Discussion
of Issues
Issue 1:
Is the quality of service provided by Alturas Water,
LLC satisfactory?
Recommendation:
Yes. Alturas
has been responsive to customer complaints and the quality of the product is in
compliance with the Department of Environmental Protection (DEP) standards; therefore,
staff recommends that the quality of service be considered satisfactory.
(Wooten)
Staff Analysis:
Pursuant
to Section 367.081(2)(a)(1), F.S., and Rule 25-30.433(1), Florida
Administrative Code (F.A.C.), in water rate cases, the Commission shall
determine the overall quality of service provided by the utility. This
determination is made from an evaluation of the quality of the utility’s
product, and the utility’s attempt to address customer satisfaction. The Rule
further states that the most recent chemical analyses for the water system,
outstanding citations, violations, and consent orders on file with the DEP and
the county health department, and any DEP and county health department
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 water system is addressed in
Issue 2.
Quality of the Utility’s Product
In evaluation of Alturas’ product quality, staff reviewed
the Utility’s compliance with the DEP’s primary and secondary drinking water
standards. Primary standards protect public health while secondary standards
regulate contaminants that may impact the taste, odor, and color of drinking
water. In the DEP’s last Sanitary Survey Report, dated March 20, 2023, no
chemical or bacteriological exceedances were noted for the previous 12 months,
and the Utility was determined to be in compliance with the DEP’s standards. In
the Utility’s last Consumer Confidence Report, dated April 22, 2024, no
violations of contaminant levels were noted for the testing period.
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 six complaints
filed in CATS. Five of these complaints were related to an outage caused by a
lightning strike and one was related to low water pressure. The Utility
reported that it received 21 complaints during this timeframe. Of these 21
complaints, 7 were related to billing, 7 were related to low water pressure and
7 were related to utility repair requests. The Utility indicated that all 21
complaints were resolved. The DEP indicated that it did not receive any
complaints during this timeframe.
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. This customer comment was in opposition of the rate increase and
expressed frustration with the Utility for constant “boil water” notices,
intermittent service disruptions, and water quality issues. Staff notes that
three water service interruptions occurred in the service area between March
2025 and April 2025. Two of these service interruptions were due to water line
breaks, and one service interruption was attributed to a customer water tank
installation, which were all resolved in a timely manner. Staff performed a
supplemental review, through May 15, 2025, of complaints filed in the CATS
following the customer meeting and found no additional complaints.
Conclusion
Alturas has been
responsive to customer complaints and the quality of the product is in
compliance with the DEP’s standards; therefore, staff recommends that the
quality of service be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of
Alturas Water, LLC in compliance with the DEP’s regulations?
Recommendation:
Yes. The Alturas water system is currently in
compliance with the DEP. (Wooten)
Staff Analysis:
Rule 25-30.225(2), F.A.C., requires each water
utility to maintain and operate its plant and facilities by employing qualified
operators in accordance with the rules of the DEP. Rule 25-30.433(2), F.A.C.,
requires consideration of whether the infrastructure and operating conditions
of the plant and facilities are in compliance with Rule 25-30.225, F.A.C. In
making this determination, the Commission must consider testimony of the DEP
and county health department officials, sanitary surveys for water systems,
citations, violations, consent orders issued to the utility, customer
testimony, comments, complaints, utility testimony, and responses to the
aforementioned items.
Water System Operating Conditions
The Utility’s water system has one well with a pumping
capacity of 350 gallons per minute (gpm) and one hydropneumatic tank with a
capacity of 3,000 gallons. Its permitted capacity is 108,000 gallons per day
(gpd). The water system provides finished water obtained from a single well,
which draws ground water from the aquifer. The raw water is injected with
liquid chlorine prior to entering a 3,000-gallon hydropneumatic tank, and then
pumped into the water distribution system. The distribution system is a
composite network mix of polyvinyl chloride (PVC), concrete and galvanized
pipe. Staff reviewed Alturas’ sanitary survey reports conducted by the DEP to
determine the Utility’s overall water facility compliance. A review of the
inspection conducted on March 20, 2023, indicated that Alturas’ water treatment
facility is in compliance with the DEP’s rules and regulations.
