Discussion
of Issues
Issue 1:
Should KWRU’s Petition for Variance or Waiver of a
Specific Provision of Rule 25-30.140, F.A.C., be granted?
Recommendation:
No. KWRU has
not met the requirements of Section 120.542(5), F.S., or Rule 25-30.140,
F.A.C., for a rule waiver. (Brownless)
Staff Analysis:
Finding No. 6 of the Staff’s Rate Case Audit filed
on March 17, 2025, states
that KWRU did not apply the correct depreciation rates per Rule 25-30.140,
F.A.C. for Accounts 391.7 Transportation Equipment and 395.7 Power Operated
Equipment because it did not include the salvage value in calculating
depreciation. Rule 25-30.140(1)(k),
F.A.C., states as follows:
(1) For the purpose of the rule, the following
definitions apply:
. .
.
(k) Depreciation Accounting – The
process of charging the book cost of depreciable property, adjusted for net salvage, to operations over the associated useful
life.”
[Emphasis added.]
On April
3, 2025, KWRU filed a Petition for Variance or Waiver of a Specific Provision
of Rule 25-30.140, F.A.C., to which OPC filed its Response on April 18, 2025,
opposing the waiver request. Variances
from the application of a rule can be justified if: (a) the application of the
rule creates a substantial hardship or violations of principles of fairness;
and (b) the waiver would serve the purpose of the underlying statute, i.e., the
establishment of fair, just and reasonable rates pursuant to Section
367.081(2)(a)1, F.S.[6]
In support
of not applying the net salvage value, KWRU argued that the Commission has
consistently excluded net salvage value in its water and wastewater
depreciation calculations. Further, KWRU
states that Rule 25-30.140(6) and (7), F.A.C., characterize the definitions of
Rule 25-30.140(1), F.A.C., as “guidelines” that “may not be applicable to every
utility system.” KWRU stated that the salvage adjustment for
Transportation Equipment of 10 percent effectively increases the expected life
from six to 6.6 years, a time period not consistent with this equipment’s
expected useful life. Likewise, with
regard to the Power Operated Equipment, the salvage adjustment of 5 percent
effectively increases the expected life from twelve to 12.6 years, again a time
period not consistent with this equipment’s expected useful life. Thus, KWRU argued that no salvage adjustment
more accurately reflects the expected lives of this equipment.
OPC
countered that KWRU has not provided any evidence in support of its assertion
that six year and twelve year useful
lives are more accurate. Further, OPC
argued that use of a net salvage percentage is to ensure that depreciation
rates do not overcollect for the property by “effectively” deducting any value
of salvage when the property is retired. Section
(2)(b) of Rule 25-30.140, F.A.C., sets the net salvage value of Transportation
and Equipment at 10 percent and 5 percent for Power Operated Equipment. These values can be changed if the utility
can justify its proposed service lives.
Justification consists of “historical data, technical information or
utility planning for the affected accounts or sub-accounts.” Rule 25-30.140(6)(a), F.A.C. OPC argues that KWRU did not provide a
depreciation study supporting a recalibration of service lives for these
accounts or any other evidence to show that it did not receive any net salvage
for these accounts.
Finally, OPC stated that KWRU’s reliance on the fact that
the Commission has not previously required net salvage be applied to these accounts
is misplaced. OPC argued that no agency
can willfully ignore its own rules whether there is an objection or not. Having filed its objection to KWRU’s rule waiver request, OPC contended that the
Commission certainly cannot do so here.
Upon a review of KWRU’s petition and the materials
provided by KWRU, staff agrees with OPC that KWRU has not proven that the
application of the rule creates a substantial hardship or violates principles
of fairness, or that its requested rule waiver would serve the purpose of the
underlying statute. We acknowledge that
the Commission has in the past not consistently applied the net salvage value
for water and wastewater assets. However, that should not, and cannot,
constitute an exception to the application of Rules 25-30.140(1)(k), F.A.C., or
25-30.140(3)(a), F.A.C. Staff
also notes that net salvage value was used in the Pluris Wedgefield, LLC and
Sunshine Water Service Company orders in which this issue was fully litigated.
CONCLUSION
For the reasons stated above, KWRU’s Petition for Variance
or Waiver of a Specific Provision of Rule 25-30.140, F.A.C., should not be
granted.
Issue 2:
Is the overall quality of service provided by the
utility satisfactory, and, if not, what action should be taken by the
Commission?
Recommendation:
Yes. KWRU has been responsive to customer
complaints; therefore, staff recommends that the quality of service is
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 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. The rule further states that the most recent
outstanding citations, violations, and consent orders on file with the
Department of Environmental Protection (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 3.
The Utility’s Attempt to Address Customer
Satisfaction
Staff reviewed complaints filed in the Commission’s
Consumer Activity Tracking System (CATS), received by the utility, and filed
with the DEP, from July 1, 2019, through June 30, 2024. During this period,
there were four complaints filed in CATS during the test year and four years
prior for KWRU. Three of these complaints were related to billing issues and
one complaint was regarding rates and access to tariff information. The utility
addressed and resolved each complaint. Over this same period, the utility
reported that it received a total of 54 complaints. 50 of the complaints were
associated with sewage backups or similar issues of which 34 were resolved by
the utility repairing its equipment and returning the system to normal
operations, while 16 were found to be associated with problems with the
customer’s equipment. Out of the remaining 4 complaints, three were
investigated by the utility with ultimately no issue being found by KWRU. Last,
one complaint was a billing issue regarding non-returned water. The utility
addressed and resolved all complaints received during this time period.
Staff also requested all complaints received by the DEP for
this same time period and was informed of two complaints. One complaint alleged
that KWRU’s effluent may be attributed to the elevated sucralose levels in the
surrounding area, which suggested that some amount of wastewater may be present
in the water. This complaint was investigated by the DEP which determined that
there was no substantiated evidence that KWRU’s effluent was the source of the
elevated sucralose levels. The other complaint was regarding odor. The DEP
investigated and determined that the odor detected did not appear to be sewer
related and could not be traced back to the utility’s wastewater facility.
During the test year, KWRU had an average 1,841 customers, including 1,434
residential customers which accounted for 30.5 percent of system flows. Total
complaints reported to the Commission, DEP, and the utility include
approximately 1.1 percent of customers.
A customer meeting was held on April 16, 2025. Two
customers spoke, both provided comments opposing the proposed rate increase and
one inquired into the possibility of selling the utility. Staff performed a
supplemental review, through June 1, 2025, of complaints filed in CATS
following the customer meeting and found no additional complaints. One customer
comment was filed in the correspondence side of the docket opposing the rate
increase.
CONCLUSION
KWRU has been responsive to customer complaints;
therefore, staff recommends that the quality of service is satisfactory.
Issue 3:
Are the infrastructure and operating conditions of
the utility’s water and wastewater systems in compliance with the Florida
Department of Environmental Protection regulations?
Recommendation:
Yes. KWRU’s wastewater system is currently in
compliance with the DEP. (Wooten)
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 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 and compliance evaluation inspections
for wastewater systems, citations, violations, and consent orders issued to the
utility, customer testimony, comments, and complaints, and utility testimony
and responses to the aforementioned items.
Wastewater System Operating Conditions
KWRU’s wastewater system consists of a permitted 0.849
million gallons per day (MGD) per Annual Average Daily Flow (AADF) design
capacity wastewater treatment plant (WWTP). The facility consists of three
treatment trains with screening, aeration, anoxic stage, clarifiers, sand
filtration, chlorine disinfection, and aerobic digesters. Effluent disposal is
via four Class V underground injection wells or by public access reuse.
Staff reviewed the utility’s compliance evaluation inspections
conducted by the DEP to determine the utility’s overall wastewater facility
compliance. In its compliance inspection report, conducted on March 20, 2024, the
DEP initially determined KWRU’s wastewater treatment facility was out of
compliance due to four unauthorized sanitary sewer overflow (SSO) discharges
that occurred at the facility between December 2022 and October 2023. However,
on September 5, 2024, the DEP determined that the facility was in compliance
and that the SSOs had already been evaluated and addressed at the time they
occurred. Two of the SSO discharges were related to unforeseen pipe damage, one
was due to an unknown person breaking a relief valve, and one was related to an
electrical failure at a lift station. The utility addressed these SSO
discharges by making repairs and appropriately reported the SSO discharges to
the DEP. The DEP reported that adequate notification from the utility was
received for all issues and no subsequent compliance issues were reported by the
DEP. Additionally, the utility has no outstanding citations, violations, or
consent orders on file with the DEP or the Monroe County Health Department.
CONCLUSION
KWRU’s wastewater system is currently in compliance with
the DEP.
Issue 4:
Should any adjustments be made to the test year
plant-in service balances?
Recommendation:
Yes. An adjustment should be made to increase the
test year plant-in-service balance by $301,205. (York, Wooten)
Staff Analysis:
In its MFRs, the utility reflected a 13-month
average test year utility plant in service (UPIS) balance of $21,985,301. As
addressed in Issue 9, staff is recommending approval of the Utility’s
adjustments to annualize depreciation expense based on the corresponding plant
assets being recognized in rate base. Based on the annualization calculated in
the MFRs, staff calculated the corresponding increase to test year
plant-in-service balances. As such, staff recommends increasing the test year
plant-in-service balance by $224,208 to reflect corresponding adjustments to
annualization addressed in Issue 9.
