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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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April 24, 2025
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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 (Bruce, Bethea,
Hudson, Richards)
Division of Accounting
and Finance (Higgins)
Office of the General
Counsel (Sparks, Harper)
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RE:
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Docket No. 20220185-WS – Application for
limited alternative rate increase in Hardee, Manatee, Marion, Polk, and Pasco
Counties, by Charlie Creek Utilities, LLC, Crestridge Utilities, LLC, East
Marion Utilities, LLC, Heather Hills Utilities, LLC, Holiday Gardens
Utilities, LLC, Lake Yale Utilities, LLC, McLeod Gardens Utilities, LLC,
Orange Land Utilities, LLC, Sunny Shores Utilities, LLC, Sunrise Water, LLC
and West Lakeland Wastewater, LLC.
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AGENDA:
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05/06/25 – 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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La Rosa
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CRITICAL DATES:
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None
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SPECIAL INSTRUCTIONS:
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None
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Case Background
On November 4,
2022, Florida Utility Services 1, LLC (FUS1) filed an application for a limited
alternative rate increase (LARI) pursuant to Rule 25-30.457, Florida
Administrative Code (F.A.C.) for the following systems: Charlie Creek Utilities, LLC (Charlie Creek);
Crestridge Utilities, LLC (Crestridge); East Marion, LLC (East Marion); Heather
Hills Utilities, LLC (Heather Hills); Holiday Gardens Utilities, LLC (Holiday
Gardens); Lake Yale Utilities, LLC (Lake Yale); McLeod Gardens, LLC (McLeod
Gardens); Orange Land Utilities, LLC (Orange Land); Sunny Shores Utilities, LLC
(Sunny Shores); Sunrise Water, LLC (Sunrise); and West Lakeland Wastewater, LLC
(West Lakeland).
By
Order No. PSC-2023-0192-PAA-WS, issued June 30, 2023, the Commission approved a
limited alternative rate increase for the above-referenced systems. Each
utility was required to hold any revenue increase granted subject to refund
with interest in accordance with Rule 25-30.360(4), F.A.C. In order to ensure
overearnings did not occur with the implementation of the rate increases, staff
conducted an earnings review of the 12-month period following the
implementation of the revenue increases. At the end of the 12-month period,
each utility had 90 days to complete and file
Form PSC 1025 (03/20), titled: “Limited Alternative Rate Increase Earnings
Review.” On August 22, 2024, by email, FUS1 indicated that for all systems, except
Heather Hills and Sunny Shores, the earnings review period would be from
September 2023 to August 2024 because the LARI rates were billed starting with
the September 2023 usage. Because Heather Hills and Sunny Shores bill
quarterly, the LARI rates were billed starting with the October 2023 usage, and
as a result, the earnings review period would be October 2023 to September
2024. The forms for each of the
utilities were submitted on December 2, 2024.
Pursuant
to Rule 25-30.457, F.A.C., if the earning reviews demonstrate that the utility
exceeded the range of its last authorized rate of return on equity, such overearnings,
up to the amount held subject to refund, with interest, shall be disposed of
for the benefit of the customers. If staff determines that the utility did not
exceed the range of its last authorized return on equity, the revenue increase
will no longer be held subject to refund. Based on review of the earnings
review form, three of the
systems reported overearnings.
On
April 9, 2025, East Marion and the Office of Public Counsel (OPC) filed an
agreement in regards to the disposition of the overearnings for its system. Both East Marion and OPC agreed that the
overearnings associated with East Marion system should be booked to CIAC due to
the expense of making such a small refund exceeding the amount of the refund.
This
recommendation addresses the earnings review. The Commission has jurisdiction
pursuant to Section 367.0814(9) and 367.121(1), Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Are any systems that were granted a Limited
Alternative Rate Increase overearning, and if so, what are the appropriate
revenue requirements going forward?
Recommendation:
Three of the fourteen systems included in FUS1 LARI
docket were found to be overearning. Those three systems are Crestridge, the
water system for East Marion, and the wastewater system for Lake Yale. The
appropriate revenue requirement should be $251,161 for Crestridge; $50,519 for
East Marion’s water system; and $98,961 for Lake Yale’s wastewater system. (Richards)
Staff Analysis:
Pursuant to Rule 25-30.457(8), F.A.C., FUS1 filed its earnings
review of the fourteen systems included in the LARI on December 2, 2024.[3]
After discussion with OPC in a telephone conference on February 28, 2025, FUS1
filed revisions to its Schedule No. 2 for each system.[4]
Three of those systems were found to be overearning as shown below in Table
1-1.
