Discussion
of Issues
Issue 1:
Is the quality of service provided by Leighton
Estates Utilities, LLC. satisfactory?
Recommendation:
Yes. The utility is passing all Department of Environmental Protection
(DEP) primary and secondary standards and no customer complaints or comments
have been received. Therefore, the quality of service provided by Leighton
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 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 Leighton’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 June 16, 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 Commission’s
Consumer Activity Tracking System for the test year and four years prior and
found that no complaints have been filed. Also, no customers attended the
customer meeting held on September 12, 2022, and no customer correspondence has
been filed in the docket as of November 15, 2022. Last, the DEP and the utility
have indicated that no customer complaints were received during the test year
and four years prior.
Conclusion
The utility is passing all DEP primary and
secondary standards and no customer complaints or comments have been received.
Therefore, the quality of service provided by Leighton should be considered satisfactory.
Issue 2:
Are the infrastructure and operating condition of
Leighton’s water system in compliance with the DEP regulations?
Recommendation:
Yes. Leighton’s water system is currently in
compliance with DEP regulations. (Lewis)
Staff Analysis:
Rule
25-30.225, F.A.C., requires that each water utility shall operate and maintain
its plant and facilities by employing qualified operators in accordance with
the rules of the DEP in order to provide safe and efficient service up to and
including the point of delivery into the piping owned by the customer. During a
rate making proceeding, 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
Leighton’s
water system has a permitted design capacity of 65,800 gallons per day (gpd).
The utility’s water system is supplied by one well with a rated pumping
capacity of 96 gallons per minute (gpm). The treated water is pumped into a
5,000 gallon hydropneumatic storage tank before entering the distribution system.
The hydropneumatic tank passed inspection on June 24, 2020. Staff reviewed the
Sanitary Survey conducted by the DEP on September 11, 2020. The water treatment
plant (WTP) was in compliance with no deficiencies indicated. Staff did not
find any warning letters or consent orders issued to the utility. The DEP
usually conducts inspections on three-year intervals and the next should occur
in 2023.
Conclusion
Leighton’s
water system is currently in compliance with DEP regulations.
Issue 3:
What are the used and useful percentages for Leighton
Estates Utilities, LLC.’s WTP and water distribution system?
Recommendation:
Leighton’s WTP and water distribution system should
be considered 100 percent used and useful (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:
Leighton’s
WTP consists of one well with a rated pumping capacity of 96 gpm. The utility’s
water system does not have a storage tank, but has one hydropneumatic tank
totaling 5,000 gallons in capacity. The distribution system is composed of approximately
3,520 feet of 2 inch and 4,000 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. Leighton is served
by a single well and therefore, Leighton’s WTP should be considered 100 percent
U&U.
Water
Distribution System Used and Useful
The utility’s
service area originally consisted of 22 duplexes, approximately 96 homes on
private wells, and additional vacant lots in the Leighton Estates subdivision
located in Ocala.[2] During the test year, 80
residential customers were being served by the utility. At the time Leighton
Estates was developed, Marion County required that new private wells could not
be constructed unless the homes were on five acre tracts or the wells were
owned by a permitted water system. Therefore, the utility was issued a special
use permit for the construction of a community water system on 4.49 acres and
the system was constructed in January 2005.
Based on
staff’s review, it does not appear that a U&U percentage was previously
established for the utility. The distribution system has been extended since
the utility was granted its certificate, and presently serves 80 customers.
Information provided by the utility stated 18 existing homes with private wells
and 16 vacant lots can also be served by the utility’s current distribution
system. However, these homeowners and vacant lot owners are not required to
take service from the utility. Therefore, the distribution system can be
considered built out. Based on these circumstances, the water distribution
system should 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, 2021 Annual Report, and audited billing data
indicate that Leighton treated 4,924,400 gallons and sold 4,352,400 gallons
with 572,000 gallons used for flushing during the test year. The resulting
calculation ([4,924,400 – 4,352,400 – 572,000]/4,924,400) for unaccounted for
water is 0 percent; therefore, there is no EUW.
