5State 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:

November 21, 2023

TO:

Office of Commission Clerk (Teitzman)

FROM:

Division of Accounting and Finance (Veaughn, Sewards)

Office of the General Counsel (Dose)

RE:

Docket No. 20230005-WS – Annual reestablishment of price increase or decrease index of major categories of operating costs incurred by water and wastewater utilities pursuant to Section 367.081(4)(a), F.S.

AGENDA:

12/5/23 – Regular Agenda – Proposed Agency Action – Interested Persons May Participate

COMMISSIONERS ASSIGNED:

All Commissioners

PREHEARING OFFICER:

Administrative

CRITICAL DATES:

03/31/24 (Statutory Reestablishment Deadline)

SPECIAL INSTRUCTIONS:

None

 

 Case Background

Since March 31, 1981, pursuant to the guidelines established by Section 367.081(4)(a), Florida Statutes (F.S.), and Rule 25-30.420, Florida Administrative Code (F.A.C.), the Commission has established a price increase or decrease index for major categories of operating costs on or before March 31 of each year. This process allows water and wastewater utilities to adjust rates based on current specific expenses without applying for a rate case.

Staff calculated its proposed 2024 price index by comparing the Gross Domestic Product Implicit Price Deflator Index for the fiscal year ended September 30, 2023. This same procedure has been used each year since 1995 to calculate the price index. The U.S. Department of Commerce, Bureau of Economic Analysis, released its most recent third quarter figures on October 26, 2023.

Since March 31, 1981, the Commission has received and processed approximately 4,025 index and pass through applications. The Commission has jurisdiction over this matter pursuant to Section 367.081, F.S.

 

 

Discussion of Issues

Issue 1: 

 Which index should be used to determine price level adjustments?

Recommendation: 

 The Gross Domestic Product Implicit Price Deflator Index is recommended for use in calculating price level adjustments. Staff recommends calculating the 2024 Price Index by using a fiscal year, four quarter comparison of the Implicit Price Deflator Index ending with the third quarter of 2023. (Veaughn)

Staff Analysis: 

 In 1993, the Gross Domestic Product Implicit Price Deflator Index (GDPDEF) was established as the appropriate measure for determining the water and wastewater price index. At the same time, the convention of using a four quarter fiscal year comparison was also established and this practice has been used every year since then.[1] The GDPDEF is prepared by the U.S. Department of Commerce. Prior to that time, the Gross National Product Implicit Price Deflator Index (GNPDEF) was used as the indexing factor for water and wastewater utilities. The Department of Commerce switched its emphasis from the GNPDEF to the GDPDEF as the primary measure of U.S. production.

Pursuant to Section 367.081(4)(a), F.S., the Commission, by order, shall establish a price increase or decrease index for major categories of operating costs incurred by utilities subject to its jurisdiction reflecting the percentage of increase or decrease in such costs from the most recent 12-month historical data available. Since 1995, the price index adjustment has been determined by comparing the change in the average GDPDEF for the year ending September 30, instead of the original December 31, in order to more easily meet the statutory deadline.[2]

In Order No. PSC-2022-0438-PAA-WS, issued December 27, 2022, in Docket No. 20220005-WS, the Commission, in keeping with the practice started in 1993, reiterated the alternatives which could be used to calculate the indexing of utility revenues. Past concerns expressed by utilities, as summarized from utility input in previous hearings, are:

1)         Inflation should be a major factor in determining the index;

2)         Nationally published indices should be vital to this determination;

3)         Major categories of expenses are labor, chemicals, materials and supplies, maintenance, transportation, and treatment expense;

4)         An area wage survey, Dodge Building Cost Index, Consumer Price Index, and the GDP should be considered;

5)         A broad measure index should be used; and

6)         The index procedure should be easy to administer.

Based upon these concerns, the Commission has previously explored the following alternatives:

1)         Survey of Regulated Water and Wastewater Utilities;

2)         Consumer Price Index;

3)         Florida Price Level Index;

4)         Producer Price Index – previously the Wholesale Price Index; and

5)         GDPDEF (replacing the GNP).

