Discussion
of Issues
Issue 1:
Is the quality of service provided by Pinecrest
satisfactory?
Recommendation:
Yes.
Pinecrest has been responsive to customer complaints and is currently in
compliance with Department of Environmental Protection (DEP) standards;
therefore, staff recommends that the quality of service be considered
satisfactory. (Thompson)
Staff Analysis:
Pursuant to Section 367.081(2)(a)1, F.S., and Rule
25-30.433(1), Florida Administrative Code (F.A.C.), in water rate cases, the
Commission shall determine the overall quality of service provided by a
utility. This determination is made from an evaluation of the quality of a utility’s
product and a utility’s attempt to address customer satisfaction. The Rule
further states that the most recent chemical analyses for the water system,
outstanding citations, violations, and consent orders on file with the DEP and
the county health department, and any DEP and county health department
official’s testimony concerning quality of service shall be considered. In
addition, any customer testimony, comments, or complaints received by the
Commission are also reviewed. The operating condition of the water system is
addressed in Issue 2.
Quality of the Utility’s Product
In evaluation of Pinecrest’s product quality, staff
reviewed the Utility’s compliance with the DEP’s 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. In the DEP’s last Sanitary Survey Report dated March 20, 2023,
no chemical or bacteriological exceedances were noted, and the Utility was
determined to be in compliance with DEP standards. Staff also reviewed the
DEP’s triennial Safe Drinking Water Program chemical analysis of samples taken
at the point of entry on June 14, 2021, and while the Utility was determined to
be in compliance by the DEP, staff observed an exceedance in iron. In response
to staff’s second data request,
the Utility explained that this exceedance was due to iron being a part of the
ground water makeup at the well. As a result, the Utility treats the water with
Aqua Mag, which is used for iron sequestration. In addition, in response to
staff’s seventh data request, the Utility indicated that water testing for
compliance with the DEP’s water quality standards will be completed again this
year.
The Utility’s Attempt to Address Customer
Satisfaction
Staff
reviewed the Commission’s Consumer Activity Tracking System (CATS) records, and
discovered only one complaint recorded during the test year and four years
prior for Pinecrest. The complaint was received September 21, 2022, and was
regarding improper disconnection due to a water shutoff. The Utility responded
timely that the event was due to planned maintenance and the complaint was then
closed. Staff also requested all complaints received by the DEP during the test
year and four years prior. The DEP responded that it did not receive any
complaints for Pinecrest during this timeframe.
Staff
performed a supplemental review of the complaints filed in CATS during the
course of this docket, and one additional complaint was submitted on January
17, 2024. The complaint expressed concerns regarding the rate increase, water
color, and poor customer service. The Utility responded with flushing the water
line but had difficulties contacting the customer, and was advised by
Commission staff to provide a written response, which addressed the need for
flushing of customer faucets after vacant periods. The complaint has been
closed. Staff also requested any
customer complaints received by the DEP during the course of this docket.
The DEP responded that it did not receive any complaints for Pinecrest during
this timeframe.
Staff requested all complaints received by Pinecrest
during the test year and four years prior, and the Utility provided 21
complaints received during this timeframe, one of which was duplicative of the
initial complaint received through the CATS. The majority of the complaints
received by the Utility were during 2020. The Utility appears to have been
responsive and resolved concerns in a timely manner. Table 1-1 shows these
complaints, as well as the comments and complaints received during the course
of this docket, by source and subject.
Table 1-1
Number of Comments and
Complaints by Source and Subject
|
Subject of
|
Utility
|
CATS
|
Written/Oral
|
|
|
Complaint
|
Complaints
|
Complaints
|
Comments
|
Total*
|
|
Leaking Water Meters
|
4
|
0
|
0
|
4
|
|
Service Interruptions
|
5
|
2
|
3
|
10
|
|
Billing
|
5
|
0
|
0
|
5
|
|
Water Odor
|
4
|
0
|
0
|
4
|
|
Noise
|
2
|
0
|
0
|
2
|
|
Water Color
|
1
|
1
|
2
|
4
|
|
Improper Disconnection
|
1
|
0
|
0
|
1
|
|
Poor Customer Service
|
0
|
1
|
1
|
2
|
|
General Water Quality Concerns
|
0
|
0
|
1
|
1
|
|
Rate Increase Concerns
|
0
|
1
|
4
|
5
|
|
Total*
|
22
|
5
|
11
|
38
|
*A single
customer comment/complaint may be counted multiple times if it is associated
with multiple categories.
A virtual customer meeting was held on
January 23, 2024, and one customer provided oral comments. This customer also
submitted the most recent CATS complaint and written comments to the docket
file, and expressed concerns regarding the rate increase and discoloration,
noting they installed a private water filtration system. Three additional
written customer comments were submitted following issuance of the customer
meeting notice or following the customer meeting. These addressed opposition to
rate increases, frequency of interruptions due to repairs and resulting boiled
water notices, water discoloration, and that the water was not suitable for
consumption and caused skin reactions. One comment also complimented Utility
staff’s customer service.
Staff notes the concerns regarding secondary water
quality, specifically odor and color, and service interruptions have been
addressed by the Utility. Regarding water color, as discussed previously, staff notes that the Utility had an iron
exceedance when it was last tested due to it naturally occurring in the ground
water, and the Utility has responded by treating the water with Aqua Mag, and
flushing customers’ water lines in response to complaints to address this
issue. Regarding water odor, the Utility tested the water for compliance in
response to complaints. Regarding the interruptions, in response to staff’s
seventh data request, the Utility identified a total of eight service
interruptions for the test year (January 1, 2022, through December 31, 2022).
These interruptions were a result of either line breaks, loss of power at the
water treatment plant, loss of pressure on the system as a result of a power
outage, tank inspection and cleaning, emergency repairs, or leaks. The Utility
issued boil water notices for each interruption, and lifted them when safe to
do so.
