Recommendation

Issue 1:

Is the quality of service provided by A Utility Inc. satisfactory?

Recommendation:

AUI is currently in compliance with the Department of Environmental Protection (DEP) standards; therefore, the quality of service should be considered satisfactory. (Knoblauch)

Staff Analysis:

Pursuant to Section 367.081(2)(a)1, 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 requires that the most recent chemical analyses, outstanding citations, violations, and consent orders on file with the DEP and the county health department, 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 Utility’s Product

In evaluation of AUI’s product quality, staff reviewed the Utility’s compliance with 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 comprehensive chemical analyses were performed on August 3, 2021. All results were in compliance with the DEP’s standards.

The Utility’s Attempt to Address Customer Satisfaction

Staff reviewed the complaints filed in the Commission’s Consumer Activity Tracking System (CATS), filed with the DEP, and received by the Utility for the test year and four years prior. No complaints were recorded through the CATS system, the DEP, or the Utility during this time period.

Staff conducted a virtual customer meeting on December 1, 2022. Four customers participated at the customer meeting and addressed several issues including the rate increase, the operation of the system, and the water pressure. Two of the customers expressed concerns regarding the size of the increase and indicated they had experienced issues of low water pressure. Another customer voiced concerns regarding AUI’s financial state and the expenses required to maintain the system. Finally, one customer stated that the water quality was good and the water pressure had increased after improvements had been made to the system.

Representatives from the Utility and OPC attended the customer meeting. Mr. Troy Fonder, representing AUI, stated that the Utility was in the process of replacing water mains in the system, which would improve many of the water pressure problems; however, some of the service lines to customers’ homes were very small in size and likely was the reason for the low pressure. Comments from two customers were also filed in the docket file. One of the customer’s comments stated an opposition to the size of the rate increase, and provided pictures of residue in their water filter. The second customer comment stated that they had experienced low water pressure and AUI’s well sheds were in disrepair. This customer’s comments on the Utility’s facilities will be addressed further in Issue 2.

Specific to water quality, the comments made by customers were largely related to low water pressure and residue in the water. AUI indicated it is replacing water mains to address the low pressure concerns. However, some of the low pressure issues experienced by customers were likely due to the size of the customers’ individual water lines, which are not the responsibility of the Utility. Additionally, no complaints were filed in CATS, with the DEP, or the Utility, and AUI is in compliance with DEP water standards according to its last chemical analysis. Therefore, staff recommends that the quality of service provided by the Utility is satisfactory.

Conclusion

AUI is currently in compliance with the DEP standards; therefore, the quality of service should be considered satisfactory.

Issue 2:

Are the infrastructure and operating conditions of A Utility Inc.’s water system in compliance with DEP regulations?

Recommendation:

Staff recommends the infrastructure and operating conditions of A Utility Inc.’s water system are in compliance with DEP regulations. (Knoblauch)

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

AUI’s water system has two wells with a combined pumping capacity range of 50 to 70 gallons per minute (gpm), one 220-gallon hydropneumatic storage tank, and two 850-gallon bladder storage tanks. Staff reviewed the sanitary survey conducted by the DEP for determination of the Utility’s overall water facility compliance. The sanitary survey conducted on December 27, 2022, indicated that the system was determined to be in compliance. As stated in Issue 1, one customer provided comments in the docket stating that the Utility’s well sheds were in disrepair. The customer stated that they would be more accepting of the rate increase if improvements to the system were addressed. No deficiencies related to AUI’s water sheds were noted in the DEP sanitary survey, and the system was determined to be in compliance.

Conclusion

Staff recommends the infrastructure and operating conditions of A Utility Inc.’s water system are in compliance with DEP regulations.

Issue 3:

What are the used and useful (U&U) percentages of A Utility Inc.’s water treatment plant (WTP) and water distribution system?

Recommendation:

AUI’s WTP and water distribution system should be considered 100 percent U&U. Additionally, staff recommends no adjustment to purchased power and chemicals expenses should be made for excessive unaccounted for water (EUW). (Knoblauch)

Staff Analysis:

AUI’s WTP consists of two wells with a combined pumping capacity ranging between 50 to 70 gpm, a 220-gallon hydropneumatic storage tank, and two 850-gallon hydropneumatic bladder storage tanks. AUI’s water distribution system is composed of approximately 2,200 feet of 2-inch polyvinyl chloride (PVC) pipe, 1,800 feet of 1.5-inch PVC pipe, 1,000 feet of 1.25-inch PVC pipe, 1,200 feet of 1.25-inch galvanized pipe, and 300 feet of 1-inch galvanized pipe.

Used and Useful Percentages

Rule 25-30.4325, F.A.C., addresses the method by which the U&U of a water system is determined. AUI’s U&U percentages were last determined in Docket No. 19881601-WU. In that docket, the Commission determined the Utility’s treatment facilities and distribution system were 100 percent U&U. The Utility has not increased the capacity of its facilities and the service area is built out. Therefore, consistent with the Commission’s previous decision, staff recommends the Utility’s WTP and distribution system 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.