Over the years, the Commission found that the Survey of Regulated Water and Wastewater Utilities should be rejected because using the results of a survey would allow utilities to pass on to customers all cost increases, thereby reducing the incentives of promoting efficiency and productivity. The Commission also found that the Consumer Price Index and the Florida Price Level Index should be rejected because of their limited degree of applicability to the water and wastewater industry. Both of these price indices are based upon comparing the advance in prices of a limited number of general goods and, therefore, appear to have limited application to water and wastewater utilities.

The Commission further found that the Producer Price Index (PPI) is a family of indices that measure the average change over time in selling prices received by domestic producers of goods and services. PPI measures price change from the perspective of the seller, not the purchaser, and therefore should be rejected. The bases for these indices have not changed, and staff believes that the conclusions reached in Order No. PSC-2022-0438-PAA-WS should continue to apply in this case. Since 1993, the Commission has found that the GDPDEF has a greater degree of applicability to the water and wastewater industry. Therefore, staff recommends that the Commission continue to use the GDPDEF to calculate water and wastewater price level adjustments. Staff recommends calculating the 2024 Price Index by using a fiscal year, four quarter comparison of the GDPDEF ending with the third quarter of 2023.

The following information provides a historical perspective of the annual price index:

Table 1-1

Historical Analysis of the Annual Price Index for Water and Wastewater Utilities

Year

Commission

Approved Index

Year

Commission

Approved Index

2013

1.63%

2019

2.36%

2014

1.41%

2020

1.79%

2015

1.57%

2021

1.17%

2016

1.29%

2022

4.53%

2017

1.51%

2023

7.07%

2018

1.79%

2024

3.24%

The table below shows the historical participation in the index and/or pass-through programs:

Table 1-2

Percentage of Jurisdictional Water and Wastewater Utilities Filing for Indexes and

Pass-Throughs

Year

Percentage

Year

Percentage

2012

30%

2018

42%

2013

41%

2019

60%

2014

39%

2020

43%

2015

49%

2021

52%

2016

38%

2022

57%

2017

37%

2023

53%

 

 

Issue 2: 

 What rate should be used by water and wastewater utilities for the 2024 Price Index?

Recommendation: 

 The 2024 Price Index for water and wastewater utilities should be 3.24 percent. (Veaughn)

Staff Analysis: 

 The U.S. Department of Commerce, Bureau of Economic Analysis, released the most recent third quarter 2023 figures on October 26, 2023. Consistent with the Commission’s establishment of the 2023 Price Index last year, staff is using the third quarter amounts to calculate staff’s recommended 2024 Price Index. Using the third quarter amounts allows time for the Commission to establish the 2024 Price Index by March 31, 2024, in accordance with Section 367.081(4)(a), F.S. The percentage change in the GDPDEF using the fiscal year comparison ending with the third quarter is 3.24 percent. This number was calculated as follows.

 

GDPDEF Index for the fiscal year ended 9/30/23

122.817

GDPDEF Index for the fiscal year ended 9/30/22

118.962

Difference

3.855

Divided by 9/30/22 GDPDEF Index

118.962

2024 Price Index

3.24%

 

 

Issue 3: 

 How should the utilities be informed of the indexing requirements?

Recommendation: 

 After the expiration of the Proposed Agency Action (PAA) protest period, the Division of Accounting and Finance should send each regulated water and wastewater utility a copy of the PAA Order establishing the index containing the information presented in Attachment 1. A cover letter from the Director of the Division of Accounting and Finance should be included with the order (Attachment 2). The entire package should also be made available on the Commission’s website.  (Veaughn)

Staff Analysis: 

 Staff recommends that the package presented in Attachment 1 be sent to every regulated water and wastewater utility after the expiration of the PAA protest period, along with a copy of the PAA Order once final. The entire package should also be made available on the Commission’s website.

In an effort to increase the number of water and wastewater utilities taking advantage of the annual price index and pass-through programs, staff is recommending that the attached cover letter (Attachment 2) from the Director of the Division of Accounting and Finance be included with the PAA Order in order to explain the purpose of the index and pass-through applications and to communicate that Commission staff is available to assist them.

