Case Background
HC Waterworks, Inc. (HCWW or Utility) is a
Class B utility providing water service to approximately 967 residential
customers, 12 general service customers, and 1 private fire protection customer
in the Leisure Lakes, Lake Josephine, and Sebring Lakes subdivisions in
Highlands County. The Utility also provides wastewater service to 317
residential wastewater customers in the Leisure Lakes subdivision. The service
area is in the Southwest Florida Water Management District and is in a water
use caution area. According to the Utility’s 2021 Annual Report, operating
revenues were $770,063 for water and $88,191 for wastewater. Operating expenses
were $559,035 for water and $108,950 for wastewater.
By Order No. PSC-2014-0314-PAA-WS, the
Commission approved the transfer of Certificate Nos. 422-W and 359-S from Aqua
Utilities Florida, Inc. to HCWW. As part of the transfer, the Commission
approved a negative acquisition adjustment, recognizing that HCWW’s purchase of
the system was less than 80 percent of the system’s net book value. Per the
transfer order, 50 percent of the negative acquisition adjustment ($424,720 for
the water system and $10,539 for the wastewater system) was to be amortized
over a seven-year period, and the remaining 50 percent amortized over the
remaining life of the assets. At the time of the transfer, HCWW estimated the
remaining life of the applicable water assets as 24 years, and 12 years for the
wastewater assets.
Water rates were last established for the
Utility in 2020 in Docket No. 20190166-WS. In determining the quality of service
provided by HCWW, the Commission evaluated the quality of the Utility’s product
(water) and the Utility’s attempt to address customer satisfaction (water and
wastewater). The Commission determined that HCWW's overall quality of service
was unsatisfactory due to the volume of customer complaints and reduced HCWW’s
return on equity by 50 basis points. The Commission also required HCWW to
engage with its customers and the Office of Public Counsel (OPC) in an ongoing
effort to address the Utility’s service quality and communication issues. Subsequently,
water rates were increased by a price index rate adjustment in 2021. Wastewater
rates were last established in 2015 and had subsequent price index rate
adjustments in 2018 and 2021.
On November 18, 2021, HCWW filed its
application in this docket for a limited proceeding to increase its water and
wastewater rates. The main issue in the limited proceeding
was to address the significant financial impact of HCWW’s earning levels
beginning in April 2021, when the amortization period for 50 percent of the
acquisition adjustment approved in the transfer order ended. Based on the Utility’s filing, the negative
offset of amortization would cause increases to net depreciation expense that
would not be recovered through current rates, causing existing rates to no
longer be compensatory. Accompanying the Utility’s application were minimum
filing requirement (MFR) schedules required by Section 367.081, Florida
Statutes (F.S.), and Rule 25-30.445, Florida Administrative Code (F.A.C.). The
Utility was notified of deficiencies in the MFRs on December 14, 2021. The deficiencies were cured on December
22, 2021, which was established as the official filing date.
On May 3, 2022, at
a Commission Conference that members of the OPC attended, staff presented
HCWW’s application for a limited proceeding in Highlands County to the
Commission. During its introduction of the item, staff stated the following:
Subsequent
to the filing of this recommendation, staff is aware that a group of customers
have filed a complaint with the Office of Consumer Affairs concerning the
wastewater treatment plant. It's staff's understanding that Consumer Affairs
has been in contact with the utility and that the utility is working with
customers to resolve their concerns.
On May 23, 2022,
the Commission issued PAA Order No. PSC-2022-0192-PAA-WS (PAA Order) approving
the limited proceeding increase. In the PAA Order, the Commission approved
an increase for water rates of $35,220, or 4.64 percent, and an increase for
wastewater rates of $15,862, or 18.72 percent. The Commission made no
adjustment to a previously-ordered 9.17 percent return on equity, which reflected
a 50 basis point reduction related to quality of service matters in a previous
docket. Section 367.0812, F.S., requires that in
fixing rates, the Commission shall consider the extent to which the utility
provides water service that meets secondary water quality standards as
established by the Department of Environmental Protection. At page 3 of the PAA
Order, the Commission addresses HCWW’s compliance with this statute, including
the following:
As part of
the instant Docket, we received 20 customer comments opposing the rate
increase. Additionally, one group of
customers filed a complaint with our Customer Assistance and Outreach (CAO)
division concerning the wastewater treatment plant. Of the 20 customer
comments specifically related to the instant docket, 16 of the customers also
commented on poor water quality; specifically, chlorine smell, cloudy water,
discolored clothes from water, unacceptable water pressure, and bad taste. (Emphasis added.)
