Discussion
of Issues
Issue 1:
Should OPC’s Request for Oral Argument on its Motion
for Reconsideration of Order No. PSC-2023-0387-PCO-WS be granted?
Recommendation:
No. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and rule on the Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends that 5 minutes per party is sufficient. (Dose)
Staff Analysis:
Law
Rule 25-22.0022(1), F.A.C., allows a party to request oral
argument before the Commission for any dispositive motion (such as motions for
reconsideration) by filing a separate written pleading filed concurrently with
the motion on which argument is requested, and stating with particularity why
oral argument would aid the Commission. Granting or denying oral argument is
within the sole discretion of the Commission under Rule 25-22.0022(3), F.A.C.
OPC’s Position
OPC requests the opportunity to provide 10 minutes of oral
argument on the Motion to further elaborate on its arguments and to aid the
Commissioners in understanding and evaluating the issues it raises as well as
answer any questions.
Pluris’ Position
In its Response, Pluris states that the issues raised in
OPC’s Motion were already extensively presented to the Commission and that
nothing would be gained from further oral argument. Pluris also notes that OPC
is requesting only 10 minutes for oral argument on its Motion while simultaneously
claiming that the 20 minutes given at the December 5, 2023 Commission
Conference was an insufficient time to be heard on the same issues.
Conclusion
Granting or denying oral argument is within the sole
discretion of the Commission. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends 5 minutes per party as sufficient.
Issue 2:
Should OPC’s Motion for Reconsideration of Order No.
PSC-2023-0387-PCO-WS be granted?
Recommendation:
OPC’s Motion for Reconsideration should be granted in part
and denied in part. With respect to the Specific Equity Adjustment, Management
Fees, and Recovery of the Judgment and Legal Fees Associated with the Lawsuit,
staff recommends that OPC’s Motion should be denied because it fails to raise a
point of fact or law that the Commission overlooked or failed to consider in
rendering its decision. Staff believes that the Equity Adjustments that were
made are consistent with prior Commission practice. Staff further does not
believe that there is any methodology from the prior rate case to support OPC’s
position regarding Management Fees. Staff disagrees with OPC’s contention that
reclassification of two recorded current and accrued liabilities as equity
allows the Utility to recover the judgment and legal fees associated with a
lawsuit against the Utility and constitutes retroactive ratemaking.
Staff agrees with OPC’s position regarding Advances from
Associated Companies and Used and Useful; therefore, reconsideration is
appropriate as to these issues. However, both of the adjustments urged by OPC would
have the effect of raising interim rates. To avoid confusion and promote rate
stability, staff recommends leaving interim rates unchanged due to the short
time period during which interim rates will be in effect before PAA rates are established.
(Sewards, Cicchetti, Norris, Davis)
Staff Analysis:
Law
Reconsideration
The appropriate standard of review for reconsideration of
a Commission order is whether the motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. See Stewart Bonded Warehouse, Inc. v. Bevis, 294 So. 2d 315
(Fla. 1974); Diamond Cab Co. v. King, 146 So. 2d 889 (Fla. 1962); and Pingree
v. Quaintance, 394 So. 2d 162 (Fla. 1st DCA 1981). It is not appropriate to
reargue matters that have already been considered. Sherwood v. State,
111 So. 2d 96 (Fla. 3d DCA 1959) (citing State ex. rel. Jaytex Realty Co. v.
Green, 105 So. 2d 817 (Fla. 1st DCA 1958)). Furthermore, a motion for reconsideration
should not be granted “based upon an arbitrary feeling that a mistake may have been
made, but should be based upon specific factual matters set forth in the record
and susceptible to review.” Stewart Bonded Warehouse, Inc., 294 So. 2d at 317.
Interim
The file
and suspend law was designed to provide accelerated rate relief without
sacrificing the protections inherent in the overall regulatory scheme. Interim
rates, which are one aspect of this scheme, were designed “to make a utility
whole during the pendency of the proceeding without the interjection of any
opinion testimony.” Citizens v. Public
Service Commission, 435 So. 2d 784, 786 (Fla. 1983). Thus, the provision of
interim rates is a “quick and dirty” means by which a utility can obtain
immediate financial relief and address the regulatory lag which accompanies a
full rate proceeding. Pursuant to Section 367.082(2), F.S., customers’
interests are protected by requiring interim revenues be collected subject to
refund with interest, should the rate increase ultimately approved by the
Commission be less than the authorized interim rates. According to Section
367.082(4), F.S., any refund should be calculated to reduce the rate of return
of the Utility during the pendency of the proceeding to the same level within
the range of the newly authorized rate of return. Adjustments made in the rate
case test period that do not relate to the period that interim rates are in
effect should be removed, such as rate case expense or any pro forma items.
