Discussion
of Issues
Issue 1:
Is the quality of service provided by LP
satisfactory?
Recommendation:
Yes. LP has been responsive to customer complaints
and is currently in compliance with the Department of Environmental Protection
(DEP) standards; therefore, the quality of service should be considered
satisfactory. (P. Buys)
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 LP’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
comprehensive chemical analysis was performed on November 29, 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. During this time period, there were nine customer
complaints filed in CATS, which were regarding billing and quality of service.
These complaints addressed items such as poor water taste and poor customer
service. There was one complaint received by the DEP stating the water was not
properly chlorinated. However, DEP staff visited the facility and tested the
chlorine residual and found it to be within the appropriate range.
Over the
past five years, the utility received 22 complaints associated with service
interruptions, 8 complaints regarding pressure issues, and 7 complaints
addressing water quality. Several of the service interruption complaints were
due to outages the system experienced following Hurricane Irma and the
remaining complaints were related to issues such as water main breaks or
disconnections due to non-payment. Customer complaints regarding water quality
included reports of odor or cloudy water. All complaints were resolved by the utility.
Staff notes that customer complaints have been decreasing over the past five
years.
A virtual customer meeting was held on November 15, 2022.
No customers spoke at the customer meeting. Staff performed a supplemental
review of the complaints filed in CATS following the customer meeting and found
no additional complaints. Four written comments were submitted, three regarding
billing and one regarding service quality.
Conclusion
LP has been responsive to customer complaints and 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
LP's water system in compliance with DEP regulations?
Recommendation:
Yes. LP’s water system is currently in compliance
with the DEP regulations. (P. Buys)
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
LP’s water
system has two wells; one well is rated at 300 gallons per minute (gpm) and the
other well is rated at 280 gpm. Staff reviewed the November 19, 2020, sanitary
survey conducted by the DEP to determine the utility’s overall water facility
compliance. The DEP found no deficiencies or violations, and the system was
determined to be in compliance.
Conclusion
LP’s water system
is currently in compliance with the DEP regulations.
Issue 3:
What are the used and useful (U&U) percentages
for LP’s water treatment plant (WTP) and water distribution system?
Recommendation:
LP’s water treatment plant (WTP) and water
distribution system should be considered 100 percent U&U. Additionally,
there is 12.2 percent excessive unaccounted for water (EUW); therefore, staff
recommends a 12.2 percent adjustment be made to operating expenses for
chemicals and purchased power. (P. Buys)
Staff Analysis:
LP’s water treatment system
has two wells. One well is rated at 300 gpm and the second well is rated at 280
gpm. The utility’s water system has two hydropneumatic storage tanks totaling
22,000 gallons in capacity. The distribution system is comprised of varying
sizes of polyvinyl chloride pipes.
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. LP’s U&U percentages were last
determined in Docket No. 20160222-WS, and the Commission found the 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. A review of the utility's
Monthly Operating Reports, 2021 Annual Report, and audited billing data
indicate that LP treated 12,522,000 gallons and sold 6,929,000 gallons with
236,950 gallons used for flushing and 2,580,000 gallons recorded for water main
breaks during the test year. The resulting calculation ([12,522,000 – 6,929,000
- 236,950 - 2,580,000]/12,522,000) for unaccounted for water is 22.2 percent;
therefore, there is 12.2 percent EUW.
Conclusion
LP’s WTP and water distribution system should be
considered 100 percent U&U. Additionally, there is 12.2 percent EUW; therefore,
staff recommends a 12.2 percent adjustment be made to operating expenses for
chemicals and purchased power.
Issue 4:
What is the appropriate average test year rate base
for LP?
Recommendation:
The appropriate average test year rate base for LP
is $176,001 for the water system. (Sewards, P. Buys)
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, 2021, for the instant 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 the recommended adjustments are discussed below.
Utility Plant in Service
The utility recorded UPIS of $664,237 for its water
system. There were auditing adjustments increasing UPIS by a net amount of $1,912
to reflect unrecorded retirements and to capitalize an item that was expensed.
In order to reflect the test year beginning and ending UPIS average balance,
staff made an adjustment decreasing UPIS by $16,328.