Additionally, staff recommends further adjustments to UPIS
as follows. Staff’s audit report identified a reclassification from Account
354.4 to Account 380.4 made in June 2024 that was not reflected in the MFRs.
KWRU did not dispute this adjustment. As such, staff recommends a 13-month
average decrease of $207 for Account 354.4 and an equal increase for Account
380.4. This results in a net-zero adjustment to UPIS. As discussed further in
Issue 18, a corresponding adjustment should be made to increase UPIS by $38,244
to reclassify certain costs reflected as miscellaneous revenues in the test
year. As discussed further in Issue 21, a corresponding adjustment should be
made to increase UPIS by $38,157 to capitalize certain costs reflected as
O&M expenses in the test year. As such, staff recommends UPIS be increased
by $301,205 ($224,804 + $38,244 + $38,157).
CONCLUSION
Based on the above, staff recommends test year UPIS be
increased by $301,205.
Issue 5:
Should any adjustments be made to the utility's pro
forma plant additions?
Recommendation:
No. Staff agrees that the $2,132,047 for the net
increase to UPIS is reasonable; therefore, no adjustment is needed. However,
staff recommends a net salvage adjustment be made to reduce the associated pro
forma accumulated depreciation and depreciation expense by $1,385 and $2,770,
respectively. (York, Wooten)
Staff Analysis:
Section 367.081(2)(a)2., F.S., provides that the
Commission, in fixing rates, shall consider facilities to be constructed within
a reasonable time in the future, not to exceed 24 months after the end of the
historic base year used to set final rates, unless a longer period is approved
by the Commission, to be used and useful (U&U) if such property is needed
to serve current customers.
In its filing, the utility included pro forma plant additions
of $2,179,139 for the KWRU Blower and Electrical Upgrades Project which is a
combined project intended to replace the blowers and associated electrical
panels as well as upgrade the Supervisory Control and Data Acquisition (SCADA)
system. The breakdown of the total project costs is reflected in Table 5-1.
Table 5-1
Pro Forma Plant Additions
|
Project
|
Amount
|
|
Kaeser Blowers (Purchase, Shipping, and Taxes)
|
$276,733
|
|
SCADA System Upgrades
|
$277,000
|
|
Design, Permitting, and Structural Improvement
|
$447,906
|
|
Installation of Blower and Electrical Panel Upgrades
|
$1,177,500
|
|
Total Project Cost
|
$2,179,139
|
Source: Document No. 04037-2025 filed May 29, 2025
The current blowers were installed in 1983 at an elevation
below the current flood level and have reached the end of their useful life.
Currently, the treatment system used by KWRU requires control of oxygen levels,
which is accomplished through the current blowers by controlling the air
intake, but would normally be controlled by adjusting the motor speeds. In
order to be compatible with the treatment system, the replacement blowers are
required to utilize variable frequency drive controllers that allow more
precise control of oxygen levels. The utility sought proposals from multiple
manufacturers that could provide blowers that met the necessary design
requirements, ultimately choosing blowers from Kaeser as they were the least
expensive and KWRU believed them to provide the best value. To control and
integrate the new blowers, KWRU installed new electrical panels and SCADA system
upgrades. Additionally, the newly installed blowers and electrical panels would
be raised to 9.2 feet to be above the current flood level.
The utility solicited four bids from general contractors
to complete the KWRU Blower and Electrical Upgrades project and received two
bid proposals. KWRU ultimately selected the lowest bid proposal. Staff reviewed
invoices provided by the utility detailing project costs and believes the costs
are appropriate. The project is currently scheduled to be completed by December
2025.
Based on the aforementioned, staff believes the utility met its burden of proof
for this project by demonstrating its need and providing the necessary cost
justification. Therefore, staff does not
recommend any adjustments to the utility’s requested pro forma plant additions.
The pro forma adjustments reflect additions to the UPIS.
These adjustments include $145,000 to Account 354.4 (Structures &
Improvements), $1,757,139 to Account 380.4 (Treatment & Disposal Equipment)
for a blower replacement and electrical upgrade, and $277,000 to Account 396
(Communication Equipment) for a SCADA system. Additionally, a retirement of
$47,092 is applied to Account 380.4 to account for assets replaced by the new
equipment. These changes result in a net increase of $2,132,047 to UPIS.
Accumulated Depreciation and Depreciation
Expense
The utility also requested corresponding adjustments to
increase accumulated depreciation and depreciation expense by $65,113 and
$130,225, respectively. As discussed further in Issue 9, staff believes an
adjustment is necessary to recognize salvage value associated with the pro
forma additions to Account 396. Pursuant to Rule 25-30.140, F.A.C., staff has
reduced the pro forma accumulated depreciation and depreciation expense by $1,385
and $2,770, respectively, associated with the additions to Account 396.
CONCLUSION
Staff agrees that the $2,132,047 for the net increase to
UPIS is reasonable; therefore, no adjustment is needed. However, staff
recommends a net salvage adjustment be made to reduce the associated pro forma
accumulated depreciation and depreciation expense by $1,385 and $2,770,
respectively.
Issue 6:
What are the appropriate plant retirements to be
made in this docket?
Recommendation:
The appropriate total plant retirements is $47,092. (York,
Wooten)
Staff Analysis:
In its MFRs, KWRU reflected plant retirements in the
amount of $47,092 associated with pro forma plant additions. The utility also
included corresponding adjustments to reduce accumulated depreciation and
depreciation expense by $47,092 and $2,618, respectively. This retirement
represents the only necessary adjustment to reflect the removal of obsolete
equipment directly tied to the utility’s planned capital improvements. Staff
does not have any adjustments. As such, staff recommends plant retirements of
$47,092.
CONCLUSION
The appropriate total plant retirements is $47,092.
Issue 7:
Do any wastewater systems have excessive
infiltration and/or inflow (I&I) and, if so, what adjustments are necessary,
if any?
Recommendation:
No. There is no excessive I&I; therefore, staff
recommends no adjustment. (Wooten, Byrne)
Staff Analysis:
Rule 25-30.432, F.A.C., provides that in determining
the amount of U&U plant, the Commission will consider I&I. Infiltration
typically results from groundwater entering a wastewater collection system
through broken or defective pipes and joints, whereas inflow results from water
entering a wastewater collection system through manholes or lift stations. The
allowance for infiltration is typically 500 gpd per inch diameter pipe per
mile, and an additional 10 percent of water sold is allowed for inflow. This is
added to the expected water returned from the system, which is typically
determined by summing 80 percent of water sold to residential users with 90
percent of water sold to non-residential users, excluding irrigation and reuse
flows. Excessive I&I is a calculation that is based on a comparison of the
allowable wastewater treated to the actual amount of wastewater treated. In
addition, adjustments to operating expenses, such as chemical and electrical
costs, are considered necessary if excessive.
In its MFRs, the utility states that there is no excess
I&I, and no adjustments should be made as a result. The utility identified
an infiltration allowance of 8,993,341 gallons, with an additional 22,490,400
gallons allowed for inflow, for a total allowable I&I of 31,483,741 gallons
per year. Based on staff’s review of the record, these values appear
reasonable.
For the returned water calculation, KWRU’s calculated
value of expected returns is 208,660,160 gallons per year. This is based on an
assumption that the estimated returns sold to residential users and
non-residential users should be 90 percent and 94 percent, respectively,
instead of the typical 80 percent and 90 percent values. KWRU stated that there
is very little lawn space in the residential and general service areas and that
the newest residential properties built are high density. Furthermore, the
utility stated that there is a low usage per equivalent residential connection
(ERC) of 4,002 gals/month. Staff reviewed maps of the service territory and
agrees with the description of KWRU. Therefore, staff recommends the proposed
90 and 94 percent return assumptions for residential and non-residential,
respectively, are reasonable for KWRU.
Combining the allowable I&I and expected returns
yields 240,143,901 gallons per year. Any amount treated in excess of this amount
should be considered excessive I&I. Based on the utility’s MFR Schedule
F-2, 238,659,000 gallons of wastewater were treated during the test year. Staff
verified these values by comparison to records submitted to DEP. As the total
amount of water treated is less than the allowable I&I and expected returns,
there is no excessive I&I and staff recommends no adjustments are necessary
for power or chemicals.
CONCLUSION
There is no excessive I&I; therefore, staff recommends
no adjustment.
Issue 8:
What are the appropriate used and useful percentages
for the wastewater treatment facilities and collection system?
Recommendation:
KWRU’s WWTP should be considered 77.6 percent used
and useful and KWRU’s wastewater collection system should be considered 100
percent used and useful. To reflect the appropriate U&U percentage, rate base
should be reduced by $2,231,591. Corresponding adjustments should also be made
to decrease net depreciation expense and property tax by $140,864 and $3,618,
respectively. (Wooten, York)
Staff Analysis:
As stated in Issue 3, the WWTP has a DEP permitted
capacity of 0.849 MGD per AADF. This plant is operated to provide secondary
treatment with basic disinfection. The collection system is made up of
approximately: 20,525 linear feet of 8-inch polyvinyl chloride (PVC) pipe,
11,342 linear feet of 4-inch PVC pipe, 6,168 linear feet of 6-inch PVC pipe,
3,100 linear feet of 3-inch PVC pipe and 300 linear feet of 12-inch PVC pipe.