Thus, the process is not merely comparing the interim and final revenue
requirements.
In order to establish a prima facie entitlement for
interim relief, the utility shall demonstrate that it is earning outside the
range of reasonableness on its authorized rate of return. In setting interim
rates, the Commission shall determine the revenue deficiency or excess by
calculating the difference between the achieved rate of return of a utility and
its authorized rate of return applied to an average investment rate base or an
end-of-period investment rate base. Section 367.082(5)(a), F.S. For interim
purposes, the “achieved rate of return” means the rate of return earned by the utility
for the most recent 12-month period, calculated by applying appropriate
adjustments consistent with those which were used in the most recent individual
rate proceeding of the utility and annualizing any rate changes occurring
during such period. Section 367.082(5)(b)1., F.S.
OPC’s Motion
In its Motion, OPC states that “the Commission failed to
make, or refrained from making, adjustments consistent with Pluris’ most recent
individual rate proceeding and the Commission’s own promulgated rules and
procedures.” OPC claims the adjustments the Commission failed to make, or refrained
from making include: 1) a total specific equity adjustment of $5,894,387 to
reclassify $3,848,517 recorded by the Company in Accounts Payable-Associated
Companies and $3,049,849 recorded in Miscellaneous Current and Accrued
Liabilities; 2) $250,000 recorded in
Advances from Associated Companies; 3) adjustments related to Contractual
Services-Management Fees; and 4) the adjustment for used and useful.
Additionally, OPC argues that reclassification of two recorded current and
accrued liabilities as equity allows the Utility to recover judgment and legal
fees associated with a lawsuit against the Utility and constitutes retroactive
ratemaking. OPC urges the Commission to reconsider the Interim Order and make
adjustments consistent with OPC’s motion. OPC’s motion does not address the
timing or process by which it believes such adjustments should be made.
Finally, OPC reasserts its arguments from its letters dated November 30, 2023,
and December 5, 2023, which were presented at the December 5, 2023 Commission
Conference.
Pluris’ Response
In its Response,
Pluris claims that the Commission did not overlook OPC’s arguments at the
December 5, 2023 Commission Conference. Pluris claims that the adjustments that
the Commission made were consistent with the interim statute. The Utility also
claims that none of its costs that it seeks to recover in rates are related to
litigation or its settlement payment. Pluris also notes that OPC’s recommended
adjustment for used and useful would result in higher interim rates for
customers, however Pluris does not contest this error. Pluris lastly argues
that should mistakes be discovered when final rates are set, there is a
mechanism in place for customers to receive a refund with interest if the final
revenue requirement set by the Commission is less than the interim revenue
requirement.
Analysis
As detailed below, staff disagrees with three of the five
adjustments OPC urges the Commission reconsider, and recommends that
reconsideration is not appropriate. While staff agrees that, with hindsight,
two of the adjustments may be appropriate, both of those adjustments have the
effect, if any, of raising the interim rate amount. As discussed below, staff
recommends approval in part and denial in part of OPC’s Motion. However, for
the reasons set forth below, staff nevertheless recommends leaving interim
rates unchanged.
1. Specific Equity Adjustment
Regarding the specific equity adjustment, Pluris’ parent
company contributed $7.9 million of capital to Pluris so it could meet its
financial obligations due to losses Pluris incurred in 2021 and 2022 due to a
lawsuit. The contributed amount was originally booked on the balance sheet into
Account No. 233, Accounts Payable-Associated Companies and Account No. 241, Miscellaneous
Current and Accrued Liabilities. The approximately $7.9 million was
reclassified in December of 2022 into Equity Capital Account No. 212, Contributions
from Parent. It is instructive to note that had Pluris requested a year-end
interim test year, as is allowed by the interim statute, as opposed to a
13-month average interim test year, there would not be a dispute about the
amount of the Company’s equity, as the amount Pluris’ parent contributed is clearly
booked as equity at year-end. Whether the amounts contributed by Pluris’ parent
were booked as equity or current liabilities is essentially irrelevant as it
has been the Commission’s long-standing policy to treat inter-company debt that
is not being repaid, and does not carry an interest rate, as equity.