Table 1-1
Results of Earnings Review[5]
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Utility
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System
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Allowed
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Earned
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Charlie Creek Utilities
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Water
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10.00%
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9.85%
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Crestridge Utilities **
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Water
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10.77%
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43.17%
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East Marion Utilities**
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Water
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10.00%
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10.52%
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East Marion Utilities
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Wastewater
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10.00%
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-3.15%
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Heather Hills Utilities
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Water
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12.00%
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11.19%
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Heather Hills Utilities
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Wastewater
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12.00%
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6.51%
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Holiday Gardens Utilities
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Water
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8.24%
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1.77%
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Lake Yale Utilities
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Water
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7.04%
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5.80%
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Lake Yale Utilities **
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Wastewater
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12.00%
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44.01%
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McLeod Gardens
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Water
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12.00%
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11.54%
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Orange Land Utilities
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Water
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8.93%
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-19.87%
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Sunny Shores Utilities
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Water
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12.00%
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4.99%
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Sunrise Utilities
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Water
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10.00%
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-1.36%
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West Lakeland Wastewater
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Wastewater
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12.00%
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1.41%
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Sources: Prior Commission Orders
and Document Nos. 10075-2024, 00421-2025, 01340-2025.
Crestridge Utilities, LLC.
In its
earnings review, Crestridge reported a rate base of $117,631, a net operating
income of $50,781 and annual revenues of $289,273. This resulted in earnings of
43.17 percent ($50,781 ÷
$117,631). In Crestridge’s previous rate case, the Commission approved a return
on equity (ROE) of 11.16 percent with a range of 10.16 percent to 12.16
percent.[6] Based on Crestridge’s
updated Schedule No. 2, filed on March 5, 2025, Crestridge had an allowed rate
of return of 10.77 percent. This resulted in overearnings of approximately
$38,112, or 13.18 percent ($38,112 ÷ $289,273) for the 12-month period ended
August 31, 2024. As such, staff recommends an adjusted revenue requirement for
Crestridge of $251,161 ($289,273 - $38,112).
East Marion
Utilities, LLC.
In its
earnings review, the water system for East Marion recorded a net operating
income of $4,061; annual revenues of $50,720; and an adjusted operations and
maintenance (O&M) expense of $38,598. Pursuant to Section
367.081(4)(b)(1)(e), F.S., staff removed the rate case expense of $499 from the
overall O&M expense of $39,097. This resulted in earnings of 10.52 percent
($4,061 ÷
$38,598).
Using
the operating ratio methodology approved at the time, the Commission approved
an operating margin of 10.00 percent in East Marion’s prior rate case.[7] This resulted in
overearnings of approximately $201, or 0.40 percent ($201 ÷ $50,720) for the
12-month period ended August 31, 2024. As such, staff recommends an
adjusted revenue requirement for East Marion’s water system of $50,519 ($50,720
- $201). No adjustment to the revenue requirement for the East Marion
wastewater system is necessary.
Lake Yale
Utilities, LLC.
In its
earnings review, the wastewater system for Lake Yale recorded net operating
income of $34,639; annual revenues of $124,155; and an adjusted O&M expense
of $78,711. Pursuant to Section 367.081(4)(b)(1)(e), F.S., staff removed the
rate case expense of $188 from the overall O&M expense of $78,899. There
was no purchased wastewater expense for the Lake Yale wastewater system. This
resulted in earnings of 44.01 percent ($34,639 ÷
$78,711).
Using
the operating ratio methodology approved at the time, the Commission approved
an operating margin of 12.00 percent in Lake Yale’s prior rate case.[8] This resulted in
overearnings of approximately $25,194, or 20.29 percent ($25,194 ÷ $124,155)
for the 12-month period ended August 31, 2024. As
such, staff recommends an adjusted revenue requirement for Lake Yale’s
wastewater system of $98,961 ($124,155 - $25,194). No adjustment to the revenue
requirement for the Lake Yale water system is necessary.
Conclusion
Based on
the above, three of the fourteen systems included in the FUS1 LARI docket were
found to be overearning. Those three systems are Crestridge, the water system
for East Marion, and the wastewater system for Lake Yale. The appropriate
revenue requirements should be $251,161 for Crestridge; $50,519 for East Marion’s
water system; and $98,961 for Lake Yale’s wastewater system.
Issue 2:
What are the appropriate monthly service rates for
the three systems that are overearning?
Recommendation:
The appropriate service rates are shown on Schedule
No. 1. Crestridge and Lake Yale should file tariff sheets and proposed customer
notices to reflect the Commission-approved rates. East Marion’s rates should
remain unchanged. 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 rates should not be implemented until
staff has approved the proposed customer notice. Crestridge and Lake Yale
should provide proof of the date notice was given no less than 10 days after
the date of the notice. (Bethea, Hudson)
Staff Analysis:
Crestridge and Lake Yale had price index rate
increases effective June 1, 2024, during their earnings review period. In order
to determine the appropriate percentage reduction to the rates for removal of
overearnings, revenues should be annualized and compared to the adjusted
revenue requirements in Issue 1. For East Marion, due to the less than one
percent reduction to rates, staff recommends that the rates remain unchanged. The
existing service rates for Crestridge and Lake Yale should be decreased by its
respective percentage shown in Table 2-1.
