Discussion
of Issues
Issue 1:
Should an interim rate increase for Pinecrest be
approved?
Recommendation:
Yes. Pinecrest should be authorized to increase its
rates on an interim basis by $10,772 as shown below:
|
|
Test Year
|
|
Revenue
|
|
|
|
Revenues
|
$ Increase
|
Requirement
|
% Increase
|
|
Water
|
$59,184
|
$10,772
|
$69,957
|
18.20%
|
(Richards, Haddix)
Staff Analysis:
On May 26, 2023, Pinecrest filed an application
requesting an interim rate increase. Section 367.0814(4), F.S., details the
criteria for evaluating a request for an interim rate increase for
staff-assisted rate cases.
Section 367.0814(4), F.S., states:
The Commission may, upon its own motion, or upon
petition from the regulated utility, authorize the collection of interim rates
until the effective date of the final order. Such interim rates may be based
upon a test period different from the test period used in the request for
permanent rate relief. To establish interim relief, there must be a
demonstration that the operation and maintenance expenses exceed the revenues
of the regulated utility, and interim rates shall not exceed the level
necessary to cover operation and maintenance expenses as defined by the Uniform
System of Accounts for Class C Water and Wastewater Utilities (1996) of the
National Association of Regulatory Utility Commissioners.
Staff has reviewed the Utility’s O&M expenses in
relation to its revenues. Based on the Utility’s filing, staff recommends that
Pinecrest has demonstrated a prima facie
entitlement to an interim rate increase in accordance with Section 367.0814(4),
F.S.
Revenue Increase
In order to establish interim rate relief as prescribed by
Section 367.0814(4), F.S., staff used the Utility’s revenues reflected in its
2022 Annual Report for the test year ended December 31, 2022. The test year
revenues are $59,184, which is comprised of $57,145 from water service rates
and $2,040 from miscellaneous service revenues. The test year O&M expenses
are $69,472. The difference between the Utility’s reported revenues and O&M
expenses is $10,288.
In addition, the interim water increase should be grossed
up to include regulatory assessment fees (RAFs). The Commission has previously
determined that it would be inappropriate to approve an increase in a utility’s
rates to cover its operating expenses and deny that same utility the additional
funds to cover increased RAFs.
The RAFs associated with the interim increase are $485.
In total, Pinecrest should be allowed an interim revenue
increase of $10,772 ($10,288 + $485) to produce revenues sufficient to cover
O&M expenses and additional RAFs. Thus, staff recommends the appropriate
interim revenue requirement should be $69,957. This represents a 18.20 percent
increase above the Utility’s test year revenues. Table 1-1 shows staff’s
interim revenue increase calculation.
Table 1-1
Interim Increase Calculation
|
Utility Test Year O&M Expenses
|
$69,472
|
|
Less: Utility Test Year Revenues
|
59,184
|
|
Revenues to Cover O&M Expenses
|
$10,288
|
|
RAFs on Interim Rate Increase
|
485
|
|
Total Interim Revenue Increase ($)
|
$10,772
|
|
Total Interim Revenue Increase (%)
|
18.20%
|
Source: Utility’s 2022 Annual Report
and staff’s calculations.
Issue 2:
What are the appropriate interim water rates for
Pinecrest?
Recommendation:
The interim rate increase of 18.85 percent should be
applied as an across-the-board increase to the water service rates. The rates,
as shown on Schedule No. 1, should be effective for service rendered on or
after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475(1), Florida Administrative Code (F.A.C.). The Utility should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. In addition, the approved rates should not be
implemented until the required security has been filed, staff has approved the
proposed customer notice, and the notice has been received by the customers.
The Utility should provide proof of the date the notice was given within 10
days of the date of the notice. (Sibley)
Staff Analysis:
Staff recommends that interim service rates for
Pinecrest be designed to allow the Utility the opportunity to generate annual
operating revenues of $69,957 for water. Before removal of miscellaneous
revenues, this would result in an increase of $10,772 (18.20 percent). To
determine the appropriate increase to apply to the service rates, miscellaneous
revenues should be removed from the test year revenues. The calculation is as
follows:
Table 2-1
Percentage Service Rate Increase
|
|
|
Water
|
|
1
|
Total Test Year Revenues
|
$59,185
|
|
2
|
Less: Miscellaneous
Revenues
|
$2,040
|
|
3
|
Test Year Revenues from Service Rates
|
$57,145
|
|
4
|
Revenue Increase
|
$10,772
|
|
5
|
Percentage Service Rate Increase (Line 4/Line 3)
|
18.85
|
Source: Staff’s Interim Recommended Revenue
Requirement.