EUW is calculated by subtracting both the gallons sold to customers and the gallons used for other services, such as flushing, from the total gallons pumped for the test year. AUI’s customers are unmetered; therefore, staff is unable to calculate EUW and recommends no adjustment to purchased power and chemicals.

Conclusion

AUI’s WTP and distribution system should be considered 100 percent U&U. Additionally, staff recommends no adjustment to purchased power and chemicals expenses should be made for EUW.

Issue 4:

What is the appropriate average test year rate base for A Utility Inc.?

Recommendation:

The appropriate average test year rate base for AUI is $10,026. (Richards)

Staff Analysis:

The appropriate components of the Utility’s rate base include utility plant in service (UPIS), land and land rights, accumulated depreciation, contributions-in-aid-of-construction (CIAC), accumulated amortization of CIAC, and working capital. Staff selected the test year ended December 31, 2020, for the instant rate case. According to Audit Finding No. 7, Commission audit staff determined that the Utility does not maintain a general ledger to record its transactions, instead relying on a profit and loss (P&L) statement and a balance sheet in order to track the balances in its accounts. As such, audit staff determined that the Utility’s books and records are not in compliance with the National Association of Regulatory Utility Commissioners’ Uniform System of Accounts (NARUC USOA). Staff discusses the corrective measures in Issue 7 of this recommendation. A summary of each component of rate base and the recommended adjustments are discussed below.

Utility Plant in Service

The Utility recorded UPIS of $97,700. During the audit, it was found that the Utility did not make the Commission ordered adjustments stemming from Order No. PSC-2021-0183-PAA-WU (2017 Transfer Order).[3] Therefore, staff decreased UPIS by $43,107. Staff made no further adjustments to UPIS and therefore recommends an average UPIS balance of $54,593 ($97,700 - $43,107).

Land and Land Rights

The Utility recorded a land value of $19,300. In the 2017 Transfer Order, the Commission determined the original cost of the land was $1,000. There have been no additions to this account since the prior rate case. To reflect the prior Commission Order, staff decreased land and land rights by $18,300. Therefore, staff recommends land and land rights balance of $1,000 ($19,300 - $18,300).

Accumulated Depreciation

The Utility recorded accumulated depreciation of $15,267. During the audit, it was found that the Utility did not properly record accumulated depreciation. Staff recalculated accumulated depreciation from January 1, 2017, to December 31, 2020, using the adjusted UPIS plant balances from the 2017 Transfer Order, and the depreciation rates established by Rule 25-30.140(2), F.A.C. As such, staff increased accumulated depreciation by $33,692. Staff further made an adjustment decreasing accumulated depreciation by $315 to reflect an averaging adjustment. Therefore, staff recommends average accumulated depreciation of $48,645 ($15,267 + $33,692 - $315).

Contributions-In-Aid-Of-Construction

The Utility did not record any CIAC on its P&L statement or its balance sheet as of December 31, 2020. However, the Commission established a CIAC balance of $26,625 in its 2017 Transfer Order. There have been no additions to CIAC since the last rate proceeding. Therefore, staff recommends a CIAC balance of $26,625.

Accumulated Amortization of CIAC

The Utility did not record any accumulated amortization of CIAC on its P&L statement or its balance sheet as of December 31, 2020. According to the 2017 Transfer Order, CIAC is fully amortized, therefore staff recommends accumulated amortization of CIAC of $26,625.

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 the one-eighth operation and maintenance (O&M) 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, for this calculation staff removed the recommended rate case expense of $341. This resulted in an adjusted O&M expense of $24,617 ($24,958 - $341). Applying this formula, staff recommends a working capital allowance of $3,077 ($24,617 ÷ 8).

Rate Base Summary

In its response to the Commission audit, the Utility stated that as of January 1, 2021, the Commission-ordered adjustments have been made for UPIS, land and land rights, and accumulated depreciation.[4] Based on the foregoing, staff recommends that the appropriate average test year rate base is $10,026. 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 A Utility Inc.?

Recommendation:

The appropriate return on equity (ROE) is 10.45 percent with a range of 9.45 percent to 11.45 percent. The appropriate overall rate of return is 9.95 percent. (Richards)

Staff Analysis:

AUI’s capital structure consists entirely of long-term debt and has been reconciled with staff’s recommended rate base. The appropriate ROE is 10.45 percent which is based on the Commission-approved leverage formula currently in effect.[5] 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 9.95 percent. The ROE and overall rate of return are shown on Schedule No. 2.

Issue 6:

What are the appropriate test year revenues for A Utility Inc.’s water system?