Used and Useful
Rule 25-30.432, F.A.C., addresses the method by which the
U&U of a wastewater system is determined. In the previous rate case the
WWTP was determined to be 71.5 percent U&U and the wastewater collection
system was determined to be 100 percent U&U.
Wastewater Treatment Plant
Pursuant to Rule 25-30.432, F.A.C., the U&U percentage
of a WWTP is based on customer demand compared with the permitted plant
capacity, with customer demand measured on the same basis as permitted
capacity, with considerations for growth, I&I, and other factors. In the
utility’s MFR Schedule F-6, the utility calculated a value of 90.5 percent
U&U, but proposed that the WWTP be considered 100 percent U&U because
the system is built out and no further flow increases are anticipated.
The permitted capacity of the plant is 849,000 gallons per
day (gpd) AADF. MFR Schedule F-4 includes actual flows during the test year of
652,074 gpd. For growth, the utility uses values from two sources. The first
source, totaling 6,933 gpd, is the five year customer growth based on a linear
regression analysis that estimated additional 9.96 ERCs annually, with 139.23
gpd/ERC. The second source, totaling 109,560 gpd, is based on two potential
customer projects anticipated in 2026 and 2027, identified as the Bartlum Yard
Resort and Bartlum Boat Yard. The utility proposes no adjustment for excessive
I&I. Based on the above, the utility calculated a value of 90.5 percent.
[(652,074 gpd + (6,933 gpd + 109,560 gpd) – 0 gpd) / 849,000 gpd]
In staff’s review of the various components included in
the U&U calculation, staff confirmed the utility’s values for permitted
capacity and actual flows based upon documentation provided to the DEP, and as
recommended in Issue 6, that there is no excessive I&I. Regarding growth,
staff agrees with including the first source of 6,933 gpd based on the five
year customer growth using a linear regression, which is consistent with Rule
25-30.431, F.A.C. However, staff disagrees with the inclusion of the additional
109,560 gpd from the two customer projects as the utility did not provide
adequate documentation that these flows would occur during the next five year
period. Therefore staff recommends a U&U value of 77.6 percent of the WWTP.
[(652,074 gpd + 6,933 gpd – 0 gpd) / 849,000 gpd]
Wastewater Collection
The service area has had very little growth in the past
five years and the collection system has no change in capacity. Consistent with
the Commission’s prior order, the wastewater collection system should be considered
100 percent U&U.
CONCLUSION
KWRU’s WWTP should be considered 77.6 percent used and
useful and KWRU’s wastewater collection system should be considered 100 percent
used and useful. To reflect the appropriate U&U percentage, staff
recommends rate base be reduced by $2,231,591. Corresponding adjustments should
also be made to decrease net depreciation expense and property tax by $140,864
and $3,618, respectively.
Issue 9:
Should any adjustments be made to test year
accumulated depreciation?
Recommendation:
Yes. Test year accumulated depreciation should be
increased by $423,905. All necessary adjustments to accumulated depreciation
associated with pro forma additions should be made as set forth and discussed
in Issue 5. (York)
Staff Analysis:
In its MFRs, the utility reflected test year
accumulated depreciation of $10,211,165 along with adjustments to increase
accumulated depreciation to annualizing depreciation expense of plant added
during the test year, as well as a corresponding adjustment to a plant
reclassification.
Annualization
KWRU reflected an adjustment to increase accumulated
depreciation by $10,059 to recognize the annualization of depreciation expense
of plant added during the test year. Staff believes this is a reasonable
adjustment. When considering pro forma additions of plant that occur after the
end of the test year, accumulated depreciation is annualized. This is a
convention of ratemaking, thus recognizing the full year of the asset in plant,
accumulated depreciation, and depreciation expense. Staff believes adjustments
to accumulated depreciation recognizing the annualization of plant added during
the test year provide a more accurate representation of rate base as a
component of ratemaking. Additionally, in order to ensure the annualization of
accumulated depreciation does not result in a mismatch, staff has recommended
including a UPIS annualization adjustment to reflect the corresponding assets
in rate base, as discussed in Issue 4.
Staff recalculated the annualization adjustment for
Account Nos. 391.7 and 395.7 to recognize salvage value as prescribed by Rule
25-30.140, F.A.C. Staff recommends the annualization adjustment be reduced by
$765.
Audit Adjustments
Audit Finding No. 4 addresses a reclassification of plant.
Audit staff determined corresponding accumulated depreciation adjustments to
reduce Account 354.4 by $2,693 and increase Account 380.4 by $75 were
necessary. KWRU did not dispute these adjustments. As such, staff recommends
accumulated depreciation be reduced by $2,618 (-$2,693 + $75) to recognize the
adjustments made in Audit Finding No. 4.
Audit Finding No. 6 addresses the recalculation of
depreciation since the utility’s last rate case. Audit staff determined that
KWRU was not applying the correct depreciation rates as established by Rule
25-30.140 F.A.C. Further, audit staff found that the utility was not including
the salvage value in calculating depreciation associated with Accounts 391.7
and 395.7, as prescribed by the Rule. As discussed in Issue 1, staff recommends
that KWRU be required to include the net value in calculating depreciation
associated with these accounts. As such, staff recommends accumulated
depreciation be increased by $424,447 to recognize the adjustments made in
Audit Finding No. 6.
Corresponding Adjustments
As discussed in Issue 18, a corresponding adjustment
should be made to increase accumulated depreciation by $1,275 to reclassify
certain costs reflected as miscellaneous revenues in the test year. A
corresponding adjustment should be made to increase accumulated depreciation by
$2,186 to reflect capitalizing certain costs reflected as O&M expenses in
the test year, as discussed further in Issue 21.
CONCLUSION
Based on the adjustments discussed above, test year
accumulated depreciation should be increased by $423,905 (- $765 – $2,618 +
$424,447 +$1,275 + $2,186). All necessary adjustments to accumulated
depreciation associated with pro forma additions should be made as set forth
and discussed in Issue 5.
Issue 10:
Should any adjustments be made to the test year
contributions-in-aid-of-construction (CIAC) balance?
Recommendation:
Yes. An adjustment should be made to increase test
year CIAC by $38,244. All necessary adjustments to CIAC associated with staff’s
recommended non-U&U adjustment should be made as set forth and discussed in
Issue 8. (Bardin)
Staff Analysis:
In its filing, KWRU reflected test year CIAC of
$12,091,323. The audit staff found no issue with this amount. As addressed in
Issue 8, staff is recommending a non-used and useful adjustment to rate base
that reflects CIAC in the total adjustment to rate base. As discussed in Issue 18,
a corresponding adjustment should be made to increase CIAC by $38,244 to
reclassify certain costs reflected as miscellaneous revenues in the test year.
CONCLUSION
An adjustment should be made to increase test year CIAC by
$38,244. All necessary adjustments to CIAC associated with staff’s recommended
non-U&U adjustment should be made as set forth and discussed in Issue 8.
Issue 11:
Should any adjustments be made to test year
accumulated amortization of CIAC?
Recommendation:
Yes. An adjustment should be made to increase test
year accumulated amortization of CIAC by $1,275. All necessary adjustments to
accumulated amortization of CIAC associated with staff’s recommended
non-U&U adjustment should be made as set forth and discussed in Issue 8.
(Bardin)
Staff Analysis:
In its filing, KWRU reflected test year accumulated
amortization of CIAC of $6,665,424. The audit staff found no issue with this
amount. As addressed in Issue 8, staff is recommending a non-used and useful
adjustment to rate base that includes the accumulated amortization of CIAC. A
corresponding adjustment should be made to increase accumulated amortization of
CIAC by $1,275 to reflect the adjustment to CIAC in Issue 10.
CONCLUSION
An adjustment should be made to increase test year
accumulated amortization of CIAC by $1,275. All necessary adjustments to
accumulated amortization of CIAC associated with staff’s recommended
non-U&U adjustment should be made as set forth and discussed in Issue 8.
Issue 12:
What is the appropriate working capital allowance?
Recommendation:
The appropriate working capital allowance is
$1,442,290. As such, the working capital allowance should be increased by
$2,896. (Sewards)
Staff Analysis:
Rule 25-30.433(3), F.A.C., requires that Class A
utilities use the balance sheet method to calculate the working capital
allowance. In its MFRs, the utility recorded a working capital allowance of
$1,439,394.
Audit Finding No. 1 addressed adjustments to the cash
balance, the unamortized debt discount and expense balance, and the accounts
payable balance included in working capital.
Cash
Audit staff made an adjustment to remove a total of
$449,549 in cash associated with interest-bearing accounts identified and
removed in the last rate case. In its previous rate cases, the Commission has
made adjustments to remove excessive amounts of cash included in working
capital that was not used for day-to-day operation of KWRU.
It has been Commission practice to either exclude interest
bearing accounts from working capital, or to include them provided that the
interest income is also included in the above-the-line revenues. In response to Audit Finding No. 1, KWRU
stated that the accounts identified by audit staff were not the same accounts
as the previous rate case and should not be removed. Staff examined the
documentation provided with the utility’s response to the audit, as well as the
excel version of the MFRs and recognizes the cash accounts are not the same as
in the last case. Additionally, in response to staff’s data request, KWRU
explained it maintains a cash balance of two and a half to three times the
average amount of monthly expenses, and any additional cash generated is used
to pay down debt. Staff believes the utility’s justification for maintaining
its test year cash balance supports the level reflected in its filing. In
response to staff’s data request, the utility provided associated interest
income of $17,010. Consistent with Commission practice, staff has made an
adjustment to include the interest income in the above-the-line revenues, as
reflected in Issue 18, and recommends the cash accounts remain in working capital.
