Discussion
of Issues
Issue 1:
Is the quality of service provided by West Lakeland
Wastewater, LLC satisfactory?
Recommendation:
Yes. West Lakeland has been responsive to customer
complaints and is currently in compliance with the Department of Environmental
Protection (DEP); therefore, the quality of service should be considered
satisfactory. (Ramirez-Abundez)
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 wastewater rate
cases, the Commission shall determine the overall quality of service provided
by the utility. This determination is made from an evaluation of the utility’s
attempt to address customer satisfaction. Rule 25-30.433, F.A.C., further
states that the most recent outstanding citations, violations, and consent
orders on file with the DEP, the county health department, and any DEP and
county health department officials’ 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 wastewater system is addressed in Issue 2.
The Utility’s Attempt to Address Customer
Satisfaction
Staff reviewed the complaints filed in the Commission’s
Consumer Activity Tracking System (CATS), received by the Utility, and filed
with the DEP for the test year and four years prior. There were no complaints
recorded in CATS, 1 complaint recorded by the DEP, and 19 complaints recorded
by the Utility. Out of the 19 complaints recorded by the Utility, 14 were
regarding quality of service, and 5 pertained to billing. The 14 quality of
service complaints consisted of noise complaints due to the wastewater
treatment plant alarm sounding, odor, and the sewer system backing up. The five
billing complaints consisted of incorrect billing and late fees. The Utility
indicated that all 19 complaints have been resolved. As stated above, the DEP received
one complaint regarding a lift station spill near a customer’s house. The Utility
addressed the issue to the DEP’s satisfaction, and the complaint was closed. As
stated in the case background, West Lakeland serves approximately 316 customers.
A customer meeting was held on April 2, 2025, no customers
spoke at the meeting; however, one customer comment was placed in the docket
file. The customer comment opposed the proposed rate increase. Staff performed
a supplemental review, through May 16, 2025, of complaints filed in CATS
following the customer meeting and found no additional complaints.
Conclusion
West Lakeland has been responsive to customer complaints
and is currently in compliance with the DEP standards; therefore, the quality
of service should be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of
West Lakeland Wastewater, LLC’s wastewater system in compliance with the DEP’s
regulations?
Recommendation:
Yes. The West Lakeland wastewater system is
currently in compliance with the DEP. (Ramirez-Abundez)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each wastewater
utility to maintain and operate its plant and facilities by employing qualified
operators in accordance with the rule 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, compliance evaluations, inspections,
citations, violations, consent orders issued to the utility, customer
testimony, comments, complaints, utility testimony, and responses to the
aforementioned items.
Wastewater System Operating Conditions
West Lakeland’s wastewater system is a Type III contact
stabilization domestic wastewater treatment facility with a permitted capacity
of 70,000 gallons per day (GPD), based on a Three-Month Rolling Average Daily
Flow. This facility is operated to provide secondary treatment with basic
disinfection. Liquid chlorine disinfection is applied prior to wastewater
effluent flowing into the percolation ponds and spray field. Staff reviewed the
Utility’s compliance evaluation inspections conducted by the DEP to determine
the Utility’s overall wastewater facility compliance. A review of the
inspection conducted on April 17, 2024, indicated that the DEP noted minor
deficiencies with flow measurement and the Sanitary Sewer Overflow Survey. All
deficiencies were corrected with information provided during and after the
inspection. West Lakeland’s wastewater treatment facility is in compliance with
the DEP’s rules and regulations.
While West Lakeland is currently in compliance with the
DEP, prior to its most recent inspection, it entered into a Settlement
Agreement (Settlement) with the DEP due to an overflow issue at a lift station.
This Settlement was executed on October 4, 2024, as a result of a reported
unauthorized discharge of approximately 1,920 gallons of untreated wastewater
on February 21, 2024. In lieu of a civil penalty, the Utility opted to install
a Mission Auto Dialer on lift station number two, as well as building an
earthen berm around the lift station to contain any possible overflows. Both
the Auto Dialer and earthen berm projects took place at the same lift station
where the unauthorized discharged originally occurred. On January 6, 2025, the
DEP acknowledged that the requirements of the Settlement have been completed by
the Utility. The
earthen berm project was completed during the test year. Therefore, those costs
are reflected in the Utility’s test year plant in service. However, the Mission
Auto Dialer is part of the Utility’s pro forma request and is discussed further
in Issue 4.
