Discussion
of Issues
Issue 1:
Should an interim revenue increase be approved?
Recommendation:
Yes,
Grenelefe should be authorized to collect an interim revenue increase of
$64,840 for water and $341,994 for wastewater as shown below:
|
|
Test Year Revenues
|
Increase
($)
|
Revenue
Requirement
|
Increase
(%)
|
|
Water
|
$359,309
|
$64,840
|
$424,149
|
18.05%
|
|
Wastewater
|
$225,428
|
$341,994
|
$567,422
|
151.71%
|
(Folkman)
Staff Analysis:
On January 10, 2025, Grenelefe
filed an application requesting an interim increase of its water and wastewater
rates. Section 367.0814(4), F.S., details the criteria for evaluating a request
for an interim rate increase for staff-assisted rate cases.
Section
367.0814(4), F.S., states:
The Commission may,
upon its own motion, or upon petition from the regulated utility, authorize the
collection of interim rates until the effective date of the final order. Such
interim rates may be based upon a test period different from the test period
used in the request for permanent rate relief. To establish interim relief,
there must be a demonstration that the operation and maintenance expenses
exceed the revenues of the regulated utility, and interim rates shall not
exceed the level necessary to cover operation and maintenance expenses as
defined by the Uniform System of Accounts for Class C Water and Wastewater
Utilities (1996) of the National Association of Regulatory Utility
Commissioners.
While Grenelefe is not a Class C
utility, it does qualify for a SARC and therefore falls under the
above-referenced Section. Staff has reviewed the Utility’s operation
and maintenance (O&M) expenses in relation to its revenues. Based on the
Utility’s filing, staff recommends that Grenelefe
has demonstrated a prima facie entitlement
to an interim rate increase in accordance with
Section 367.0814(4), F.S.
Revenue Increase
In order to establish interim
rate relief, staff utilized the Utility’s revenues reflected in its application
as requested by the Utility for the test year ended October 31, 2024. The test
year revenues are $359,309 for water and $225,428 for wastewater. The test year
O&M expenses are $421,231 for water and $552,032 for wastewater. The
difference between the Utility’s reported revenues and O&M expenses is
$61,922 for water and $326,604 for wastewater.
In addition, the interim water and
wastewater increase should be grossed up to include regulatory assessment fees
(RAFs). The Commission has previously determined that it would be inappropriate
to approve an increase in a utility’s rates to cover its operating expenses and
deny that same utility the funds to cover increased RAFs.[3]
The RAFs associated with the interim increase are $2,918 for water and $15,390
for wastewater.
In total, Grenelefe should be
allowed an interim revenue increase of $64,840 ($61,922 + $2,918) for water and
$341,944 ($326,604 + $15,390) for wastewater to generate sufficient revenue to
cover water and wastewater O&M expenses and additional RAFs. Thus, staff
recommends the appropriate interim revenue requirement is $424,149 for water
and $567,422 for wastewater. This represents an 18.05 percent increase for
water and a 151.71 percent increase for wastewater over the Utility’s test year
revenues. Tables 1-1 and 1-2 illustrate staff’s interim increase calculations.
Table 1-1
Water Interim Increase
Calculation
|
Water
|
|
1. Utility Adjusted
Test Year O&M Expenses
|
$421,231
|
|
2. Less: Utility Test Year Revenues
|
359,309
|
|
3. Revenues to
Cover O&M Expenses
|
$61,922
|
|
4. RAFs on Interim
Rate Increase
|
2,918
|
|
5. Total Interim
Revenue Increase ($)
|
$64,840
|
|
6. Total Interim
Revenue Increase (%)
|
18.05%
|
Sources:
Utility’s Application and staff’s calculations.
Table 1-2
Wastewater Interim
Increase Calculation
|
Wastewater
|
|
1. Utility Adjusted
Test Year O&M Expenses
|
$552,032
|
|
2. Less: Utility Test Year Revenues
|
225,428
|
|
3. Revenues to
Cover O&M Expenses
|
$326,604
|
|
4. RAFs on Interim
Rate Increase
|
15,390
|
|
5. Total Interim
Revenue Increase ($)
|
$341,994
|
|
6. Total Interim Revenue
Increase (%)
|
151.71%
|
Sources: Utility’s Application and staff’s
calculations.