Conclusion
The Alturas water system is currently in compliance with
the DEP.
Issue 3:
What are the used and useful (U&U) percentages
of the Alturas Water, LLC water treatment plant (WTP) and water distribution
system?
Recommendation:
Alturas’ WTP and its distribution system
should both be considered 100 percent U&U. Additionally, a 26.2 percent adjustment
for Excessive Unaccounted for Water (EUW) should be made to operating expenses
for chemicals and purchased power. (Wooten)
Staff Analysis:
Alturas’ water system is served by a single 6-inch
diameter well, rated at 350 gpm. The raw water is injected with liquid chlorine
prior to entering the 3,000-gallon hydropneumatic tank, and then pumped into
the water distribution system. The Utility is permitted to withdraw an average
of 34,200 gpd, up to 108,000 gpd peak. According to the Utility, there are no
fire hydrants in the service area.
Water Treatment Plant and Distribution
System U&U
The Commission found both the WTP and distribution system
to be 100 percent U&U in the prior SARC.
There have been no major plant additions or growth in the last five years.
Therefore, consistent with the prior Commission decision, the WTP and
distribution system should be considered 100 percent U&U.
Excessive Unaccounted
for Water
Rule 25-30.4325, F.A.C.,
describes EUW as unaccounted for water in excess of 10 percent of the amount
produced. When establishing the Rule, the Commission recognized that some uses
of water are readily measurable and others are not. Unaccounted for water is
all water produced that is not sold, metered or accounted for in the records of
the Utility. The Rule provides that to determine whether adjustments to plant
and operating expenses, such as purchased electrical power and chemicals cost, are
necessary, the Commission will consider all relevant factors as to the reason
for EUW, solutions implemented to correct the problem, and whether a proposed
solution is economically feasible. The unaccounted for water is calculated by
subtracting both the gallons used for other purposes, such as flushing, and the
gallons sold to customers from the total gallons pumped for the test year.
In its reports to DEP, the Utility
stated it produced a total of 4,700,969 gallons during the test year. In its
review, staff determined June 2024 had abnormally low flows. In response to a
staff data request, the Utility indicated that a flow meter failed to properly
operate during the majority of June 2024, due to a blockage. As a result,
complete data of the water treated for the test year was unavailable. Using the
available flow data, from July 2023 through May 2024, staff calculated an
average daily flow value of 13,580 gpd, and applied that to zero flow days to
estimate the total gallons produced during the test year, resulting in a value
of 4,999,722 gallons. In response to a staff data request, the Utility
indicated that it purchased no water and used 163,460 gallons for other uses
during the test year. According to the staff audit report, the Utility sold 3,028,000
gallons of water for the test year. Therefore, the total amount of unaccounted
for water is 1,808,262 gallons or 36.2 percent [(4,999,722 gal – 163,460 gal –
3,028,000 gal) / (4,999,722 gal)] that are unaccounted for. Ten percent of the
gallons produced is allowed per the rule; therefore, the EUW is 26.2 percent. Accordingly,
staff recommends an adjustment of 26.2 percent be made to reduce operating
expenses (chemicals and purchased power) due to EUW.
Conclusion
Alturas’ water treatment plant and its distribution system
should both be considered 100 percent U&U. Additionally, a 26.2 percent adjustment
for EUW should be made to operating expenses for chemicals and purchased power.
Issue 4:
What is the appropriate average test year rate base
for Alturas Water, LLC?
Recommendation:
The appropriate average test year rate base for
Alturas is $67,586. (Folkman, Wooten)
Staff Analysis:
The
appropriate components of the Utility’s rate base include utility plant in
service (UPIS), land and land rights, accumulated depreciation, 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 $77,221. Audit staff made an adjustment decreasing UPIS by
$2,167 due to lack of supporting documentation. Further, staff made an
averaging adjustment reducing this amount by $1,333, and several pro forma
adjustments as described below.
Pro
Forma Plant Additions
Table 4-1 shows Alturas’ two pro forma plant items and
their costs. The first item is the replacement of the water storage tank which
was struck by lightning and an emergency replacement was required. This included
replacing the storage tank and piping. Also, crane rental, concrete and
bacterial testing at the water treatment plant. The total cost of this project
was $40,169 and was completed in November 2024.