Conclusion
Leighton’s WTP and 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 Leighton Estates Utilities, LLC.?
Recommendation:
The appropriate average test year rate base for
Leighton is $236,146. (Richards, Lewis)
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, net
acquisition adjustment, and working capital. The utility’s rate base was
established as part of its transfer proceeding, in Docket No. 20210043-WU.[3] Staff
selected the test year ended December 31, 2021, 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 a UPIS balance of $366,405. Staff
decreased UPIS by $2,064 to reflect an averaging adjustment. Additionally, as
shown below in Table 4-1, staff increased UPIS by $9,871 to reflect pro forma
additions, offset by a decrease of $6,193 to reflect pro forma retirement.
Pro Forma Plant Additions
As
shown in Table 4-2, the utility requested three pro forma items be included in
rate base: 1) replacement of a failed pump; 2) purchase of two 2021 Ford F150
trucks; and 3) a meter replacement program. In June of 2022, the WTP
experienced a well pump failure. This was an emergency repair that needed to
occur expeditiously. The purchase and replacement of the new well pump occurred
on June 27, 2022, and a paid invoice was provided totaling $4,941. The
installation cost consisted of new piping and wiring for the pump and motor,
plus labor charges. The purchase and installation cost appear justified and
reasonable.
Florida
Utility Services 1 (FUS1) purchased two 2021 Ford F-150 trucks for its service
fleet and requested the cost of the vehicles be commonly allocated across all
the systems it operates. The utility indicated that the addition of the trucks
allows for each of FUS1’s three maintenance technicians, maintenance foreman,
and officer to provide efficient and timely responses to the 17 utility systems
operated by FUS1. The two additional vehicles allow for efficient service to
the 17 utilities and a faster response to emergencies. The utilities served by
FUS1 are located in six different counties. One truck was purchased in August
2021, and the other purchased a year later in August 2022. The utility provided
a copy of the vehicles’ bill of sales.[4] Staff agrees with the stated purpose and the
cost of the vehicles.
The
utility requested to transition all of its existing standard 5/8 x 3/4” meters
to Advanced Meter Infrastructure (AMI) meters. The utility indicated that
switching to AMI meters would allow the utility to electronically obtain meter
readings, provide real-time data accessibility, reduce customer service-related
calls and associated work order trips. Customers would gain the ability to
monitor water usage, set leak detection alarms, and receive utility
communications through a system Application, which would benefit customers.
The
program consists of upgrading the utility’s existing 80 meters, plus two
additional meters, to AMI, remote read, meters and the purchase/installation of
The Beacon, Advanced Metering system software (Beacon). The utility indicated
that it intends to utilize the Beacon software across its other FUS1 systems, which
would result in approximately $186.30 of Beacon’s $8,208 total cost allocated
to Leighton. Once purchased, there are no reoccurring or monthly fees to
utilize the software. Staff inquired whether the utility explored obtaining
additional bids or looked into alternative manufacturers for AMI. In response,
the utility stated the Beacon product is the only software that is compatible
with its existing billing system.
Of
the 82 meters, the utility intends to retrofit 42 meters and replace 40 meters
with AMI technology. In response to staff’s second data request, the utility
indicated the cost to retrofit each meter is $521.94 and the cost to replace a
meter is $577.94. However, staff does not believe it is appropriate for the utility
to recover mileage and labor costs as part of this program since this program
would be implemented by full-time employees of FUS1 already accounted for
through FUS1’s payroll. The proposal included $138.84 ($47 + $91.84) for a technician
to travel round trip to install two meters. There was an additional $6.00
charge for the customer service manager to call and inform each customer about
the new meters.[5] Staff does not favor the
$6.00 charge. Therefore, staff recommends the installation cost be reduced by
$144.84 resulting in a cost of $377.10 and $433.10 to retrofit or replace,
respectively, a meter, as shown in Table 4-1. The utility stated its decision
to retrofit roughly half of its meters rather than replace all 82 is based on
the remaining life of the existing meters.
