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State of Florida
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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-
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DATE:
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October 24, 2024
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Economics (Bethea, Bruce) EJD
Division of Engineering
(Watts) TB
Office of the General
Counsel (Dose, Crawford) JSC
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RE:
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Docket No. 20240106-WU – Application for a
revenue-neutral uniform water rate restructuring limited proceeding in
Alachua, Duval, Leon, Okaloosa, and Washington Counties, by North Florida
Community Water Systems, Inc.
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AGENDA:
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11/05/24 – Regular Agenda – Proposed Agency Action - Interested
Persons May Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Fay
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CRITICAL DATES:
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90-day statutory deadline waived until 11/05/24
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SPECIAL INSTRUCTIONS:
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None
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Case Background
On July 25,
2024, North Florida Community Water Systems, Inc. (NFCWS) filed an application
for a revenue-neutral uniform water rate restructuring limited proceeding for
the six water utilities it owns in Alachua, Duval, Leon, Okaloosa, and
Washington Counties. NFCWS is seeking a rule waiver to use the limited
proceeding rule, Rule 25-30.445, Florida Administrative Code (F.A.C.), to
consolidate these systems for ratemaking purposes.
The six water
systems at issue here are Duval Water System (Duval); Gator Water System
(Gator); Lake Talquin Water System (Lake Talquin); Okaloosa Water System
(Okaloosa); Seminole Water System; and Sunny Hills Water System (Sunny Hills).
Of these systems, Duval and Sunny Hills have wastewater systems. By Order No.
PSC-2023-0097-FOF-WS, the Commission acknowledged the corporate reorganization
and name change of these systems to NFCWS. The corporate reorganization resulted in
no change in the ownership or control of the utilities, and each NFCWS system
continues to charge its own respective Commission-approved rates and charges.
In its July 23,
2024, petition for limited proceeding, NFCWS seeks uniform rates for these
systems. NFCWS states that the various rates charged by each system are widely
disparate. Uniform rates, if granted, would result in a reduction in typical
residential bills, except for the Gator and Okaloosa water systems which would
see a minimal increase in rates. NFCWS states that the requested rates will
provide significant relief to approximately seventy-four percent of the
residential customers and that for Okaloosa, customers will benefit by a less
stringent and more meaningful, understandable rate structure. NFCWS also states
that conservation-oriented rates will be implemented for Lake Talquin.
On September 13,
2024, the Office of Public Counsel (OPC) filed a letter providing concerns
regarding NFCWS’s petition for partial variance or waiver of the requirements
of Rule 25-30.445, F.A.C. In its letter, OPC stated that NFCWS does not appear
to qualify for a waiver or for a limited proceeding in the instant docket. OPC
requests that the Commission deny NCFWS’s request for partial variance or
waiver of Rule 25-30.445, F.A.C. NFCWS responded to OPC’s letter on September
16, 2024, to which OPC filed a second letter still in opposition on October 11,
2024.
The Commission has broad authority to
conduct limited proceedings under Section 367.0822(1), Florida Statutes (F.S.).
Rule 25-30.445, F.A.C., which the Commission adopted to implement Section
367.0822, F.S., restricts the ability of water and wastewater systems to use
the limited proceeding process. Rule 25-30.445(6), F.A.C., provides that a
limited proceeding will not be allowed if:
(a) The utility’s filing includes more than
six separate projects for which recovery is sought. Corresponding adjustments
for a given project are not subject to the above limitation;
(b) The requested rate increase exceeds 30
percent;
(c) The utility has not had a rate case
within seven years of the date the petition for limited proceeding is filed
with the Commission; or
(d) The limited proceeding is filed as the
result of the complete elimination of either the water or wastewater treatment
process.
NFCWS argues that Rule 25-30.445, F.A.C.,
seems to contemplate a petition for limited proceeding that is predicated upon
a rate increase. However, NFCWS is requesting a revenue-neutral rate
restructuring based upon existing historical revenues, not a revenue increase.