 

 

Issue 4: 

 Should this docket be closed?

Recommendation: 

 No. Upon expiration of the 14-day protest period, if a timely protest is not received, the decision should become final and effective upon the issuance of a Consummating Order. Any party filing a protest should be required to prefile testimony with the protest. However, this docket should remain open through the end of the year and be closed upon the establishment of the new docket in January 2024. (Dose)

Staff Analysis: 

 Uniform Rule 25-22.029(1), F.A.C., contains an exception to the procedural requirements set forth in Uniform Rule 28-106.111, F.A.C., providing that “[t]he time for requesting a Section 120.569 or 120.57 hearing shall be 14 days from issuance of the notice for PAA orders establishing a price index pursuant to Section 367.081(4)(a), F.S.” Staff therefore recommends that the Commission require any protest to the PAA Order in this docket be filed within 14 days of the issuance of the PAA Order, and that any party filing the protest should be required to prefile testimony with the protest. Upon expiration of the protest period, if a timely protest is not received, the decision should become final and effective upon the issuance of a Consummating Order. However, this docket should remain open through the end of the year and be closed upon the establishment of the new docket in January 2024.

FLORIDA PUBLIC SERVICE COMMISSION

PRICE INDEX APPLICATION

APPLICABLE TEST YEAR _____________

 

Department of Environmental Protection Public Water System ID NO. ___________________   Department of Environmental Protection Wastewater Treatment Plant ID NO. _______________

 

                                                                                                       WATER        WASTEWATER

Operation & Maintenance Expenses1                                            $_______          $_______

           

LESS:

(a)  Pass-through Items:

      (1)  Purchased Power                                                                _______           _______

      (2)  Purchased Water                                                                _______           _______

      (3)  Purchased Wastewater Treatment                                      _______           _______

      (4)  Sludge Removal                                                                 _______           _______

      (5)  Other2                                                                                 _______           _______

 (b) Rate Case Expense Included in Expenses                               _______           _______

 (c) Adjustments to Operation & Maintenance Expenses

      from last rate case, if applicable:3

            (1)_________________                                                      _______           _______

            (2)_________________                                                      _______           _______

Costs to be Indexed                                                                     $_______          $_____ _

Multiply by Annual Commission-Approved Price Index                      3.24%               3.24%

Total Indexed Costs                                                                     $_______          $_______ 

Add Change in Pass-Through Items:4

(1)_________________                                                                  _______           _______              

(2)_________________                                                                  _______           _______

Divide Index and Pass-Through Sum by Expansion

Factor for Regulatory Assessment Fees                                                .955                  .955             

Increase in Revenue                                                                        _______           _______

Divide by Applicable Test Year Revenue5                                   $_______         $_______

 

Percentage Increase in Rates                                                                      %                      %

       =======         =======

 

FOOTNOTES APPEAR ON THE FOLLOWING PAGE

 

PAGE 1 FOOTNOTES

 

1This amount must match last year’s annual report.

 

2Other expense items may include increases in required Department of Environmental Protection testing, ad valorem taxes, permit fees charged by the Department of Environmental Protection or a local government authority, National Pollutant Discharge Elimination System fees, and regulatory assessment fees. These items should not be currently embedded in the utility's rates.

 

3This may include adjustments that follow a methodology referenced in the Order from a utility’s last rate case (i.e. averaged bad debt expense or excessive unaccounted for water percentage applied to chemicals expense).

 

4This may include an increase in purchased power, purchased water, purchased wastewater treatment, sludge hauling, required Department of Environmental Protection testing, ad valorem taxes, and permit fees charged by the Department of Environmental Protection or a local government authority providing that those increases have been incurred within the 12-month period prior to the submission of the pass-through application. Pass-through National Pollutant Discharge Elimination System fees and increases in regulatory assessment fees are eligible as pass-through costs but not subject to the twelve month rule. All pass-through items require invoices. See Rule 25-30.425, F.A.C. for more information.