Recommendation:

The appropriate test year revenues for AUI are $21,608. (Hudson)

Staff Analysis:

AUI recorded total test year revenues of $20,722. The water revenues included only service revenues. There are no miscellaneous revenues. AUI had a price index rate increase subsequent to the test year. As a result, staff annualized the test year revenues. Based on staff’s review of the Utility’s billing determinants and the price index rate increase, staff determined test year service revenues should be $21,608. This results in an increase of $886 ($21,608 - $20,722) to service revenues. The Utility has no miscellaneous service charges and thus, no miscellaneous revenues. Based on the above, the appropriate test year revenues for the Utility are $21,608.

Issue 7:

What is the appropriate operating expense for A Utility Inc.?

Recommendation:

The appropriate amount of operating expense for AUI is $27,242. (Richards)

Staff Analysis:

The Utility recorded operating expense of $12,614. 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. Many of staff’s adjustments reflect updated invoices from 2021, which staff believes more accurately reflect the expense levels going forward. On November 16, 2022, the Utility provided a response to the Staff Report filed on November 1, 2022.[6] In its response, the Utility prioritized concerns which have been addressed in this recommendation.

Operation and Maintenance Expenses

Salaries and Wages – Employees (601)

The Utility did not record any salaries expense for the test year. In response to Staff’s Second Data Request (DR No. 2), the Utility calculated salaries expense of $3,874.[7] Staff believes this amount is reasonable, and therefore recommends salaries expense of $3,874.

Purchased Power (615)

The Utility recorded purchased power expense of $401. Through discovery, the Utility provided purchased power invoices for both of its locations.[8]^,[9] Based on its calculations, staff increased purchased power expense by $772, recommending a total purchased power expense of $1,173 ($401 + $772).

Chemicals Expense (618)

The Utility recorded chemicals expense of $84. In response to Staff’s First Data Request (DR No. 1), the Utility provided invoices for two chlorine purchases during 2021. The first invoice was from January 2021, for $89, and the second was from July 2021, for $90; totaling $179 ($89 + $90). Therefore, staff recommends chemicals expense of $179.

Materials and Supplies (620)

The Utility recorded materials and supplies expense of $3,723. Staff made an audit adjustment decreasing this amount by $76, and therefore recommends materials and supplies expense of $3,647 ($3,723 - $76).

Contractual Services – Professional (631)

The Utility recorded contractual services – professional expense of $3,450. In response to DR No. 1, the Utility provided invoices totaling $5,326 paid to MCL Environmental Services (MCL) for plant operations in 2021. This amount included $2,610 ($217.50 monthly) for well operations, and invoices for work orders totaling $2,716 from January 2021 through December 2021. Therefore, staff recommends a contractual services – professional expense of $5,326.

Contractual Services – Accounting (632)

The Utility did not record any expenses for contractual services – accounting for the test year. Staff believes it is necessary for the Utility to obtain professional accounting services in order to maintain its books and records in accordance with NARUC standards. Because of this, through DR No. 2, staff requested the Utility obtain an estimate for professional accounting services. In response to DR No. 2, the Utility provided an estimate from Henson & Murtha CPAs (Firm) to bring the Utility’s books and records in compliance with Rule 25-30.110, F.A.C., and maintain the books on a going-forward basis. The Firm provided a quote of $3,900 for its services. Staff believes this is a necessary service for the Utility, and therefore recommends contractual services – accounting fee of $3,900.

In the past, the Commission has approved pro forma expenses with the requirement that the Utility file an affidavit attesting that it has performed the related actions.[10] Therefore, staff recommends, as pro forma, the inclusion of the requested contractual services – accounting fee of $3,900, with a requirement that the Utility file an affidavit with the Commission, no later than May 1, 2023, attesting that it has entered into a contract with the Firm. Should the Utility not enter into a contract with the Firm by May 1, 2023, Commission staff shall file a recommendation addressing potential actions to be taken.

Contractual Services – Testing (635)

The Utility did not record any contractual services – testing expense for the test year. In response to DR No. 1, the Utility provided invoices from MCL for performing lab testing from January 2021 through December 2021. These tests totaled $3,529, and therefore staff recommends contractual services – testing expense of $3,529.

Contractual Services – Other (636)

The Utility did not record any contractual services – other expense for the test year. In response to DR No. 2, the Utility provided a contract effective January 1, 2023, between itself and Rich Allbright Property Maintenance (Maintenance Company). This contract was for the performance of professional property maintenance at a cost of $40 per month for each of the Utility’s three lots. Combined, property maintenance for the Utility is $120 per month, or $1,440 annually. Therefore, staff recommends contractual services – other expense of $1,440.

Similar to contractual services – accounting, staff recommends the inclusion of the requested contractual services – other fee of $1,440, with a requirement that the Utility file an affidavit with the Commission, no later than May 1, 2023, attesting that it has executed the contract with the Maintenance Company. Should the Utility not execute the contract with the Maintenance Company by May 1, 2023, Commission staff shall file a recommendation addressing potential actions to be taken.