The second item is a dump trailer that will be used for
hauling dirt, sod and other larger items used in maintaining the system.
The dump trailer was purchased by Alturas’ parent company, Florida Utility
Services 1, LLC (FUS1), to be used by all subsidiary systems, including
Alturas, for a total of $7,294. This results in only a percentage of the total
purchase being allocated to Alturas, as shown below in Table 4-1.
The Utility provided one bid for each pro forma item. As
the water storage tank replacement was an emergency the Utility could not seek
additional bids for this item. Regarding the dump trailer, the Utility
indicated that the trailer vendor was the only option available in a reasonable
distance that could provide service work or warranty repairs. Staff believes
the Utility provided a reasonable response for why no other bids were obtained.
Also, the Utility provided paid invoices for both items. Staff recommends that
the pro forma project costs are appropriate.
Table 4-1
Pro Forma Plant Items
|
Description
|
Amount
|
|
Emergency Water Storage Tank Replacement – Acct. No. 330
|
$40,169
|
|
Associated
Retirement
|
($30,127)
|
|
Dump Trailer – Acct. No. 341
|
$146
|
|
Net Adjustment
|
$10,188
|
As detailed
above in Table 4-1, staff increased UPIS by $40,315. This amount was offset by
retirements of $30,127. Table 4-2 below summarizes staff’s adjustments to UPIS.
Table
4-2
Staff Adjustments to UPIS
|
Description
|
Adjustment
|
|
To reflect auditing adjustments.
|
($2,167)
|
|
To reflect an averaging adjustment.
|
(1,333)
|
|
To reflect pro forma additions.
|
40,315
|
|
To reflect associated pro forma retirements.
|
(30,127)
|
|
Net adjustment to
UPIS
|
$6,688
|
Source: Staff calculations.
As described
above and summarized in Table 4-2, staff’s adjustments to UPIS result in an
increase of $6,688. Therefore, staff recommends an average UPIS balance of
$83,909 ($77,221 - $2,167 - $1,333 + $40,315 - $30,127).
Land and Land Rights
The Utility
recorded a land and land rights balance of $500. Staff made no adjustments to
this account, therefore recommends a land and land right balance of $500.
Used and Useful
As
previously discussed in Issue 3, the Utility’s systems are considered 100
percent U&U. Therefore, no U&U adjustments are recommended.
Accumulated Depreciation
The Utility
recorded accumulated depreciation of $46,391. Audit staff reduced this amount
by $142 to reflect the depreciation rates established by Rule 25-30.140, F.A.C.
Additionally, staff increased accumulated depreciation by $5,328 to reflect an
averaging adjustment. Staff further decreased accumulated depreciation by
$29,804 for pro forma additions. Staff’s adjustments are summarized below in
Table 4-3.
Table
4-3
Staff Adjustments to Accumulated
Depreciation
|
Description
|
Adjustment
|
|
To reflect auditing adjustments.
|
($142)
|
|
To reflect an averaging adjustment.
|
5,328
|
|
To reflect pro forma adjustments.
|
(29,804)
|
|
Total adjustments
to accumulated depreciation.
|
($24,618)
|
Source: Staff calculations.
As described
above and summarized in Table 4-3, staff’s adjustments to accumulated
depreciation result in a decrease of $24,618. Therefore, staff recommends an
average accumulated depreciation balance of $21,773 ($46,391 - $142 + $5,328 -
$29,804).
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 $480. This resulted in
an adjusted O&M expense balance of $39,599 ($40,079 - $480). Applying this
formula, staff recommends a working capital allowance of $4,950 ($39,599 ÷ 8).
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base is $67,586. Rate base is shown on
Schedule No. 1-A. The related adjustments are shown on Schedule No. 1-B.
Issue 5:
What is the appropriate return on equity and overall
rate of return for Alturas Water, LLC?