Conclusion
The West Lakeland wastewater system is currently in
compliance with the DEP.
Issue 3:
What are the used and useful (U&U) percentages
of West Lakeland's wastewater treatment plant (WWTP) and the wastewater
collections system?
Recommendation:
West Lakeland’s WWTP and wastewater collection
system should both be considered 100 percent U&U. No adjustment to
operating expenses is recommended for excessive infiltration and inflow (I&I).
(Ramirez-Abundez)
Staff Analysis:
As stated in Issue 2, West Lakeland’s WWTP is
permitted by the DEP as a 70,000 GPD facility. According to the Utility, its
wastewater collection system is comprised of 1,835 feet of 4-inch polyvinyl
chloride (PVC) force mains and 13,376 feet of 6-inch PVC collecting mains.
There are 12 manholes and three lift stations throughout the service area. Liquid
chlorine disinfection is applied prior to wastewater effluent flowing into the
percolation ponds and spray field.
Wastewater Treatment Plant and Collection System
U&U
In its last rate case, the Commission found the WWTP and
wastewater collection system to be 100 percent U&U.
There has been no change in service area or plant additions in the past five
years, and there are no plans for expansion; therefore, in accordance with the
Commission’s previous order, staff recommends a U&U of 100 percent for the WWTP
and wastewater collection system.
Infiltration and Inflow
Rule 25-30.432, F.A.C., provides that in determining the
amount of U&U plant, the Commission will consider I&I. Staff calculated
the allowable infiltration based on system parameters, and calculates the
allowable inflow based on the water sold to customers. The sum of these amounts
is the allowable I&I. Staff next calculates the estimated amount of
wastewater returned from customers. The estimated return is determined by
summing 80 percent of the water sold to residential customers with 90 percent
of the water sold to non-residential customers. Adding the estimated return to
the allowable I&I yields the maximum amount of wastewater that should be
treated by the wastewater system without incurring an adjustment to operating
expenses. By convention, the allowance for infiltration is 500 gpd per inch
diameter pipe per mile, and an additional 10 percent of residential water
billed is allowed for inflow.
Using the pipe lengths of West Lakeland’s collection
system, the infiltration allowance is calculated to be 3,027,703 gallons per
year. Ten percent of the total gallons sold to customers is allowed for inflow,
which totals 2,885,600 gallons. The sum of these amounts is the total allowable
I&I, which is 5,913,303 gallons per year. The amount calculated for
estimated return is 23,084,800 gallons per year. To find the total amount of
wastewater allowed, the total allowable I&I and the estimated return are
summed, yielding 28,998,103 gallons per year. Finally, this total is compared
to the total wastewater treated during the test year, which is 17,519,000
gallons according to the Utility’s daily flow report. This is less than the
estimated maximum amount allowable. Therefore, there is no excessive I&I,
and no adjustment to operating expenses is necessary.
Conclusion
Staff recommends that West Lakeland’s WWTP and wastewater
collection system should both be considered 100 percent U&U. There is no
excessive I&I, and no adjustment to operating expenses is necessary.
Issue 4:
What is the appropriate average test year rate base
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate average test year rate base for West
Lakeland is $10,861. (Richards, Ramirez-Abundez)
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. Staff selected
the test year ended June 30, 2024, for the instant rate case. Commission audit
staff determined that the Utility’s books and records are in compliance with
the currently applicable 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 UPIS of
$309,485. Staff made an averaging adjustment to reduce test year UPIS by $69.
Two pro forma projects were requested by the Utility: 1) the installation of a
Mission Auto Dialer in the amount of $7,980; and, 2) the allocated cost of a
dump trailer in the amount of $656. Therefore,
staff recommends an average UPIS balance of $318,051 ($309,485 - $69 + $656 +
$7,980).