Transportation Expense (650)

The Utility did not record any transportation expense for the test year. In response to DR No. 2, the Utility estimates it travels 100 total miles monthly in providing water services. Using the 2022 IRS business mileage rate of $0.625 per mile, staff calculated transportation expense of $750 ($0.625 x 100 miles x 12 months).[11] Therefore, staff recommends transportation expense of $750.

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 of the rate case overview, final rates, and four-year rate reduction. Staff calculated noticing costs to be $348. Staff calculated the distance from the Utility to Tallahassee as 253 miles. Based on the 2022 IRS mileage rate, staff calculated a round-trip travel expense to the Commission Conference, to include lodging, of $516. Additionally, the Utility paid a $500 filing fee.[12]

Staff calculated total rate case expense as $1,364 ($348 + $516 + $500). This amount amortized over four years is $341 ($1,364 ÷ 4 years). Therefore, staff recommends an amortized rate case expense of $341.

Bad Debt Expense (670)

The Utility did not record any bad debt expense for the test year. In the past, the Commission has used a percentage of total revenues to determine bad debt expense when a three year average was not available.[13] As such, staff recommends bad debt expense of 1 percent of total revenues. Therefore, staff recommends bad debt expense of $216.

Miscellaneous Expense (675)

The Utility did not record any miscellaneous expense for the test year. However, in response to DR No. 2, the Utility provided a list of costs which are necessary for running its operations. These costs are listed in Table 7-1 below:

Table 7-1

Miscellaneous Expenses

Expense	Amount
Consumer Confidence Report	$125
Valve Exercising Cost	150
Meter Accuracy Testing	48
Florida Rural Water Association Annual Fee	161
DEP Licensing Fee	100
Total Miscellaneous Expenses	$583

Source: Staff’s Second Data Request

Staff believes the costs provided by the Utility in its response to DR No. 2 are appropriate. Therefore, staff recommends a miscellaneous expense of $583.

Operation and Maintenance Expense Summary

The Utility recorded test year O&M expense of $7,658. Based on the above adjustments, staff recommends the O&M expense be increased by $17,300. This results in total O&M expense of $24,958 ($7,658 + $17,300). Staff’s recommended adjustments to O&M expense are shown on Schedule No. 3-C.

Depreciation Expense

The Utility recorded depreciation expense of $3,818. Using the depreciation rates prescribed in Rule 25-30.140, F.A.C., staff decreased this amount by $3,385 based on certain plant accounts being fully depreciated. Therefore, staff recommends a depreciation expense of $433 ($3,818 - $3,385).

Taxes Other Than Income (TOTI)

The Utility recorded TOTI of $1,138. Staff increased TOTI by $292 due to an audit adjustment. Additionally, staff increased TOTI by $34 to reflect the appropriate regulatory assessment fees (RAFs) based on corrected Utility test year revenues. These adjustments result in a test year TOTI increase of $326 ($292 + $34).

As discussed in Issue 9, staff recommends revenues be increased by $8,588 to reflect the change in revenue required to cover expenses and allow an opportunity to recover an operating margin of 12 percent. As a result, TOTI should be increased by $386 to reflect RAFs of 4.5 percent of the change in revenues. Therefore, staff recommends TOTI of $1,851 ($1,138 + $326 + $386).

Operating Expense Summary

The Utility recorded operating expenses of $12,614. The application of staff’s recommended adjustments to the Utility’s operating expense result in a total operating expense of $27,242. Operating expenses are shown on Schedule No. 3-A and the related adjustments are shown on Schedule No. 3-B.

Issue 8:

Does A Utility Inc. meet the criteria for application of the operating ratio methodology?

Recommendation:

Yes. AUI meets the requirement for application of the operating ratio methodology for calculating 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 SARC.

With respect to AUI, staff has recommended a rate base of $10,026. After removal of rate case expense, staff has calculated an O&M expense of $24,617 ($24,958 - $341). Based on staff’s recommended amounts, the Utility’s rate base is 41 percent of its adjusted O&M expense. Based on this ratio, the Utility qualifies for application of the operating ratio methodology.

Issue 9:

What is the appropriate revenue requirement for A Utility Inc.?

Recommendation:

The appropriate revenue requirement for AUI is $30,196, resulting in an annual increase of $8,588 (39.75 percent). (Richards)

Staff Analysis:

AUI should be allowed an annual increase of $8,588 (39.75 percent). This should allow the Utility the opportunity to recover expenses and earn an operating margin of 12 percent. The calculations are shown below in Table 9-1.

Table 9-1

Water Revenue Requirement

Adjusted O&M Expense	$24,617
Operating Margin (%)	12.00%
Operating Margin ($)	$2,954
Water O&M Expense	24,958
Depreciation Expense	433
Taxes Other Than Income	1,851
Revenue Requirement	$30,196
Less Test Year Revenues	$21,608
Annual Increase	$8,588
Percent Increase	39.75%

Source: Staff calculations.