The starting point for determining a Company’s capital
structure is not Minimum Filing Requirements (MFR) Schedule D-1 nor MFR
Schedule D-2 as argued by OPC in its Motion for Reconsideration and at the
December 5, 2023 Commission Conference. The starting point is the Company’s
balance sheet. A review of the Company’s balance sheet is necessary to
determine whether the amounts entered onto MFR Schedules D-1 and D-2 are
correct. Because a company’s balance
sheet must balance (assets equal liabilities and capital), so too a utility’s
rate base and capital structure must balance. All accounts on a utility’s
balance sheet correlate to either rate base (assets) or capital structure
(liabilities and capital). Working capital (rate base), using the balance sheet
method, equals current assets minus current liabilities. When current assets
and current liabilities are properly accounted for, the rate base and capital
structure will balance.
Pluris, in its MFRs, properly reclassified Account Nos.
233 and 241 to equity. Staff verified this using Pluris’ balance sheet and
recognized that the parent company contributions booked into Account Nos. 233
and 241 met the Commission’s criteria to be considered equity. Staff not only
followed long-standing Commission practice in reaching this conclusion but,
recognizing that the parent company’s contributions were not booked into an
equity account, also followed Commission Administrative Procedure Manual (APM)
Section 13.12 Interpreting and Applying
Interim Statutes, which states that “[a]djustments to correct errors in the
interim test year data are appropriate.”
Furthermore, APM Section 13.12(D)(4) states:
Adjustments to reflect current practice should be made
only if adjustments based on the same practice were made in the prior rate
proceeding. The rationale for the adjustment is based on the action taken in
the prior rate proceeding, but the amount of the adjustment is based on the
amount included in the interim test year.
The policy being followed in the instant docket is consistent
with Pluris’ last rate case in that intercompany payables from associated
companies with no interest payments are treated as common equity. In
reaching its result, staff determined the per books amounts of the sources of
capital that comprise the capital structure per Commission practice as should
be done in all rate proceedings. Once the appropriate per books capital
structure has been determined, ratemaking adjustments can be applied.
In its exhibit presented at the December 5, 2023 Commission
Conference, OPC
proposed to recognize Pluris’ parent company’s investment in Pluris as a
current liability, not equity. Current liabilities are defined as debt or other
obligations expected to come due within a year. Having Pluris’ 2022 annual
report on hand at the time of the interim filing, and said amounts having been
reclassified as equity in December of 2022, these amounts are not debt or other
obligations expected to come due within a year. Treating Pluris’ investment as
a current liability produced a negative working capital allowance of $6,055,979
and forced OPC to impute to Pluris $3,618,388 of debt that does not exist to
get the capital structure to equal rate base and to calculate a weighted
average cost of capital. Although OPC argues that Pluris’ equity adjustments
are improper because they were not made in the last rate case, OPC’s solution
to impute debt fails the same metric. Furthermore, OPC’s recommended rate base
was $5,303,084. For a utility with a $5.3 million rate base to have a negative
$6.1 million working capital allowance (which OPC zeroed out) is, to say the
least, a red flag.
Because the arguments raised by OPC in its Motion on this
issue are reargument of its position at the December 5, 2023 Commission
Conference, and fail to identify a point of fact or law that the Commission
overlooked or failed to consider in rendering its decision, this portion of
OPC’s Motion for Reconsideration should be denied.
2. Advances from Associated Companies
Pluris has Account No. 223 Advances from Associated
Companies on its balance sheet with a balance of $250,000. As pointed out by
OPC, this account was treated as equity in Pluris’ last rate case and should be
recognized as equity for the interim revenue requirement. Staff did not
recognize this amount as equity in its recommendation on the interim revenue
requirement, and agrees this amount should be recognized as equity. However,
the $250,000 advance from Pluris’ parent company increases the interim revenue
requirement by $8,439 and, consequently, would raise interim rates. While staff
agrees that reconsideration would be appropriate on this issue, it does not
recommend the Interim Order be modified or additional interim revenues be
assessed to customers. As stated by Pluris in its response, “[d]ue to the time
constraints, the calculation of the interim revenue requirement is not always
perfect. In a proposed agency action rate case, the interim rates are only in
effect for a short period of time, so any error in the calculation will have
nominal impact on the customers or Pluris.” To avoid confusion and promote rate
stability, staff recommends leaving interim rates unchanged due to the short
time period during which interim rates will be in effect before PAA rates are
established.