Based
on the information provided above, staff recognizes that upgrading the meters
to AMI will benefit Leighton’s customers. Staff recognizes that the ability to
monitor for leakage, water theft, and pay bills online is a benefit to the
customers. Therefore, staff recommends the proposed AMI meter program is
warranted.
Table 4-1
Meter Replacement Program: Meter Costs
|
|
Retrofit Meter
|
New Meter
|
|
Equipment
|
Retrofit Meter
|
$302.00
|
New Meter
|
$358.00
|
|
|
Meter Box
|
$24.56
|
Meter Box
|
$24.56
|
|
|
Meter Box Lid
|
$15.50
|
Meter Box lid
|
$15.50
|
|
|
Locking Curb Stop
|
$35.04
|
Locking Curb Stop
|
$35.04
|
|
Mileage
|
Roundtrip from FUS1 to service territory
|
$91.84
|
Roundtrip from FUS1 to service
territory
|
$91.84
|
|
Labor-Tech
|
Driving/Installation time
|
$47.00
|
Driving/Installation time
|
$47.00
|
|
Labor-Customer Service
|
Customer service call with customer and charging billing
account
|
$6.00
|
Customer service call with customer and charging billing
account
|
$6.00
|
|
Utility Requested Total:
|
|
$521.94
|
|
$577.94
|
|
Staff Recommended Total:
|
|
$377.10
($521.94
- $144.84)
|
|
$433.10
($521.94
- $144.84)
|
Source:
Document No. 04830-2022
Table 4-2
Pro
Forma Plant Additions
|
Project
|
Acct.
No.
|
Description
|
Amount
|
|
|
|
Well Pump Replacement
|
311
|
Replace failed well pump
|
$4,941.00
|
|
|
|
Associated Retirement
|
|
|
Vehicle Purchase
|
341
|
2021 Ford F150 vehicle purchase
|
$46,030
|
|
Vehicle Purchase
|
341
|
2021 Ford F150 vehicle purchase
|
$34,558
|
|
Meter Replacement Program
|
334
|
Replace or retrofit existing standard meters with AMI meters
|
$33,349
|
|
|
Associated Retirement
|
|
|
Net Adjustment
|
|
|
Source: Document Nos. 04830-2022, 06031-2022,
and 04830-2022
Table 4-3
Pro Forma Plant Items
|
Project
|
Additions
|
Retirements
|
|
Acct. 311 – Replace failed pump.
|
$4,941
|
($3,706)
|
|
Acct. 334 – Meter replacement amortized 10 years.
|
3,316
|
(2,487)
|
|
Acct. 341 – 2021 F-150 Truck 2.00 percent allocation.
|
921
|
0
|
|
Acct. 341 – 2021 F-150 Truck 2.00 percent allocation.
|
693
|
0
|
|
Total Pro Forma
|
$9,871
|
($6,193)
|
Based on
the above, staff recommends an average UPIS balance of $368,019 ($366,405 -
$2,064 + $9,871 - $6,193).
Land & Land Rights
The utility recorded a land
balance of $30,000. Staff made no adjustment to this amount and therefore recommends a land balance of
$30,000.
Used & Useful
As discussed in Issue 3,
Leighton’s WTP and distribution system are considered 100 percent U&U.
Therefore, no U&U adjustments are necessary.
Accumulated Depreciation
Leighton recorded an accumulated
depreciation balance of $123,119. Staff decreased accumulated depreciation by $34
to reflect overstated depreciation expense for Account 320 – Water Treatment
Equipment. Additionally, staff decreased accumulated depreciation by $6,638 to
reflect an averaging adjustment. Staff also decreased accumulated depreciation
by $5,802 to reflect retirements associated with pro forma plant. Therefore,
staff recommends an accumulated depreciation balance of $110,645 ($123,119 - $34
- $6,638 - $5,802).