On June 13,
2022, OPC filed a timely petition protesting the Commission’s PAA Order. In its petition, OPC limits its protest to
the portion of the order addressing the quality of service provided by HCWW. OPC
contends that certain customer service and due process issues were not appropriately
addressed by the Commission at the time of issuing the PAA Order; in particular,
the exclusion of a specific reference to a petition signed by 143 customers of
HCWW. The document was not originally filed in
the docket file, but was instead filed as an informal customer complaint with
CAO, and did not reference Docket No. 20210184-WS. Staff assigned to the docket
learned of this document subsequent to filing its written recommendation on
April 21, 2022. In an abundance of caution, staff referenced the CAO complaint
in its introduction of this item at the May 3, 2022 Commission Conference, both
of which are captured in the quoted material referenced above.
On July 1, 2022,
HCWW and OPC filed a Joint Motion for Approval of a Stipulation and Settlement
Agreement (Agreement) which is Attachment A to this recommendation. The Agreement details steps HCWW has taken
and will continue to take to address concerns raised by its customers. The
Utility and OPC agree a final order should be issued in this case and should
reference, with specificity, the petition signed by the 143 customers, as well
as the Utility’s subsequent communications with customers and OPC regarding
plans to work toward addressing the customers’ complaints.
The Commission
has jurisdiction pursuant to Sections 367.081 and 367.0812, F.S.
Discussion
of Issues
Issue 1:
Should the Office of Public Counsel’s Petition
Protesting Proposed Agency Action in this docket be denied?
Recommendation:
Yes. Staff recommends that the Petition be denied. While
OPC’s Petition disputes the characterization in the Commission’s PAA Order of
customer complaints, it fails to dispute an issue of material fact. Therefore,
the Protest fails to meet the statutory standards required to request a hearing
pursuant to Section 120.57, F.S. If the Commission approves staff’s
recommendation in this Issue, Issue 2 becomes moot, and PAA Order No.
PSC-2022-0192-PAA-WS should be made final. (Sandy, Crawford)
Staff Analysis:
Pursuant to Rule 25-22.029, F.A.C., a person whose
substantial interests are affected by action proposed by the Commission may
file a petition for a Section 120.569 or 120.57, F.S., hearing. Formal hearings
proceeding pursuant to Section 120.57, F.S., are predicated upon there being disputed
issues of material fact. A material fact is “[a] fact that is significant or
essential to the issue or matter at hand.” Furthermore,
Section 120.80(13)(b), F.S., provides that, “a hearing on an objection to
proposed action of the Florida Public Service Commission may only address the
issues in dispute,” and that “[i]ssues in the proposed action which are not in
dispute are deemed stipulated.”
At the May 3, 2022 Commission Conference, staff referenced
customer complaints, including a reference to the CAO complaint, during its
introduction, in addition to discussing customer complaints in its written
recommendation.
On May 23, 2022, the Commission issued PAA Order No.
PSC-2022-0192-PAA-WS (PAA Order). According to OPC’s June 13, 2022 petition protesting
the Commission’s PAA Order, the material fact in dispute is as follows:
In the broadest terms, the Citizens’ ultimate factual
allegation is that the PAA Order contains an incorrect, or at best vague,
characterization of the number of customers who expressed dissatisfaction with
the quality of both the water and wastewater service HCWW provides.
Based on what it describes as an incorrect or vague
characterization, pursuant to Section 120.80(13)(b), F.S., OPC objects to and
protests the applicable portions of the PAA Order as it relates to the quality
of service.
Pursuant to Section 367.0812, F.S., the Commission shall
consider quality of water service when fixing water and wastewater utility
rates. As set out in the PAA Order, the Commission provided almost an entire
page’s worth of analysis, specifically addressing the Utility’s quality of
service issues. OPC protests the Commission’s characterization of how one group
of customers filed a complaint with the Commission’s CAO division concerning
the Utility’s wastewater treatment plant.
Contrary to OPC’s protest, the Commission’s
characterization of the customer complaint received by CAO is neither incorrect
nor vague. Commission staff noted the complaint without objection during its
presentation to the Commission. Furthermore, the complaint was referenced in
the PAA Order in the context of quality of service. OPC’s protest amounts to a nitpicking
criticism of how the Commission described customer communication.
More importantly, where OPC’s protest caters to its own editorial
preferences, it fails to raise a substantive criticism of the Commission’s
decision in the instant docket. This docket is prompted by the Utility seeking
a limited proceeding to increase rates that offset underearning caused by the reduction
in the amortization of a negative acquisition adjustment. On this OPC remains
silent. Nor does OPC contend that the Commission somehow failed to substantively
consider the Utility’s quality of water service before rendering its vote. Therefore,
staff believes there is no legal basis for the Commission to grant the remedy
that OPC requests.