3. Management Fees
In its Motion, OPC stated that the Commission did not make
adjustments to Contractual Services-Management Fees consistent with the
Utility’s last rate case. Staff was aware of OPC’s suggested adjustments;
however, staff believes that the proposed adjustments were not appropriate.
Section 367.082(5)(b), F.S., states that “the achieved
rate of return shall be calculated by applying appropriate adjustments
consistent with those which were used in the most recent individual rate
proceeding of the utility or regulated company.” Staff’s decision to not
recommend OPC’s adjustments was guided by past Commission decisions and how the
interim statute was applied in making those interim adjustments, as well as the
APM’s guidance in determining how the statute is applied.
APM Section 13.12(D)(2) states that “[a]djustments made to
be consistent with the last rate proceeding should be based on the methodology
used in that case, but the amount of the adjustment should be based on the
amounts reported in the interim test year.” In application, staff reviews the order
from the last rate case for an established methodology that can be applied to
the amounts reported in the current rate case.
For example, a common adjustment the Commission has made
is to calculate a multi-year average of an account to normalize a volatile
expense that may vary widely from year to year.
For interim purposes, staff would apply the methodology of a three-year average
to the most recent three years to determine what interim adjustment to
recommend. Another common adjustment is to reduce certain expenses by the
percentage of excessive unaccounted for water or inflow and infiltration
established by the Commission.
For interim purposes, staff would apply the methodology used in the previous
case to calculate those percentages and apply them to the current interim
balance of those same accounts. In reviewing the Order from Pluris’ last rate
case, staff did not find a methodology established for management fees that
could rationally be applied to the current rate case.
By letters dated November 13 and 15, 2023,
OPC suggested management fees should be capped at 82.03% of the $259,794
combined water and wastewater test year balance. This percentage was derived by
dividing the amount of management fees approved in the 2012 rate case by the
amount recorded in the MFR for that case. Staff does not believe this
adjustment is consistent with the methodology established in the last rate case
that can be applied to the current case; rather, it is an arbitrary wholesale
adjustment that does not take into consideration the individual adjustments
made to management fees in the last rate case.
By letter dated November 30, 2023,
OPC mentions in a footnote that staff did not make adjustments to remove
disallowed amounts that were removed in the Utility’s price index applications
in 2013 and 2015, but not in 2020. Staff reviewed the expense deduction work paper
on page 18 of the November 30 letter, the Order from the last rate case, and
each of the price index applications cited by OPC. The adjustments cited by OPC
were made to specific cost categories allocated in the test year expense for
management fees in the last rate case, such as the exclusion of the expense for
a personal tax return, travel identified for potential acquisitions, and
relocation costs. The amount of each adjustment was the exact amount identified
in the last case, not based on current test year expenses. Further, none of the
adjustments OPC listed were based on a methodology that could be brought
forward and applied to amounts reported in the current docket.
The adjustments in the last rate case were made to
pre-allocated costs charged to Pluris as a single fee for management services
and recorded in an expense account for Contractual Services. The details of
those pre-allocated costs are examined and audited in a rate case, but not
listed in an annual report used to process price index applications. Staff
accepted the adjustments in the two index applications immediately following
the last rate case as self reported amounts matching the exclusions, not as
mandatory adjustments pursuant to a defined methodology.
Because the arguments raised by OPC in its Motion on this
issue are reargument of its position at the December 5, 2023 Commission
Conference, and fail to identify a point of fact or law that the Commission
overlooked or failed to consider in rendering its decision, this portion of
OPC’s Motion for Reconsideration should be denied.
4.
Used and Useful
In its initial MFRs filed on September 22,
2023, the Company included in its used and useful calculations a five-year
growth factor of 63 equivalent residential connections (ERCs). Staff used this
value, and the methodology from the prior rate case Order, to determine the
used and useful for interim rates of 92.2 percent. However, when the Company
filed revised schedules on October 26, 2023 to correct certain deficiencies,
the five-year growth value changed to 85 ERCs, which would have changed the
used and useful to 93.4 percent. This updated value was not used by staff due
to an oversight. Staff recommends that granting reconsideration on this issue
may be appropriate, because the Commission did not have the correct ERC value
before it when it made its decision on interim. However, staff does not
recommend the Interim Order be modified or additional interim revenues assessed
to customers. An increase in used and useful of less than 2
percent would have the effect of causing a de
minimis increase, if any, in interim rates. As
stated by Pluris in its response, “due to the time constraints, the calculation
of the interim revenue requirement is not always perfect. In a proposed agency
action rate case, the interim rates are only in effect for a short period of
time, so any error in the calculation will have nominal impact on the customers
or Pluris.” To avoid confusion and promote rate stability, staff recommends
leaving interim rates unchanged due to the short time period during which
interim rates will be in effect before PAA rates are established.