Pro
Forma Plant Additions
The utility requested one pro
forma item be included in rate base. The utility replaced the generator
controller at the water treatment plant due to a high voltage issue. The paid
invoice for this project shows a cost of $3,174. As shown in Table 4-1, staff
made a net adjustment increasing UPIS by $794 for water pro forma plant
additions.
As is Commission practice, staff
requested that three bids be provided for the pro forma project. However, due
to the time-sensitive nature of this repair, the utility did not obtain three
bids. The new G series conversion on the transfer switch was replaced due to a
high voltage issue. This repair was necessary to ensure the generator remained
functional in the event of a power loss.
The replacement of the generator controller at the water treatment plant
was necessary for the utility to provide safe and reliable service to its
customers. Staff reviewed the paid invoice provided by the utility and
recommends that the cost for this project is appropriate.
Table 4-1
Pro Forma Plant Addition
|
Project
|
Acct.
No.
|
Description
|
Amount
|
|
Water
|
|
Generator Controller
|
310
|
Installed and programed new G series conversion.
|
$3,174
|
|
|
|
Associated Retirement
|
($2,381)
|
|
Net Adjustment
|
|
$794
|
Source: Document No. 05055-2022.
Based on the above, staff increased UPIS by $3,174 to
reflect pro forma additions, offset by a decrease of $2,381 for pro forma
retirements.
As described above and summarized in Table 4-2 below,
staff’s adjustments to UPIS result in a decrease of $13,622. Thus, staff
recommends an average UPIS balance of $650,615 ($664,237 - $13,622) for the
water system.
Table 4-2
Staff Adjustments to UPIS
|
Description
|
Adjustment
|
|
To reflect auditing adjustments.
|
$1,912
|
|
To reflect an averaging adjustment.
|
(16,328)
|
|
To reflect pro forma additions.
|
3,174
|
|
To reflect pro forma retirements.
|
(2,381)
|
|
Total adjustment to UPIS.
|
($13,622)
|
Land and Land Rights
The utility recorded a land and land rights balance of
$27,412 for its water system. Staff made no adjustments to this account, and therefore
recommends a land and land rights balance of $27,412 for the water system.
Accumulated Depreciation
The utility recorded an accumulated depreciation balance
of $460,542 for its water system. Staff made auditing adjustments increasing
accumulated depreciation by $21,358 to reflect unrecorded retirements and to
capitalize an item that was expensed. In order to reflect the test year
beginning and ending accumulated average balance, staff decreased accumulated
depreciation by $19,329. Staff also made an adjustment decreasing accumulated
depreciation by $2,334 to reflect pro forma adjustments.
As described above and summarized in Table 4-3 below,
staff’s adjustments to accumulated depreciation result in a decrease of $305. As
such, staff recommends an average accumulated depreciation balance of $460,237
($460,542 - $305) for the water system.
Table 4-3
Staff Adjustments to
Accumulated Depreciation
|
Description
|
Adjustment
|
|
To reflect auditing adjustments.
|
($21,358)
|
|
To reflect an averaging adjustment.
|
19,329
|
|
To reflect pro forma adjustments.
|
2,334
|
|
Total adjustment to accumulated depreciation.
|
$305
|
Contributions in Aid of Construction
The utility recorded a CIAC balance of $268,967 for its water
system. In order to reflect the test year beginning and ending accumulated
average balance, staff decreased CIAC by $125. Thus, staff recommends an
average CIAC balance of $268,842 ($268,967 - $125) for the water system.
Accumulated Amortization of CIAC
The utility recorded an accumulated amortization of CIAC
balance of $215,860 for its water system. Using the correct composite rates to
calculate amortization expense staff made auditing adjustments decreasing
accumulated amortization of CIAC by $312. In order to reflect the test year
beginning and ending accumulated average balance, staff decreased accumulated amortization
of CIAC by $3,954. Staff’s adjustments to accumulated amortization of CIAC
result in a decrease of $4,266. As such, staff recommends an average
accumulated amortization of CIAC balance of $211,595 ($215,860 - $4,266) for the
water system.