Recommendation:
The appropriate return on equity (ROE) is 11.24
percent with a range of 10.24 percent to 12.24 percent. The appropriate overall
rate of return is 7.58 percent. (Folkman)
Staff Analysis:
The
Utility’s capital structure consists of long-term debt, common equity, and
customer deposits. In response to the audit, the Utility stated its equity
consists of $3,675 in allocated plant, $85,825 in negative retained earnings,
and a related party debt totaling $94,858. It is Commission practice to treat
related party debt as equity when no interest or scheduled payments on
principal are being made. As
such, staff adjusted the Utility’s capital structure to reflect the related
party debt as common equity. Therefore, the total equity balance for Alturas is
$12,708 ($3,675 – $85,825 + $94,858). In response to a staff email, the Utility
stated additional long-term debt of $34,742 will be used to finance the pro
forma items.
The Utility’s capital structure has been reconciled with
staff’s recommended rate base. The appropriate ROE is 11.24 percent based on
the Commission-approved leverage formula currently in effect.[8] 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 7.58 percent. The ROE and overall
rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate test year operating
revenues for Alturas Water, LLC?
Recommendation:
The appropriate test year revenues for Alturas are
$40,000. (Lenberg)
Staff Analysis:
Alturas recorded total test year revenues of
$37,330, which included $36,173 of service revenues and $1,169 of miscellaneous
revenues. The Utility had a price index that became effective on June 1, 2024,
within the test year, and a four-year rate reduction subsequent to the test
year, which became effective on November 18, 2024. Therefore, staff annualized
revenues to reflect the change in rates. By applying the rates subsequent to
the test year, along with the test year billing determinants, staff determined
service revenues should be $38,851. This results in an increase of $2,678
($38,851 - $36,173) to test year service revenues. Staff also made adjustments
to miscellaneous revenues, which included removing an unapproved non-sufficient
funds charge of $50. The Utility did not record two normal reconnections during
the test year in the amount of $30 total. This results in miscellaneous
revenues of $1,149 ($1,169 + $30 - $50). As a result, miscellaneous revenues
should be decreased by $20 ($1,169 -$1,149). Based on the above, the
appropriate test year revenues for Alturas are $40,000 ($38,851 + $1,149).
Issue 7:
What are the appropriate operating expenses for
Alturas Water, LLC?
Recommendation:
The appropriate amount of operating expenses for Alturas
are $45,972. (Folkman)
Staff Analysis:
The
Utility recorded operating expenses of $47,603. The test year O&M expenses
have been reviewed by staff, including invoices and other supporting
documentation. Staff has made several adjustments to the Utility’s operating
expense as described below.
Operation and Maintenance Expenses
New Maintenance Technician Position
On January 27, 2025, the Utility requested a new
maintenance technician position 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 contracting outside contractors has been required to maintain
FUS1’s systems. Alturas 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, Alturas’ outside
Contractor, which addresses an operations cost increase for Alturas 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 (601)
The Utility recorded
salaries and wages – employees expense of $8,915. Audit staff increased this
amount by $576 as calculated from allocations from the Utility’s source
documentation. Additionally, staff increased this account by $1,067 to reflect
the Utility’s allocated portion of an additional maintenance position.
Therefore, staff recommends salaries and wages – employees expense of $10,558
($8,915 + $576 + $1,067).
Salaries
and Wages – Officers and Directors (603)
The Utility recorded $1,600 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 $1,600.
Employee
Pensions and Benefits (604)
The Utility
recorded employee pensions and benefits expense of $6. Audit staff decreased
this amount by $6 to reflect an auditing adjustment to remove allocated
non-utility related costs. Therefore, staff recommends employee pensions and
benefits expense of $0 ($6 - $6).
Purchased Power (615)
The Utility
recorded purchased power expense of $2,241. Audit staff decreased this amount
by $10 to reflect the Utility’s source documentation. Staff further decreased
this amount by $363 to reflect an EUW adjustment. Therefore, staff recommends
purchased power expense of $1,868 ($2,241 - $10 - $363).
Chemicals (618)
The Utility
recorded an expense for chemicals of $2,130. Audit staff decreased this amount
by $203 to reflect the Utility’s source documentation. Staff further decreased
this amount by $345 to reflect an EUW adjustment. Therefore, staff recommends
chemicals expense of $1,582 ($2,130 - $203 - $345).