Conclusion
Pinecrest has been
responsive to customer complaints and is currently in compliance with DEP
standards; therefore, staff recommends that the quality of service be
considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of
Pinecrest’s water system in compliance with DEP regulations?
Recommendation:
Yes. Pinecrest’s water treatment facility is
currently in compliance with DEP regulations. (Thompson)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each water
utility to maintain and operate its plant and facilities by employing qualified
operators, in accordance with the rules of the DEP. 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,
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
Pinecrest’s water system has a permitted capacity of
150,000 gallons per day (gpd). The water system has two wells with pumping
capacities of 200 gallons per minute (gpm) and 90 gpm, respectively, and one
hydropneumatic storage tank with a capacity of 5,000 gallons. Groundwater from
the wells is treated through hypochlorination. Staff reviewed Pinecrest’s most
recent Sanitary Survey Report conducted by the DEP to determine the Utility’s
overall water facility compliance. A review of the Report dated March 20, 2023,
indicated that Pinecrest’s water treatment facility is in compliance with the
DEP’s rules and regulations.
Conclusion
Pinecrest’s water treatment facility is currently in
compliance with DEP regulations.
Issue 3:
What are the used and useful (U&U) percentages
of Pinecrest’s water treatment plant (WTP) and water distribution system?
Recommendation:
Pinecrest’s WTP and water distribution system should
be considered 100 percent U&U. Additionally, staff recommends that a 47.6 percent
adjustment to purchased power and chemicals expenses be made for excessive
unaccounted for water (EUW). (Thompson)
Staff Analysis:
As stated in Issue 2, Pinecrest’s water system has
two wells with pumping capacities of 200 gpm and 90 gpm, respectively, and one
hydropneumatic storage tank with a capacity of 5,000 gallons. Pinecrest’s water
distribution system is composed of 500 feet of 2-inch polyvinyl chloride (PVC)
pipe, 6,300 feet of 3-inch PVC pipe, 3,210 feet of 4-inch PVC pipe, 5,025 feet
of 6-inch PVC pipe, and 20 feet of 4-inch galvanized pipe. There are nine fire
hydrants throughout the water distribution system.
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. In its last SARC, Pinecrest’s WTP and
water distribution system were found to be 100 percent U&U.
The Utility has not increased the capacity of its WTP since rates were last
established. The Utility’s water distribution system continues to only provide
service to existing customers, the service area remains built out, and there
continues to be no potential for expansion of the service area. Therefore,
consistent with the Commission’s previous decision, staff recommends that the
Utility’s WTP and water distribution system be considered 100 percent U&U.
Excessive Unaccounted for Water
Rule
25-30.4325, F.A.C., additionally provides factors to be considered in
determining whether adjustments to operating expenses are necessary for EUW.
EUW is defined as “unaccounted for water in excess of 10 percent of the amount
produced.” Unaccounted for water is all water produced that is not sold,
metered, or accounted for in the records of the utility.
EUW is calculated by subtracting
both the gallons sold to customers and the gallons used for other services,
such as flushing, from the total gallons pumped and purchased for the test
year, and dividing by the sum of gallons pumped and purchased. The amount in
excess of 10 percent, if any, is the EUW percentage.
Based on monthly operating
reports, Pinecrest produced 12,493,332 gallons of water during the test year
(January 1, 2022, through December 31, 2022). Staff was able to verify the
Utility sold 5,110,602 gallons of water to customers. In its 2022 Annual
Report, the Utility reported that no water was purchased, and recorded
7,383,000 gallons of water loss from line flushing and other events during the
test year. This calculation results in approximately zero unaccounted for
water. However, upon staff’s review, it appeared that the accounted for loss
value was determined by taking the difference between gallons of water produced
and gallons of water sold in each month of the Utility’s 2022 Annual Report,
including a negative value for one month. As such, staff requested that the Utility
provide documentation supporting the values provided in the Utility’s 2022
Annual Report for water loss due to flushing and other events. In response to
staff’s fourth data request regarding the methodology used to determine the
values in the 2022 Annual Report, the Utility stated that the flushing valves
were unmetered, but that the Utility’s technician calculated a flushing value
based on line diameter and flush duration.[9]
In response to Staff’s Fifth Data Request asking for supporting documentation for
those values, the Utility responded it did not keep exact records and outlined
its routine flushing events, but noted additional flushing occurs based on
operating conditions, customer complaints, and other factors.[10] In
response to Staff’s Seventh Data Request, the Utility stated it is under no
mandate from the DEP to engage in additional flushing beyond routine
maintenance or in response to customer complaints.[11]
Staff also asked if any non-flushing values were included in the reported
values, which the Utility responded it also included water loss from leaks in
the value. In the Utility’s supplemental response to Staff’s Seventh Data
Request, and its response to Staff’s Ninth Data Request, the Utility provided
estimates of water loss due to routine flushing and maintenance events, and
several known water leak events that resulted in water loss.[12] Staff
therefore elected to use the estimates provided by the Utility to determine
water loss resulting from flushing and other events for the test year, rather than
the 2022 Annual Report values.