Issue 10:

What are the appropriate rate structure and rates for A Utility Inc.?

Recommendation:

Staff recommends a monthly flat rate for residential service of $21.33 per month as shown on Schedule No. 4. The Utility should file a revised tariff sheet and a proposed customer notice to reflect the Commission-approved rate. The approved rate should be effective for service rendered or connections made on or after the stamped approval date on the tariff sheet provided customers have received notice pursuant to Rule 25-30.475, F.A.C. The Utility should provide proof of noticing within 10 days of rendering its approved notice. (Hudson)

Staff Analysis:

AUI is located in Pasco County and currently provides water service to 118 residential and no general service customers. The Utility’s current rate structure for residential customers consists of a monthly flat rate of $15.26. AUI currently does not have any meters to measure water usage. In this proceeding, the Utility has not proposed to install any meters. The Commission’s preferred rate structure is a base facility and gallonage charge rate structure. The conversion from flat to metered rates would include the Utility earning a return on the meter investment as well as additional billing costs. At this time, the Utility does not have any issues in terms of its permitted withdrawal and a need for conservation-oriented rates. Thus, staff does not believe it would be cost effective to require AUI to install meters and bill based on metered water usage. Therefore, staff recommends a continuation of the Utility’s current flat rate structure is appropriate. As a result, staff’s recommended increase of 39.75 percent should be applied to the existing monthly flat rate.

Based on the above, staff recommends a monthly flat rate for residential service of $21.33 per month as shown on Schedule No. 4. The Utility should file a revised tariff sheet and a proposed customer notice to reflect the Commission-approved rate. The approved rate should be effective for service rendered or connections made on or after the stamped approval date on the tariff sheet provided customers have received notice pursuant to Rule 25-30.475, F.A.C. The Utility should provide proof of noticing within 10 days of rendering its approved notice.

Issue 11:

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. AUI should be required to file revised tariffs and a proposed customer notice setting forth the lower rates and rationale no later than one month prior to the effective date of the new rates. If the Utility files revised tariffs reflecting this reduction in conjunction with a price index or pass-through rate adjustment, separate data should be filed for the price index and/or pass-through increase and the reduction in the rates due to the amortized rate case expense. (Richards, Hudson)

Staff Analysis:

Section 367.081(8), F.S., requires that the rates be reduced by the amount of the rate case expense previously included in rates immediately following the expiration of the recovery period. With respect to AUI, 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 $357.

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. 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. AUI should be required to file revised tariffs and a proposed customer notice setting forth the lower rates and rationale no later than one month prior to the effective date of the new rates. If the Utility files revised tariffs reflecting this reduction in conjunction with a price index, or pass-through rate adjustment, separate data should be filed for the price index and/or pass-through increase and the reduction in the rates due to the amortized rate case expense.

Issue 12:

What are the appropriate miscellaneous service charges for A Utility Inc.?

Recommendation:

The appropriate miscellaneous service charges are shown on Table 12-2 and should be approved. The Utility should file revised tariff sheets to reflect the Commission-approved charges. The approved charges 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. AUI should be required to charge the approved miscellaneous service charges until authorized to change them by the Commission in a subsequent proceeding. (Hudson)

Staff Analysis:

Section 367.091, F.S., authorizes the Commission to establish miscellaneous service charges. The purpose of these charges is to place the burden for requesting or causing these services on the cost causer rather than the general body of ratepayers.

Violation Reconnection Charges

The Utility requested a violation reconnection charge. Pursuant to Rule 25-30.460, F.A.C., a violation reconnection charge is levied prior to reconnection of an existing customer after discontinuance of service for cause according to subsection 25-30.320(2), F.A.C. AUI does not have any on-site personnel to perform disconnections. Therefore, a third-party vendor, MCL Environmental Services, LLC, which is also the contract operator, will be used for this function. The third-party vendor estimates $85 for disconnection and $70 for reconnection, or a total of $155. AUI customers are not metered. As a result, disconnections and reconnections are labor intensive, which involves digging up lines in order to cap and re-digging up lines to restore service. Staff believes the proposed disconnection and reconnection charges are reasonable.

Late Payment Charge

Currently, AUI does not have a late payment charge. A late payment charge recovers administrative and supply cost for processing late payment notices. Historically, the Commission has allowed 15 minutes for processing late payment notices, actual cost of postage which is currently $0.60, and supplies of $0.15. Based on the salary of the Utility personnel who processes late notices, the labor component of the late payment charge is $3.50 ($14.00 hr x .25 hr). This results in a late payment charge of $4.45. The cost for the late payment charge is shown below on Table 12-1.