Staff recommends that the interim rate increase of 18.85
percent should be applied as an across-the-board increase to the water service
rates. The rates, as shown on Schedule No. 1, should be effective for service
rendered on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475(1), F.A.C. The Utility should file revised tariff sheets and a
proposed customer notice to reflect the Commission-approved rates. In addition,
the approved rates should not be implemented until the required security has
been filed, staff has approved the proposed customer notice, and the notice has
been received by the customers. The Utility should provide proof of the date
notice was given within 10 days of the date of the notice.
Issue 3:
What is the appropriate security to guarantee the
interim increase?
Recommendation:
The Utility should be required to open an escrow
account or secure a surety bond or letter of credit to guarantee any potential
refund of revenues collected under interim conditions. If the security provided
is an escrow account, the Utility should deposit $928 into the escrow account
each month. Otherwise, the surety bond or letter of credit should be in the
amount of $7,424. Pursuant to Rule 25-30.360(6), F.A.C., the Utility should
provide a report by the 20th of each month indicating the monthly and total
revenue collected subject to refund. Should a refund be required, the refund
should be with interest and in accordance with Rule 25-30.360, F.A.C.
(Richards, Haddix)
Staff Analysis:
Pursuant
to Section 367.082, F.S., revenues collected under interim rates shall be
placed under bond, escrow, letter of credit, or corporate undertaking subject
to refund with interest at a rate ordered by the Commission. As recommended in
Issue 1, the interim increase for water is $10,773. In accordance with Rule
25-30.360, F.A.C., staff calculated the potential refund of revenues and
interest collected under interim conditions to be $7,424. This amount is based
on an estimated eight months of revenue being collected under the recommended
interim rates shown on Schedule No. 1.
The
criteria for a corporate undertaking include sufficient liquidity, ownership
equity, profitability, and interest coverage to guarantee any potential refund.
Staff reviewed Pinecrest’s financial condition. Because the Utility has no
meaningful liquidity, negative interest coverage, has reported significant net
losses year over year, and has negative ownership equity, staff does not
believe the Utility has the financial capability to support a corporate
undertaking in the amount requested at this time. Instead, staff recommends
that the Utility be required to secure a surety bond, letter of credit, or
escrow agreement to guarantee any potential refund.
If
security is provided through an escrow agreement, the following conditions
should be part of the agreement:
1)
The Commission Clerk, or his or her designee, must be a
signatory to the escrow agreement.
2)
No monies in the escrow account may be withdrawn by the
Utility without the express approval of the Commission Clerk, or his or her
designee.
3)
The escrow account shall be an interest bearing
account.
4)
If a refund to the customers is required, all interest
earned by the escrow account shall be distributed to the customers.
5)
If a refund to the customers is not required, the
interest earned by the escrow account shall revert to the Utility.
6)
All information on the escrow account shall be
available from the holder of the escrow account to a Commission representative
at all times.
7)
The amount of revenue subject to refund shall be
deposited in the escrow account within seven days of receipt.
8)
This escrow account is established by the direction of
the Florida Public Service Commission for the purpose(s) set forth in its order
requiring such account. Pursuant to Cosentino v. Elson, 263 So. 2d 253 (Fla. 3d
DCA 1972), escrow accounts are not subject to garnishments.
9)
The account must specify by whom and on whose behalf
such monies were paid.
If the security provided is a surety bond or a letter of
credit, said instrument should be in the amount of $7,424. If the Utility
chooses a surety bond as security, the surety bond should state that it will be
released or terminated only upon subsequent order of the Commission. If the
Utility chooses to provide a letter of credit as security, the letter of credit
should state that it is irrevocable for the period it is in effect and that it
will be in effect until a final Commission order is rendered releasing the
funds to the Utility or requiring a refund.
In no instance should the maintenance and administrative
costs associated with the refund be borne by the customers. These costs are the
responsibility of, and should be borne by, the Utility. Irrespective of the
form of security chosen by the Utility, an account of all monies received as a
result of the rate increase should be maintained by the Utility. If a refund is
ultimately required, it should be paid with interest calculated pursuant to
Rule 25-30.360(4), F.A.C.
Issue 4:
Should this docket be closed?
Recommendation:
No. Staff recommends that this docket remain open to
address the merits of Pinecrest’s staff-assisted rate case. (Imig, Gonzalez-Moreno)
Staff Analysis:
Staff recommends that this docket remain open to
address the merits of Pinecrest’s staff-assisted rate case.