Other Audit Adjustments
Audit staff also made an adjustment to reduce unamortized
debt discount and expense by $233 and an adjustment to increase accounts
payable by $41. Both adjustments were made to recognize amounts that were not
included in the MFRs. KWRU did not dispute these adjustments. As such, staff
recommends the adjustments to reduce unamortized debt discount and expense and
to increase accounts payable be made, resulting in a net decrease of $274
(-$233 - $41).
Miscellaneous Expense
As discussed further in Issue 21, staff has recommended an
adjustment to remove non-recurring expenses from operations and maintenance (O&M).
As such, staff recommends a corresponding adjustment to increase working
capital by $3,170 to recognize the unamortized balance of non-recurring
expenses.
CONCLUSION
Based on the above, staff recommends the appropriate
working capital allowance is $1,442,290. As such, working capital allowance
should be increased by $2,896 (-$274 + $3,170).
Issue 13:
What is the appropriate rate base for the June 30,
2024 test year?
Recommendation:
The appropriate rate base is $7,874,046. (York)
Staff Analysis:
This is a fallout issue. Based upon the utility’s
adjusted 13-month average test year balances and staff’s recommended
adjustments, the appropriate 13-month average rate base is $7,874,046. Schedule
No 1-A reflects staff’s recommended rate base calculations. Staff’s proposed
adjustments to rate base are shown on Schedule 1-B.
CONCLUSION
The appropriate rate
base is $7,874,046.
Issue 14:
What is the appropriate amount of customer deposits
to include in the capital structure?
Recommendation:
The appropriate amount of customer deposits is
$332,635. (Sewards)
Staff Analysis:
In its MFRs, the utility reflected $332,635 in
customer deposits at a cost rate of 2.00 percent. Staff does not have any
adjustments to customer deposits. As such, staff recommends the appropriate
amount of customer deposits to include in the capital structure is $332,635.
CONCLUSION
The appropriate amount of customer deposits is $332,635.
Issue 15:
What is the appropriate cost rate for long-term debt
for the test year?
Recommendation:
The appropriate cost rate for long-term debt is 5.90
percent. (Sewards)
Staff Analysis:
In its MFRs, the utility requested a cost rate for
long-term debt of 5.90 percent. KWRU included a pro forma adjustment to replace
its existing loan instrument with a new loan. The MFRs denote the existing loan
carried a cost rate of prime + 0.50 percent, or 8.00 percent, and the new loan
carries a fixed cost rate of 5.90 percent. Staff
does not have any adjustments. As such, staff recommends the appropriate cost
rate for long-term debt is 5.90 percent.
CONCLUSION
The appropriate cost rate for long-term debt is 5.90
percent.
Issue 16:
What is the appropriate return on equity (ROE) for
the test year?
Recommendation:
The appropriate ROE is 9.95 percent. (Sewards)
Staff Analysis:
In its MFRs, the utility requested an ROE of 10.05
percent based on the current leverage formula in effect. Staff
reviewed KWRU’s request and has found an error in the calculation. The leverage
formula utilizes the equity ratio which is comprised of investor sources of
capital. However,
the utility included customer deposits in its calculation of the equity ratio.
Staff has recalculated the ROE using the correct sources of capital. As such,
staff recommends the appropriate ROE is 9.95 percent based on the leverage
formula currently in effect.
CONCLUSION
The appropriate ROE is 9.95 percent.
Issue 17:
What is the appropriate weighted average cost of
capital (WACC) including the proper components, amounts and cost rates
associated with the capital structure?
Recommendation:
Based on the proper components, amounts, and cost
rates associated with the capital structure for the 13-month average test year
ended June 30, 2024, as discussed in Issues 14-16, the appropriate weighted
average cost of capital for KWRU for purposes of setting rates is 7.97%, as
reflected in Schedule No. 2. (Sewards)
Staff Analysis:
In its MFRs, the utility requested a capital
structure based on a 13-month average as of June 30, 2024, consisting of common
equity in the amount of $5,664,435 (57.05 percent) and long-term debt in the
amount of $4,264,575 (42.95 percent) as a percentage of investor supplied
capital. KWRU appropriately used the 13-month average to determine the capital
structure for Class A utilities as required by Rule 25.30.433(5), F.A.C., with
a pro forma addition to long-term debt to reflect the new long-term debt
instrument. The utility’s request in its filing is reflected in Table 17-1
below.
Table 17-1
KWRU Requested Weighted
Average Cost of Capital
|
Capital Component
|
Amount
|
Percentage
|
Cost Rate
|
Weighted Cost
|
|
Long-Term Debt
|
$4,264,575
|
41.56%
|
5.90%
|
2.45%
|
|
Common Equity
|
5,664,435
|
55.20%
|
10.05%
|
5.55%
|
|
Customer Deposits
|
332,635
|
3.24%
|
2.00%
|
0.06%
|
|
Total
|
$10,261,645
|
100.00%
|
|
8.06%
|
Source: MFR Schedule D-1
The weighted average cost of capital is a fallout issue
that combines the cost rates and amounts of the capital components into a final
rate of return. Staff’s recommended cost rate for long-term debt (5.90
percent), ROE (9.95 percent), and customer deposits (2.00 percent) were
discussed in Issues 14-16. Consistent with recent Commission decisions, staff
has reconciled the capital structure to the rate base using all sources of
capital. The
appropriate weighted average cost of capital is presented in Schedule No. 2 and
in Table 17-2 below.
Table 17-2
Staff Recommended Weighted
Average Cost of Capital
|
Capital Component
|
Amount
|
Percentage
|
Cost Rate
|
Weighted Cost
|
|
Long-Term Debt
|
$3,249,319
|
41.27%
|
5.90%
|
2.43%
|
|
Common Equity
|
4,315,917
|
54.81%
|
9.95%
|
5.46%
|
|
Customer Deposits
|
308,811
|
3.92%
|
2.00%
|
0.08%
|
|
Total
|
$7,874,047
|
100.00%
|
|
7.97%
|
CONCLUSION
Based on the proper components, amounts, and cost rates
associated with the capital structure for the 13-month average test year ended
June 30, 2024, as discussed in Issues 14-16, the appropriate weighted average
cost of capital for KWRU for purposes of setting rates is 7.97%, as reflected
in Schedule No. 2.
Issue 18:
Should any adjustments be made to the test year
operating revenues for KWRU’s wastewater system?
Recommendation:
Yes. Test year operating revenues for KWRU’s
wastewater system should be decreased by $14,844. (Sibley)
Staff Analysis:
In its revised MFRs, the utility reflected total
test year operating revenues of $3,920,642. The wastewater revenues included
$3,827,254 of service revenues and $93,388 of miscellaneous revenues.
In response to Audit Request No. 18, the utility made a
couple of adjustments to the billing determinants to reflect the appropriate number
of bills for the 1-1/2 inch general service meter size and a 3 inch private
lift station owner. The general service 1-1/2 inch meter size reflected 84
bills; however, 24 bills were unaccounted for and not included in the MFRs.
Furthermore, the utility erroneously misclassified the private lift station
owner as general service customer, which represented 12 bills. Therefore, staff
made corresponding adjustments to reflect the appropriate number of bills for
the private lift station owner and the general service customers. Staff
determined test year service revenues by applying the current rates to the
adjusted billing determinants. These adjustments resulted in service revenues
of $3,833,643, which is an increase of $6,389 ($3,833,643 - $3,827,254).
Furthermore, in response to Audit Request No. 19, a couple
of adjustments were made by staff to miscellaneous revenues. As shown in the MFRs, the miscellaneous
revenues included initial revenues of $38,244. However, the utility indicated
that those revenues should have been classified as other miscellaneous
revenues. Staff determined that the $38,244 were engineering and administrative
costs related to developer agreements, which should have been classified as
CIAC. Therefore, staff removed $38,244 from miscellaneous revenues. In
addition, staff increased other revenues by $17,010 to reflect other income
earned on interest bearing accounts. These adjustments result in total
miscellaneous revenues of $72,155 ($93,388 - $38,244 + $17,010), which is a
decrease of $21,233 ($72,155 - $93,388).
CONCLUSION
Based on the above, test year operating revenues should be
decreased by $14,844 ($6,389 - $21,233).
Issue 19:
What is the appropriate amount of rate case expense?
Recommendation:
The appropriate amount of rate case expense is
$142,924. This expense should be amortized over four years for an annual
expense of $35,731. Based on the utility’s original filing, the annual
amortization of rate case expense should be decreased by $27,135. (Byrne,
Przygocki)
Staff Analysis:
In its MFRs, KWRU’s requested $251,465 for current
rate case expense. Staff requested an update of the actual rate case expense
incurred, with supporting documentation, as well as the estimated amount to
complete the case. On May 9, 2025, the utility submitted its last revised
estimate of the rate case expense, through completion of the PAA process, which
totaled $155,253.