Contributions in Aid of
Construction (CIAC)
The utility recorded a CIAC
balance of $10,165. Staff made an averaging adjustment decreasing CIAC by
$1,083. Therefore, staff recommends a CIAC balance of $9,083 ($10,165 -
$1,083).
Accumulated Amortization
of CIAC
Leighton recorded accumulated
amortization of CIAC of $846. Staff made an averaging adjustment decreasing
this amount by $167. Therefore, staff recommends an accumulated amortization of
CIAC balance of $680 ($846 - $167).
Acquisition Adjustment
Net
The utility recorded a negative
acquisition adjustment of $47,985 based on Order No. PSC-2021-0408-PAA-WU.[6] In its
Order, the Commission stated the acquisition adjustment will be amortized over
seven years from the date of issuance. The utility did not record an
accumulated amortization of acquisition adjustment. Staff annualized the
amortization amount as $6,855 ($47,985 ÷ 7 years). The Order was issued on
November 1, 2021, therefore, staff calculated the accumulated amortization from
November 1, 2021, through the end of the test year as $1,127. Staff recommends
a net acquisition adjustment of $46,858 ($47,985 - $1,127).
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 $316 for this
calculation resulting in an adjusted O&M expense balance of $32,260 ($32,576
- $316). Applying this formula, staff recommends a working capital allowance of
$4,032 ($32,260 ÷ 8).
Rate Base Summary
Based on the
foregoing, staff recommends that the appropriate average test year rate base is
$236,146. 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 Leighton Estates Utilities, LLC.?
Recommendation:
The appropriate return on equity (ROE) is 10.45
percent with a range of 9.45 percent to 11.45 percent. The appropriate rate of
return is 6.83 percent. (Richards)
Staff Analysis:
The utility’s capital structure is comprised of
long-term debt, common equity, and customer deposits. The utility’s proposed
capital structure has been reconciled with staff’s recommended rate base. The
appropriate ROE for the utility is 10.45 percent based upon the
Commission-approved leverage formula currently in effect.[7]
Staff recommends an ROE of 10.45 percent, with a range of 9.45 percent to
11.45 percent, and an overall rate of return of 6.83 percent. The ROE and
overall rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate test year revenues for Leighton
Estates Utilities, LLC’s water system?
Recommendation:
The appropriate test year revenues for Leighton’s
water system are $28,269. (Bethea)
Staff Analysis:
Leighton recorded test year revenues of $28,105. The
water revenues included $27,740 of service revenues and $365 of miscellaneous
revenues. Staff annualized service revenues by applying the number of billing
determinants to the utility’s existing rates. As a result, staff determined
that service revenues should be $28,104, which is an increase of $364. Staff
also made an adjustment to miscellaneous revenues to remove $200 of service
availability charges that were inaccurately reflected in miscellaneous
revenues. Staff determined that miscellaneous revenues should be $165. Based on
the above, the appropriate test year revenues for Leighton’s water system,
including miscellaneous revenues are $28,269 ($28,104 + $165).
Issue 7:
What is the appropriate operating expense for
Leighton Estates Utilities, LLC.?
Recommendation:
The appropriate amount of operating expense for
Leighton is $41,981. (Richards)
Staff Analysis:
The utility recorded
operating expense of $45,072. The test year 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 described below.
Operation and
Maintenance Expenses
Previously, the Commission
approved the sharing of common O&M costs by all utilities under the parent
company, FUS1. O&M
common costs are allocated among all of the individual utilities in the FUS1
system based on each utility’s number of customers relative to the total number
of customers receiving service under FUS1. Based on the number of customers for
Leighton, the allocation of FUS1 common costs is 2.00 percent.
On October 6, 2022, the utility
requested pro forma increases to O&M accounts 601, 603, and 604. As
these common costs are allocated among all FUS1 systems, staff determined the
instant case is not the appropriate docket to include these costs. Therefore,
after further review of the utility’s records, staff made no adjustments to
O&M accounts: 601, 603, and 604.