 

5If rates changed after January 1 of the applicable test year, the book revenues must be adjusted to show the changes and an explanation of the calculation should be attached to this form. See Annualized Revenue Worksheet for instructions and a sample format.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANNUALIZED REVENUE WORKSHEET

 

Have the rates charged for customer services changed since January 1, of the applicable test year?

 

( )         If no, the utility should use actual revenues. This form may be disregarded.

 

( )         If yes, the utility must annualize its revenues. Read the remainder of this form.

 

Annualizing calculates the revenues the utility would have earned based upon the previous year’s customer consumption at the most current rates in effect. To complete this calculation, the utility will need consumption data for the previous year to apply to the existing rate schedule. Below is a sample format which may be used.

 

CALCULATION OF ANNUALIZED REVENUES*

Consumption Data for Applicable Test Year

 

                                     Number of                           Current                   Annualized

                                                Bill/Gal. Sold      X               Rates                       Revenues

Residential Service:

 

Bills:

5/8"x3/4" meters          _____________                      ________        ___________

1" meters                     _____________                      ________        ___________

1 2" meters                  _____________                      ________        ___________

2" meters                     _____________                      ________        ___________

Gallons Sold                ____________            _______          __________

 

General Service:

 

Bills:

5/8"x3/4" meters          _____________          _______          __________

1" meters                     _____________          _______          __________

1 2" meters                  _____________          _______          __________

2" meters                     _____________          _______          __________

3" meters                     _____________          _______          __________

4" meters                     _____________          _______          __________

6" meters                     _____________          _______          __________

Gallons Sold               _____________          _______          __________

                       

Total Annualized Revenues for the Applicable Test Year             $ __________                     

 

*Annualized revenues must be calculated separately if the utility consists of both a water system and a wastewater system. This form is designed specifically for utilities using a base facility charge rate structure. If annualized revenues must be calculated and further assistance is needed, contact the Commission Staff at (850) 413-6900.  


AFFIRMATION

 

 

I, ___________________________________, hereby affirm that the figures and calculations upon which the change in rates is based are accurate and that the change will not cause ______________________________   to exceed the range of its last authorized rate of return on                             

                       (name of utility)

equity, which is ___________________.

               

 

I, the undersigned/officer of the above-named utility, have read the foregoing and declare that, to the best of my knowledge and belief, the information contained in this application is true and correct.

 

This affirmation is made pursuant to my request for a price index and/or pass-through rate increase, in conformance with Section 367.081(4), Florida Statutes.

 

Further, I am aware that pursuant to Section 837.06, Florida Statutes, whoever knowingly makes a false statement in writing with the intent to mislead a public servant in the performance of his official duty shall be guilty of a misdemeanor of the second degree.

 

 

Signature: ________________________

Title: ____________________________

Telephone Number:  ________________

Fax Number: ______________________

 

 

Sworn to and subscribed before me this _____________________ day of ____________________, 20__.

 

 

 

My Commission expires:

 

 

(SEAL)

 

 

_________________________

Notary Public

                                    State of Florida

 



STATEMENT OF QUALITY OF SERVICE

 

Pursuant to paragraphs 25-30.420(2)(h) and (i), Florida Administrative Code,  _______________________________

                        (name of utility)

 [ ] does not have any active written complaints, corrective orders, consent orders, or outstanding citations with the Department of Environmental Protection (DEP) or the County Health Departments.

 

[ ] does have the attached active written complaint(s), corrective order(s), consent order(s), or outstanding citation(s) with the DEP or the County Health Department(s). The attachment(s) includes the specific system(s) involved with DEP permit number and the nature of the active complaint, corrective order, consent order, or outstanding citation.

 

This statement is intended such that the Florida Public Service Commission can make a determination of quality of service pursuant to Section 367.081(4)(a), Florida Statutes, and Rule 25-30.420(4)(a), Florida Administrative Code.