Pro Forma Plant Additions
Table 4-1 shows West Lakeland’s
two pro forma plant items and their costs. The first item was the result of a
DEP Settlement for an unauthorized discharge, as stated in Issue 2. The Utility
opted to install a Mission Auto Dialer, which is a device attached to the lift
station panel that notifies the Utility and its operators of any problems. This
device gives the Utility the ability to respond to an emergency before any raw
sewage gets to the ground, as its lift station is gravity flow. Staff believes
that this project will benefit customers, more so than the Utility paying a
fine, by helping prevent overflows at this lift station. Therefore, staff
believes the cost of the Mission Auto Dialer should be recovered through rates.
The Mission Auto Dialer was installed on October 31, 2024, with a total cost of
$7,980.
The Utility also requested cost
recovery for a dump trailer for hauling and dumping dirt, sod, or larger items
for wastewater line repairs. Other uses include tree removals and other utility
repairs. The dump trailer was purchased by the Utility’s parent company,
Florida Utility Services 1, LLC (FUS1), on December 2, 2024, to be used by all
subsidiary systems including West Lakeland, for a total of $7,294. The
percentage allocated to West Lakeland is nine percent, for a total amount of
$8,636. These amounts are shown below in Table 4-1.
Table 4-1
Pro Forma Plant Items
|
Project
|
Acct. No.
|
Amount
|
|
Auto
Dialer
|
396
|
$7,980
|
|
Dump Trailer
|
391
|
$656
|
|
Net Adjustment
|
|
$8,636
|
The Auto Dialer was installed by Consta
Flow, the Utility’s operator. When asked if three bids were obtained - as is
Commission practice - the Utility stated that it was unaware of any other
companies in the area that performed this type of work. Staff believes the
Utility provided a reasonable response for not obtaining additional bids. In
addition, the Utility provided a paid invoice for this item.
West Lakeland also did not
provide multiple bids for the dump trailer. In response to staff’s data
request, the Utility stated that it chose the vendor because they were the only
company within a reasonable distance who could provide any needed repairs or
warranty services.
Staff believes the Utility provided a reasonable response for why no other bids
were obtained. In addition, the Utility provided a paid invoice for the dump
trailer. Staff recommends that these pro forma items costs are appropriate.
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 accumulated
depreciation of $271,797. Audit staff reduced this amount by $5,005 to align the
Utility’s records with regulatory standards and correct prior-year
discrepancies. Additionally, staff increased accumulated depreciation by $3,774
to reflect an averaging adjustment. Staff further increased this account by
$817 to reflect the appropriate accumulated depreciation adjustments for the
pro forma projects discussed above. Therefore, staff recommends an average
accumulated depreciation balance of $271,383 ($271,797 - $5,005 + $3,774 + $817).
Contributions-In-Aid of
Construction
The Utility recorded CIAC of
$221,480. Staff made no adjustments to CIAC, and therefore recommends an
average CIAC balance of $221,480.
Land and Land Rights
The Utility recorded land and
land rights balance of $356. Staff made no adjustment to land and land rights,
and therefore recommends a land and land rights balance of $356.
Accumulated Amortization
of CIAC
The Utility recorded accumulated
amortization of CIAC of $164,343. Staff decreased this balance by $1,600 to
reflect an averaging adjustment. Therefore, staff recommends an average
accumulated amortization of CIAC balance of $162,743 ($164,343 - $1,600).
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
operation and maintenance (O&M) expense (less rate case expense) formula
for calculating the working capital allowance. As such, for this calculation,
staff removed the rate case expense of $718. This resulted in an adjusted
O&M expense balance of $180,593 ($181,311 - $718). Applying this formula,
staff recommends a working capital allowance of $22,574 ($180,593 ÷ 8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base is $10,861. Rate base is shown on
Schedule No. 1-A. The related adjustments are shown on Schedule No. 1-A.
Issue 5:
What is the appropriate return on equity and overall
rate of return for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate return on equity is 11.2 percent,
with a range of 10.24 percent to 12.24 percent. The appropriate overall rate of
return is 5.92 percent. (Richards)
Staff Analysis:
The Utility’s capital
structure consists of long-term debt and customer deposits. The Utility
recorded $123,013 as negative retained earnings in common equity. It is
Commission practice to remove all negative retained earnings when calculating
an overall rate of return. Therefore, staff made an adjustment zeroing out
common equity.