Table 12-1

Late Payment Cost Justification

Labor	$3.50
Supplies/Postage	$.75
Mark Up for RAFs	.20
Total Calculated Charge	$4.45

Source: Staff’s Calculation

Nonsufficient Funds Charges (NSF)

The Utility requested NSF charges pursuant to Section 68.065, F.S. Staff believes that AUI should be authorized to collect NSF charges consistent with Section 68.065, F.S., which allows for the assessment of charges for the collection of worthless checks, drafts, or orders of payment. As currently set forth in Section 68.065(2), F.S., the following NSF charges may be assessed:

1) $25, if the face value does not exceed $50,

2) $30, if the face value exceeds $50 but does not exceed $300,

3) $40, if the face value exceeds $300,

4) or 5 percent of the face amount of the check, whichever is greater.

Staff’s recommended miscellaneous service charges are shown in Table 12-2.

Table 12-2

Staff Recommended Miscellaneous Service Charges


Violation Reconnection Charge - Disconnect	$85.00
Violation Reconnection Charge - Reconnection	$70.00
Late Payment Charge	$4.45
NSF Charges	Pursuant to Section 68.065(2), F.S.

The appropriate miscellaneous service charges are shown above and should be approved. The Utility should file revised tariff sheets and a proposed customer notice to reflect the Commission-approved charges. The approved charges 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. AUI should be required to charge the approved miscellaneous service charges until authorized to change them by the Commission in a subsequent proceeding.

Issue 13:

Should the recommended rates be approved for A Utility Inc., on a temporary basis, subject to refund with interest, 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. AUI should file revised tariff sheets and a proposed customer notice reflecting the Commission-approved rates. The approved rates should be effective for services 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. Further, prior to implementing any temporary rates, the utility should provide appropriate financial 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 both the current monthly and total amount 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)

Staff Analysis:

This recommendation proposes an increase in rates. A timely protest might delay a 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 proposed rates be approved on a temporary basis. AUI should file revised tariff sheets and a proposed customer notice reflecting 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 it has been received by the customers. The additional revenue produced by staff’s recommended rates and collected by the Utility should be subject to the refund provisions discussed below.

AUI should be authorized to initiate the temporary rates upon staff’s approval of an appropriate security for the potential refund and cost of the proposed customer notice. Security should be in the form of either a bond or letter of credit in the amount of $5,862. Alternatively, the Utility may establish an escrow agreement with an independent financial institution.

If the Utility chooses a bond for securing the potential refund, 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 for securing the potential refund, the letter of credit 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 14:

Should A Utility Inc. 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 National Association of Regulatory Utility Commissioners (NARUC) Uniform System of Accounts?

Recommendation:

Yes. AUI should be required to notify the Commission, in writing, that it has adjusted its books in accordance with the Commission’s decision. AUI should submit a letter within 90 days of the Commission’s 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, a notice providing good cause should be filed not less than seven days prior to the deadline. Upon providing a notice of good cause, staff should be given administrative authority to grant an extension of up to 60 days. (Richards)

Staff Analysis:

AUI should be required to notify the Commission, in writing, that it has adjusted its books in accordance with the Commission’s decision. AUI should submit a letter within 90 days of the Commission’s 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, a notice providing good cause should be filed not less than seven days prior to the deadline. Upon providing a notice of good cause, staff should be given administrative authority to grant an extension of up to 60 days.

Issue 15:

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. The docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the Utility and approved by staff. Once these actions are complete, this docket should be closed administratively. (Imig)

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. The docket should remain open for staff’s verification that the revised tariff sheets and customer notice have been filed by the Utility and approved by staff. Once these actions are complete, this docket should be closed administratively.

[1] Order No. 6020, issued February 4, 1974, in Docket No. 1974037-W, In re: Application of John W. Beeman for a certificate to operate a water utility in Pasco County, Florida; Order No. 6998, issued November 14, 1975, in Docket No. 1974544-W, In re: Application for transfer of water utility d/b/a Tropical Utilities and Certificate No. 165-W from John W. Beeman to Fisher Ames and his wife, Helen Ames, in Pasco County, Florida; Order No. 10151, issued July 21, 1981, in Docket No. 19800253-W, In re: Application for the transfer of Certificate No. 165-W from Fisher Ames and His Wife, Helen Ames, to Dale Hendryx, in Pasco County; Order No. 11946, issued May 19, 1983, in Docket No. 19830048-W, In re: Application for transfer of Certificate No. 165-W from Dale Hendryx to Barbara Cobb in Pasco County, Florida; Order No. 19163, issued April 18, 1988, in Docket No. 19871156-WU, In re: Application for transfer of Certificate No. 165-W from Melvin Cobb to Allen LaFortune and Otis Fonder (Tropical Park Water System) in Pasco County.

[2] Order No. 21652, issued August 2, 1989, in Docket No. 19881601-WU, In re: Application of Allen LaFortune and Otis Fonder for a staff-assisted rate case in Pasco County.

[3] Order No. PSC-2021-0183-PAA-WU, issued May 20, 2021, in Docket No. 20170114-WU, In re: Application for transfer of facilities and water Certificate No. 165-W in Pasco County from Allen LaFortune and Otis Fonder to A Utility Inc.