Table 19-1
KWRU Requested Rate Case
Expense
|
Description
|
Actual
|
Additional Estimated
|
Revised Total
|
|
Dean, Mead, Egerton, Bloodworth, Capouano & Bozartg,
P.A. - Martin Friedman
|
$11,166
|
$12,651
|
$23,816
|
|
Smith, Hawks, P.L.
|
22,755
|
6,033
|
28,788
|
|
Milian, Swain & Associates
|
76,248
|
13,840
|
90,088
|
|
M&R Consultants
|
2,992
|
1,520
|
4,512
|
|
The Weiler Engineering
Corporation
|
1,005
|
0
|
1,005
|
|
Filing Fee
|
4,500
|
0
|
4,500
|
|
Customer Notices, Printing, and
Shipping
|
1,216
|
1,328
|
2,544
|
|
Total
|
$119,881
|
$35,371
|
$155,253
|
Dean, Mead, Egerton, Bloodworth, Capouano &
Bozartg, P.A.
The utility requested rate case expense totaling $49,200
along with $3,800 in additional expenses for Dean, Mead, Egerton, Bloodworth,
Capouano & Bozartg, P.A. in its MFRs. The utility provided documentation
detailing rate case expense through April 30, 2025. The actual fees totaled
$11,166, with $716 of this amount as expenses associated with the legal fees.
An estimated cost of $11,962 in remaining attorney fees was included, as well
as the costs to complete the case, $688 in travel expenses to attend the
Commission Conference, totaling to $23,816 in rate case expense for Mr.
Friedman. Upon review of the invoices, staff found an adjustment increasing
rate case expense by $360 was necessary due to a discrepancy in the amount
provided by Mr. Friedman and the amount calculated by staff. Another adjustment
reducing rate case expense by $205 was found to be necessary in order to remove
hours billed associated with deficiency review, as it is Commission standard to
remove these costs. Staff has calculated the amount allowed for Mr. Friedman to
be $23,971.
Smith Hawks, PL
In addition to Dean, Mead, Egerton, Bloodworth, Capouano
& Bozartg, P.A., the utility retained the law firm Smith Hawks, PL to
assist in legal services. The utility requested $67,500 in total rate case
expense for Smith Hawks, PL in its MFRs. The utility provided documentation
detailing rate case expense through March 15, 2025. In this update, the utility
stated the actual billed attorney fees totaled $22,755. Based on the support
documentation provided, staff recalculated this amount to be $21,689 and
therefore recommends an adjustment decreasing rate case expense by $1,066. The
utility estimates remaining legal fees for Mr. Smith to be $6,000, with $33 in
estimated costs remaining, bringing the total to $27,722.
In KWRU’s last rate case, staff reviewed the hourly rates
of the attorneys representing KWRU and found Mr. Smith’s hourly rate to be too
high. In that case, staff limited Mr. Smith’s rate to match Mr. Friedman’s
rate. In response to staff’s third data request,
the utility provided an explanation as to why Mr. Smith’s rate was reasonable.
The utility stated Mr. Smith’s current hourly rate is $750, but most of the
work was being performed by a paralegal, Brandi Green, at a rate of $225 an
hour. The utility stated the rate used in the MFRs estimate represents a
blending of the rates based on allocation of work. Staff reviewed the
documentation regarding rate case expense and found Mr. Smith’s hourly rate
from the invoices, of $675 to be high when compared to the other attorneys.
KWRU’s other primary counsel Mr. Friedman, who was further discussed above,
charges an hourly rate of $435. Mr. Friedman’s law firm, unlike Smith Hawks PL,
specializes in representing water and
wastewater utilities in the State of Florida. The Smith Hawks PL law firm has
much less experience before the Commission and it is not reasonable that its
hourly charges should be higher. Given Mr. Friedman’s years of experience as a
utility regulatory attorney, we find that Mr. Friedman’s hourly rate of $435
serves as a reliable benchmark for a reasonable hourly rate. Therefore, we adjusted
Mr. Smith’s hourly rate of $675 to $435 an hour. This results in a reduction of
$7,102. Based on the adjustments discussed above, staff recommends the rate
case expense for Smith Hawks, PL to be $20,620.
Milian, Swain & Associates, Inc.
The utility requested $92,860 in rate case expense for
Milian, Swain, & Associates, Inc. in its MFRs, as well as $390 for various
expenses. $24,360 of this requested amount was for Deborah Swain, $66,500 was
for Cynthia Yapp, and $2,000 was for Carolina Bastidas. The utility provided
documentation detailing rate case expense through April 30, 2025. In this
update, the utility stated their actual rate case expense amount charged to be
$76,248. Of this amount, $15,298 was for Deborah Swain, $56,383 was for Cynthia
Yapp, and $250 was for Carolina Bastidas. The revised estimate included $9,280
remaining for Deborah Swain and $4,560 remaining for Cynthia Yapp to complete
the case, totaling to a revised estimate of $90,088 for total rate case
expense. Staff recalculated the actual fees using the bills provided and found
the actual amount to be $71,930, and therefore recommends an adjustment
decreasing rate case expense by $4,318. Also, the utility did not provide
documentation for the $390 requested in the MFRs for expenses. Based on these
adjustments, staff recommends $85,770 in rate case expense for Milian, Swain
& Associates, Inc., a decrease of $7,090 from the amount requested in the
MFRs.
M&R Consultants
The utility requested $5,700 in rate case expense for
M&R Consultants in its MFRs. In response to staff’s third data request, the
utility provided documentation detailing rate case expense through March 17,
2025. The amount for M&R Consultants remained unchanged from that point in
the rate case. The actual fees totaled $2,992 with $1,520 remaining to complete
the case, a total of $4,512. Staff believes this updated amount is reasonable
and recommends no adjustments to this total. Therefore rate case expense for
M&R Consultants should be reduced by $1,188 from the amount requested in
the utility’s MFRs.
The Weiler Engineering Corporation
In its MFRs, the utility requested $25,085 in rate case
expense for the Weiler Engineering Corporation. In response to staff’s second
data request, the utility provided documentation detailing rate case expense
through for the Weiler Engineering Corporation. The actual fees totaled $1,005.
Staff believes this updated amount is reasonable and recommends no additional
adjustments. Therefore, the rate case expense requested in the MFRs for the
Weiler Engineering Corporation should be reduced by $24,080.
Miscellaneous Expenses
In its MFRs, the Utility included $2,430 for printing and
shipping expenses associated with the rate case expense. On March 27, in
response to staff’s second data request the utility provided invoices for
printing and shipping expenses totaling $1,216. Staff believes that this amount
is reasonable and no additional adjustments should be made to the printing and
shipping expenses. The Utility also included $1,328 in travel fees to attend
the Commission Conference. Therefore, miscellaneous expenses should be
increased by $114 from the amount requested in the utility’s MFRs to include
the travel expenses.
Filing Fee
The utility included $4,500 for the filing fee in its
MFRs. This fee was paid by Dean, Mead, Egerton, Bloodworth, Capouano &
Bozartg, P.A. on behalf of the company. No adjustment is needed.
CONCLUSION
Based upon the adjustments discussed above, KWRU’s
requested rate case expense of $251,465 should be decreased by $108,541 for a
total of $142,924. A breakdown of staff’s recommended rate case expense is as
follows:
Table 19-2
Staff Recommended Rate Case
Expense
|
Description
|
Utility Revised Total
(Actual & Estimated)
|
Staff Adjustment
|
Recommended Total
|
|
Legal Fees
|
$52,605
|
($8,013)
|
$44,593
|
|
Accounting Consultant Fees
|
90,088
|
(4,318)
|
85,770
|
|
Engineering Consultant Fees
|
5,518
|
0
|
5,518
|
|
Filing Fee
|
4500
|
0
|
4,500
|
|
Printing, Shipping, and Travel
|
2,544
|
0
|
2,544
|
|
Total
|
$155,255
|
($12,331)
|
$142,924
|
Source: Staff’s calculations
The total rate case expense of $142,924 should be
amortized over four years, pursuant to Section 367.081(8), F.S., as the utility
did not request a longer period of amortization. This represents an annual
expense of $35,731. Based on the utility’s MFR filing, the annual amortization
of rate case expense of $62,866 for the instant docket should be decreased by
$27,135.
Issue 20:
Should any adjustments be made to the utility's
proposed pro forma expenses?
Recommendation:
Yes. Staff recommends pro forma expenses be
decreased by $16,965. (Bardin, Wooten)
Staff Analysis:
Staff has reviewed the utility’s filings and
recommends several adjustments to pro forma expenses. In its filing, KWRU
requested a total of $177,128 of pro forma expenses for projected increases in
the following expense categories: salaries and wages, employee pension and
benefits, general liability insurance, workers’ compensation insurance, sludge
hauling, chemicals, and contractual services for engineering. Staff’s
recommended adjustments are discussed below.
Employee Pension and Benefits
The utility included a corresponding pro forma increase of
$26,320 to employee pension and benefits expense for the requested increase in
salaries and wages expense of $51,352. This increase was comprised of two
parts: a benefit calculation amount of 23.36 percent, calculated as the total
test year pensions and benefits expense divided by salaries and wage expense as
presented in the MFRs ($322,598 / $1,381,238), and an additional one percent of
traditional pension times the total salaries equaling $14,326.
While reviewing the calculation of the pension and
benefits expense, staff noted that the Board of Directors receive stipends and
health insurance reimbursements totaling $148,100 ($84,000 + $64,100). KWRU’s
general ledger specifically identifies the Board members’ payments as stipends.