The Utility’s capital structure has been reconciled with
staff’s recommended rate base. The appropriate return on equity (ROE) is 11.24
percent based on the Commission-approved leverage formula currently in effect.
Staff recommends an ROE of 11.24 percent, with a range of 10.24 percent to 12.24
percent, and an overall rate of return of 5.92 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate test year revenues for West
Lakeland Wastewater, LLC?
Recommendation:
The appropriate test year revenues for West Lakeland
are $199,727. (Lenberg)
Staff Analysis:
West Lakeland recorded
total test year revenues of $190,996, which included $183,393 of service
revenues and $7,603 of miscellaneous revenues. Staff made three adjustments to
service revenues. Subsequent to the audit, staff reviewed the billing data and
discovered a few customers with significantly high usage. Staff contacted the
Utility and in response to staff’s inquiry, the Utility adjusted the billing
data to reflect the three customers that were incorrectly billed. The Utility
also recorded $58 for general service revenues; however, there are no general
service customers. Therefore, staff removed the revenues of $58 reflected for
the general service customers. The Utility also had a price index that became
effective on June 1, 2024. As a result, staff annualized service revenues by
applying the number of adjusted billing determinants to the rates in effect as
of June 1, 2024, and determined service revenues should be $191,977, which is
an increase of $8,584.
In addition, staff made an adjustment to miscellaneous
revenues to reflect revenues collected as a result of occurrences during the
test year. Therefore, staff increased miscellaneous revenues by $147 to reflect
total miscellaneous revenues of $7,750 ($7,603 + $147). Based on the above, the
appropriate test year revenues for West Lakeland are $199,727 ($191,977+
$7,750).
Issue 7:
What is the appropriate amount of operating expense
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate amount of operating expense for West
Lakeland is $211,272. (Richards, Ramirez-Abundez)
Staff Analysis:
The Utility recorded an
operating expense of $207,252. The test year O&M expenses have been
reviewed by staff, including invoices and other supporting documentation. Staff
made several adjustments to the Utility’s operating expense as described below.
Operation and
Maintenance Expense
New Maintenance
Technician Position
On January 27, 2025, the Utility
requested a new maintenance technician position to be added to FUS1’s currently
approved positions. The maintenance technician’s responsibilities include
weekly lift station maintenance, spray field sprinkler maintenance, percolation
pond maintenance, mowing grass, bar screen cleaning, digester tank skimming,
tree trimming, hurricane season prep, running generators, sludge hauling, and
cleaning up spills or sewage overflows. According to the Utility, this new
maintenance technician is required, as FUS1 intends to promote a current
employee to the level of Operations Supervisor, which would reduce the
maintenance technician positions from 4 to 3 employees.
The Utility stated that reliance
on overtime from current employees and using outside contractors has been
required to maintain FUS1’s systems. West Lakeland provided invoices from
outside contractors and overtime payroll information to justify the need for a
new maintenance technician position.
Additionally, the Utility filed a letter from Consta Flow, West Lakeland’s
outside Contractor, which addresses an operations cost increase for West
Lakeland due to new technology, insurance costs, and employment costs.
As such, staff recommends that in
order to maintain the number of maintenance technician positions and reduce the
additional costs incurred from overtime and outside contractors, the addition
of a new maintenance technician position is appropriate.
Salaries and Wages – Employees (701)
The Utility recorded $42,711 for
salaries and wages – employees. Staff increased this amount by $4,732 to
reflect the Utility’s allocated portion of an additional maintenance position
discussed above.
Therefore, staff recommends salaries and wages – employees expense of $47,443
($42,711 + $4,732).
Salaries
and Wages – Officers and Directors (703)
The Utility recorded $7,197 for
salaries and wages – officers and directors. Staff made no adjustment to this
amount, and therefore recommends salaries and wages – officers and directors
expense of $7,197.
Employee Pensions and Benefits (704)
The Utility recorded $5 for
employee pensions and benefits. Staff decreased this amount by $5 to reflect
the removal of non-utility related expenses. Therefore, staff recommends
employee pensions and benefits expense of $0 ($5 - $5).