For its calculation of EUW, staff excluded August and
September 2022 as the Utility indicated that its flow meter had failed during
these months, which resulted in low or no flow data being recorded for portions
of these months.[13] The
resulting calculation ([11,408,332 + 0 – 4,330,749 – 511,378] / [11,408,332 +
0]) for unaccounted for water is 57.6 percent. Therefore, there is 47.6 percent
EUW. Pursuant to Rule 25-30.4325(10), F.A.C., staff reviewed all relevant
factors for the EUW value, including whether the reason for losses was known,
and whether a solution has been implemented or is economically feasible. For
example, the Utility’s estimates of major leaks may be subject to error due to
unknown duration of the leak before it was detected and able to be repaired by
the Utility. However, in reviewing the monthly values between those months with
large leaks reported and those without, staff did not determine any large
difference in unaccounted for water. In response to Staff’s Ninth Data Request,
the Utility did not state it had identified a source for the losses, but
speculated that the water meters may be faulty, noting that after the flow
meter failed in late 2022, the Utility conducted bucket tests on random
customer meters, and determined that there was an increasing number of dead
meters throughout the system.[14] Staff
acknowledges that faulty water meters could contribute towards the value, but
the magnitude of the error made it unlikely to be the sole source. Staff reviewed
the Utility’s annual reports for the last ten-year period to determine if a
trend existed in the disparity between gallons pumped and gallons sold, as well
as customer growth. Figure 3-1 displays gallons pumped and gallons sold data
from the Utility’s annual reports.
Figure 3-1
Pinecrest Gallons Pumped and
Gallons Sold Data
Source: Utility’s Annual Reports.
As shown in Figure 3-1, it appears total gallons sold
slightly declined within the last five years of the period (2018 through 2022)
as compared to the first five years of the period (2013 through 2017), while
total gallons pumped increased substantially when comparing the same periods.
Between 2017 and 2018 alone, the Utility recorded an increase in total gallons
pumped of 4,040,000 gallons, while water sold declined by 734,000 gallons.
Figure 3-2 displays the Utility’s customer growth as identified in its last ten
annual reports. In comparison, the Utility’s customer base has only slightly
increased within the last five years of the period as compared to the first
five years.
Figure 3-2
Pinecrest Customer Growth
Source: Utility’s Annual Reports.
As noted previously, the Utility did not identify the
source of the disparity between gallons pumped and gallons sold, but speculated
that faulty meters were responsible according to its response to staff’s data
request. Therefore, while staff does agree that faulty water meters may be a
potential source of some unaccounted for water, the trend of increasing pumped
gallons appears higher than potential losses from meters without significant
increases in individual water consumption. Staff also notes the Commission
already allows for a 10 percent unaccounted for water percentage prior to
finding unaccounted for water excessive. As will be discussed in Issue 4, the
Utility requested a new flow meter and a meter replacement/retrofit project as
part of its pro forma project requests. If the Utility is able to demonstrate
that these projects rectify this issue, the Utility can seek an adjustment to
eliminate any EUW adjustment through a petition for a limited proceeding or a
future SARC application, which may also require rates to be reset as well to
reflect the additional sales previously unaccounted for and that were not used
in the determination of rates in this SARC.
During staff’s investigation of the values provided in the
Utility’s 2022 Annual Report for water loss related to flushing and other
events, the Office of Public Counsel (OPC) also expressed concerns with these
values. In its letter dated February 2, 2024, OPC recommended that an
adjustment of 49.09 percent be made to purchased power and chemicals expenses
for EUW based on allowing 10 percent of total gallons of water produced to be
allotted for flushing.[15] While staff
agrees with OPC that an adjustment is necessary, staff’s EUW calculation is
based on information provided by the Utility regarding its flushing activities
and other instances of water loss. Therefore, staff believes its calculated
value of a 47.6 percent adjustment to purchased power and chemicals expenses is
more appropriate. Based on the above analysis, staff recommends that a 47.6
percent adjustment be made to purchased power and chemicals expenses.
Service Interruption Records and Reporting
Pursuant to Rule 25-30.251(1) and (2), F.A.C., each
utility is required to maintain a record of all interruptions in service which
affect 10 percent or more of its customers, and notify the Commission of these
interruptions. The record is required to show the cause of the interruption,
its date, time, duration, remedy, and steps taken to prevent recurrence. In
response to Staff’s Seventh Data Request, Pinecrest provided its records for
the test year and four years prior; however, these records did not appear to
address all items required by the Rule, nor did the Utility notify the
Commission of the interruptions.[16]
Specifically, the remedy to the interruption or steps taken to prevent
recurrence did not appear to be outlined in the records. As such, staff
recommends that the Utility maintain its service interruption records meeting
the 10 percent threshold in the manner outlined in Rule 25-30.251(1), F.A.C.,
and notify the Commission of any such interruptions on a going-forward basis.
Conclusion
Pinecrest’s WTP and water distribution system should be
considered 100 percent U&U. Additionally, staff recommends that a 47.60 percent
adjustment to purchased power and chemicals expenses be made for EUW.
Issue 4:
What is the appropriate average test year rate base
amount for Pinecrest?
Recommendation:
The appropriate average test year rate base for
Pinecrest is $88,111. (Richards, Thompson)
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. 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 a UPIS balance of $257,345. As part
of Audit Finding 1 (AF-1), staff capitalized $1,093 from operation and maintenance
(O&M) account 636 related to the replacement of a control box, resulting in
an increase of $1,093.
Additionally, as part of AF-1, staff decreased UPIS by $500 due to lack of
supporting documentation from the Utility. Based on the Utility’s response to
staff’s Audit Report, staff decreased UPIS by $4,000 to reflect the appropriate
plant balance in Account 345 – Power Operated Equipment.
Further, staff decreased UPIS by $3,511 to reflect an averaging adjustment.
Pro Forma Plant Additions
Table 4-1 shows Pinecrest’s three requested pro forma
plant projects: 1) a meter replacement/retrofit project; 2) a flow meter
replacement; and 3) a lawn mower replacement. Pinecrest explained that its
meter replacement/retrofit project is the same as the meter replacement program
approved for Leighton Estates Utilities, LLC (Leighton) in its last SARC, as
Pinecrest will be using the same software and meters.