Working Capital Allowance
The utility recorded a working capital balance of $15,221
for its water system. 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 rate case expense
balance of $698. This resulted in an adjusted O&M expense balance of $123,669
($124,367 - $698). Applying this formula, staff recommends a working capital
allowance of $15,459 ($123,669/8) for the water system. Thus, staff recommends
working capital allowance should be increased by $238 ($15,459 - $15,221).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base is $176,001 for the water system. 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 LP?
Recommendation:
The appropriate return on equity (ROE) is 7.84
percent with a range of 6.84 percent to 8.84 percent. The appropriate overall
rate of return is 7.33 percent. (Sewards)
Staff Analysis:
The utility’s reported
capital structure consists of $200,588 in common equity and $19,094 in customer
deposits. The utility has no debt. Staff recommends no test year adjustments are
necessary. The utility’s capital structure has been reconciled with staff’s
recommended rate base. The appropriate ROE is 7.84 percent based upon the Commission-approved
leverage formula currently in effect.
Staff recommends an ROE of 7.84 percent, with a range of 6.84 percent to 8.84
percent, and an overall rate of return of 7.33 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate test year revenues for LP’s
water system?
Recommendation:
The appropriate test year revenues for LP’s water
system are $122,343. (Bruce)
Staff Analysis:
LP recorded test year revenues of $133,280. The
water revenues included $128,056 of service revenues and $5,224 of
miscellaneous revenues. Staff annualized service revenues by applying the
number of billing determinants to the utility’s existing rates, which became
effective September 22, 2021. As a result, staff determined that service
revenues should be $117,062, which is a decrease of $10,994 ($128,056 -
$117,062). Using the number of occurrences and the approved miscellaneous
service charges, staff determined that miscellaneous revenues should be $5,281,
which is an increase of $57 ($5,281 - 1,224). Based on the above, the
appropriate test year revenues for LP’s water system, including miscellaneous
revenues are $122,343 ($117,062 + $5,281).
Issue 7:
What is the appropriate amount of operating expense
for LP?
Recommendation:
The appropriate amount of operating expense for LP
is $151,509 for its water system. (Sewards, P. Buys)
Staff Analysis:
The utility recorded operating expense of $149,439
for its water system. 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
Purchased Power (615)
The utility recorded a purchased power expense of $2,406 for
its water system. Staff made an auditing adjustment to increase purchased power
expense by $132 based on the calculation of actual power bills. Additionally,
as discussed in Issue 3, staff has recommended a 12.2 percent reduction to
purchased power expense to reflect EUW. As such, staff made an adjustment to
reduce purchased power expense by $310. Staff’s adjustments result in a net
decrease of $178. Therefore, staff recommends a purchased power expense of
$2,228 ($2,406 - $178) for the water system.
Chemicals (618)
The utility did not record any chemicals expense for its
water system as it did not purchase chemicals in the test year. To correct this
error, LP requested a pro forma increase to chemicals expense of $1,000.
Additionally, as discussed in Issue 3, staff has recommended a 12.2 percent
reduction to chemicals expense to reflect EUW. As such, staff made an
adjustment to reduce chemicals expense by $122. Thus, staff recommends a
chemicals expense of $878 ($1,000 - $122) for the water system.
Rental Expense (640)
The utility recorded a rental expense of $855 for its
water system. Staff made an auditing adjustment to reclassify the rental
expense as a miscellaneous expense. As such, staff recommends a rental expense
of $0 for the water system.
Insurance Expense (655)
The utility recorded an insurance expense of $878 for its
water system. Staff made an auditing adjustment to increase insurance expense
by $75 based on the actual bill amount. Therefore, staff recommends an
insurance expense of $953 ($878 + $75) for the water system.
Rate Case Expense (665)
The utility recorded a rate case expense of $619. 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 $1,322. Staff calculated the distance from the utility to
Tallahassee as 215 miles. Based on the 2022 IRS business mileage rate of
$0.625, staff calculated a round-trip travel expense to the Commission
Conference and back, as well as one night of lodging to be $469. Staff
calculated a total amount of noticing costs and travel expense of $1,790
($1,322 + $469). Additionally, the utility paid a filing fee of $1,000. Staff
recommends total rate case expense of $2,790 ($1,790 + $1,000), which amortized
over four years is $698 ($2,790 ÷ 4 years); Thus, staff recommends an increase
to rate case expense of $79 and an annual rate case expense of $698 ($619 +
$79) for the water system.