Additionally, after review of the
utility’s records, staff made no adjustments to the utility’s recorded amounts
to O&M accounts: 615, 620, 631, 635, 636, 640, 650, and 655. Staff’s
recommended balances for these accounts are shown on Schedule No. 3-C.
Contractual Services – Billing (630)
The utility did not record any
contractual services – billing expense. However, in correspondence with staff,
the utility provided documentation for the Beacon Software that is necessary to
operate the new meters.
This software will be used by all utilities under FUS1 with a total cost of
$8,208. Staff allocated the cost of this software for Leighton Estates, and therefore
recommends a contractual services – billing expense of $186.
Rate Case Expense (665)
The utility did not record any
rate case expense. The utility is required by Rule 25-22.0407, F.A.C., to mail
notices containing the rate case overview, interim rates, final rates and the
four-year rate reduction. Staff calculated noticing costs to be $296. Staff
calculated the round-trip distance from the utility to Tallahassee as 428
miles. Based on the 2022 IRS business mileage rate of $0.625, staff calculated
a travel and lodging expense to the Commission Conference of $468.
Additionally, the utility paid a filing fee of $500.
Staff calculated the total amount
of noticing costs, travel expense and filing fee, and recommends total rate
case expense of $1,264 ($296 + $468 + $500), which amortized over four years is
$316 ($1,264 ÷ 4 years). Therefore, staff recommends amortized rate case
expense of $316.
Regulatory Commission Expense (667)
The utility did not record any
prior regulatory commission expense. However, in its transfer docket, the utility
incurred a regulatory commission expense of $7,315.
Staff amortized this amount over five years, and therefore recommends an annual
regulatory commission expense of $1,463.
Bad Debt Expense (670)
Under the current ownership, and
its previous ownership, the utility has not recorded any bad debt expense. When
there is no previous bad debt expense data, it is Commission practice to
calculate bad debt expense as a percentage of revenues to allow the utility an
opportunity to recover such expenses, if necessary.
In this case, staff recommends 1 percent of revenues be calculated as bed debt
expense. Therefore, staff recommends bad debt expense of $283.
Miscellaneous Expenses (675)
The utility recorded
miscellaneous expense of $2,498. After review, staff made several adjustments
decreasing this amount. Staff reduced this account by $20 to reflect the
removal of bank service charges, in addition to another $15 reduction to remove
a non-sufficient funds fee the utility recorded. Additionally, staff reduced
this account by $181 to reflect the removal of loan fees. Therefore, staff
recommends miscellaneous expenses of $2,282 ($2,498 - $20 - $15 - $181).
Operation and
Maintenance Expense Summary
The utility recorded O&M
expenses of $30,544 for the test year. Based on the above adjustments, staff
recommends O&M expenses be increased by $2,032, resulting in a total
O&M expense of $32,576 ($30,544 + $2,032). Staff’s recommended adjustments
to O&M expenses are shown on Schedule No. 3-C.
Depreciation Expense
The utility recorded depreciation
expense of $12,603. Audit staff decreased depreciation expense by $34 to
reflect the appropriate amount of depreciation expense for Account 320 – Water
Treatment Equipment using the prescribed rates set forth in Rule 25-30.140,
F.A.C. Staff increased depreciation expense by $390 to reflect the appropriate
depreciation on pro forma additions. Therefore, staff recommends depreciation
expense of $12,959 ($12,603 - $34 + $390).
Net Amortization Expense
The utility recorded an
amortization expense of $333. Staff increased amortization expense by $6,855 to
reflect amortization expense for the acquisition adjustment. Therefore, staff
recommends amortization expense of $7,188 ($333 + $6,855).
Taxes Other Than Income (TOTI)
The utility recorded TOTI of
$2,258. Staff increased TOTI by $7 to reflect the appropriate regulatory
assessment fees (RAFs) based on corrected utility test year revenues.