Purchased Wastewater Treatment (710)
The Utility recorded $560 for
purchased wastewater treatment. Audit staff decreased this amount by $3 due to
lack of supporting documentation. Therefore, staff recommends purchased
wastewater treatment expense of $557 ($560 - $3).
Sludge Removal Expense (711)
The Utility recorded $33,918 for
sludge removal. Audit staff decreased this amount by $443 due to lack of supporting
documentation. Therefore, staff recommends sludge removal expense of $33,475
($33,918 - $443).
Purchased
Power (715)
The Utility recorded $13,338 for
purchased power. Staff made no adjustment to this amount and therefore
recommends purchased power expense of $13,338.
Chemicals (718)
The Utility recorded $2,715 for
chemicals expense. Staff made no adjustment to this amount and therefore
recommends chemicals expense of $2,715.
Materials
and Supplies (720)
The Utility recorded $8,000 for
materials and supplies. Audit staff decreased this amount by $863 due to lack
of supporting documentation. Staff further decreased this amount by $12 to
remove non-utility related expenses. Therefore, staff recommends materials and
supplies expense of $7,125 ($8,000 - $863 - $12).
Contractual
Services – Professional (731)
The Utility recorded $1,092 for
contractual services – professional. Staff made no adjustment to this amount
and therefore recommends contractual services – professional expense of $1,092.
Contractual
Services – Testing (735)
The Utility recorded $1,240 for
contractual services – testing. Staff made no adjustment to this amount and
therefore recommends contractual services – testing expense of $1,240.
Contractual Services – Other (736)
The Utility recorded $30,148 for
contractual services – other. Audit staff decreased this amount by $807 due to
lack of supporting documentation. The Utility submitted a new contract from
Consta Flow, reflecting an increase in monthly costs from $965 ($11,580
annually) to $1,062 $12,744 annually).
This represents an annual increase of $1,164 ($12,744 - $11,580). Therefore,
staff recommends contractual services – other expense of $30,505 ($30,148 -
$807 + $1,164).
Rents (740)
The Utility recorded $9,591 for rental
expense. Audit staff decreased this amount by $2,659 to reflect the appropriate
allocated portion of rental expense. Therefore, staff recommends rental expense
of $6,932 ($9,591 - $2,659).
Transportation
Expense (750)
The Utility recorded $7,985 for
transportation expense. Staff made no adjustment to this amount and therefore
recommends transportation expense of $7,985.
Insurance
Expense (755)
The Utility recorded $8,506 for
insurance expense. Staff made no adjustment to this amount and therefore recommends
insurance expense of $8,506.
Rate
Case Expense (765)
The Utility did not record any
rate case expense. The Utility is required by Rule 25-22.0407, F.A.C., to mail
notices of the rate case overview, final rates, and four-year rate reduction. Staff
calculated noticing costs to be $1,103. Staff calculated the distance from the
Utility to Tallahassee as 226 miles. Based on the 2025 Internal Revenue Service
business mileage rate of $0.70, staff calculated the round-trip mileage expense
to the Commission Conference of $316 plus $200 for lodging for a total of $516. However,
because the Utility representative will be attending the Commission Conference
for a sister utility as well, staff only allocated 50 percent, or $258 of
travel expense to West Lakeland. Additionally,
the Utility paid a filing fee of $1,000.
On May 22, 2025, the Utility
submitted its invoices for consulting fees from OCBOA Consulting, LLC, which
serves as the Utility’s accounting firm.
The summary of expenses attached to the invoices reflect rate case expense of
$154, $214, and $143 for March, April, and May 2025, respectively. There was an
additional estimated expense of $380 included in the summary. Staff did not
include the estimated portion, but believes the March, April and May amounts
are reasonable. As such, staff included $511 for consulting fees as part of
rate case expense.
Staff recommends a total rate
case expense, consisting of noticing costs, 50 percent of travel expense,
filing fee, and consulting fee of $2,872 ($1,103 + $258 + $1,000 + $511), which
amortized over four years is $718 ($2,872 ÷ 4 years).