Materials and Supplies (620)
The Utility
recorded materials and supplies expense of $2,525. Audit staff decreased this
amount by $2,022 to reflect the Utility’s source documents. However, staff
increased this amount by $3,395 to reflect the documentation of costs that were
provided by the Utility. Therefore, staff recommends materials and supplies
expense of $3,898 ($2,525 - $2,022 + $3,395).
Contractual Services – Professional
(631)
The Utility
recorded contractual services – professional expense of $265. Audit staff
increased this amount by $1,515 to reflect the Utility’s source documentation
and to add $1,440 of expense erroneously entered as contractual services -
testing. However, the $1,440 that was originally posted to this account was
reclassified by the Utility to Account 186.2 – Deferred Tank Inspection and
should not be included as an expense. Staff decreased this amount by $1,537 to
reflect the deferred tank inspection and the appropriate allocated costs.
Therefore, staff recommends contractual services – professional expense of $243
($265 + $1,515 - $1,537).
Contractual Services – Testing (635)
The Utility
recorded contractual services – testing expense of $1,460. Audit staff decreased
this amount by $1,460 to reflect the Utility’s source documentation and to
remove $1,440 of expense that was erroneously entered under this account
instead of contractual services – professional. In response to Staff’s Fourth
Data Request, the Utility provided supporting documentation for $4,410 of
contractual services – testing.
However, one of the invoices included a triennial sample totaling $2,568 that
should be amortized over three years. Therefore, staff decreased this amount by
$1,712 to remove two years of expense. Staff recommends contractual services –
testing expense of $2,698 ($1,460 - $1,460 +$4,410 - $1,712).
Contractual
Services – Other (636)
The Utility
recorded contractual services other expense of $7,092. Audit staff decreased
this amount by $32 to reflect the Utility’s source documentation. Staff further
decreased this amount by $144 to remove amortization of the tank inspection
that was posted in error. Therefore, staff recommends contractual services –
other expense of $6,916 ($7,092 - $32 - $144).
Rents (640)
The Utility
recorded rental of building/real property expense of $1,155. Audit staff
decreased this amount by $507 to reflect the appropriate allocated portion of
rental expense. Therefore, staff recommends a rents expense of $648 ($1,155 -
$507).
Transportation Expense (650)
The Utility
recorded transportation expense of $1,777. Staff decreased this amount by $2 to
reflect the appropriate allocated portion from the Utility’s source documentation.
Therefore, staff recommends a transportation expense of $1,775 ($1,777 - $2).
Insurance Expense (655)
The Utility
recorded an insurance expense of $4,706. Audit staff increased this amount by
$181 to reflect the Utility’s source documentation. Staff decreased this amount
by $109 to reflect periodic policy changes within the test year that were
provided in the Utility’s response to the audit. Therefore, staff recommends an
insurance expense of $4,778 ($4,706 + $181 - $109).
Rate Case
Expense (665)
The Utility
recorded an annual rate case expense of $1,143. The Utility is required by Rule
25-22.0407, F.A.C., to mail notices of the rate case overview, final rates, and,
and four-year rate reduction. Staff calculated noticing costs to be $200. Staff
calculated the distance from the Utility to Tallahassee as 226 miles. Based on
the 2025 Internal Revenue Service (IRS) business mileage rate of $0.70, staff
calculated round-trip travel and lodging expense to the Commission Conference
of $516.[13] However,
because the Utility representative will be attending the Commission Conference
for a sister utility as well, staff allocated only 50 percent, or $258, of
travel expense to Alturas. 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, $166, and $143 for March 2025, April 2025, 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 $463 for consulting fees as
part of rate case expense.
Staff
recommends a total rate case expense, consisting of noticing costs, travel and
lodging expenses, consulting fees, and filing fee of $1,922 ($200 + $258 +
$1,000 + $463), which amortized over four years is $480 ($1,922 ÷ 4 years).
Therefore, staff recommends a rate case expense decrease of $663.
Bad
Debt Expense (670)
The Utility
recorded bad debt expense of $647. Staff notes that it is Commission practice
to calculate bad debt expense using a three-year average when the information
is available. Using the Utility’s 2021, 2022, and 2023 Annual Reports, the
Utility recorded bad debt expenses of $115, $24, and $647, respectively. Staff
calculated the average bad debt expense for these previous three years to be
$262 (($647 + $24 + $115) ÷ 3) which represents a decrease of $385. Therefore,
staff recommends bad debt expense of $262 ($647 - $385).