Miscellaneous Expenses (675)
The utility recorded miscellaneous expenses of $863. As
discussed above, staff made an auditing adjustment to reclassify $855 recorded
in rental expense as a miscellaneous expense. LP requested a pro forma increase
of $1,127 to account for emergency monitoring system services. As such, staff
recommends miscellaneous expenses of $2,845 ($863 + $1,127 + $855) for the
water system.
Operation and Maintenance Expense Summary
The utility recorded test year O&M expenses of
$122,386 for its water system. Based on the above adjustments, staff recommends
the O&M expense be increased by $1,981. This results in total O&M
expenses of $124,367 ($122,386 + $1,981) for the water system. Staff’s
recommended adjustments to O&M expenses are shown on Schedule 3-C.
Depreciation Expense (Net of Amortization of
CIAC)
The utility recorded net depreciation expense of $12,015
($20,233 depreciation expense less $8,218 CIAC amortization expense) for its
water system. Using the depreciation rates prescribed in Rule 25-30.140,
F.A.C., staff increased depreciation expense for water by $47 to reflect the
incremental depreciation expense associated with pro forma investments. LP
recorded CIAC amortization expense of $8,218. Using the correct composite
rates, staff made an auditing adjustment to increase CIAC amortization expense
by $1,626. As such, staff recommends CIAC amortization expense of $9,844
($8,218 + $1,626) for the water system. Therefore, staff recommends net
depreciation expense of $10,436 ($20,233 + $47 – 9,844) for the water system.
Amortization Expense
The utility recorded amortization expense of $4,299 for a
non-recurring expense related to sandblasting and painting of a hydro tank
completed in January, 2019. LP provided an invoice supporting the expense.
According to the provided invoice, the total cost was $21,494. Rule
25-30.433(9), F.A.C., requires that non-recurring expenses be amortized over a
five-year period unless a shorter or longer period of time can be justified.
Staff verified one year of amortization expense to be $4,299 ($21,494/5).
Additionally, a five-year period will not expire until 2024. Therefore, staff
recommends an amortization expense of $4,299 for the water system.
Taxes Other Than Income (TOTI)
The utility recorded TOTI of $10,739 for its water system.
Staff made auditing adjustments to decrease TOTI by $222 to reflect the proper
amount of property taxes, as well as Regulatory Assessment Fees (RAFs) based on
the auditor’s test year revenues. Staff further decreased TOTI by $12 to
reflect the RAFs based on corrected utility test year revenues. Staff increased
TOTI by $10 to reflect property taxes associated with pro forma additions. As
discussed in Issue 9, staff recommends revenues be increased by $42,071 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 $1,893 to reflect RAFs of 4.5 percent of the change in revenues. As
such, staff recommends TOTI of $12,408 ($10,739 - $222 - $12 + $10 + $1,893)
for the water system.
Operating Expenses Summary
The utility recorded operating expenses of $149,439 for
its water system. The application of staff’s recommended adjustments to the utility’s
operating expenses result in a total operating expense of $151,509. Operating
expenses are shown on Schedule No. 3-A, and the related adjustments are shown
on Schedule No. 3-B.
Issue 8:
Does LP meet the criteria for the application of the
Operating Ratio Methodology?
Recommendation:
No. LP does not meet the requirement for application
of the Operating Ratio Methodology for calculating the revenue requirement.
(Sewards)
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 and the use
of the Operating Ratio Methodology does not change the utility’s qualification
for a SARC.
Under the Operating Ratio Methodology, instead of
calculating the utility’s revenue requirement based on a rate of return on rate
base, the revenue requirement is calculated using a margin of 12 percent of
O&M expenses, not to exceed $15,000. Purchased water and wastewater
expenses, if any, must be removed from O&M expense prior to calculating the
margin of 12 percent.