[4] Document No. 03342-2022, filed June 2, 2022.

[5] Order No. PSC-2022-0208-PAA-WS, issued June 15, 2022, in Docket No. 20220006-WS, In re: Water and wastewater industry annual reestablishment of authorized rate of return on common equity for water and wastewater utilities pursuant to Section 367.081(4)(f), F.S.

[6] Document No. 11370-2022, filed November 16, 2022.

[7] Document No. 03343-2022, filed June 2, 2022.

[8] Document No. 00041-2022, filed January 4, 2022.

[9] Document No. 06273-2022, filed September 13, 2022.

[10] Order No. PSC-2013-0646-PAA-WU, issued December 5, 2013, in Docket No. 20130025-WU, In re: Application for increase in water rates in Highlands County by Placid Lakes Utilities, Inc.

[11] https://www.irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022.

[12] Document No. 07094-2021, filed June 28, 2021.

[13] Order No. PSC-2018-0552-PAA-WU, issued November 19, 2018, in Docket No. 20180022-WU, In re: Application for staff-assisted rate case in Lake County by Pine Harbour Waterworks, Inc.; Order No. PSC-2018-0553-PAA-WU, issued November 19, 2018, in Docket No. 20180021-WU, In re: Application for staff-assisted rate case in Highlands County by Country Walk Utilities, Inc.; Order No. PSC-2017-0334-PAA-WS, issued August 23, 2017, in Docket No. 20160222-WS, In re: Application for staff-assisted rate case in Highlands County by LP Waterworks, Inc.

State of Florida		Public Service Commission Capital Circle Office Center ● 2540 Shumard Oak Boulevard Tallahassee, Florida 32399-0850 -M-E-M-O-R-A-N-D-U-M-
DATE:	January 27, 2023
TO:	Office of Commission Clerk (Teitzman)
FROM:	Division of Engineering (Knoblauch, Ramos) Division of Accounting and Finance (Higgins, Mouring, Richards) Division of Economics (Hudson) Office of the General Counsel (Imig, Trierweiler)
RE:	Docket No. 20210098-WU – Application for staff-assisted rate case in Pasco County by A Utility Inc.
AGENDA:	02/08/23 – Regular Agenda – Proposed Agency Action Except for Issue Nos. 11, 13, and 14 - Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Graham
CRITICAL DATES:			07/12/2023 (15-Month Effective Date (SARC))
SPECIAL INSTRUCTIONS:			None

	A UTILITY INC.	SCHEDULE NO. 1-A
	TEST YEAR ENDED 12/31/2020	DOCKET NO. 20210098-WU
	SCHEDULE OF WATER RATE BASE
		BALANCE		BALANCE
		PER	STAFF	PER
	DESCRIPTION	UTILITY	ADJUST.	STAFF

1.	UTILITY PLANT IN SERVICE	$97,700	($43,107)	$54,593

2.	LAND & LAND RIGHTS	19,300	(18,300)	1,000

3.	ACCUMULATED DEPRECIATION	(15,267)	(33,378)	(48,645)

4.	CIAC	0	(26,625)	(26,625)

5.	ACCUMULATED AMORTIZATION OF CIAC	0	26,625	26,625

6.	ACQUISITION ADJUSTMENT	0	0	0

7.	WORKING CAPITAL ALLOWANCE	$0	$3,077	$3,077

8.	WATER RATE BASE	$101,733	($91,707)	$10,026

	A UTILITY INC.	SCHEDULE NO. 1-B
	TEST YEAR ENDED 12/31/2020	DOCKET NO. 20210098-WU
	ADJUSTMENTS TO RATE BASE

			WATER
	UTILITY PLANT IN SERVICE
	To reflect Commission-ordered adjustments.		($43,107)

	LAND & LAND RIGHTS
	To reflect an audit adjustment.		($18,300)

	ACCUMULATED DEPRECIATION
1.	To reflect audit adjustments.		($33,692)
2.	To reflect an averaging adjustment.		$315
	Total		($33,378)

	CIAC
	To reflect an audit adjustment.		($26,625)

	ACCUMULATED AMORTIZATION OF CIAC
	To reflect an audit adjustment.		$26,625

	WORKING CAPITAL ALLOWANCE
	To reflect 1/8 of test year O&M expenses.		$3,077

	A UTILITY INC.				SCHEDULE NO. 2
	TEST YEAR ENDED 12/31/2020				DOCKET NO. 20210098-WU
	SCHEDULE OF CAPITAL STRUCTURE
			SPECIFIC	PRO RATA	BALANCE	PERCENT
		PER	ADJUST-	ADJUST-	PER	OF		WEIGHTED
	CAPITAL COMPONENT	UTILITY	MENTS	MENTS	STAFF	TOTAL	COST	COST