Miscellaneous Expense (675)
The Utility
recorded a miscellaneous expense of $2,953. Staff decreased this amount by $180
to remove allocated costs due to lack of supporting documentation and
non-utility related costs. Therefore, staff recommends a miscellaneous expense
of $2,773 ($2,953 - $180).
Operation and Maintenance Expense Summary
The Utility
recorded test year O&M expense of $38,615. Based on the above adjustments,
staff recommends O&M expense be increased by $1,464. This results in a
total O&M expense of $40,079 ($38,615 + $1,464). Staff’s recommended
adjustments to O&M are shown on Schedule No. 3-C.
Depreciation Expense
The Utility
recorded depreciation expense of $2,448. Using the depreciation rates
prescribed in Rule 25-30.140, F.A.C., staff increased this amount by $80.
Additionally, staff increased depreciation expense by $322 due to pro forma additions.
Therefore, staff recommends depreciation expense of $2,850 ($2,448 + $80 + $322).
Taxes Other Than Income (TOTI)
The Utility
recorded a TOTI of $6,540; this amount included $4,169 for property taxes, $691
for payroll taxes, and $1,680 for regulatory assessment fees (RAFs).
Staff
decreased property taxes by $600 to reflect a DEP fee that was included in
Account 675. Additionally, staff removed $3,506 to reflect a Polk County
Service Tax that is a franchise fee assessed by Polk County and is remitted to
the county and is not recorded as revenue. Furthermore, staff increased TOTI by
$129 to reflect property taxes associated with pro forma plant additions.
Staff
increased payroll taxes by $47 as calculated from allocations from the
Utility’s source documents. As part of the Utility’s request for a pro forma
increase for an additional maintenance position, staff further increased
payroll taxes by $83.
As such, staff recommends payroll taxes of $821 ($691 + $47 + $83).
Audit staff
increased TOTI by $147 to reflect the appropriate RAFs based on corrected
Utility test year revenues. Based on revenues discussed in Issue 6, TOTI should
be decreased by $27 to reflect RAFs of 4.5 percent of the change in revenues. As
such, staff recommends the appropriate amount of test year RAFs be $1,800
($1,680 + $147 - $27).
As discussed
in Issue 9, staff recommends revenues be increased by $11,377 in order to
reflect the change in revenue required to cover expenses and allow the Utility
to earn a 7.58 percent return on rate base. As a result, TOTI should be
increased by $512 to reflect RAFs of 4.5 percent of the change in revenues. Therefore,
staff recommends TOTI of $3,325 ($6,540 - $600 - $3,506 + $129 + $47 + $83 +
$147 - $27 + $512).
Operating Expense Summary
The Utility recorded operating expenses of $47,603. The
application of staff’s recommended adjustments to the Utility’s operating
expense results in a total of $46,254. Operating expenses are shown on Schedule
No. 3-A, and the related adjustments are shown on Schedule No. 3-B.
Issue 8:
Does Alturas Water, LLC meet the criteria for
application of the operating ratio methodology?
Recommendation:
No, Alturas does not meet the requirement for
application of the operating ratio methodology for calculating the revenue
requirement. (Folkman)
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 Alturas, staff has recommended a rate base
of $67,586. After removal of rate case expense, staff has calculated an
adjusted O&M expense of $39,598. Based on staff’s preliminary recommended amounts,
the Utility’s rate base is 170.68 percent of its adjusted O&M expense.
Based on this, the Utility does not qualify for application of the operating
ratio methodology.
Issue 9:
What is the appropriate revenue requirement for
Alturas Water, LLC?
Recommendation:
The appropriate revenue requirement is $51,377,
resulting in an annual increase of $11,377 (28.44 percent). (Folkman)
Staff Analysis:
Alturas
should be allowed an annual increase of $11,377 (28.44 percent). This should
allow the Utility the opportunity to recover expenses and earn a 7.58 percent
return on rate base. The calculations for revenue requirement are shown on
Table 9-1.