Stipends are not considered to be traditional wages by definition, are not
based on the services or hours worked, and are not subject to Social Security
or Medicare taxes as salaries are. Likewise, the health insurance
reimbursements paid to the Board members are not for the same health insurance
that the employees and officers receive through the company, and it is unknown
if the insurance is comparable in benefits or costs. As such, staff believes
these expenses should be excluded from the pension and benefits expense
calculation for employees and officers receiving salaries and wages.
Staff has recalculated the percentage used to determine
the requested pensions and benefits expense. When staff’s recommended
adjustments are removed from the computation, the resulting percentage is 19.93
($258,498 / $1,297,238). Using 19.93 percent for the pension and benefits
calculation and the pro forma amount of salaries and wages expense of $51,352
results in $10,234 rather than $11,994, which is a difference of $1,760.
For the second part of the pro forma employee pension and
benefits expense of $14,326, staff requested that KWRU clarify the need for the
additional one percent of traditional pension times the total salaries and the
utility responded in a data request that this one percent should be removed.
Thus, staff recommends a total appropriate amount of
$10,234 for pro forma employee pension and benefits expense, with a reduction
of $16,086 ($1,760 + $14,326).
Workers’ Compensation
The utility’s MFR Schedule B-3 reflected a corresponding
workers’ compensation expense increase of 4.4 percent of the requested pro
forma salaries and wage expense. Staff was unable to determine how the utility
arrived at this percentage for the worker’s compensation calculation. Workers’
compensation expense should be based on the actual salaries and wages expense
for both the employees and officers. As stated above, staff recommends the cost
of stipends paid to the board members be excluded. Staff calculated the
percentage of test year workers’ compensation expense based on the total
salaries and wage expense, less the Board of Directors stipend amounts,
($33,730 divided by $959,159 + $422,079 - $84,000). This resulted in a ratio of
2.60 percent which staff believes best represents the pro forma workers’
compensation expense. As such, staff recommends a pro forma workers’
compensation expense of $1,335 ($51,352 x 2.6%), which results in a reduction
of $879.
Pro Forma O&M Projects
In its filing, the utility requested two O&M pro forma
projects, which are both required by the DEP: The Engineering Permit Renewal
and Collection System Action Plan (CSAP) Preparation projects. Section 367.081,
F.S., provides that the Commission shall approve rates for service which allow
a utility to recover the full amount of environmental compliance costs.
Engineering Permit Renewal
For the WWTP to remain in operation, the DEP requires a
permit renewal application every five years. Based on the WWTP’s current permit
expiration date of February 22, 2027, and Rule 62-620.335(1), F.A.C., the
engineering permit renewal application must be submitted 180 days before the
expiration date; therefore, the application must be completed no later than
August 26, 2026. The utility requested a pro forma O&M expense of $40,000
to complete this project, to be amortized over a five year period. This
estimated expense is based on recent permit renewals from similarly sized
facilities in Monroe County. As
the project is required by a governmental entity, staff recommends approval of
the project and associated costs. The proposed amortization period is
consistent with the frequency of the permit requirements, and therefore is
appropriate. Therefore, no adjustments are needed for this pro forma expense.
CSAP Preparation
Pursuant to Rule 62-600,705(2), F.A.C., which became
effective on June 28, 2023, the DEP now requires wastewater facilities to
develop a pipe assessment, repair, and replacement action plan for the
facility's collection system. A summary of this plan must be submitted to the DEP
with the next facility permit application for any new permit, permit renewal,
or substantial permit revision. The intended goal of the CSAP is to prevent SSO
events and leakages that may endanger public health and the environment. The
project must be completed in advance of the utility’s August 26, 2026 permit
renewal date and is currently scheduled to be completed by December 29, 2025.
The utility requested a pro forma O&M expense of $335,000 for the CSAP
Preparation project, to be amortized over a five year period. The cost is based
on an agreement with Weiler Engineering Corporation, the utility’s primary
engineering advisor, and is estimated to be completed by October 2025. As the
project is required by a governmental entity, staff recommends approval of the
project and associated costs. The proposed amortization period is consistent
with the frequency of the permit requirements, and therefore is appropriate.
Therefore, no adjustments are needed for this pro forma expense.
CONCLUSION
Based on the adjustments above, staff recommends that pro
forma expenses be decreased by $16,965 ($16,086 + $879).
Issue 21:
Should any further adjustments be made to the
utility's test year O&M expenses?
Recommendation:
Yes. Based on the audit adjustments recommended by
staff, the following adjustments should be made as set forth in staff’s
analysis below. In addition to the audit findings, staff recommends several
adjustments to the O&M expenses. Staff recommends that O&M expenses be
reduced by $216,969. (Bardin, Wooten)
Staff Analysis:
In its response to the staff audit report, KWRU did
not contest the audit adjustments as set forth in the table below.
Table 21-1
Description of Audit
Adjustments
|
Account 701 –Salaries and Wages - Employees
|
Discrepancy between the General
Ledger and the payroll support documentation.
|
$ 2,700
|
|
Account 703 –Salaries and Wages – Officers
|
Discrepancy between the General
Ledger and the payroll support documentation.
|
(2,700)
|
|
Account 704 –Employee Pensions and Benefits
|
Employee examination fee
charged incorrectly to another account.
|
100
|
|
Account 711 – Sludge Removal Expense
|
Improperly billed charge that
was disputed and credited outside of the test year.
|
(4,549)
|
|
Account 720 – Materials and Supplies
|
To remove out-of-period
expenses and reclassify one expense to another account.
|
( 800)
|
|
Account 731 – Contractual Services-Engineering
|
To remove an out-of-period
expense.
|
(5,203)
|
|
Account 735 – Contractual Services – Testing
|
To remove out-of-period
expenses.
|
(840)
|
|
Account 750 – Transportation Expense
|
Reduction for vehicle repair
work that was reimbursed by insurance and due to expenses reclassified.
|
(1,674)
|
|
Account 757 – General Liability Insurance
|
To correct amount for the
actual expense incurred rather than the total monthly accrual amount used by
the utility.
|
1,219
|
|
Account 760 – Advertising Expense
|
To remove out-of-period
expenses.
|
(70)
|
|
Account 775 – Miscellaneous Expenses
|
To remove social membership
dues and to include a cell phone expense that was omitted by the utility.
|
(1,350)
|
|
|
Total Audit O&M Adjustments
|
($13,167)
|
Additionally, staff recommends several adjustments to the
O&M expenses after reviewing the utility’s MFRs and responses to data
requests.
Salaries and Wages
In its filing, the utility included $959,159 for salaries
and wages expense of employees and $422,079 for salaries and wages expense for
officers and directors. Staff reviewed comparable salary compensation data
filed in support of employee salaries and has no adjustments. The salaries and
wages expense for officers and directors account included a stipend for each of
the three board members. The Board of Directors receive compensation which
consists of two Directors receiving monthly stipend payments at an annual rate
of $24,000 and a Chairman receiving monthly stipend payments at an annual rate
of $36,000.
Staff reviewed the information submitted by KWRU for comparable
compensation paid to board members for both the Keys Energy Services (KES) and
the Florida Keys Aqueduct Authority (FKAA).
KES has five elected board members who provide direction
for a company with approximately 28,000 customers and an operating revenue of approximately
$119 million. KES’ board is comprised of a chairman and four directors, and the
board meets twice a month. The chairman receives compensation in the amount of
$28,000 annually, and the other four board members each receive $24,520
annually. All members of KES’ board also receive health insurance coverage.
FKAA has five board members who are appointed by Florida’s
Governor, and who provide direction for a company with more than 55,000
customers and an operating revenue of over $90 million. Each board member
receives $584 per meeting, with twelve scheduled meetings per year, and the
possibility of four to six additional meetings. These board members also
receive health insurance coverage.
Staff believes the level of current director fees for KWRU
is excessive, as it is a much smaller utility by comparison, with less than two
thousand customers and less than four million dollars in revenue. Based on the
data comparisons provided by the utility, staff recommends limiting the annual
stipends of the two Directors to $7,008, which is equivalent to what the FKAA
board members receive for twelve meetings per year. The Chairman’s annual
stipend currently reflects one and one-half the amount of the Directors’ annual
stipend. Thus, staff recommends an annual stipend of $10,512 ($7,008 x 1.5) for
the Chairman.
In total, staff recommends that the appropriate amount of
director fees should be $24,528 ($7,008 + $7,008 + $10,512). As such, the
salaries and wages for officers and directors should be decreased by $59,472.
Employee Pension and Benefits
Each of the three board members also receive monthly full
health insurance premium reimbursements at a cost of $21,367 each per year for
a total $64,100 during this test year. As they are not employees nor are the
directors’ health insurance premiums included in the utility’s biweekly payment
of health insurance payments, these health insurance reimbursements are
additional monetary compensation for the board members. Staff notes that health
insurance reimbursements are not a standard investor-owned utility practice for
board members’ compensation and are inappropriate as the directors are already
being compensated through stipends.
As such, staff recommends that the $64,100 currently
recorded as monthly board of directors health reimbursements in the employee
pension and benefits account should be excluded from test year O&M
expenses.
Therefore, staff recommends that an adjustment be made to
reduce the employee pension and benefits expense by of $64,100.