Further, NFCWS recognizes that not all of its systems meet the seven-year rate
case requirement of Rule 25-30.445(6)(c), F.A.C. Consequently, on August 2,
2024, NFCWS filed a request for a partial variance from, or waiver of, the
requirements of the rule governing limited proceedings.
Florida law allows
agencies to waive or provide other relief (variances) to persons subject to regulation
where the strict application of uniformly applicable rule requirements leads to
“unreasonable, unfair, and unintended results in particular instances.” Section
120.542(1), F.S. Variances and waivers shall be granted when the person
subject to the rule demonstrates that the purpose of the underlying
statute will be or has been achieved by other means by the person and
when application of a rule would create a substantial hardship or would violate
principles of fairness. Section 120.542(2), F.S.
On August 12, 2024, the Commission filed a
Florida Administrative Register notice acknowledging receipt of NFCWS’s rule
waiver petition. The
time for filing comments, provided by Rule 28-104.003, F.A.C., expired on
August 27, 2024; no customer comments as to NFCWS’s rule waiver petition were
received. On September 11, 2024, NFCWS waived the 90-day deadline for
the Commission to grant or deny its petition, pursuant to Section 120.542(8),
F.S., through the November 5, 2024, Commission Agenda Conference.
This
recommendation addresses NFCWS’s petition for rule waiver only. If the
Commission approves NFCWS’s request for rule waiver, a subsequent
recommendation addressing the merits of NFCWS’s application for a rate
restructuring will be presented at a subsequent Agenda Conference. The
Commission has jurisdiction under Sections 120.542, 367.0822, and 367.121, F.S.
Discussion
of Issues
Issue 1:
Should the Commission grant NFCWS’s petition for a
waiver of Rule 25-30.445(6), F.A.C.?
Recommendation:
Yes. NFCWS has demonstrated that the purpose of the
underlying statute is being achieved and that strict application of the rule
violates principles of fairness to its customers. (Dose)
Staff Analysis:
NFCWS’s Position
In its July 23, 2024, petition for limited proceeding,
NFCWS states that the various rates reflect a wide disparity among its systems.
NFCWS believes that implementation of uniform rates will result in a more
equitable disbursement of operating costs among the water customer group and
that it would be more efficient to have a uniform water rate structure for all
of its water systems. NFCWS states that it is not seeking an increase in
revenues or recovery of capital items or operating expenses in this docket. In
support of its position, NFCWS cited Order No. PSC-2010-0219-PAA-WS, where the
Commission found that “a revenue-neutral rate restructuring for a Class B
utility is tantamount to a limited proceeding rate case with no revenue
increase.”
NFCWS states that the revenue neutral water rate
restructuring represents a significant reduction in rates and water bills to
approximately seventy-four percent of the water residential customers. NFCWS
acknowledges that four of the six water systems have not had a rate case in the
past seven years as required by the rule. However, NFCWS states that if it were
required to obtain outside legal counsel and file six sets of Minimum Filing
Requirements (MFRs), any reduction in rates would be diminished due to the
additional costs involved.
NFCWS contends that the purpose of the statute is to afford
the Commission broad discretion as to matters that are appropriate for a
limited proceeding in order to alleviate the time and expense of full rate
proceedings. As to the requirement that a utility can avail itself to a limited
proceeding only if it has had a rate case within the last seven years, NFCWS
states that although there is “nothing magic” about seven years, it was
intended to assure that when a limited proceeding rate increase was considered,
the utility’s overall financial information had been vetted in recent years by
the Commission. NFCWS argues that when the limited proceeding does not seek a
revenue increase (other than for rate case expense), that vetting is not
necessary. Further, NFCWS believes the underlying purpose of the statute would
be achieved if a waiver or variance is granted because the Commission would
retain its right to obtain information required to achieve the appropriate rate
consolidation, including conducting an audit, if necessary.