Bad
Debt Expense (770)
The Utility recorded bad debt
expense of $4,506. Staff notes that it is Commission practice to calculate bad
debt expense using a three-year average when the information is available. Using
its 2021, 2022, and 2023 Annual Reports, the Utility recorded annual bad debt
expenses of $750, $2,566 and $3,914, respectively. Staff calculated the average
bad debt expense for these previous three years to be $2,410 (($750 + $2,566 +
$3,914) ÷ 3) which represents a decrease of $2,096. Therefore, staff recommends
total bad debt expense of $2,410 ($4,506 - $2,096).
Miscellaneous
Expenses (775)
The Utility recorded $10,563 for
miscellaneous expenses. Audit staff decreased this amount by $467 and staff
further decreased this amount by $23 to remove allocated costs due to lack of
supporting documentation. Therefore, staff recommends miscellaneous expenses of
$10,073 ($10,563 - $467 - $23).
Operation and
Maintenance Expense Summary
The Utility recorded test year
O&M expense of $182,075. Based on the above adjustments, staff recommends
O&M expense be reduced by $764. This results in a total O&M expense of
$181,311 ($182,075 - $764). Staff’s recommended adjustments to O&M are
shown on Schedule No. 3-C.
Depreciation Expense
The Utility recorded depreciation
expense of $9,516. Using the depreciation rates prescribed in Rule 25-30.140,
F.A.C., staff increased this amount by $1,757. Additionally, staff increased
depreciation expense by $817 to reflect the appropriate rates associated with
the Utility’s pro forma projects. Therefore, staff recommends depreciation
expense of $12,090 ($9,516 + $1,757 + $817).
Amortization of CIAC
The Utility recorded amortization
of CIAC of $3,200. Staff made no adjustments and therefore recommends
amortization of CIAC of $3,200.
Taxes Other Than Income
(TOTI)
The Utility recorded TOTI of
$12,461; this amount included $755 for property taxes, $3,111 for payroll taxes
and $8,595 for RAFs.
Staff decreased property taxes by
$58 to reflect the appropriate amount of tangible property tax and real estate
property tax.
Further, staff increased property taxes by $102 to reflect the increase in
plant associated with pro forma. As such, staff recommends property taxes of
$799 ($755 - $58 + $102).
Based on the Utility’s response
to the Staff Report, staff increased payroll taxes by $210.
As part of the Utility’s request for a pro forma increase for an additional
maintenance position, staff further increased payroll taxes by $369.
As such, staff recommends payroll taxes of $3,690 ($3,111 + $210 + $369).
Audit staff increased TOTI by
$389 to reflect the appropriate regulatory assessment fees (RAFs) based on
corrected Utility test year revenues. Based on revenues discussed in Issue 6,
TOTI should be increased by $4 to reflect RAFs of 4.5 percent of the change in
revenues. As such, staff recommends the appropriate amount of test year RAFs be
$8,988 ($8,595 + $389 + $4).
As discussed in Issue 9, staff
recommends revenues be increased by $26,545 in order to reflect the change in
revenue required to cover expenses and allow the Utility to earn an operating
margin of $15,000. As a result, TOTI should be increased by $1,195 to reflect
RAFs of 4.5 percent of the change in revenues. Therefore, staff recommends TOTI
of $14,671 ($799 + $3,690 + $8,988 + $1,195).
Operating Expense
Summary
The Utility recorded operating expenses of $207,252. The
application of staff’s recommended adjustments to the Utility’s recommended
operating expense results in a total operating expense of $211,272. Operating
expenses are shown on Schedule No. 3-A, and the related adjustments are shown
on Schedule No. 3-B.
Issue 8:
Does West Lakeland Wastewater, LLC meet the criteria
for application of the operating ratio methodology?
Recommendation:
Yes, West Lakeland meets 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 the 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 the Utility’s qualification for a
SARC.
With respect to West Lakeland,
staff recommended a rate base of $10,861. After removal of rate case expense,
staff calculated an O&M expense of $180,593 ($181,311 - $718). Based on
staff’s recommended amounts, the Utility’s rate base is 6.01 percent of its
adjusted O&M expense. Based on this, the Utility qualifies for application
of the operating ratio methodology.