 

 

 

 

Name: _____________________________

Title:   _____________________________

Telephone Number: __________________

Fax Number: _______________________

Date:   _____________________________

 

 

 

 

 

 

 

 

 

 

 

Exception

 

_______________________________________________ hereby waives the right to implement

                                      (name of utility)

a pass-through rate increase within 45 days of filing, as provided by Section 367.081(4)(b), Florida Statutes, in order that the pass-through and index rate increase may both be implemented together 60 days after the official filing date of this notice of intention.

 

                                                                                    Signature: ___________________________

                                                                                    Title: _______________________________

 

(To be used if an index and pass-through rate increase are requested jointly.)

                                                                             


NOTICE TO CUSTOMERS

 

Pursuant to Section 367.081(4)(a), Florida Statutes, water and wastewater utilities are permitted to adjust the rates and charges to its customers without those customers bearing the additional expense of a public hearing. These adjustments in rates would depend on increases or decreases in non-controllable expenses subject to inflationary pressures such as chemicals, and other general operation and maintenance costs.

 

On ______________________, __________________________________filed its notice of

                       (date)                                                                    (name of utility)

intention with the Florida Public Service Commission to increase water and wastewater rates in _____________ County pursuant to this Statute. The filing is subject to review by the Commission Staff for accuracy and completeness. Water rates will increase by approximately ______% and wastewater rates by ______%. These rates should be reflected for service rendered on or after ______________________.

                                     (date)                   


NOTICE TO CUSTOMERS

 

Pursuant to Section 367.081(4)(b), Florida Statutes, water and wastewater utilities are permitted to pass through, without a public hearing, a change in rates resulting from: an increase or decrease in rates charged for utility services received from a governmental agency or another regulated utility and which services were redistributed by the utility to its customers;  an increase or decrease in the rates that it is charged for electric power, the amount of ad valorem taxes assessed against its used and useful property, the fees charged by the Department of Environmental Protection in connection with the National Pollutant Discharge Elimination System Program, or the regulatory assessment fees imposed upon it by the Commission;  costs incurred for water quality or wastewater quality testing required by the Department of Environmental Protection; the fees charged for wastewater bio solids disposal; costs incurred for any tank inspection required by the Department of Environmental Protection or a local governmental authority; treatment plant and water distribution system operator license fees required by the Department of Environmental Protection or a local governmental authority; water or wastewater operating permit fees charged by the Department of Environmental Protection or a local governmental authority; and consumptive or water use permit fees charged by a water management district.

 

On ______________________, _______________________________ filed its notice of

                        (date)                                                              (name of utility)

intention with the Florida Public Service Commission to increase water and wastewater rates in ______________ County pursuant to this Statute. The filing is subject to review by the Commission Staff for accuracy and completeness. Water rates will increase by approximately ______% and wastewater rates by ______%. These rates should be reflected on your bill for service rendered on or after ______________________.

                                                                          (date)                

If you should have any questions, please contact your local utility office. Be sure to have account number handy for quick reference.

 

 

 

 

Commissioners:

Andrew Giles Fay, Chairman

Art Graham

Gary F. Clark

Mike La Rosa

Gabriella Passidomo

State of Florida

 

Division of

Accounting and Finance

Andrew L. Maurey

Director

(850) 413-6900

 

Public Service Commission

 

Month Day, 2023

 

 

All Florida Public Service Commission

Regulated Water & Wastewater Utilities

 

Re: Docket No. 20230005-WS - 2024 Price Index

 

Dear Utility Owner:

 

Since March 31, 1981, pursuant to the guidelines established by Section 367.081(4)(a), Florida Statutes (F.S.), and Rule 25-30.420, Florida Administrative Code (F.A.C.), the Commission has established a price increase or decrease index for major categories of operating costs. This process allows water and wastewater utilities to adjust rates based on current specific expenses without applying for a rate case. The intent of this rule is to ensure that inflationary pressures are not detrimental to utility owners, and that any possible deflationary pressures are not adverse to customers. By keeping up with index and pass-through adjustments, utility operations can be maintained at a level sufficient to ensure quality of service for the customers.