Additionally, staff increased TOTI by $27 to reflect property taxes associated
with pro forma additions. These adjustments result in a test year TOTI increase
of $34 ($7 + $27). As discussed in Issue 9, staff recommends revenues be
increased by $29,829 in order 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 $1,342 to reflect RAFs of 4.5 percent
on the change in revenues. Therefore, staff recommends TOTI of $3,634 ($2,258 +
$34 + $1,342).
Income Taxes
Leighton is a sole
proprietorship, and therefore did not record any income tax expense for the
test year. As such, staff recommends no adjustment to income tax expense.
Operating Expenses Summary
The utility
recorded operating expenses of $45,072. The application of staff’s recommended
adjustments to the utility’s operating expenses result in a total operating
expense of $41,981. Operating expenses are shown on Schedule No. 3-A, and the
related adjustments are shown on Schedule No. 3-B.
Issue 8:
Does Leighton Estates Utilities, LLC. meet the
criteria for application of the operating ratio methodology?
Recommendation:
No. Leighton does not meet the requirement for
application of the operating ratio methodology for calculating the revenue
requirement. (Richards)
Staff Analysis:
Rule
25-30.4575(2), F.A.C., provides that, in rate cases processed under Rule
25-30.455, F.A.C., the Commission will use the operating ratio methodology to
establish the utility’s revenue requirement when its rate base is not greater
than 125 percent of O&M expenses, less rate case expense, and the use of
the operating ratio methodology does not change the utility’s qualification for
a staff-assisted rate case.
With
respect to Leighton, staff has recommended a rate base of $236,146. After
removal of rate case expense, staff has calculated an O&M expense of
$32,260 ($32,576 - $316). Based on staff’s recommended amounts, the utility’s
rate base is 732 percent of its adjusted O&M expense. Based on this, the utility
does not qualify for application of the operating ratio methodology.
Issue 9:
What is the appropriate revenue requirement for
Leighton Estates Utilities, LLC.?
Recommendation:
The appropriate revenue requirement is $58,098
resulting in an annual increase of $29,829 (105.52 percent). (Richards)
Staff Analysis:
Leighton should be allowed
an annual increase of $29,829 (105.52 percent). This should allow the utility
the opportunity to recover its expenses and earn a 6.83 percent return on its
water system. The calculations are shown in Table 9-1:
Table 9-1
Revenue Requirement
|
Rate Base
|
|
$236,146
|
|
Rate of Return
|
|
x 6.83%
|
|
Return on Rate Base
|
|
$16,117
|
|
O&M Expense
|
|
32,576
|
|
Depreciation Expense
Amortization
|
|
12,959
(7,188)
|
|
Taxes Other Than Income
|
|
3,634
|
|
Revenue Requirement
|
|
$58,098
|
|
Less Adjusted Test Year Revenues
|
|
28,269
|
|
Annual Increase
|
|
$29,829
|
|
Percent Increase
|
|
105.52%
|
Source: Staff calculations
Issue 10:
What are the appropriate rate structure and rates
for Leighton Estates Utilities, LLC.’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:
The
utility provides water service to 80 residential customers. Approximately two
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 4,587 gallons per month. The average water demand excluding zero
gallon bills is 4,660 gallons per month. Currently, the utility’s residential
and general service water rate structure consists of a monthly base facility
charge (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 40 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 appropriate non-discretionary threshold should be 4,000
gallons. Staff’s
review of the billing analysis indicates that the usage above 4,000 gallons
represents 48 percent of the bills, which account for approximately 36 percent
of the water demand. This is considered moderately high discretionary usage for
this customer base.
For this case, staff recommends a
BFC and a two-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 and 2) all usage in
excess of 4,000 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. General
service customers should be billed a BFC and an uniform gallonage charge.
Based on staff’s recommended
revenue increase of 106.1 percent, which excludes miscellaneous revenues, the
residential consumption can be expected to decline by 1,289,000 gallons
resulting in anticipated average residential demand of 3,229 gallons per month.