Table
9-1
Revenue Requirement
|
Water Rate Base
|
$67,586
|
|
Rate of Return
|
7.58%
|
|
Return on Rate Base
|
$5,123
|
|
Water O&M Expense
|
40,079
|
|
Depreciation Expense
|
2,850
|
|
Taxes Other Than Income
|
3,325
|
|
Revenue Requirement
|
$51,377
|
|
Less Test Year Revenues
|
$40,000
|
|
Annual Increase
|
$11,377
|
|
Percent Increase
|
28.44%
|
Source: Staff calculations.
Issue 10:
What are the appropriate rates and rate structure
for Alturas Water, LLC?
Recommendation:
The recommended rate
structure and monthly water rates are shown on Schedule No. 4. The Utility
should file revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The Utility should provide proof of
the date notice was given within 10 days of the date of the notice.
(Lenberg)
Staff Analysis:
Alturas
is located in Polk County within the SWFWMD.
The Utility provides water service to 53 residential customers and there are 7
general service customers. Approximately 13 percent of the residential customer
bills during the test year had zero gallons, indicating a non-seasonal customer
base. The average residential water demand is 4,330 gallons per month.
Currently, the Utility’s water rate structure consists of a monthly base
facility charge (BFC) and a charge per 1,000 gallons for residential and
general service customers.
Staff
performed an analysis of the Utility’s billing data in order to evaluate the
appropriate rate structure for the residential water customers. The goal of the
evaluation was to select the rate design parameters that: (1) produce the
recommended revenue requirement; (2) equitably distribute cost recovery among
the Utility’s customers; (3) establish the appropriate non-discretionary usage
threshold for restricting repression; and (4) implement, where appropriate,
water conserving rate structures consistent with Commission practice.
For
this case, staff recommends that 30 percent of the water revenues be generated
from the BFC, which will provide sufficient revenues to design gallonage
charges that send pricing signals to customers using above the
non-discretionary level. The average people per household served by the water
system is 2.70;[18]
therefore, based on the number of people per household, 50 GPD per person, and
the number of days per month, the non-discretionary usage threshold should be
5,000 gallons per month. Staff’s review of the billing data indicates that
discretionary usage above 5,000 gallons represents approximately 25 percent of
the bills, which accounts for approximately 28 percent of water demand. This
indicates that there is moderate amount of discretionary usage above 5,000
gallons.
Staff
recommends a two-tier inclining block rate structure, which includes separate
gallonage charges for non-discretionary and discretionary usage for residential
water rates. The rate blocks are: 1) 0-5,000 gallons and 2) all usage in excess
of 5,000 gallons per month. Due to the moderate usage above 5,000 gallons per
month, staff believes that it is appropriate in this case to recommend a rate
factor of 1.25 in the second tier because it will target those customers with
higher levels of consumption. General service customers should continue to be
billed a BFC and uniform gallonage charge.
Based on staff’s recommended revenue increase of 29.3
percent, which excludes miscellaneous revenues, the residential consumption can
be expected to decline by 57,000 gallons, resulting in anticipated average
residential demand of 4,243 gallons per month. Staff recommends a 2.0 percent
reduction in test year residential gallons for rate setting purposes. As a
result, the corresponding reductions are $42 for purchased power expense, $36
for chemicals expense, and $4 for RAFs to reflect the anticipated repression,
which results in a post repression revenue requirement of $50,147.
The recommended rate structures
and monthly water rates are shown on Schedule No. 4. The Utility should file
revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The Utility should provide proof of
the date notice was given within 10 days of the date of the notice
Issue 11:
What are the appropriate initial customer deposits
for Alturas Water, LLC?
Recommendation:
The appropriate initial customer deposit should be
$131 for the 5/8 inch x 3/4 inch meter size. The initial customer deposit for
all other residential meter sizes and all general service meter sizes should be
two times the average estimated bill for water. The approved initial customer
deposits should be effective for connections made on or after the stamped
approval date on the tariff sheets pursuant to Rule 25-30.475, F.A.C. The
Utility should be required to collect the approved deposits until authorized to
change them by the Commission in a subsequent proceeding. (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.[19]
Currently, the Utility has an initial customer deposit of $86 for the 5/8 inch
x 3/4 inch meter size. However, this amount does not cover two months’ average
bills based on staff’s recommended rates. Based on the staff recommended water
rates and the post repression average residential demand of 4,243, the
appropriate initial customer deposit should be $131 to reflect an average
residential customer bill for two months. The monthly average residential bill
is $65.52.