Table 2-1
Staff Recommended Percentage Rate Decrease
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Utility
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(1)
Annualized Revenues
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(2)
Adjusted Revenue Requirement
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(3)
(2) – (1)
Annual Overearning
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(4)
(3)/(1)
% Rate Decrease
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Crestridge
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$290,885
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$251,161
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-$39,724
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-13.66%
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Lake Yale (wastewater)
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$127,429
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$98,961
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-$28,468
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-22.34%
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Source: Staff’s
calculations
Staff
calculated rates by applying the percentage rate decreases across-the-board to
the existing rates for each utility. Further, Lake Yale wastewater rates
include amortized rate case expense that expired on April 17, 2025. The rates
which implemented the rate case amortization were effective April 17, 2021.
However, they were first billed with the May 2021 usage. Typically, the removal
of rate case expense is processed administratively by staff based on reductions
approved by the Commission. However, due to the timing of reducing the rates
for the overearnings, staff believes it is appropriate to remove the rate case
expense from the staff’s recommended decreased rates in order to avoid two rate
changes in a short time frame and any confusion it may create on the customers.
As a result, the staff recommended decreased rates due to the overearnings
should be also reduced by the rate case expense reductions approved in Order
No. PSC-2021-0106-PAA-WS.
In
addition, staff acknowledges that FUS1 provided reduced rates to remove the
overearnings for staff’s review. Upon review, staff determined that the
proposed rates created an underearning of staff’s recommended adjusted revenue
requirement. Therefore, staff believes FUS1’s proposed rates were
inappropriate.
Conclusion
The
appropriate staff recommended service rates are shown on Schedule No. 1. Crestridge
and Lake Yale should file tariff sheets and proposed customer notices to
reflect the Commission-approved rates. East Marion’s rates should remain
unchanged. The utility should file tariff sheets and proposed customer notices
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 rates
should not be implemented until staff has approved the proposed customer
notices. The utilities should provide proof of the date notice was given no
less than 10 days after the date of the notice.
Issue 3:
What is the appropriate disposition of the
overearnings?
Recommendation:
For Crestridge and Lake Yale, the customers should
be provided a refund pursuant to Rule 25-30.360(4), F.A.C. For East Marion, the
refund should be recorded as contributions-in-aid-of-construction (CIAC)
pursuant to the agreement with OPC. In determining the appropriate refund, for
the refund period, the revenues calculated using the reduced rates should be subtracted
from the revenues collected. Staff should be given administrative authority to
approve the refund amount based on the aforementioned calculation prior to the
commencement of the refund. The refunds should be made with interest in
accordance with Rule 25-30.360(4) F.A.C. Pursuant to Rule 25-30.360(7), the
refund should be made within 90 days of the Commission’s order. During the
process of the refund, monthly reports on the status of the refund should be
made by the 20th of the following month. (Bethea, Hudson)
Staff Analysis:
Pursuant to Rule 25-30.457(8)(c), F.A.C., if staff’s
earnings review demonstrates that the utility exceeded the range of its last
authorized rate of return on equity, the amount held subject to refund, with
interest, shall be disposed of for the benefit of the customers. In determining
the appropriate refund for East Marion and Lake Yale, for the refund period of
July 1, 2023, to the implementation of the reduced rates, the revenues
calculated using the reduced rates should be subtracted from the revenues
collected. For Lake Yale, the rates prior to removing the rate case expense
should be used to calculate the refund. The refund for Crestridge and Lake Yale
should be conducted pursuant to Rule 25-30.360, F.A.C. For East Marion, the
refund should be recorded as CIAC pursuant to the agreement with OPC.
Conclusion
Based on the above, for Crestridge and Lake Yale, the
customers should be provided a refund pursuant to Rule 25-30.360(4), F.A.C. For
East Marion, the refund should be recorded as CIAC pursuant to the agreement
with OPC. In determining the appropriate refund, for the refund period, the
revenues calculated using the reduced rates from removing the overearnings
should be subtract from the revenues collected. Staff should be given administrative
authority to approve the refund amount based on the aforementioned calculation
prior to the commencing of the refund. The refunds should be made with interest
in accordance with Rule 25-30.360(4) F.A.C. Pursuant to Rule 25-30.360(7), the
refund should be made within 90 days of the Commission’s order. During the
process of the refund, monthly reports on the status of the refund should be
made by the 20th of the following month.
Issue 4:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interest 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. The docket should
remain open for staff’s verification that the refunds have been completed and
the revised tariff sheets and customer notice filed for approval by staff. Once
these actions are complete, this docket should be closed administratively. (Sparks)
Staff Analysis:
If no person whose substantial interest 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. The docket should remain open
for staff’s verification that the refunds have been completed and the revised
tariff sheets and customer notice filed for approval by staff. Once these
actions are complete, this docket should be closed administratively.