            Pursuant to Rule 25-30.420(1)(a), F.A.C., all operation and maintenance expenses shall be indexed with the exception of:

a)         Pass-through items pursuant to Section 367.081(4)(b), F.S.;

b)         Any amortization of rate case expense; and

c)         Disallowances or adjustments made in an applicant's most recent rate proceeding.

Please note that all sludge removal expense should now be removed from operation and maintenance expenses for the purpose of indexing. Incremental increases in this category of expense may now be recovered using a pass-through request.

 

 

All Florida Public Service Commission
Regulated Water & Wastewater Utilities
Page 2
Month Day, 2023

Upon the filing of a request for an index and/or pass-through increase, staff will review the application and modify existing rates accordingly. If for no other reason than to keep up with escalating costs, utilities throughout Florida should file for this rate relief on an annual basis. Utilities may apply for a 2024 Price Index anytime between April 1, 2024, through March 31, 2025 by mail or by emailing Applications@psc.state.fl.us. The attached package will answer questions regarding what the index and pass-through rate adjustments are, how to apply for an adjustment, and what needs to be filed in order to meet the filing requirements. For your convenience, the Commission-approved Price Index is reflected on Form PSC 1022, attached. While the increase for any given year may be minor, (see chart below), the long-run effect of keeping current with rising costs can be substantial.

Year

Annual

Year

Annual

Commission

Commission

Approved Index

Approved Index

1999

1.21%

2012

2.41%

2000

1.36%

2013

1.63%

2001

2.50%

2014

1.41%

2002

2.33%

2015

1.57%

2003

1.31%

2016

1.29%

2004

1.60%

2017

1.51%

2005

2.17%

2018

1.76%

2006

2.74%

2019

2.36%

2007

3.09%

2020

1.79%

2008

2.39%

2021

1.17%

2009

2.55%

2022

4.53%

2010

0.56%

2023

7.07%

2011

1.18%

2023

3.24%

 

Please be aware that pursuant to Section 837.06, F.S., whoever knowingly makes a false statement in writing with the intent to mislead a public servant in the performance of his or her official duty shall be guilty of a misdemeanor of the second degree. Our staff is available at (850) 413-6900 should you need assistance with your filing. If you have any questions, please do not hesitate to call.

Moreover, additional rate relief mechanisms are available to water and wastewater utilities as alternatives to full rate cases. Water and wastewater utilities whose total gross annual operating revenues are $335,000 or less for water service or $335,000 or less for wastewater service, or $670,000 or less on a combined basis, may petition the Commission for staff assistance in     

Florida Public Service Commission
Regulated Water & Wastewater Utilities
Page 3
Month Day, 2022

alternative rate setting. Please refer to Rule 25-30.456, F.A.C., for additional details. Furthermore, water utilities whose total gross annual operating revenues are $335,000 or less and wastewater utilities whose total gross annual operating revenues are $335,000 or less may file an application for a limited alternative rate increase of up to 20 percent applied to metered or flat recurring rates of all classes of service. Please refer to Rule 25-30.457, F.A.C., for additional details.

Finally, the Commission reminds water and wastewater utilities that the Utility Reserve Fund exists to help address concerns over deferred maintenance of critical infrastructure and delays in necessary repairs. The availability of the reserve funds may allow a utility to avoid or defer the need for a future rate case, the expenses of which are ultimately borne by customers. Please refer to Rule 25-30.444, F.A.C., for additional details.

 

 

Sincerely,

                                                                        

                                                                          

Andrew L. Maurey

Director

Enclosures

 

 

 


[1]Order No. PSC-1993-0195-FOF-WS, issued February 9, 1993, in Docket No. 19930005-WS, In re: Annual reestablishment of price increase or decrease index of major categories of operating costs incurred by water and wastewater utilities pursuant to Section 367.081(4)(a), F.S.

[2]Order No. PSC-1995-0202-FOF-WS, issued February 10, 1995, in Docket No. 19950005-WS, In re: Annual reestablishment of price increase or decrease index of major categories of operating costs incurred by water and wastewater utilities pursuant to Section 367.081(4)(a), F.S.