As such, Pinecrest will also be transitioning its residential meters to
Advanced Meter Infrastructure (AMI) meters for compatibility with the Beacon
Software approved by the Commission in the Leighton SARC for use by all of the
Florida Utility Services 1 (FUS1) water systems. Pinecrest asserted that AMI meters will
allow the Utility to electronically obtain meter readings, provide real-time
data accessibility, and reduce customer service-related calls and associated
work order trips. The cost allocated to Pinecrest for use of the Beacon
Software was $346.
However, in response to Staff’s Sixth Data Request, the Utility indicated that
the vendor will not provide a final invoice for the Beacon Software until after
file integration is complete, and provided its updated estimate of $352 to be
allocated to Pinecrest.
As no bid or invoice was provided to support this estimate, staff included the
$346 cost allocation identified in the Leighton SARC, which is included
in the total meter replacement/retrofit project cost in Table 4-1. If the
Utility can demonstrate that the final cost for incorporation of this software
increased, the Utility can request the differential in a future proceeding. Pinecrest
intends to replace 82 and retrofit 62 residential meters. The Utility provided
a bid reflecting the current costs for new meters and meter retrofits from the
vendor of the Beacon Software, Badger Meter, for compatibility with the
approved software. In response to Staff’s Third Data Request, the Utility
estimated that labor would cost about $22 for each meter replacement and
retrofit.
However, as the meter replacement/retrofit project will be implemented by
full-time employees of FUS1 already accounted for through FUS1’s payroll, labor
costs have been excluded.
The flow meter replacement pro forma
project is a result of Pinecrest’s current flow meter failing. In response to
Staff’s Third Data Request, the Utility explained that the new flow meter was
purchased from the same vendor used for the meter replacement/retrofit project
for compatibility with the Beacon Software. The Utility indicated that it
intends to purchase all residential and flow meters from this this vendor on a
going-forward basis for this reason. In response to Staff’s Ninth Data Request,
the Utility indicated that the new flow meter has been installed.
The total cost for this project is included in Table 4-1.
Lastly, the Utility is requesting a
lawn mower replacement due to the current lawn mower being near the end of its
useful life. As is Commission practice, staff requested that three bids
be provided for this pro forma project. However, the Utility explained that it
was only able to obtain bids from two vendors within a reasonable distance as
the tractor will have to be taken to the vendor to have the mower deck and
attaching equipment installed. Of the two bids provided, the Utility indicated
that intends to select the least-cost vendor for this project. The
total cost for this project is included in Table 4-1. As these
improvements are necessary for the Utility to provide safe and reliable service
to its customers, staff recommends that these project costs are appropriate.
Table 4-1
Pro Forma Plant Items
|
Project
|
Additions
|
Retirements
|
|
Acct. 334 – Meter Replacement / Retrofit
|
$2,368
|
($819)
|
|
Acct. 334 – New Flow Meter
|
1,862
|
(1,397)
|
|
Acct. 343 – New Mower
|
4,066
|
(3,050)
|
|
Total Pro Forma
|
$8,296
|
($5,265)
|
Source: Utility responses to staff data requests.
As detailed above in Table 4-1, staff increased UPIS by
$8,296. This amount was offset by retirements of $5,265. Table 4-2 on the
following page summarizes staff’s adjustments to UPIS.
Table 4-2
Staff Adjustments to UPIS
|
Description
|
Adjustment
|
|
To reflect capitalization of control box replacement.
|
$1,093
|
|
To reflect adjustments from lack of supporting
documentation.
|
(500)
|
|
To reflect appropriate plant balance of acct. 345.
|
(4,000)
|
|
To reflect an averaging adjustment.
|
(3,511)
|
|
To reflect pro forma additions.
|
8,296
|
|
To reflect pro forma retirements.
|
(5,265)
|
|
Total adjustments
to UPIS.
|
($3,887)
|
Source: Staff calculations.
As described above and summarized in Table 4-2, staff’s
adjustments to UPIS result in a decrease of $3,887. Therefore, staff recommends
an average UPIS balance of $253,458 ($257,345 - $3,887).
Land and Land Rights
The Utility recorded a land and land rights balance of
$6,500. No adjustments were made to land and land rights, therefore, staff
recommends land and land rights balance of $6,500.
Used and Useful
As discussed in Issue 3, the Utility’s system is
considered 100 percent U&U. Therefore, no U&U adjustment is necessary.
Accumulated Depreciation
The Utility recorded an accumulated depreciation balance of
$192,282. As part of Audit Finding 2 (AF-2), staff found the Utility was
inconsistently recording accumulated depreciation since the last rate case, and
therefore decreased accumulated depreciation by $3,789.
Additionally, staff made an averaging adjustment, decreasing accumulated
depreciation by $4,565. Staff also decreased accumulated depreciation by $5,079
for pro forma-related items. Therefore, staff recommends an average accumulated
depreciation balance of $178,849 ($192,282 - $3,789 - $4,565 - $5,079).
Contributions-in-aid-of-Construction
The Utility recorded a CIAC balance of $100,352. Staff
made no adjustments to CIAC, and therefore recommends an average CIAC balance
of $100,352.
Accumulated Amortization of CIAC
The Utility recorded an accumulated amortization of CIAC balance
of $100,352. The accumulated amortization of CIAC balance at the beginning of
the test year was $97,541. As such, staff made an averaging adjustment to
reduce accumulated amortization of CIAC by $1,406. Therefore, staff recommends
an accumulated amortization of CIAC balance of $98,947 ($100,352 - $1,406).
Working Capital Allowance
Working capital is defined as the short-term investor-supplied
funds that are necessary to meet operating expenses. Consistent with Rule 25-30.433(3),
F.A.C., staff used the one-eighth 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 of $509. This resulted in an adjusted O&M expense balance of
$67,265 ($67,774 - $509). Following the application of the aforementioned
formula, staff recommends a working capital allowance of $8,408 ($67,265 ÷ 8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate test year average rate base is $88,111. 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 Pinecrest?