1.	LONG-TERM DEBT	$118,000	$0	($107,974)	$10,026	100.00%	9.95%	9.95%
2.	SHORT-TERM DEBT	0	0	0	0	0.00%	0.00%	0.00%
3.	COMMON EQUITY	0	0	0	0	0.00%	10.45%	0.00%
4.	CUSTOMER DEPOSITS	0	0	0	0	0.00%	2.00%	0.00%
5.	DEFERRED INCOME TAXES	0	0	0	0	0.00%	0.00%	0.00%
	TOTAL CAPITAL	$118,000	$0	($107,974)	$10,026	100.00%		9.95%

				RANGE OF REASONABLENESS			LOW	HIGH
				RETURN ON EQUITY			9.45%	11.45%
				OVERALL RATE OF RETURN			9.95%	9.95%

	A UTILITY INC.			SCHEDULE NO. 3-A
	TEST YEAR ENDED 12/31/2020			DOCKET NO. 20210098-WU
	SCHEDULE OF WATER OPERATING INCOME
		TEST	STAFF	STAFF	ADJUST
		YEAR PER	ADJUST-	ADJUSTED	FOR	REVENUE
		UTILITY	MENTS	TEST YEAR	INCREASE	REQUIREMENT

1.	TOTAL OPERATING REVENUES	$20,722	$886	$21,608	$8,588	$30,196
					39.75%

	OPERATING EXPENSES:
2.	OPERATION & MAINTENANCE	$7,658	$17,300	$24,958	$0	$24,958

3.	DEPRECIATION (NET)	3,818	(3,385)	433	0	433

4.	AMORTIZATION	0	0	0	0	0

5.	TAXES OTHER THAN INCOME	1,138	326	1,464	386	1,851

6.	INCOME TAXES	0	0	0	0	0

	TOTAL OPERATING EXPENSES	$12,614	$14,241	$26,856	$386	$27,242

7.	OPERATING INCOME / (LOSS)	$8,108		($5,248)		$2,954

8.	WATER RATE BASE	$101,733				$10,026

9.	OPERATING MARGIN					12.00%

	A UTILITY INC.	SCHEDULE NO. 3-B
	TEST YEAR ENDED 12/31/2020	DOCKET NO. 20210098-WU
	ADJUSTMENTS TO OPERATING INCOME	PAGE 1 OF 2
		WATER
	OPERATING REVENUES
1.	To reflect an auditing adjustment to Service Revenues.	$136
2.	To reflect the appropriate test year Service Revenues.	750
	Total	$886

	OPERATION AND MAINTENANCE EXPENSE
1.	Salaries and Wages - Employees (601)
	To reflect 2021 salaries per DR No. 2.	$3,874

2.	Purchased Power (615)
	To reflect annual amount per DR No. 1.	$772

3.	Chemicals Expense (618)
	To reflect 2021 chlorine expenses per DR No. 1.	$95

4.	Materials and Supplies (620)
	To reflect an auditing adjustment.	($76)

5.	Contractual Services - Professional (631)
	To reflect 2021 operating fees per DR No. 1.	$1,876

6.	Contractual Services - Accounting (632)
	To reflect estimate provided in DR No. 2.	$3,900

7.	Contractual Services - Testing (635)
	To reflect 2021 testing per DR No. 1.	$3,529

8.	Contractual Services - Other (636)
	To reflect lawn maintenance bid per DR No. 2.	$1,440

9.	Transportation Expense (650)
	To reflect 2022 IRS travel expense for 1,200 annual miles per DR No. 2.	$750

10.	Rate Case Expense (665)
	To reflect 1/4 rate case expense.	$341

A UTILITY INC.		SCHEDULE NO. 3-C
TEST YEAR ENDED 12/31/2020		DOCKET NO. 20210098-WU
ANALYSIS OF WATER O&M EXPENSE
		TOTAL	STAFF	TOTAL
		PER	ADJUST-	PER
ACCT. #	DESCRIPTION	UTILITY	MENT	STAFF

601	Salaries and Wages - Employees	$0	$3,874	$3,874
615	Purchased Power	401	772	1,173
618	Chemicals	84	95	179
620	Materials and Supplies	3,723	(76)	3,647
631	Contractual Services - Professional	3,450	1,876	5,326
632	Contractual Services - Accounting	0	3,900	3,900
635	Contractual Services - Testing	0	3,529	3,529
636	Contractual Services - Other	0	1,440	1,440
650	Transportation Expense	0	750	750
665	Rate Case Expense	0	341	341
670	Bad Debt Expense	0	216	216
675	Miscellaneous Expenses	0	583	583

	Total O&M Expense	$7,658	$17,300	$24,958

	Working Capital is 1/8 of O&M Less RCE			$3,077

A UTILITY INC.	DOCKET NO. 20210098-WU
MONTHLY WATER RATES			SCHEDULE NO. 4

		STAFF	FOUR-YEAR
	EXISTING	RECOMMENDED	RATE
	RATES	RATES	REDUCTION

Residential

Flat Rate	$15.26	$21.33	$0.25