With respect to LP, staff has recommended a rate base of
$176,001 for the water system (Issue 4). Staff has also calculated an O&M
expense of $124,367 (Issue 7). Based on staff’s recommended amounts, the utility’s
rate base is 142 percent of its O&M expense for its water system. Based on
the above, the utility does not qualify for application of the Operating Ratio
Methodology.
Issue 9:
What is the appropriate revenue requirement for LP's
water system?
Recommendation:
The appropriate revenue requirement is $164,414 for
the water system, resulting in an annual increase of $42,071 (34.39 percent). (Sewards)
Staff Analysis:
LP should be allowed an annual increase of $42,071
(34.39 percent) for its water system. This should allow the utility the
opportunity to recover its expenses and earn a 7.33 percent return on rate
base. The calculations for the water system are shown in Table 8-1.
Table 8-1
Water Revenue Requirement
|
Water Rate Base
|
$176,001
|
|
Rate of Return
|
7.33%
|
|
Return on Rate Base
|
$12,905
|
|
Water O&M Expense
|
$124,367
|
|
Depreciation Expense
|
$10,436
|
|
Amortization Expense
|
$4,299
|
|
Taxes Other Than Income
|
$12,408
|
|
Revenue Requirement
|
$164,414
|
|
Less Test Year Revenues
|
$122,343
|
|
Annual Increase
|
$42,071
|
|
Percent Increase
|
34.39%
|
Source: Staff
calculations.
Issue 10:
What are the appropriate rate structure and rates
for LP'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. (Bruce)
Staff Analysis:
LP is located in Highlands County within the SWFWMD.
The utility provides water service to approximately 425 residential customers,
2 fire flow customers, and 21 general service customers. Approximately 51
percent of the residential customer bills had zero gallons indicating a very
seasonal customer base. The average water demand is 1,100 gallons per month.
The average water demand excluding zero gallon bills is 2,266 gallons per
month. Currently, the utility’s residential water rate structure consists of a
base facility charge (BFC) and a two-tier inclining block rate structure. The
rate blocks are: (1) 0-3,000 gallons and (2) all usage in excess of 3,000
gallons per month. The general service rate consists of a BFC and uniform
gallonage charge. Moreover, the utility’s private fire protection service rates
are based on one-twelfth of the utility’s BFC for each meter size pursuant to
Rule 25-30.465, F.A.C.
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.
As mentioned above, the customer base is very
seasonal coupled with low average consumption. The utility’s current BFC
allocation is 52 percent, which is typical for a seasonal customer base. In
this case, the utility has experienced a significant decrease in consumption
and staff believes it is appropriate to have more of the cost recovery in the
BFC. For this reason, staff recommends that 60 percent of the revenue
requirement be recovered through the BFC in an effort to provide revenue
stability for this utility. Furthermore, the average people per household
served by the water system is 2; therefore, based on the number of people per
household, 50 gallons per day per person, and the number of days per month the
discretionary usage threshold should be 3,000 gallons per month.
Staff’s review of the billing data indicate that discretionary usage above
3,000 gallons represents 7 percent of the bills, which accounts for
approximately 37 percent of the water demand. This is an indication that there
is a significant amount of discretionary usage above 3,000 gallons.
For this case, staff recommends a continuation of the
utility’s current rate structure, which includes separate gallonage charges for
discretionary and non-discretionary usage for residential water customers. The
rate blocks are: (1) 0-3,000 gallons and (2) all usage in excess of 3,000
gallons per month. Due to the high usage above 3,000 gallons per month staff
believes that it is appropriate in this case to recommend a rate factor of 1.50
in the second tier because it will target those customers with high consumption
levels. General service customers should continue to be billed a BFC and a
gallonage charge.
Based on staff’s recommended revenue increase of 35.9
percent, which excludes miscellaneous revenues, the residential consumption can
be expected to decline by 105,000 gallons resulting in anticipated average
residential demand of 1,078 gallons per month. Staff recommends a 2.1 percent
reduction in test year gallons for ratesetting purposes. As a result, the corresponding
reductions are $34 for purchased power expense, $13 for chemical expense, and
$2 for RAFs to reflect the anticipated repression, which results in a post
repression revenue requirement of $159,084.