Recommendation:
The appropriate return on equity (ROE) is 8.50
percent with a range of 7.50 percent to 9.50 percent. The appropriate overall
rate of return is 8.18 percent. (Richards)
Staff Analysis:
The Utility’s capital structure consists of
long-term debt, common equity and customer deposits. Staff reclassified $18,408
originally recorded as “due to parent company” on the Utility’s 2022 Annual
Report, as common equity. Additionally, in response to Staff’s Sixth Data
Request, the Utility stated the $8,296 pro forma cost will be paid by the
Utility’s parent company, FUS1.
Therefore, staff applied this amount to the Utility’s common equity.
The Utility’s capital structure has been reconciled with
staff’s recommended rate base. The appropriate ROE is 8.50 percent based on the
current Commission-approved leverage formula.
Staff recommends an ROE of 8.50 percent with a range of 7.50 percent to 9.50
percent, and an overall rate of return of 8.18 percent. The proposed ROE and
overall rate of return are shown on Schedule No. 2.
Issue 6:
What is the appropriate test year operating revenue
for Pinecrest?
Recommendation:
The appropriate test year
operating revenue for Pinecrest’s water system is $64,743. (Sibley)
Staff Analysis:
The Utility recorded test year operating
revenue of $59,185, which included service revenues of $57,145 and
miscellaneous revenues of $2,040. A review of the Utility’s billing register
indicated 64 bills were related to vacant properties. Staff removed the bills
to determine the appropriate billing determinants. The Utility also had a price
index that became effective on June 1, 2023. To determine the appropriate
service revenues, staff annualized service revenues by applying the adjusted
number of billing determinants to the rates in effect on June 1, 2023. As a
result, staff determined that the service revenues should be $62,635, which is
an increase of $5,490 ($62,635 - $57,145). Furthermore, staff increased
miscellaneous revenues by $68 to adjust for customer deposit interest that was
incorrectly recorded as miscellaneous revenues. This results in miscellaneous
revenues of $2,108 ($2,040 + $68) during the test year. Therefore, staff
recommends that the appropriate test year operating revenue for Pinecrest’s
water system is $64,743 ($62,635 + $2,108).
Issue 7:
What is the appropriate operating expense for
Pinecrest?
Recommendation:
The appropriate amount of operating expense for
Pinecrest is $79,111. (Richards)
Staff Analysis:
The Utility recorded an operating expense of
$79,621. 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 expense as described below.
Operation and Maintenance Expense
After review of the Utility’s records, staff made no
adjustments to the recorded expenses in fuel for power production (616),
materials and supplies (620), contractual services – professional (631),
contractual services – testing (635), rents (640), transportation (650),
insurance (655), or miscellaneous expenses (675). Staff’s recommended expenses
for these accounts are shown on Schedule No. 3-C.
Salaries and Wages – Employees (601)
The Utility recorded salaries and wages – employees
expense of $16,421. The Utility submitted a request for a pro forma salary
increase intended to attract and retain qualified employees given the current
economic climate.
The Utility’s pro forma request was based on a compensation study.
After thorough review of the Utility’s request and compensation study, staff
increased this account by $3,463. Therefore, staff recommends salaries and
wages – employees expense of $19,884 ($16,421 + $3,463).
Salaries and Wages – Officers and Directors
(603)
The Utility recorded salaries and wages – officers and
directors expense of $3,201. In its request for pro forma salary increases
dated October 27, 2023, the Utility identified the need for a new Salary and
Benefits Administrator to assume some of the payroll responsibilities of the
Chief Financial Officer. After thorough review of the Utility’s request, staff
increased this account by $795. Therefore, staff recommends salaries and wages
– officers and directors expense of $3,996 ($3,201 + $795).
Employees Pensions and Benefits (604)
The Utility recorded employee pensions and benefits
expense of $4. In its pro forma salary request, the Utility stated it desires
to provide its employees a retirement benefit beginning in 2023. The parent
company of the Utility, FUS1 believes that the addition of a retirement benefit
is necessary to attract and retain future qualified employees to serve its
existing and future customers, and therefore proposes to establish a “Simple
IRA Plan” as defined under Section 408(b) of the Internal Revenue Code. After a
thorough review of the Utility’s request, staff increased this account by $402.
Therefore, staff recommends employee pensions and benefits expense of $406 ($4
+ $402).
Purchased Power (615)
The Utility recorded purchased power expense of $8,350. As
discussed in Issue 3, staff recommends an EUW adjustment of 47.6 percent. As
such, staff decreased purchased power expense by $3,975. Therefore, staff
recommends purchased power expense of $4,375 ($8,350 - $3,975).
Chemicals (618)
The Utility recorded chemicals expense of $4,887.
Similarly, as discussed in Issue 3, staff made an EUW adjustment of 47.6
percent, reducing chemicals expense by $2,326. Therefore, staff recommends
chemicals expense of $2,561 ($4,887 - $2,326).
Contractual Services – Other (636)
The Utility recorded contractual services – other expense
of $8,908. During the audit, it was found that a cost of $1,093 for the
replacement of a control box for the Utility’s pumping equipment was recorded
in this account. Staff does not believe this is a recurring expense and the
replacement was necessary for the pumping equipment to operate. Based on this,
staff decreased contractual services – other expense by $1,093 and capitalized
this amount to plant account 311 consistent with AF-1. Therefore, staff
recommends contractual services – other expense of $7,815 ($8,908 - $1,093).
Regulatory Commission Expense (665)
The Utility recorded a regulatory commission expense of
$816 as a deferred cost from its previous limited alternative rate increase.
The Utility did not record any rate case expense for the instant docket. The Utility
is required by Rule 25-22.0407, F.A.C., to mail notices of the rate case
overview, interim rates, final rates, and four-year rate reduction. Staff
calculated noticing costs to be $558. Staff calculated the distance from the
Utility to Tallahassee as 214 miles. Based on the 2023 IRS business mileage
rate of $0.655, staff calculated a round-trip travel and lodging expense to the
Commission Conference of $480.
