Discussion
of Issues
Issue 1:
Should the Commission approve Country Walk
Utilities, Inc.’s application for a LARI?
Recommendation:
Yes. Staff recommends a revenue increase of $4,340
or 7.62 percent. 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 to 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. (Mathis, Knoblauch)
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 streamline 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
November 16, 2021, Country Walk 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
January 14, 2022, as the official filing date. Staff verified that the Utility
is current on the filing of regulatory assessment fees (RAFs) and annual
reports. Country Walk 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 application. The filing contained additional
relevant information in support of the Utility’s application.
On
February 17, 2022, the Utility sent its customers the 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 March 23, 2022,
three customers submitted comments. The customers expressed concerns regarding
water quality issues, specifically the smell of the water and a dark or black
substance developing in their sinks, showers, and toilets after repeated
contact with the water. Based on Country Walk’s most recent DEP test results,
the Utility is currently passing all secondary standards.
Utility’s
Requested Revenue Increase
Country Walk
requested a revenue increase of $4,658, or 8.18 percent. The three main drivers
for the requested revenue increase are an increase in Contractual Services – Other of $2,009, an increase in Miscellaneous
Expenses of $1,150, and a Highlands County property tax increase of $1,312, as
compared to the amounts approved in Country Walk’s last rate case.[3] The Utility also requested
an allowance for rate case expense of $1,153, which amortized over four years
is $288 per year. Staff’s recommended adjustments and the increase in property
taxes are explained below.
The
increase in Contractual Services – Other of
$2,009 was due to a price increase for the service contract with U.S. Water
Service Corporation from $21,828 to $23,837. In its filing, the Utility
requested an amount of $23,699 for Contractual Services – Other, but provided a more recent cost of $23,837 in its
response to Staff’s First Data Request.[4]
Staff made an adjustment to increase the expense by the difference of $138.
The increase in Miscellaneous Expenses included an amount of
$1,000 for a political contribution. The Utility acknowledged this amount was inadvertently
included and was removed.
The increase in county property taxes in 2021 was due to an
increase in the assessed value of the utility plant from $25,999 in 2020 to
$150,754 in 2021.
Staff reviewed Country Walk’s requested allowance for rate case
expense of $1,153, or $288 per year, and believes the following adjustments are
appropriate. The Utility paid a filing fee of $1,000, but only included $500 in
its rate case expense request. Therefore, staff increased rate case expense by
$500. Staff also increased the total customer noticing expense by $45, and
removed $250 for the travel expense to attend the customer meeting. In total,
staff calculated an allowance for rate case expense of $1,448, which amortized
over four years is $362 per year, an increase of $74 per year.
As
result of staff’s recommended reduction to the revenue requirement, RAFs are
reduced by $15. A summary of Country Walk’s requested expenses and staff’s
recommended adjustments are shown in Table 1-1.
Table 1-1
Summary of
Staff’s Recommended Adjustments
|
Operation & Maintenance (O&M) Expenses
|
Utility Requested
|
Staff Adjustment
|
Staff Recommended
|
|
Contractual Services – Other
|
$23,699
|
$138
|
$23,837
|
|
Misc. Expenses
|
$1,250
|
($1,000)
|
$250
|
|
Rate Case Expense
|
$288
|
$74
|
$362
|
|
RAFs on Rev. Increase
|
$210
|
($15)
|
$195
|
|
Total Operating Expense
|
$50,123
|
($803)
|
$49,320
|
Source: Utility’s application
and response to Staff’s First Data Request, and staff calculations.
Additionally,
to calculate its requested revenue increase and revenue requirement, Country
Walk used a rate of return of 7.75 percent based on its most recent capital
structure and a return on equity of 7.85 percent that was derived from the
current leverage formula. In the instant petition, staff believes it is more
appropriate to calculate the revenue increase using the return on equity of
8.11 percent and overall rate of return of 8.08 percent that was approved by
the Commission in the Utility’s most recent rate case.[5]
After applying the recommended adjustments to the O&M expenses, and
calculating the revenue requirement to achieve the authorized return on equity
mid-point of 8.11 percent, the adjusted revenue increase is $4,340, or 7.62
percent.
Conclusion
The information presented in the
application was based on annualized revenues by customer class and meter size
for the period ended September 30, 2021, the most recent 12-month period. As
discussed above, staff recommends an annual revenue increase of $4,340, which
includes an allowance for rate case expense of $1,448, which amortized over
four years is $362 per year. A summary of Country Walk’s requested revenue
increase and staff’s recommended revenue increase is presented in Table 1-2.
Table 1-2
Staff’s
Recommended Increase
|
|
Annualized Revenues
|
Revenue Increase
|
Revenue Requirement
|
Percent Increase
|
|
Utility Requested
|
$56,943
|
$4,658
|
$61,602
|
8.18%
|
|
Staff Recommended
|
$56,943
|
$4,340
|
$61,283
|
7.62%
|
Source: Utility’s application
and staff calculations.
Pursuant
to Rule 25-30.457(7), F.A.C., Country Walk 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 this rate
increase, 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 Country Walk 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 no less than seven days prior to the 90-day
deadline. If staff’s earnings review demonstrates that Country Walk 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 to
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 Country
Walk’s application with the recommended modifications discussed above.
Issue 2:
What are the appropriate monthly service rates for
Country Walk?
Recommendation:
The existing service rates for Country Walk should
be increased by 7.62 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.
(Sibley)
Staff Analysis:
Based
on staff’s recommended approval of the Utility’s LARI in Issue 1, the existing
service rates for Country Walk should be increased by 7.62 percent in
accordance with Rule 25-30.457, F.A.C. Therefore, staff calculated rates by
applying the 7.62 percent increase across-the-board to the existing base
facility and gallonage charges. The Utility’s existing water 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 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. Country Walk 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. (Sibley, Mathis) (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 revenue
reduction for the Utility is $1,516 ($1,448 ÷ 0.955) or $379 annually.
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. Country Walk
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 Country
Walk 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 Country Walk, 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 staff-assisted rate case (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 Country Walk 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.
(Mathis, Imig) (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., Country Walk 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 Country Walk 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, Country Walk 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 Country Walk 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 Country Walk 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. (Imig)
Staff
Analysis:
In the event
of a protest, Country Walk 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 Country Walk 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 Country Walk 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.