Issue 11:
Should LP's miscellaneous service charges be revised
to conform to amended Rule 25-30.460, F.A.C.?
Recommendation:
Yes. Staff recommends the miscellaneous
service charges for both water and wastewater 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. LP
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. (Bruce)
Staff Analysis:
Effective
June 24, 2021, Rule 25-30.460, F.A.C., was amended to remove initial connection
and normal reconnection charges.[6] The
definitions for initial connection charges and normal reconnection charges were
subsumed in the definition of the premises visit charge.
LP’s current
miscellaneous service charges consist of initial connection and normal
reconnection charges. Since the premises visit entails a broader range of
tasks, staff believes the premises visit should reflect the amount of normal
reconnection charges of $57.89 for normal hours and $65.50 for after hours.
Although this proceeding is for the water system, in order to maintain
uniformity with the miscellaneous service charges, the wastewater miscellaneous
service charges should be revised pursuant to the amended rule. Therefore,
staff recommends that the initial connection and normal reconnection charges be
removed for both water and wastewater, and the definition for the premises
visit charge be updated to comply with amended Rule 25-30.460, F.A.C. The
premises visit charge should be revised from $31.53 for normal hours and $36.70
for after hours to $57.89 for normal hours and $65.60 for after hours for both
water and wastewater. The violation reconnection will also remain at $57.89 for
normal hours and $65.60 for after hours and at actual cost for wastewater. The
utility’s current miscellaneous service charges and staff’s recommended
miscellaneous service charges are shown below in Tables 11-1 and 11-2.
Table 11-1
Utility’s Current
Miscellaneous Service Charges
|
|
Normal
Hours
|
After
Hours
|
|
Initial Connection Charge
|
$31.53
|
$36.70
|
|
Normal Reconnection Charge
|
$57.89
|
$65.60
|
|
Violation Reconnection Charge - Water
|
$57.89
|
$65.60
|
|
Violation Reconnection Charge - Wastewater
|
Actual
Cost
|
Actual
Cost
|
|
Premises Visit Charge
|
$31.53
|
$36.70
|
|
(in lieu of disconnection)
|
|
|
Table 11-2
Staff Recommended
Miscellaneous Service Charges
|
|
Normal
Hours
|
After
Hours
|
|
Violation Reconnection Charge - Water
|
$57.89
|
$65.60
|
|
Violation Reconnection Charge -Wastewater
|
Actual
Cost
|
Actual
Cost
|
|
Premises Visit Charge
|
$57.89
|
$65.60
|
Conclusion
Based on the above, staff recommends the miscellaneous
service charges for both water and wastewater 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. LP 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:
What are the appropriate initial customer deposits
for LP's water service?
Recommendation:
The appropriate initial customer deposits should be $48
for the 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. (Bruce)
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.[7] Currently, the utility’s initial deposit for
residential water is $45 for the 5/8 inch x 3/4 inch meter size and two times
the average estimated bill for all other meter sizes and all general service
meter sizes. However, this amount does not cover two months’ average bills
based on staff’s recommended rates. The utility’s average monthly residential
water usage after repression is 1,078 gallons per customer. Therefore, the average
residential monthly bill based on staff’s recommended rates is approximately
$23.94.
Staff recommends the appropriate initial customer deposits
should be $48 for the 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 services
rendered or 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.
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 regulatory assessment fees (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. LP 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. (Bruce, Sewards)
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 for water is $730.
Staff recommends that the rates 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. LP 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 LP 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. LP 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. (Sewards)
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. LP 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.
LP 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 $28,816. 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 15:
Should LP 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 (USOA)?
Recommendation:
Yes. LP should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. LP 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 as shown on Schedule No. 5 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. (Sewards)
Staff Analysis:
LP should be required to notify the Commission, in
writing, that it has adjusted its books in accordance with the Commission’s
decision. LP 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 as shown on Schedule No. 5 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. 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. (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. Once these actions are complete, this docket should be
closed administratively.