Additionally, the Utility paid a filing fee of $1,000.
Staff recommends a total rate case expense, consisting of
noticing costs, travel and lodging expenses, and filing fee of $2,038 ($558 +
$480 + $1,000), which amortized over four years is $509 ($2,038 ÷ 4 years).
Therefore, staff recommends a total regulatory commission expense of $1,325
($816 + $509).
Bad Debt Expense (670)
The Utility recorded bad debt expense of $763. Staff notes
that it is Commission practice to calculate bad debt expense using a three-year
average when sufficient information is available.
In its three most recent Annual Reports (2020, 2021, and 2022), the Utility
recorded bad debt expenses of $743, $2,357, and $763, respectively. Staff
calculated the average bad debt expense for these previous three years to be
$1,288 (($743 + $2,357 + $763) ÷ 3) which represents an increase of $525.
Therefore, staff recommends bad debt expense of $1,288 ($763 + $525).
Operation and Maintenance Expense Summary
The Utility recorded a test year O&M expense of
$69,474. Based on the above adjustments, staff recommends O&M expense be
decreased by $1,700. This results in a total O&M expense of $67,774
($69,474 - $1,700). Staff’s recommended adjustments to O&M are shown on
Schedule No. 3-C.
Depreciation Expense
The Utility recorded depreciation expense of $9,020. Using
the depreciation rates prescribed in Rule 25-30.140, F.A.C., audit staff
increased this amount by $869 as part of AF-2. Staff made adjustments
decreasing depreciation expense by $1,356 to prevent over depreciation of certain
plant accounts. Additionally, staff increased depreciation expense by $186 due
to the inclusion of pro forma plant items. These adjustments result in a net
decrease of $301 ($869 - $1,356 + $186). Therefore, staff recommends
depreciation expense of $8,719 ($9,020 - $301).
Amortization of CIAC
The Utility recorded amortization of CIAC of $2,811. Staff
made no adjustments and therefore recommends amortization of CIAC of $2,811.
Taxes Other Than Income (TOTI)
The Utility recorded TOTI of $3,938. Staff increased TOTI
by $250 to reflect the appropriate regulatory assessment fees (RAFs) based on
corrected Utility test year revenues. Additionally, staff increased TOTI by
$270 to reflect the pro forma payroll taxes associated with the pro forma
increase in salaries explained previously in O&M accounts 601 and 603.
Those adjustments result in a test year TOTI increase of $520 ($250 + $270).
As discussed in Issue 9, staff recommends revenues be
increased by $21,579 in order to reflect the change in revenue required to
cover expenses and provide the Utility an opportunity to earn the recommended
rate of return. As a result, TOTI should be increased by $971 to reflect RAFs
of 4.5 percent of the change in revenues. Therefore, staff recommends TOTI of
$5,429 ($3,938 + $520 + $971).
Operating Expense Summary
The Utility
recorded operating expenses of $79,621. The application of staff’s recommended
adjustments to the Utility’s recommended operating expenses result in a total
operating expense of $79,111. Operating expenses are shown on Schedule No. 3-A,
and the related adjustments are shown on Schedule No. 3-B.
Issue 8:
Does Pinecrest meet the criteria for application of
the operating ratio methodology?
Recommendation:
No, Pinecrest does not meet the requirement for
application of the operating ratio methodology for calculating the revenue
requirement. (Richards)
Staff Analysis:
Rule 25-30.4575(2), F.A.C., provides that, in rate
cases processed under Rule 25-30.455, F.A.C., the Commission will use the
operating ratio methodology to establish a utility’s revenue requirement when
its rate base is not greater than 125 percent of O&M expenses, less
regulatory commission expense, and the use of the operating ratio methodology
does not change a utility’s qualification for a SARC.
With respect to Pinecrest, staff has recommended a rate
base of $88,111. After removal of rate case expense, staff has calculated an
O&M expense of $67,265 ($67,774 - $509). Based on staff’s recommended
amounts, the Utility’s rate base is 131 percent of its adjusted O&M
expense. Based on this, the Utility does not qualify for application of the
operating ratio methodology.
Issue 9:
What is the appropriate revenue requirement for
Pinecrest?
Recommendation:
The appropriate revenue requirement is $86,321,
resulting in an annual increase of $21,579 (33.33 percent). (Richards)
Staff Analysis:
Pinecrest should be allowed an annual revenue
requirement increase of $21,579 (33.33 percent). This should allow the Utility
the opportunity to recover expenses and earn an 8.18 percent return on rate
base. The calculation for revenue requirement is shown on Table 9-1 below.
Table 9-1
Revenue Requirement
|
Water Rate Base
|
$88,111
|
|
Rate of Return
|
8.18%
|
|
Return on Rate Base
|
$7,210
|
|
Water O&M Expense
|
67,774
|
|
Depreciation Expense
|
8,719
|
|
Amortization
|
(2,811)
|
|
Taxes Other Than Income
|
5,429
|
|
Revenue Requirement
|
$86,321
|
|
Less Test Year Revenues
|
$64,743
|
|
Annual Increase
|
$21,579
|
|
Percent Increase
|
33.33%
|
Source: Staff calculations.
Issue 10:
What are the appropriate rate structure and rates
for Pinecrest?
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.
(Sibley)
Staff Analysis:
Pinecrest is located in Polk County within the Southwest
Florida Water Management District. The Utility provides water service to 138
residential customers and there are no general service customers. Approximately
19 percent of the residential customer bills during the test year had zero
gallons, indicating a non-seasonal customer base. The average residential water
demand is 3,094 gallons per month. Currently, the Utility’s water rate
structure consists of a monthly base facility charge (BFC) and a charge per
1,000 gallons for residential and general service customers.
