Discussion
of Issues
Issue 1:
Should an interim revenue increase be approved?
Recommendation:
Yes. Leighton
Estates should be authorized to collect interim revenues as indicated below:
|
|
Test Year
Revenues
|
$ Increase
|
Revenue
Requirement
|
% Increase
|
|
Water
|
$27,605
|
$3,076
|
$30,681
|
11.14%
|
(D. Brown, Casper)
Staff Analysis:
On January
27, 2022, Leighton Estates filed an application requesting an interim revenue
increase in its water 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 Water Utilities (1996) of the National
Association of Regulatory Utility Commissioners.
Staff has
reviewed the utility’s operation and maintenance (O&M) expenses in relation
to its revenues. Based on the utility’s filing, staff recommends that Leighton
Estates 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 revised application dated January
31, 2022, for the test year ended December 31, 2021.
The test year revenues are $27,605, which includes $27,240 from water service
rates and $365 from miscellaneous service revenues. The test year O&M
expenses are $30,543. The difference between the utility’s reported revenues
and O&M expenses is $2,938.
In addition,
the interim rate 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.[5] 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 $138.
In total, Leighton
Estates should be allowed an interim revenue increase of $3,076 ($2,938 + $138)
to produce revenues sufficient to cover O&M expenses and additional RAFs.
Thus, staff recommends the appropriate interim revenue requirement is $30,681.
This is an 11.14 percent increase above the utility’s test year revenues. Table
1-1 illustrates staff’s interim increase calculation.
Table
1-1
Determination of Interim Increase
|
|
Water
|
|
1. Utility Test Year O&M Expenses
|
$30,543
|
|
2. Less: Utility Test Year Revenues
|
$27,605
|
|
3. Revenues to Cover O&M Expenses
|
$2,938
|
|
4. Interim Revenue Increase
|
$2,938
|
|
5. RAFs on Interim Rate Increase
|
$138
|
|
6. Total Interim Revenue Increase ($)
|
$3,076
|
|
7. Total Interim Revenue Increase (%)
|
11.14%
|
Source: Utility’s revised application and staff’s
calculations.
Issue 2:
What are the appropriate interim water rates?
Recommendation:
The interim rate increase of 11.29 percent should be
applied as an across-the-board increase to the water service rates. 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 interim service rates for Leighton
Estates be designed to allow the utility the opportunity to generate annual
operating revenues of $30,681 for water. Before removal of miscellaneous
revenues, this would result in an increase of $3,076 (11.14 percent). To
determine the appropriate increase to apply to the service rates, miscellaneous
revenues should be removed from the test year revenues. The calculation is as
follows:
Table 2-1
Percentage Service Rate Increase
|
|
|
Water
|
|
1
|
Total Test Year Revenues
|
$27,605
|
|
2
|
Less: Miscellaneous
Revenues
|
$365
|
|
3
|
Test Year Revenues from Service Rates
|
$27,240
|
|
4
|
Revenue Increase
|
$3,076
|
|
5
|
Percentage Service Rate Increase (Line 4/Line 3)
|
11.29%
|
Source: Staff’s
Interim Recommended Revenue Requirement
Staff recommends that the interim rate increase of 11.29
percent should be applied as an across-the-board increase to the water service
rates. 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
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 $257
into the escrow account each month. Otherwise, the surety bond or letter of
credit should be in the amount of $2,054. 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. (D. Brown, Casper)
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 water is $3,076. 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 $2,054. 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 Leighton Estates’ financial condition.
Because the utility reported a significant net loss in 2021, has no meaningful
liquidity, and has no equity, staff does not believe the utility has the
financial capability to support a corporate undertaking in the amount requested
at this time. In addition, the utility has only one year of annual reports
under current ownership, whereas staff prefers to have three years of financial
records. Instead, staff recommends that the utility 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 $2,054. 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 Leighton Estates’ staff-assisted
rate case. (Trierweiler, Garcia)
Staff Analysis:
Staff recommends that this
docket should remain open to address the merits of Leighton Estates’ staff-assisted
rate case.