Miscellaneous Expenses
During a review of the utility’s miscellaneous expenses,
staff noted months with higher computer related expenses. In response to
staff’s data requests, KWRU confirmed that $3,298 in expenses related to
setting up an employee’s telework station were non-recurring, as were $665 in
expenses related to a security camera set up. In total, staff recommends
amortizing $3,963 ($3,298 + $655) over a 5-year period, pursuant to Rule
25-30.433(8), F.A.C. This results in a decrease of $3,170. Additionally the
utility stated that one of the phones that was included in the test year
expenses is no longer being utilized by the utility and the phone amount of
$659 should be removed from the miscellaneous expenses.
Therefore, staff recommends that an adjustment be made to
reduce the miscellaneous expenses in the amount of $3,829 ($3,170 + $659).
Capitalized
O&M Expenses
As
addressed in Issue 18, staff is recommending the reclassification of these
revenues as CIAC, along with the capitalization of the associated costs. A
corresponding adjustment should be made to reduce O&M expenses by $38,244
to reflect the removal of the costs being capitalized.
Staff
reviewed the O&M expenses which were determined to be non-recurring. In
total O&M expense should be reduced by $38,244 to reflect the
capitalization of these costs.
CONCLUSION
Based on the adjustments above, staff recommends that
O&M expenses be reduced by a total of $216,969 ($13,166 + $59,472 + $64,100
+ $3,829 + $38,157 + $38,244).
Issue 22:
Should any adjustments be made to test year taxes
other than income?
Recommendation:
Yes. Test year taxes other than income (TOTI) should
be decreased by $47,337. (Byrne, Przygocki)
Staff Analysis:
Based on staff’s Audit Finding No. 3, the following
adjustments should be made. Test year regulatory assessment fees should be
increased by $329. To reflect the decrease in the 2024 property tax assessments
from $10,914 to $8,751, property taxes should be reduced by $2,162 ($8,751 - $10,914).
There should also be a decrease of $100 made to Other Licenses and Permits to
reflect the DEP licensing examination fee of $100, which was included in the
original amount in the MFRs and should have been charged to Account 704. In
total, test year TOTI should be decreased by $1,933 ($329 - $2,162 - 100) to
reflect staff’s audit. The utility did not dispute these adjustments. Therefore
staff recommends a decrease of $1,933 to TOTI.
All additional adjustments are fallouts. Based on staff’s
adjustments to test year revenues and to remove the utility’s requested
increase, regulatory assessment fees should be reduced by $41,787. To reflect
staff’s recommended non-used and useful adjustment, property taxes should be
decreased by $3,618. In total, TOTI should be reduced by $47,337 ($1,933 +
$41,787 + 3,618) before calculating staff’s recommended increase.
CONCLUSION
Test year TOTI should be decreased by $47,337.
Issue 23:
Should any adjustments be made to test year
depreciation expense?
Recommendation:
Yes. In addition to the adjustments recommended in
Issues 5 and 8, depreciation expense should be increased by $66,755. (York)
Staff Analysis:
This is a fallout issue. In addition to the
depreciation expense adjustments recommended in Issues 5 and 8, corresponding
adjustments should be made to reflect staff’s recommendation in Issues 9 and 18.
To reflect staff’s recommended adjustment for salvage value in Issue 9,
depreciation expense should be reduced by $765. To reflect Audit Finding No. 6,
depreciation expense should be increased by $64,058. Staff notes a calculation
error was found in the Audit Report after its issuance and it does not reflect
the correct adjustment. To reflect staff’s recommended adjustment to reclassify
certain costs reflected as miscellaneous revenues in the test year in Issue 18,
a corresponding adjustment should be made to increase depreciation expense by
$1,275. To reflect the capitalization of O&M expenses recommended in Issue
21, depreciation expense should be increased by $2,186.
CONCLUSION
Based on the above, in addition to the adjustments
recommended in Issues 5, 6, and 8, staff recommends depreciation expense be
increased by $66,755 (-$765 + $64,058 + $1,275 + $2,186).
Issue 24:
Should any adjustments be made to test year
amortization of CIAC expense?
Recommendation:
Yes. Amortization of CIAC should be increased by
$1,275. All necessary adjustments to CIAC amortization expense associated with
staff’s recommended non-U&U adjustment should be made as set forth and discussed
in Issue 9. (Bardin)
Staff Analysis:
In its filing, KWRU reflected test year CIAC
amortization expense of $398,765. The audit staff found no issue with this
amount. As addressed in Issue 9, staff is recommending a non-used and useful
adjustment to rate base that includes a corresponding adjustment to CIAC
amortization expense. A corresponding adjustment should be made to increase
amortization of CIAC amortization expense by $1,275 to reflect the CIAC
adjustment recommended in Issue 10.
CONCLUSION
Staff recommends a corresponding adjustment to increase
amortization of CIAC by $1,275.
Issue 25:
What is the appropriate revenue requirement for the
June 30, 2024 test year?
Recommendation:
Staff recommends the following revenue requirement
be approved. (Bardin)
|
Test Year Revenue
|
$ Increase
|
Revenue Requirement
|
% Increase
|
|
$3,905,798
|
$358,534
|
$4,264,332
|
9.18%
|
Staff Analysis:
In its filing, KWRU requested a revenue requirement
to generate annual revenue of $4,834,390. This requested revenue requirement
represents a revenue increase of $913,843, or approximately 23.31 percent.
Consistent with staff’s recommendations concerning rate
base, cost of capital, and operating expenses, the appropriate revenue
requirement is $4,264,332. Staff’s recommended revenue requirement of
$4,264,332 is $358,534 greater than staff’s adjusted test year revenue of $3,905,798
or an increase of 9.18 percent. Staff’s recommended revenue requirement will
allow the Utility the opportunity to recover its expenses and earn a 7.97
percent return on its investment in rate base.
CONCLUSION
The appropriate revenue requirement should be $4,264,332
for the June 30, 2024 test year.
Issue 26:
What are the appropriate rate structures and rates
for the wastewater systems?
Recommendation:
The appropriate rate structure and rates for
wastewater service are shown on Schedule No. 4. The utility should file revised
tariff sheets and a proposed customer notice to reflect 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
customers. The utility should provide proof of the date notice was given within
10 days of the date of the notice. (Sibley)
Staff Analysis:
KWRU provides wastewater service to approximately
1,439 residential customers, 183 general service customers, and 220 private
lift station owners. 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 10,000 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.
Currently, the utility’s BFC allocation is 38 percent of
the wastewater revenue. 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 10,000 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 10,000 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.
CONCLUSION
The appropriate rate structure and rates for wastewater
service are shown on Schedule No. 4. The utility should file revised tariff
sheets and a proposed customer notice to reflect 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 customers. The
utility should provide proof of the date notice was given within 10 days of the
date of the notice.
Issue 27:
What are the appropriate reuse rates?
Recommendation:
The appropriate rate for KWRU’s reuse service is
$2.05 per 1,000 gallons. 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 sheet pursuant to Rule 25-30.475, 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. (Sibley)
Staff Analysis:
In its MFRs, KWRU proposed a reuse rate of $2.33.
The utility provides reuse service to three general service customers in Monroe
County. The current reuse rate for these customers is $1.88 per 1,000 gallons.
The utility’s primary method of disposal of the treated wastewater is through
reuse. Reuse rates are market based rather than cost based. This provides an
incentive to encourage customers to use the reuse. In addition, there are cost
savings associated with providing reuse to customers rather than purchasing
land for disposal of the treated wastewater.
A review of reuse rates charged throughout Monroe County
listed in the Florida Department of Environmental Protection’s 2025 Reuse
Inventory Report indicates that KWRU’s proposed reuse rate is lower than other
providers in the county. During its review of the utility’s reuse rates, staff
determined that the utility applied an across-the-board increase, consistent
with the overall revenue increase, to the existing reuse rate for its proposed
reuse rate. Over
the past few years, the Commission has approved across-the-board increases to
reuse rates. Staff believes that the
utility’s methodology of applying an across-the-board increase is appropriate
and reasonable in this case because the resulting reuse rate is below the
market in KWRU’s respective county. Therefore, staff recommends an
across-the-board increase of 9.81 percent to the existing reuse rate
commensurate with the overall recommended increase in wastewater.
CONCLUSION
The appropriate rate for KWRU’s reuse service is $2.05 per
1,000 gallons. 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 sheet pursuant to Rule 25-30.475, 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 28:
Should miscellaneous service charges be revised to
conform to Rule 25-30.460, F.A.C.?
Recommendation:
Yes. The initial connection and normal reconnections
charges should be removed. The premises
visit charge should be revised to $89.50 for normal hours and $91.36 for after
hours. The definition for the premises visit charge should be updated to comply
with Rule 25-30.460, F.A.C. The utility should be required to file a proposed
customer notice to reflect the Commission-approved charges. The approved
charges should be effective for services 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 notice. (Chambliss)
Staff Analysis:
The utility did not request to revise its existing
miscellaneous service charges. Section 367.091, F.S., authorizes the Commission
to establish, increase, or change a rate or charge other than monthly rates or
service availability charges. The utility’s miscellaneous service charges
include an initial connection charge of $77.40 for normal hours and $79.01 for
after hours. In addition, the
miscellaneous service charges include a normal reconnection charge of $89.50 for
normal hours and $91.36 for after hours. Rule 25-30.460, F.A.C., does not allow
for initial connection and normal reconnection charges and these should be
removed from the tariff. The definitions for initial connection charges and
normal reconnection charges were subsumed in the definition of the premises
visit charge. Since the premises visit entails a broader range of tasks, staff
recommends the premises visit charge should reflect the amount of the normal
reconnection charge, which is $89.50 for normal business hours and $91.36 for
after hours calls.