Issue 2:
What are the appropriate interim water and
wastewater rates for Grenelefe?
Recommendation:
The interim rate increase of 18.05 percent for water
and 151.71 percent for wastewater should be applied as an across-the-board
increase to the water and wastewater rates, respectively. The rates, as shown
on Schedule No. 1 should be effective for service rendered on or after the
stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1),
Florida Administrative Code (F.A.C.) The Utility should file revised tariff
sheets and a proposed customer notice to reflect the Commission-approved rates.
In addition, the approved rates should not be implemented until the required
security has been filed, staff has approved the proposed customer notice, and
the notice has been received by the customers. The Utility should provide proof
of the date notice was given within 10 days of the date of the notice. (Sibley)
Staff Analysis:
Staff recommends that
interim service rates for Grenelefe be designed to allow the Utility the
opportunity to generate annual operating revenues of $424,149 for water and
$567,422 for wastewater.
The interim rate increase of 18.05 percent for water and
151.71 percent for wastewater should be applied as an across-the-board increase
to the water and wastewater rates, respectively. The rates, as shown on
Schedule No. 1 should be effective for service rendered on or after the stamped
approval date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C. The
Utility should file revised tariff sheets and a proposed customer notice to
reflect the Commission-approved rates. In addition, the approved rates should
not be implemented until the required security has been filed, staff has
approved the proposed customer notice, and the notice has been received by the
customers. The Utility should provide proof of the date notice was given within
10 days of the date of the notice.
Issue 3:
What is the appropriate security to guarantee the
interim increase?
Recommendation:
The appropriate security
to guarantee the funds collected subject to refund is a corporate undertaking,
guaranteed by the Utility’s owner. (Folkman)
Staff
Analysis:
Pursuant to Section 367.082, F.S., revenues
collected under interim rates shall be placed under bond, escrow, letter of
credit, or corporate undertaking subject to refund with interest at a rate
ordered by the Commission. As recommended in Issue 1, the interim increase is
$64,840 for water and $341,994 for wastewater. In accordance with Rule
25-30.360, F.A.C., staff calculated the combined potential refund of revenues
and interest collected under interim conditions to be $275,132. This amount is
based on an estimated eight months of revenue being collected under the
recommended interim rates shown on Schedule No. 1.
The criteria for a corporate
undertaking include sufficient liquidity, ownership equity, profitability, and
interest coverage to guarantee any potential refund. Staff reviewed Grenelefe’s
2021, 2022, and 2023 annual reports filed with the Commission to determine the
financial condition of the Utility. Based on the annual reports, Grenelefe’s
working capital and equity are within acceptable parameters. However, Grenelefe
has experienced a decreasing Net Income over the past three years, with a
reported negative Net Income of $418,165 in the 2023 Annual Report, which is
significantly less than the requested corporate undertaking amount. However,
the Utility’s owner provided a recent balance sheet of his personal financial
net worth. Staff reviewed the personal financial information provided by the
owner. Staff believes that in this circumstance, the owner has demonstrated the
financial ability and wherewithal to guarantee the interim refund in this rate
increase, if necessary. Further, the owner provided a personal guarantee in the
amount of $275,132 in this docket.
Pursuant to Rule 25-30.360(6), F.A.C., the Utility
should provide a report by the 20th of each month indicating the
monthly and total revenue collected subject to refund. Should a refund be
required, the refund should be with interest and in accordance with Rule
25-30.360, F.A.C. 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.
Accordingly, the appropriate security to guarantee the
funds collected subject to refund is a corporate undertaking, guaranteed by the
Utility’s owner. This brief financial analysis is only appropriate for deciding
if the Utility can support a corporate undertaking in the amount requested and
should not be considered a finding regarding staff’s position on other issues
in this proceeding.
Issue 4:
Should this docket be closed?
Recommendation:
This docket should remain open pending the
Commission’s final action on the Utility’s requested rate increase (Imig,
Augspurger)
Staff Analysis:
This docket should remain open pending the
Commission’s final action on the Utility’s requested rate increase.