OPC’s Position
In its September 13, 2024, letter of concerns regarding
NFCWS’s petition for partial variance or waiver of Rule 25-30.445, F.A.C., OPC
raises several objections to NFCWS’s positions. First, OPC distinguishes the
instant case from that cited by NFCWS to support a limited proceeding in this
case. OPC notes that Order No. PSC-2010-0219-PAA-WS concerned the
revenue-neutral rate restructuring of a utility operating one water system and
one wastewater system in a single county, whereas NFCWS is proposing
consolidated rates for six water systems across five counties.
Second, OPC states that, within the last seven years, the
Commission has only established base rates and cost of service in rate
proceedings for Gator and Sunny Hills. OPC believes that only these two are
eligible for a limited proceeding and that the other four water systems must
come in for a rate proceeding. OPC disagrees with NFCWS’s position that overall
financial information vetting is not necessary in this case and would like the
Commission to review the revenue requirements of all six water systems. OPC
fears that without this, inaccurate subsidy levels and unsupported rate
increases will result in future proceedings.
Lastly, OPC states that NFCWS’s assertion of substantial
hardship and additional costs of going through multiple rate proceedings may be
without merit. OPC asserts that the rate case expense for a limited proceeding
versus a rate case are virtually the same and include costs for customer
notices, travel for customer meeting and agenda, and filing fee, excluding any
legal fees. OPC asserts that other additional costs are already embedded
through affiliate contractual services, such as contractual services provided
by U.S. Water Services Corporation which would prepare the MFRs for the
utilities whether they are one consolidated set of MFRs or six separate sets of
MFRs.
In response to OPC’s position, NFCWS responded by letter
dated September 16, 2024, stating that in a similar request for waiver of the
rule from NFCWS’s sister affiliated utility, Florida Community Water Systems,
OPC was an interested party but raised no objection despite very similar
circumstances to the present request. OPC responded by letter dated October 11,
2024, countering that its decision to not raise an objection in a factually
distinct docket should not bar the Commission’s consideration of an objection
in the instant docket.
Requirements of Section 120.542, F.S.
Section 120.542(2), F.S., provides a two-pronged test for
determining when waivers of and variances from agency rules shall be granted:
. . . when the person subject to the rule demonstrates
that the purpose of the underlying statute will be or has been achieved by
other means by the person and when application of the rule would create a
substantial hardship or would violate principles of fairness. For purposes of this section, “substantial
hardship” means demonstrated economic, technological, legal or other type of
hardship to the person requesting the variance or waiver. For purposes of this
section, “principles of fairness” are violated when the literal application of
a rule affects a particular person in a manner significantly different from the
way it affects other similarly situated persons who are subject to the rule.
Purpose
of the Underlying Statute
Rule 25-30.445, F.A.C., primarily implements Section
367.0822, F.S., which
authorizes the Commission to “conduct limited proceedings to consider, and act
upon, any matter within its jurisdiction . . . .” Rule 25-30.445(6), F.A.C.,
serves to limit the matters that the Commission may take up via a limited
proceeding. The Commission has previously opined as to the underlying purpose
of Section 367.0822, F.S.:
We believe that the purpose of the Legislature in
enacting Section 367.0822, Florida Statutes (1985), was to provide a narrow
exception to Section 367.081, Florida Statutes (1985), which requires the
Commission to consider a broad range of ratemaking components. The purpose of a
limited proceeding is to permit review of generally singular topics, or a few
well-defined issues, to the exclusion of all others. The limited applicability
of such a proceeding mandates that the burden must rest on the utility to prove
that Section 367.0822, Florida Statutes (1985)[,] should, in fact, be utilized
with regard to a specific case.
While the Commission has approved prior rate
consolidations in the context of full rate case proceedings,
there is no statutory requirement that rate consolidations must be conducted
under Section 367.081, F.S., versus a Section 367.0822, F.S., proceeding. Further,
the Commission has allowed revenue-neutral rate restructuring through a limited
proceeding on prior occasions.