CONCLUSION
Based on the above, the initial connection and normal
reconnections charges should be removed.
The premises visit charge should be revised to $89.50 for normal hours
and $91.36 for after hours. The definition for the premises visit charge should
be updated to comply with Rule 25-30.460, F.A.C. The utility should be required
to file a proposed customer notice to reflect the Commission-approved charges.
The approved charges should be effective for services 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 notice.
Issue 29:
What is the appropriate Lift Station cleaning charge?
Recommendation:
The appropriate lift station cleaning charge for
KWRU is $2,354.25. The approved charge should be effective for services
rendered or connections made on or after the stamped approval date on the
tariff sheet pursuant to Rule 25-30.475. F.A.C. In addition, the approved
charges should not be implemented until staff has approved the proposed
customer notice and the notice has been received by the customers. KWRU should
provide proof of the date notice was given within 10 days of the date of the
notice. (Chambliss)
Staff Analysis:
KWRU’s lift station cleaning charge was established
in 2017. Subsequently, the charge has been indexed
yearly to the existing charge of $1,807.92. The charge was designed to allow
the utility to recover the costs associated with cleaning the Monroe County
Detention Center lift station. KWRU did not request changes to its lift station
cleaning charge; however, staff believes it is appropriate to update the charge
with current actual costs to ensure the burden of this cost is on the cost
causer. At staff’s request, the utility provided cost justification for an
updated charge of $2,354.25 as shown in Table 29-1. Based on the utility’s cost
justification, staff believes it is an appropriate reflection of current costs.
Table 29-1
Lift Station Cleaning Charge
|
Activity
|
Cost
|
Activity
|
|
Labor ($30/hr x 1.5 hrs)
|
$45.00
|
Labor ($30/hr x 1.5 hrs)
|
|
Disposal Cost ($28.88 per 100lbs)
|
$28.36
|
Disposal Cost ($28.88 per 100lbs)
|
|
Supplies
|
$4.04
|
Supplies
|
|
Total Per Day
|
$77.40
|
Total Per Day
|
|
|
|
|
|
Annual Charge ($77.40 x 365)
|
$28,251.00
|
Annual Charge ($77.40 x 365)
|
|
Monthly Charge ($28,251/12)
|
$2,354.25
|
Monthly Charge ($28,251/12)
|
Source: Utility’s cost justification
CONCLUSION
The appropriate lift station cleaning charge for KWRU is
$2,354.25. The approved charge should be effective services rendered or
connections made on or after the stamped approval date on the tariff sheet
pursuant to Rule 25-30.475. F.A.C. In addition, the approved charges should not
be implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. KWRU should provide proof of the
date notice was given within 10 days of the date of the notice.
Issue 30:
What are the appropriate initial customer deposits?
Recommendation:
The appropriate initial customer deposit should be
$201 for the 5/8 inch x 3/4 inch meter size for residential service customers.
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
wastewater. 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. (Chambliss)
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. Currently, the utility has an initial
customer deposit of $161 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 utility’s average monthly residential consumption, the
appropriate initial customer deposit should be $201 to reflect an average
residential customer bill for two months. The monthly average residential bill
is $100.55.
CONCLUSION
Staff recommends that the appropriate initial customer deposit
should be $201 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 wastewater. 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 31:
Should an Allowance for Funds Used During
Construction (AFUDC) rate be established? If yes, what is the appropriate AFUDC
rate and when will it be effective?
Recommendation:
Yes. An annual AFUDC rate of 7.97 percent, effective
July 1, 2024, should be approved with a discounted monthly rate of 0.006410.
The approved rate should be applicable for eligible construction projects
beginning July 1, 2024. (Sewards)
Staff Analysis:
On February 4, 2025, KWRU filed a request to
establish an AFUDC rate of 8.06 percent based on its requested WACC in the
instant docket. AFUDC is an accounting entry designed to permit a utility to
recover the cost associated with financing eligible construction activities.
AFUDC is not a tariffed rate or charge.
In accordance with Rule 25-30.116(5), F.A.C., the utility
filed Schedules: A, a schedule showing the capital structure, cost rates and
WACC that are the basis for the AFUDC rate requested; B, a schedule showing
capital structure; and C, a schedule showing the calculation of the monthly
AFUDC rate using the methodology set out in Rule 25-30.116(4), F.AC. In its
calculation, KWRU used its requested capital structure comprised of common
equity, long-term debt, and customer deposits.
Staff has reviewed the calculations submitted by KWRU. The
utility calculated a WACC and resulting AFUDC rate of 8.06 percent. As
discussed in Issue 17, staff has recommended a WACC of 7.97 percent.
Additionally, the utility calculated its proposed AFUDC rate using the 13-month
average balance of each component. Pursuant to Rule 25-30.116(3), F.A.C., staff
recalculated the AFUDC rate using the 12-month average balances and an end of period
cost rate for the long-term debt. As such, staff recommends that an AFUDC rate
of 7.97 percent be approved and a monthly discounted rate of 0.006410 be
applied to the qualified construction projects of KWRU.
Rule 25-30.116(6), F.A.C., states that “…The new AFUDC
rate shall be effective the month following the end of the 12-month period used
to establish that rate and may not be retroactively applied to a previous
fiscal year unless authorized by the Commission.” KWRU used a test year ended
June 30, 2024. Accordingly, staff recommends that the AFUDC rate be effective
for qualified construction projects beginning July 1, 2024.
CONCLUSION
Based on the above, staff recommends an annual AFUDC rate
of 7.97 percent, effective July 1, 2024, be approved with a discounted monthly
rate of 0.006410. The approved rate should be applicable for eligible
construction projects beginning July 1, 2024.
Issue 32:
What is the appropriate amount by which rates should
be reduced after the established effective date to reflect the removal of the
amortized rate case expense?
Recommendation:
KWRU’s wastewater rates should be reduced as shown
on Schedule No. 4. This is to remove rate case expense, grossed up for
regulatory assessment fees, which is being amortized over a four-year period
and will result in a reduction of $37,415. The decrease in rates should become
effective immediately following the expiration of the four-year rate case
expense recovery period. Pursuant to Section 367.0816, F.S. KWRU should be
required to file revised tariffs and a proposed customer notice setting forth
the lower rates and the reason for reduction no later than one month prior to the
actual date of the required rate reduction. If the utility files this reduction
in conjunction with a price index and/or pass-through rate adjustment, separate
data should be filed for the price index and/or pass-through increase or
decrease and the reduction in the rates due to the amortized rate case expense.
(Byrne, Przygocki)
Staff Analysis:
Section 367.081(8), F.S., requires that rates be
reduced immediately following the expiration of the determined amortization
period by the amount of the rate case expense previously included in rates. The
reduction will reflect the removal of $37,415 of revenue associated with the
amortization of rate case expense, the associated return on deferred rate case
expense included in working capital, and the gross up for regulatory assessment
fees. Using KWRU’s current revenues, expenses, capital structure and customer
base, the reduction in revenues will result in the rate decreases as shown on
Schedule No. 4.
The utility should be required to file revised tariff
sheets no later than one month prior to the actual date of the required rate
reduction. KWRU should also be required to file a proposed customer notice
setting forth the lower rates and the reason for the reduction. If the utility
files 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 or decrease, and the reduction in the rates due to the
amortized rate case expense.
Issue 33:
Should the utility be required to notify, within 90
days of an effective order finalizing this docket, that it has adjusted its
books for all the applicable National Association of Regulatory Utility
Commissioners (NARUC) Uniform System of Accounts (USOA) associated with the
Commission approved adjustments?
Recommendation:
Yes, the utility should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with any
Commission ordered adjustments. KWRU should submit a letter within 90 days of
the final order in this docket, confirming that the adjustments to all
applicable NARUC USOA accounts have been made to the utility’s books and
records. In the event the utility needs additional time to complete the
adjustments, notice should be provided within seven days prior to the deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days. (Byrne)
Staff Analysis:
The utility should be required to notify the
Commission, in writing, that it has adjusted its books in accordance with any
Commission ordered adjustments. KWRU should submit a letter within 90 days of
the final order in this docket, confirming that the adjustments to all
applicable NARUC USOA accounts have been made to the utility’s books and
records. In the event the utility needs additional time to complete the
adjustments, notice should be provided within seven days prior to the deadline.
Upon providing good cause, staff should be given administrative authority to
grant an extension of up to 60 days.
Issue 34:
Should this docket be closed?
Recommendation:
No. If no person who substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued. 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, and the
utility has notified staff that the adjustments for all the applicable NARUC
USOA primary accounts have been made.
Once these actions are complete, this docket should be closed
administratively. (Brownless)
Staff Analysis:
If no person who substantial interests are affected
by the proposed agency action files a protest within 21 days of the issuance of
the order, a consummating order should be issued. 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, and the utility has
notified staff that the adjustments for all the applicable NARUC USOA primary
accounts have been made. Once these
actions are complete, this docket should be closed administratively.