Staff recommends a 29.6 percent reduction in test year residential gallons for
ratesetting purposes. As a result, the corresponding reductions for purchased
power expense is $335, and $16 for RAFs to reflect the anticipated repression,
which results in a post repression revenue requirement of $57,582.
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 11:
Should Leighton Estates Utilities, LLC.’s
miscellaneous service charges be revised to conform to amended Rule 25-30.460,
F.A.C.?
Recommendation:
Yes. Leighton’s miscellaneous service charges should
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. Leighton 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.[15] The
definitions for initial connection charges and normal reconnection charges were
subsumed in the definition of the premises visit charge. Leighton’s
miscellaneous service charges consist of initial connection and normal
reconnection charges. Therefore, staff recommends that the initial connection
and normal reconnection charges be removed, and the definition for the premises
visit charge be updated to comply with amended Rule 25-30.460, F.A.C. The
premises visit and violation reconnection charge will remain at $25 for normal
hours and $50 for after hours.
Conclusion
Based on the above, 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. Leighton 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:
Should the requested initial customer deposits for
Leighton Estates Utilities, LLC. be approved?
Recommendation:
The appropriate initial customer deposits should be
$120 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. (Bethea)
Staff Analysis:
Rule 25-30.311, F.A.C.,
provides 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. An
initial customer deposit ensures that the cost of providing service is
recovered from the cost causer. Historically, the Commission has set initial
customer deposits equal to two times the average estimated bill.[16] Currently, the utility’s initial customer deposit
for single family residential water customer is $50 for the 5/8 inch x 3/4 inch
meter size. However, the amount does not cover two months’ average bill based
on staff’s recommended rates. The average monthly bill based on staff’s
recommended rates is $59.89 for water.[17]
Based on the
above, the appropriate initial customer deposits for the residential 5/8 inch x
3/4 inch meter size are $120 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 monthly 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 initial customer deposits
until authorized to change them by the Commission in a subsequent proceeding.
Issue 13:
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?
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. Leighton should be required to file revised tariffs
and a proposed customer notice setting forth the lower rates and the reason for
the reduction no later than one month prior to the actual date of the required
rate reduction. If the utility files
this reduction in conjunction with a price index or pass-through rate
adjustment, the utility shall file separate data 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, Richards) (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. 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 $331.
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. 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. Leighton should be
required to file revised tariffs and a proposed customer notice setting forth
the lower rates and the reason for the reduction no later than one month prior
to the actual date of the required rate reduction. If the utility files this reduction in conjunction with a price index or
pass-through rate adjustment, the utility shall file separate data 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 14:
Should the recommended rates be approved for
Leighton Estates Utilities, LLC. 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 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. Leighton 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 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. Prior to
implementation of any temporary rates, the utility should provide appropriate
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 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.
(Richards)(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
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
recommended rates be approved as temporary rates. Leighton 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 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. The recommended rates collected by the utility should be subject to
the refund provisions discussed below.
Leighton
should be authorized to collect the temporary rates upon staff’s approval of an
appropriate security for the potential refund and the proposed customer notice.
Security should be in the form of a bond or letter of credit in the amount of $20,295.
Alternatively, the utility could establish an escrow agreement with an
independent financial institution.
If the utility chooses a bond as
security, 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 as a security, it 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 15:
Should Leighton Estates Utilities, LLC. 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 NARUC USOA
associated with the Commission approved adjustments?
Recommendation:
Yes. Leighton should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Leighton should submit a letter within 90 days of the
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,
notice providing good cause should be filed not less than seven days prior to
the deadline. Upon providing good cause, staff should be given administrative
authority to grant an extension of up to 60 days. (Richards)
Staff Analysis:
Leighton should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. Leighton should submit a letter within 90 days of the
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, notice providing good cause should be filed not less than seven
days prior to the deadline. Upon providing good cause, staff should be given
administrative authority to grant an extension of up to 60 days.
Issue 16:
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. (Trierweiler)
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.