Staff recommends that the appropriate initial customer
deposit should be $131 for the 5/8 inch x 3/4 inch meter size. The initial
customer deposit for all other residential meter sizes and all general service
meter sizes should be two times the average estimated bill for water. The
approved initial customer deposits should be effective for connections made on
or after the stamped approval date on the tariff sheets pursuant to Rule
25-30.475, F.A.C. The Utility should be required to collect the approved
deposits until authorized to change them by the Commission in a subsequent
proceeding.
Issue 12:
What are the appropriate miscellaneous service
charges for Alturas Water, 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:
Alturas is requesting to revise its
existing miscellaneous service charges to reflect an increase in the amount of
some of the charges. The late payment charge was established in 1997.[20]
The Utility’s existing miscellaneous service charges were established in 1996.[21] Section 367.091, F.S., authorizes the
Commission to change miscellaneous service charges. The
Utility’s requested miscellaneous 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
Alturas’ Existing and Requested
Miscellaneous Service Charges
|
|
Existing
|
Requested
|
|
Initial Connection Charge
|
$15.00
|
$30.00
|
|
Normal Reconnection Charge
|
$15.00
|
$30.00
|
|
Violation Reconnection Charge
|
$15.00
|
$30.00
|
|
Premises Visit Charge
|
$10.00
|
$30.00
|
|
Late Payment Charge
|
$5.50
|
$7.85
|
|
Investigation of Meter Tampering Charge
|
N/A
|
Actual Cost
|
|
Meter Tampering Charge
|
N/A
|
Actual Cost
|
Source:
Utility's Current Tariffs and Application Filings.
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 Rule
25-30.460, F.A.C. The Utility provided cost justification of $30.05;
however, the utility requested a charge of $30.00 for the premises visit which
represents the cost of a trip to perform a specified service. Staff believes
the cost justification is reasonable and imposes 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 $30.00. The Utility’s calculation for the
premises visit charge is shown below on Table 12-2.
Table 12-2
Calculation
for Requested Premises Visit
|
Activity
|
Cost
|
|
Mileage ($0.70 per mile x 1)
|
$0.70
|
|
Labor – Tech – Round Trip Drive ($27.85 x 0.30)
|
$8.36
|
|
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
|
$30.05
|
Source: Utility’s Cost Justification.
Late
Payment Charge
The Utility currently has a $5.50 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.
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
|
$30.00
|
|
Late
Payment Charge
|
$7.85
|
Source: Staff 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 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 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. Alturas 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. (Folkman, Lenberg)
Staff Analysis:
Section 367.081, F.S.,
requires that the rates be reduced immediately following the expiration of the
4-year period by the amount of the rate case expense previously included in
rates. The reduction will reflect the removal of revenue associated with the
amortization of rate case expense and the gross-up for RAFs. This results in a
reduction of $503.
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. Alturas should be required to file
revised tariffs and a proposed customer notice setting forth the lower rates
and rationale no later than one month prior to the effective date of the new
rates. If the Utility files revised tariffs reflecting this reduction in
conjunction with a price index, or pass-through rate adjustment, separate data
should be filed for the price index and/or pass-through increase and the
reduction in the rates due to the amortized rate case expense.
Issue 14:
Should the recommended rate be approved for Alturas
Water, LLC on a temporary basis, subject to refund with interest, in the event
of a protest filed by a party other than the Utility?
Recommendation:
Yes.
Pursuant to Section 367.0814(7), F.S., the recommended rates should be approved
for the Utility on a temporary basis, subject to refund with interest, in the
event of a protest filed by a party other than the Utility. Alturas 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. (Folkman)
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. Alturas 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.
Alturas
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 $7,804. 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 Alturas Water, 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. Alturas Water, LLC 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.
(Folkman)
Staff Analysis:
Alturas Water, LLC 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. (Harper)
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.