The limitations set out under Rule 25-30.445, F.A.C., are
unique to the water and wastewater industry. Section 366.076, F.S., provides
for petitions for limited proceedings by electric and gas companies, and its
associated Rule 25-6.0431, F.A.C., does not contain the same limiting
provisions as Rule 25-30.455, F.A.C. The purpose of Section 367.0822, F.S. – to
allow the Commission to review the singular issue of a revenue-neutral
consolidation of the NFCWS systems’ rates – is met if Rule 25-30.445(6), F.A.C.,
is waived. As acknowledged by NFCWS, the Commission would retain its authority
to solicit any information needed to process the requested rate consolidation,
including conducting an audit if necessary, as well as continue regulatory
oversight and earnings’ surveillance through NFCWS’s annual reports. Staff
therefore recommends that NFCWS has demonstrated that the purpose of the
underlying statute would be achieved if the requirements of Rule 25-30.445(6),
F.A.C., are waived.
Substantial
Hardship or Principles of Fairness
The second prong of the rule waiver test is met if strict
application of the rule either (1) creates a substantial hardship or (2) would
violate the principles of fundamental fairness. The utility may meet the second
prong through either path and is not required to show both.
In its
petition, NFCWS argues that denying the rule waiver would result in an economic
hardship as it would require NFCWS to file for a full rate case in order to
achieve consolidation of its systems’ rates. A full rate case would involve
compiling and filing six separate sets of MFRs and retaining outside legal
counsel, the costs of which would reduce or obviate any customer savings as a
result of the rate restructuring. While the costs of a full rate proceeding may
be substantial, staff is not persuaded that such costs per se constitute an
“economic hardship” to the utility
sufficient to support waiver of the rule. While customers might pay substantially more for rate consolidation
effected under a Section 367.081, F.S., rate proceeding, subsection 367.081(7),
F.S., permits the utility to recover
its reasonable rate case expense through rates paid by its customers.
However, the second prong of the rule waiver statute may
also be met when application of the rule would violate principles of fairness.
“Principles of fairness” are violated when the literal application of a rule
affects a particular person in a manner significantly different from the way it
affects other similarly situated persons who are subject to the rule. Section
120.542(2), F.S.
Allowing NFCWS to pursue a revenue-neutral rate
restructuring and consolidate its systems’ rates through a limited proceeding
is expected to allow the majority of NFCWS’s customers to benefit from lower
and more simplified rates at a minimal increase to customers in Gator and
Okaloosa. Requiring NFCWS to pursue these goals through a full base rate
proceeding would unfairly minimize or obviate the benefits of consolidation by
adding the additional time and rate case expense required to process an
application pursuant to Section 367.081, F.S.
Staff recommends that a limited proceeding will allow the
Commission to maintain appropriate regulatory oversight of the proposed rate
consolidation to the benefit of the utility and its customers. The potential
benefits to the utility and its customers stand to be lost if NFCWS is not
permitted to pursue the proposed revenue-neutral rate restructuring as a
limited proceeding. Therefore, staff recommends that strict application of the
rule would violate the principles of fairness.
Conclusion
Section 120.542(1), F.S., acknowledges that strict
application of uniformly applicable rule requirements can lead to unreasonable,
unfair, and unintended results in particular instances. The Commission must
waive a rule if the utility can show both that the purpose of the underlying
statute is achieved by other means and that the principles of fairness are
violated if the rule is strictly applied. This case presents a situation
wherein the strict application of the rule affects NFCWS differently than it
would another utility because strict application of the rule would obviate the
benefits of consolidation, and the petition meets both prongs of the test.
Therefore, staff recommends the Commission grant the petition for waiver of
Rule 25-30.445(6), F.A.C.
Issue 2:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. If the utility’s
petition for a rule waiver is granted, then the docket should remain open
pending the Commission’s decision regarding NFCWS’s petition for a limited
proceeding. However, if the utility’s
petition for a rule waiver is denied, then the docket should be closed upon the
issuance of the consummating order. (Dose, Crawford)
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 order, a consummating order should be issued. If the utility’s
petition for a rule waiver is granted, then the docket should remain open
pending the Commission’s decision regarding NFCWS’s petition for a limited
proceeding. However, if the utility’s
petition for a rule waiver is denied, then the docket should be closed upon the
issuance of the consummating order.