Rule 25-30.4575, F.A.C., limits the operating ratio
adjustment to $15,000; therefore, staff recommends the appropriate margin is
$15,000.
Issue 9:
What is the appropriate revenue requirement for West
Lakeland Wastewater, LLC?
Recommendation:
The appropriate revenue requirement is $226,272,
resulting in an annual increase of $26,545 (13.29 percent). (Richards)
Staff Analysis:
West Lakeland should be
allowed an annual increase of $26,545 (13.29 percent). This should allow the
Utility the opportunity to recover expenses and earn an operating margin of
$15,000. The calculations for revenue requirement are shown on Table 9-1.
Table 9-1
Revenue Requirement
|
Adjusted O&M Expense
|
$180,036
|
|
Operating Margin (%)
|
12.00%
|
|
Operating Margin ($)
|
$15,000
|
|
Wastewater O&M Expense
|
$181,311
|
|
Depreciation Expense
|
12,090
|
|
Amortization
|
3,200
|
|
Taxes Other Than Income
|
14,671
|
|
Revenue Requirement
|
$226,272
|
|
Less Test Year Revenues
|
$199,727
|
|
Annual Increase
|
$26,545
|
|
Percent Increase
|
13.29%
|
Source: Staff calculations.
Issue 10:
What are the appropriate rates and rate structure
for West Lakeland Wastewater, LLC?
Recommendation:
The recommended rate structures and monthly
wastewater 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. (Lenberg)
Staff Analysis:
West
Lakeland provides wastewater service to approximately 316 residential customers
and no general service customers. Currently, the wastewater rate structure for
residential customers consists of a monthly uniform base facility charge (BFC)
for all meter sizes and gallonage charge with a 6,000 gallonage cap. The
general service rate structure consists of BFCs by meter size and a gallonage
charge that is 1.2 times higher than the residential gallonage charge.
Staff
performed an analysis of the Utility’s billing data in order to evaluate
various BFC cost recovery percentages and gallonage caps for the residential
wastewater 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; and 3) implement a
gallonage cap, where appropriate, that considers approximately the amount of
water that may return to the wastewater system.
Consistent
with Commission practice, staff allocated 50 percent of the wastewater revenue
to the BFC due to the capital intensive nature of wastewater plants. The
Utility’s current wastewater gallonage cap is set at 6,000 gallons per month.
The wastewater gallonage cap recognizes that not all water used by the
residential customers is returned to the wastewater system. Based on staff’s
review of the billing data, staff recommends that the gallonage cap for
residential customers remain at 6,000 gallons. Staff also recommends that the
general service gallonage charge continue to be 1.2 times greater than the
residential gallonage charge, which is consistent with Commission practice.
In addition, wastewater rates are calculated on customers’
water demand; if those customers’ water demand is expected to decline due to
repression, then the billing determinants used to calculate wastewater rates
should be adjusted accordingly. In determining the number of wastewater gallons
subject to repression, staff uses the gallons between the non-discretionary
threshold and the wastewater gallonage cap and applies the percentage reduction
in water gallons. In this case, there is no water system to calculate
repression. Therefore, a repression adjustment for wastewater is not applicable.
Issue 11:
What are the appropriate initial customer deposits
for West Lakeland Wastewater, LLC?
Recommendation:
The appropriate initial customer deposit is $115 for all residential meter sizes. The approved
initial customer deposits should be effective for service 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 initial customer deposits until authorized to change them by the
Commission in a subsequent proceeding. (Lenberg)
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.[23]
Currently, the Utility has an initial customer deposit of $78. However, this
amount does not cover two months’ average bills based on staff’s recommended
rates. According to the Utility’s billing data, the average monthly residential
wastewater usage is 3,319 gallons per customer. Therefore, the average
residential monthly bill based on staff’s recommended rates is approximately
$57.49.
Staff recommends the appropriate initial customer deposit
is $115 for all residential meter sizes. The approved initial customer deposits
should be effective for service 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 initial customer
deposits until authorized to change them by the Commission in a subsequent
proceeding.
Issue 12:
What are the appropriate miscellaneous service charges
for West Lakeland Wastewater, LLC?