Staff performed an analysis of the Utility’s billing data
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.
For this case, staff recommends that 40 percent of the
water revenues be generated from the BFC, which will provide sufficient
revenues to design gallonage charges that send pricing signals to customers
using above the non-discretionary level. The average people per household
served by the water system is 2.77; therefore, based on the number of people
per household, 50 gallons per day per person, and the number of days per month,
the non-discretionary usage threshold should be 5,000 gallons per month.
Staff’s review of the billing data indicates that discretionary usage above
5,000 gallons represents approximately 18 percent of the bills, which accounts
for approximately 24 percent of water demand. This indicates that there is a
moderate amount of discretionary usage above 5,000 gallons.
Staff recommends a two-tier inclining block rate structure,
which includes separate gallonage charges for non-discretionary and discretionary
usage for residential water rates. The rate blocks are: 1) 0-5,000 gallons; and
2) all usage in excess of 5,000 gallons per month. Due to the moderate usage
above 5,000 gallons per month, staff believes that it is appropriate in this
case to recommend a rate factor of 1.25 in the second tier because it will
target those customers with higher levels of consumption. General service
customers should continue to be billed a BFC and uniform gallonage charge.
Based on staff’s recommended revenue increase of 34.5
percent, which excludes miscellaneous revenues, the residential consumption can
be expected to decline by 294,000 gallons resulting in anticipated average
residential demand of 2,916 gallons per month. Staff recommends a 5.8 percent
reduction in test year residential gallons for rate setting purposes. As a
result, the corresponding reductions are $252 for purchased power expense, $147
for chemicals expense, and $19 for RAFs to reflect the anticipated repression,
which results in a post repression revenue requirement of $83,042.
The recommended rate structures
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.
Issue 11:
What are the appropriate initial customer deposits
for Pinecrest?
Recommendation:
The appropriate initial customer deposit for the
residential 5/8 inch x 3/4 inch meter size should be $98. The initial customer
deposits for all other residential meter sizes and all general service meter
sizes should be two times the average estimated bill. 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. (Sibley)
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.
Currently, the Utility’s initial customer deposit for the residential 5/8 inch
x 3/4 inch meter size is $67 for water. This amount does not cover two months’
average bills based on staff’s recommended rates. The Utility’s anticipated
post-repression average monthly residential usage is 2,916 gallons per
customer. Therefore, the average residential monthly bill based on staff’s
recommended rates is approximately $48.86.
Staff recommends the appropriate initial customer deposit
for the residential 5/8 inch x 3/4 inch meter size should be $98. The initial
customer deposits for all other residential meter sizes and all general service
meter sizes should be two times the average estimated bill. 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 12:
What are the appropriate miscellaneous service
charges?
Recommendation:
The appropriate miscellaneous service
charges are shown on Table 12-4 and should be approved. The Utility 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. (Sibley)
Staff Analysis:
The Utility is requesting to revise
some of its existing miscellaneous service charges. Section 367.091, F.S.,
authorizes the Commission to establish, increase, or change a rate or charge
other than monthly rates or service availability charges. The Utility’s
requested miscellaneous charges were accompanied by its reason for requesting
the charges, as well as the cost justification required by Section 367.091(6),
F.S. The Utility’s requested and revised miscellaneous service charges along
with the existing are shown below.
Table 12-1
Pinecrest’s Existing and
Requested Miscellaneous Service Charges
|
|
Existing
|
Requested
|
|
Initial Connection Charge
|
$15.00
|
Actual
Cost
|
|
Normal
Reconnection Charge
|
$15.00
|
$34.50
|
|
Violation
Reconnection Charge
|
$15.00
|
$34.50
|
|
Premises
Visit Charge (in lieu of disconnection)
|
$10.00
|
$34.50
|
|
Late Payment Charge
|
$5.50
|
$7.00
|
Source: Utility’s
current tariff and responses to staff’s data requests.
Premises Visit and Violation Reconnection Charge
As shown on Table 12-1, Pinecrest’s
request consists of several miscellaneous service charges. However, Rule
25-30.460, F.A.C., does not allow for initial connection and normal
reconnection charges. The Utility’s requested initial
connection and normal reconnection charges are obsolete and inconsistent with
the rule. The Utility’s calculation for the premises visit charge and violation
reconnection are shown on Table 12-2. The Utility provided cost justification
of $34.58 for both the premises visit and violation reconnection charges which
represents the cost of a trip to perform a specified service. Staff believes
the cost justification is reasonable and supports the Utility’s requested
charge of $34.50. In addition, the requested charge defrays the cost to the
cost causer. However, the violation reconnection charge should account for the
discontinuance of service and the subsequent reconnection of service.
Therefore, the violation reconnection charge should account for both services
at a charge of $69.00 ($34.50 x 2). Based on the rule, staff recommends that
the initial connection and normal reconnection charges be removed. Staff
recommends that the Utility’s requested premises visit charge of $34.50 and a
violation reconnection charge of $69.00 should be approved.
Table 12-2
Calculation for Premises
Visit and Violation Reconnection Charge
|
Activity
|
Cost
|
|
Mileage ($0.67 per mile x 2/3 hour
x 11)
|
$7.37
|
|
Administrative Labor ($26.10 per
hour x 1/3 hour)
|
7.83
|
|
Field Labor ($26.10 per hour x 1/2
hour)
|
13.05
|
|
CSM Labor ($25.30 per hour x 1/4
hour)
|
6.33
|
|
Total
|
$34.58
|
Source: Utility’s
cost justification documentation.