5. Recovery of Judgment and Legal Fees
Associated with Lawsuit
In its Motion, OPC stated:
OPC respectfully submits that the Commission should
take caution in allowing the reclassification of the two recorded current and
accrued liabilities as equity for interim purposes because the Commission
previously has disallowed legal expenses associated with a lawsuit, as well as
a retroactive ratemaking concern of increasing equity by previously expensed
legal costs. The Commission has disallowed the capitalization of items
previously expensed by utilities, as it was found to violate the prohibition of
retroactive ratemaking.
In support of these statements, OPC cited Order Nos.
PSC-98-1583-FOF-WS and PSC-01-0326-FOF-SU.
First, neither Pluris nor staff included any costs
associated with the lawsuit in their respective interim revenue requirement
calculations. Consequently, there can be no retroactive ratemaking implications
because neither the judgment nor the legal expenses associated with the lawsuit
were requested or included in interim rates. In order for the costs of the judgment
or the legal fees to be included in rates, there has to be a specific expense
associated with the judgment or legal fees included in operating expenses. When
determining rates, the costs included for the capital structure include the
interest expense on debt and an allowed return on equity, determined by the
Commission, to compensate shareholders for exposing their capital to risk. The
operating expenses that are allowed are the expenses associated with providing
utility service. If there are no expenses associated with the lawsuit included
in operating expenses, there is no recovery of such costs from customers.
Consequently, OPC’s statement in its Motion regarding the determination of
Pluris’ equity that “[t]his means that Pluris customers will effectively be
paying back what they won from Pluris in a settlement” is not correct.
Furthermore, as evidenced by its statement above, OPC seems to be confusing the
term recapitalization, which means “provide more funds,” with the term
“capitalize versus expense.” Expensing a cost indicates that it is included on
the income statement and subtracted from revenue to determine profit.
Capitalizing indicates that the cost has been determined to be a capital
expenditure and is accounted for on the balance sheet as an asset, with only
depreciation showing up on the income statement.
Second, the Orders cited by OPC address whether certain
legal fees should be allowed to be recovered in those dockets and whether
recovery of such costs would amount to retroactive ratemaking. No legal fees
associated with Pluris’ lawsuit have been requested or allowed in this docket,
so the point is moot.
Because the arguments raised by OPC in its Motion on this
issue are reargument of its position at the December 5, 2023 Commission
Conference, and fail to identify a point of fact or law that the Commission
overlooked or failed to consider in rendering the interim order, this portion
of OPC’s Motion for Reconsideration should be denied.
Conclusion
OPC’s Motion for Reconsideration should be granted in part
and denied in part. With respect to the Specific Equity Adjustment, Management
Fees, and Recovery of the Judgment and Legal Fees Associated with the Lawsuit, staff
recommends that OPC’s Motion should be denied because it fails to raise a point
of fact or law that the Commission overlooked or failed to consider in
rendering its decision. Staff believes that the Equity Adjustments that were
made are consistent with prior Commission practice. Staff further does not
believe that there is any methodology from the prior rate case to support OPC’s
position regarding Management Fees. Staff disagrees with OPC’s contention that
reclassification of two recorded current and accrued liabilities as equity
allows the Utility to recover the judgment and legal fees associated with a
lawsuit against the Utility and constitutes retroactive ratemaking.
Staff agrees with OPC’s position regarding Advances from
Associated Companies and Used and Useful; therefore, reconsideration is
appropriate as to these issues. However, making the adjustments urged by OPC
would have the effect of raising interim rates. To avoid confusion and promote
rate stability, staff recommends leaving interim rates unchanged due to the
short time period during which interim rates will be in effect before PAA rates
are established.
Issue 3:
Should this docket be closed?
Recommendation:
No, this docket should remain open to allow the
Commission to address the Utility’s requested rates. (Dose)
Staff Analysis:
This docket should remain open to allow the
Commission to address the Utility’s requested rates.