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 for service rendered or connections
made 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. (Lenberg)
Staff Analysis:
West Lakeland is requesting to revise
its existing miscellaneous service charges to reflect an increase in the amount
of some of the charges. The Utility’s existing miscellaneous service charges
for wastewater were established in 1997.[24] The
Utility’s late payment charge was approved in 2011.[25]
The Utility’s convenience charge was approved in 2013.[26] Section 367.091, F.S., authorizes the
Commission to change miscellaneous service charges. The
Utility’s violation reconnection charge and convenience charge will remain
unchanged. The Utility’s requested increase of miscellaneous service charges
were accompanied with cost justification as required by
Section 367.091(6), F.S. The Utility’s existing
and requested miscellaneous service charges are shown below in Tables 12-1.
Table 12-1
West Lakeland’s Existing and Requested
Miscellaneous Service Charges
|
|
Existing
|
Requested
|
|
Initial Connection Charge
|
$15.00
|
$80.00
|
|
Normal Reconnection Charge
|
$15.00
|
$80.00
|
|
Violation Reconnection Charge
|
Actual Cost
|
Actual Cost
|
|
Premises Visit Charge
|
$10.00
|
$80.00
|
|
Late Payment Charge
|
$7.00
|
$7.85
|
|
Convenience Charge
|
$2.50
|
N/A
|
Source: Utility's current tariffs and cost
justification documentation.
Premises
Visit Charge
As shown on Table 12-1, the Utility is
requesting to increase the amount of some of its existing miscellaneous service
charges. The existing miscellaneous service charges include initial connection
and normal reconnection charges which are obsolete and inconsistent with the Rule
25-30.460, F.A.C. The Utility provided cost justification of $81.02;
however, the Utility requested a charge of $80.00 for the premises visit which
represents the cost of a trip to perform a specified service. Staff believes
the cost justification is reasonable and impose the cost on the cost causer.
Based on the rule, staff recommends that the initial connection and normal
reconnection charges be removed. Staff also recommends that the
definition for the premises visit charge be updated to comply with Rule
25-30.460, F.A.C. The premises visit charge should be $80.00. The
Utility’s calculation for the premises visit charge is shown below on Table 12-2.
Table 12-2
Calculation for Requested Premises
Visit
|
|
Cost
|
|
Mileage ($0.70 per mile x 40)
|
$28.00
|
|
Labor – Tech – Round Trip Drive ($27.85 x 1.15)
|
32.03
|
|
Labor – Tech – Location Labor Time ($27.85 x 0.50)
|
13.93
|
|
Labor – Tech – Customer Care Representative (28.25 x 0.25)
|
7.06
|
|
Total
|
$81.02
|
Source: Utility’s cost justification documentation.
Late
Payment Charge
The Utility currently has a $7.00 late payment charge. The
Utility is requesting a $7.85 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 $7.85. 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 $7.06 ($28.25 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.[27] In addition,
the Utility included material cost of $0.79 for paper, envelopes, and postage,
which results in total costs of $7.85 ($7.06 + $0.79). 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 $7.85 be
approved.
Table 12-3
Calculation of Proposed
Late Payment Charge
|
|
Cost
|
|
Supply – Paper Envelope ($0.10 x 1.00)
|
$0.10
|
|
Supply – Postage ($0.69 x 1.00)
|
0.69
|
|
Labor – Customer Care Representative ($28.25 x 0.25)
|
7.06
|
|
Total
|
$7.85
|
Source: Utility’s cost
justification documentation.
Table 12-4
Staff’s Recommended
Miscellaneous Service Charges
|
Premises Visit Charge
|
$80.00
|
|
Late Payment Charge
|
$7.85
|
Source: Staff’s Calculations.
Conclusion
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 for service rendered or
connections made 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.
Issue 13:
What is the appropriate amount by which rates should
be reduced four years after the published effective date to reflect the 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. West Lakeland 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)
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 West Lakeland, 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 $752.
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. West Lakeland 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 rates be approved for West
Lakeland Wastewater, LLC on 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. West Lakeland 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. West Lakeland 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.
West Lakeland 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 $18,208. 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 West Lakeland Wastewater, LLC 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. West Lakeland 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:
West Lakeland 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. (Farooqi,
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.