Late Payment Charge
The Utility currently has a $5.50 late
payment charge. The Utility is requesting a $7.00 late payment charge to
recover the cost of labor, supplies, and postage associated with processing
late payment notices. The purpose of this charge is not only to provide an
incentive for customers to make timely payment, thereby reducing the number of
delinquent accounts, but also to place the cost burden of processing delinquent
accounts solely upon those who are cost causers. The Utility calculated the
actual costs for its late payment charges to be $7.07. The Utility indicated
that it will take approximately 15 minutes per account to research, compile,
and produce late notices. The delinquent customer accounts will be processed by
the administrative employee, which results in labor cost of $6.33 ($25.30 x
0.25hr). This is consistent with prior Commission decisions where the
Commission has allowed 5-15 minutes per account per month for the
administrative labor associated with processing delinquent customer accounts.
In addition, the Utility included material cost of $0.74 for paper, envelopes,
and postage, which results in total costs of $7.07 ($6.33 + $0.74). The Utility’s calculation for its costs
associated with a late payment charge is shown on Table 12-3. Staff recommends
the requested late payment charge of $7.00 be approved.
Table 12-3
Late Payment Charge Cost
Justification
|
Category
|
Cost
|
|
Labor
|
$6.33
|
|
Materials
|
0.08
|
|
Postage
|
0.66
|
|
Total Cost
|
$7.07
|
Source: Utility’s cost justification documentation.
Table 12-4
Staff Recommended
Miscellaneous Service Charges
|
|
All
Hours
|
|
Violation Reconnection Charge
|
$69.00
|
|
Premises Visit
Charge
|
$34.50
|
|
Late Payment
Charge
|
$7.00
|
Source: Staff Calculations
Conclusion
Based on the above, staff recommends
that the appropriate miscellaneous service charges shown on Table 12-4 should
be approved. The Utility 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 charges 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 13:
What is the appropriate amount by which rates should
be reduced four years after the published effective date to reflect removal of
the amortized rate case expense?
Recommendation:
The rates should be reduced as shown on Schedule No.
4, to remove rate case expense grossed-up for RAFs and amortized over a
four-year period. Pursuant to Section 367.081(8), F.S., the decrease in rates
should become effective immediately following the expiration of the rate case
expense recovery period. Pinecrest should be required to file revised tariffs
and a proposed customer notice setting forth the lower rates and rationale no
later than one month prior to the effective date of the new rates. If the
Utility files revised tariffs reflecting this reduction in conjunction with a
price index or pass-through rate adjustment, separate data should be filed for
the price index and/or pass-through increase and the reduction in the rates due
to the amortized rate case expense. (Richards, Sibley)
Staff Analysis:
Section 367.081(8), F.S.,
requires that the rates be reduced by the amount of rate case expense
previously included in rates immediately following the expiration of the
recovery period. With respect to Pinecrest, the reduction will reflect the
removal of revenue associated with the amortization of rate case expense and
the gross-up for RAFs. The total reduction is $533.
Staff recommends that the rates should be reduced as shown
on Schedule No. 4, to remove rate case expense grossed-up for RAFs and
amortized over a four-year period. Pursuant to Section 367.081(8), F.S., the
decrease in rates should become effective immediately following the expiration
of the rate case expense recovery period. Pinecrest should be required to file
revised tariffs and a proposed customer notice setting forth the lower rates
and rationale no later than one month prior to the effective date of the new
rates. If the Utility files revised tariffs reflecting this reduction in
conjunction with a price index, or pass-through rate adjustment, separate data
should be filed for the price index and/or pass-through increase and the
reduction in the rates due to the amortized rate case expense.
Issue 14:
Should the recommended rate be approved for
Pinecrest 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. Pinecrest should file revised tariff sheets and a
proposed customer notice reflecting the Commission-approved rates. The approved
rates should be effective for services rendered on or after the stamped
approval date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In
addition, the temporary rates should not be implemented until staff has
approved the proposed notice, and the notice has been received by the
customers. Further, prior to implementing any temporary rates, the Utility
should provide appropriate financial security.
If the recommended rates are approved on a temporary
basis, the rates collected by the Utility should be subject to the refund
provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the
Utility should file reports with the Commission’s Office of Commission Clerk no
later than the 20th of each month indicating both the current monthly and total
amount subject to refund at the end of the preceding month. The report filed
should also indicate the status of the security being used to guarantee
repayment of any potential refund. (Richards)
Staff Analysis:
This recommendation proposes an increase in rates. A
timely protest might delay a rate increase resulting in an unrecoverable loss
of revenue to the Utility. Therefore, pursuant to Section 367.0814(7), F.S., in
the event of a protest filed by a party other than the Utility, staff
recommends that the proposed rates be approved on a temporary basis. Pinecrest
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.
Pinecrest 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 $14,896. 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 Pinecrest 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 NARUC USOA?
Recommendation:
Yes. Pinecrest should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. The Utility should submit a letter within 90 days of the
Commission’s final order in this docket, confirming that the adjustments to all
applicable NARUC USOA primary accounts have been made to the Utility’s books
and records. In the event the Utility needs additional time to complete the
adjustments, a notice providing good cause should be filed not less than seven
days prior to the deadline. Upon providing a notice of good cause, staff should
be given administrative authority to grant an extension of up to 60 days.
(Richards)
Staff Analysis:
Pinecrest should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with the
Commission’s decision. The Utility should submit a letter within 90 days of the
Commission’s final order in this docket, confirming that the adjustments to all
applicable NARUC USOA primary accounts have been made to the Utility’s books
and records. In the event the Utility needs additional time to complete the
adjustments, a notice providing good cause should be filed not less than seven
days prior to the deadline. Upon providing a notice of good cause, staff should
be given administrative authority to grant an extension of up to 60 days.
Issue 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. (Imig)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the Proposed Agency Action Order, a Consummating Order should be
issued. The docket should remain open for staff’s verification that the revised
tariff sheets and customer notice have been filed by the Utility and approved
by staff. Once these actions are complete, this docket should be closed
administratively.
