except for any prepaid connections that are subject to a true-up
as a result of the date of connection and thus, the cost associated with the
plant held for future use will be recovered as prescribed by rule. There are no
additional qualifying assets that correspond to any remaining capacity even if
the utility has the potential to serve. Granting AFPI based on the non-used and
useful in its last rate proceeding would result in double recovery.
Based on the above, UIF’s request to revise its existing
AFPI charges for LUSI’s wastewater system should be denied. The existing tariff
should be revised to reflect that the utility has no remaining ERCs upon which
to collect AFPI charges at this time. The tariff should remain in effect only
to allow the utility to true-up any prepaid AFPI charges to coincide with the
connection to the system.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the proposed tariff should be placed into
effect, subject to refund, pending resolution of the protest. If no timely
protest is filed, this docket should be closed upon the issuance of a
consummating order. (Osborn)
Staff Analysis:
If Issue 1 is approved and a protest is filed
within 21 days of the issuance of the order, the proposed tariff should be
placed into effect, subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order.