Where OPC’s protest merely disputes the characterization
of customer complaints in the PAA Order, it fails to dispute an issue of
material fact. For there is no dispute that a group of customers filed a
complaint with the CAO about the waste water plant; that the Commission was aware
of this complaint prior to the May 3rd Commission Conference; and
that there is a petition signed by 143 customers of HCWW and filed by OPC on
May 4. Therefore, the protest fails to meet the statutory standards required to
request a hearing pursuant to Section 120.57, F.S. For these reasons, staff
believes OPC’s Petition Protesting Proposed Agency Action in this docket should
be denied. If the Commission approves staff’s recommendation in this Issue,
Issue 2 becomes moot, and PAA Order No. PSC-2022-0192-PAA-WS should be made
final.
Issue 2:
Should the Joint
Stipulation and Settlement Agreement filed on July 1, 2022, by HCWW and OPC be
approved?
Recommendation:
No. If the Commission approves staff’s
recommendation in Issue 1, this Issue is moot. If a decision on this Issue is
required, staff recommends that the Commission deny the Joint Stipulation and
Settlement Agreement because it fails to demonstrate how approval of the
Agreement is in the public interest. (Sandy, Crawford)
Staff Analysis:
The standard for approval
of a settlement agreement is whether it is in the public interest. A
determination of public interest requires a case-specific analysis based on
consideration of the proposed settlement taken as a whole.
The joint settlement agreement before the Commission proposes two remedies,
neither of which are ultimately in the public interest because they violate a
principle of procedural economy that the Commission relies on to effectively
regulate. If approved, the precedent created by the Agreement could subject
every Commission decision to protest and revision based on a party's editorial
preferences. The resulting regulatory slowdown could result in inefficiency and
uncertainty for utilities and ratepayers alike.
First, the Agreement proposes the
following:
The Parties agree
the record for the instant Docket should reflect that prior to the May 3, 2022
Agenda Conference, 22 customers submitted comments to the Docket opposing the
rate increase and lodging various complaints about poor water quality,
including but not limited to, discolored clothes from the water, unacceptable
water pressure and bad taste. Additionally, the Commission’s Customer
Assistance and Outreach (CAO) division was in possession of a petition
complaint letter signed by 143 customers. The face of the petition complaint
letter was stamped received by the PSC on April 22, 2022, and the text includes
a “formal complaint” about HCWW’s water and sewage plants, noise and odor from
the sewage plant, and the statement “we find it difficult to accept a water
rate increase again this year when our request for better service has not been
satisfied.”
This proposal is merely a more
fulsome recitation of facts that are currently set forth in Order No.
PSC-2022-0192-PAA-WS, described in language agreeable to OPC. Although OPC advocates
on behalf of Florida’s utility consumers, staff does not believe it serves the
public interest for the Commission in this instance to use its finite resources
to readdress facts already in the record – even if not worded in the particular
manner OPC would prefer – especially where no mistake of fact actually exists.
Second, the joint settlement
agreement describes the means by which the Utility is addressing customer
complaints about smell, sound, and water quality. Specifically, the Utility
sets forth the following:
HCWW advised a
customer that the utility is in the process of conducting an engineering study
and obtaining estimates for noise mitigation and odor control. HCWW advised OPC
of its plans to construct a roof over the sewage blower room and to present
costs for additional proposed abatement measures at a meeting with customers at
the Covered Bridge HOA in the fall, when seasonal residents return to the
community.
It appears as if the Utility
began taking affirmative steps to address customer complaints before entering
the Agreement. The language of the Agreement appears to merely memorialize
those steps, rather than having initiated them. Nevertheless,
the Commission was already aware of customer complaints against the Utility
when it deducted 50 basis points from its return on equity in Docket No.
20190166-WS, which is referenced by the PAA Order and remains in place at the
time of this recommendation. The Commission was also aware of customer
complaints – including a reference to the petition received by CAO – when it
approved the Utility’s request in the present docket.
As set forth in Order No. PSC-2021-0089-S-WS,
the Utility is required to file quarterly reports regarding customer complaints
and correspondence. The quarterly
reports indicate a declining trend in overall customer complaints as well as
complaints regarding secondary water quality issues - proof that the Utility
has been proactive in addressing quality of service concerns. It is duplicative
for the Commission to approve a settlement agreement that contains actions
already captured by the PAA Order, or already set in motion by the Utility,
especially when the crux of the agreement appears to be based upon OPC’s
editorial critique of a Commission Order.
For the aforementioned reasons,
staff recommends that the Commission deny the Joint Stipulation and Settlement
Agreement because it does not offer a material change to the Commission’s PAA
Order, and it is not in the public interest for parties to dictate how the
Commission drafts its Orders.
Issue 3:
Should this docket be closed?
Recommendation:
Yes,
this docket should be closed. (Sandy, Crawford)
Staff Analysis:
If the Commission grants staff’s recommendations in
Issues 1 and 2, a final order should issue reflecting those decisions and
consummating PAA Order No. PSC-2022-0192-PAA-WS. This docket should be closed
upon the issuance of that final order.
