Discussion
of Issues
Issue 1:
Is the quality of service provided by Water Oak
Utility satisfactory?
Recommendation:
Yes. Water Oak’s product is in compliance with the
Department of Environmental Protection (DEP) and staff believes the Utility
adequately demonstrated its ability to address customer concerns; therefore,
staff recommends that the quality of service be considered satisfactory.
(Ramirez-Abundez)
Staff Analysis:
Pursuant to
Section 367.081(2)(a)(l.), 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 Department
of Environmental Protection (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 evaluating Water Oak’s
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 14, 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 standards. In the
Utility's last Consumer Confidence Report dated June 26, 2025, 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 was one complaint filed in CATS regarding improper billing, where the
customer reported inconsistent water bills. In response, the Utility explained
that the customer’s meter was installed incorrectly and a new meter was
installed. The Utility also credited the customer’s account based on their
average historical usage. While the Utility did respond, it should be noted
that the Utility was found to be in violation of Rule 25-22.032, F.A.C., for
failing to respond within 15 days and failing to provide a full and accurate
report. The Utility reported that it did not receive any complaints during this timeframe. The DEP responded that it
received one complaint during this timeframe regarding the quantity of Boil
Water Notices (BWN) the Utility issued.
Staff held a Customer Meeting on January 21, 2026, where
eight customers provided comments. The majority of the comments focused on the
overall rate increase. Customers also voiced their concerns about improperly
functioning meters and the amount of unaccounted for water identified in the
Staff Report. Following the Customer Meeting, staff asked Water Oak if it was
aware of the customer concerns regarding improperly functioning meters as well
as how it would address each customer that spoke at the meeting. Water Oak
stated that it was not aware of these meter concerns prior to the Customer
Meeting and has no record of any ongoing or open complaints.
Water Oak further explained it met with several residents after the Customer Meeting
to explain the general ratemaking process and how the Utility addresses
customer concerns.
There were approximately 288 customer comments in the
docket file as of March 2, 2026. However, Table 1-1 shows a total of 445
customer comments because a single customer comment that relates to several
different categories is counted multiple times (one time in each category). The
majority of these comments expressed concerns with the overall rate increase.
However, there were also concerns regarding improperly functioning meters, the
amount of unaccounted water identified in the Staff Report, and quality of
service such as fluctuating water pressure. For reference, the Utility serves
approximately 1,265 residential customers.
Table 1-1
Number of Rate Case Comments
Received by Source and Subject
|
Subject of Comment
|
Oral
Comments
|
Written
Comments
|
Total*
|
|
Other
|
3
|
62
|
65
|
|
Quality of Service
|
-
|
2
|
2
|
|
Meter Issues
|
1
|
47
|
48
|
|
Improper Billing
|
-
|
17
|
17
|
|
Outages (Service interruption/BWN)
|
-
|
17
|
17
|
|
Rate Increase Concerns
|
8
|
288
|
296
|
|
Total
|
12
|
433
|
445
|
*A single customer
comment/complaint may be counted multiple times if it is associated with
multiple categories
As shown in Table 1-1, there were 17 comments regarding
service interruptions and BWNs. As such, staff requested the Utility’s service
interruption records pursuant to Rule 25-30.251(1) and (2), F.A.C. The rule
states that each utility is required to maintain a record of all interruptions
in service which affect 10 percent or more of its customers, and to notify the
Commission of these interruptions. “The record shall show the cause of the
interruption, its date, time, duration, remedy, and steps taken to prevent
recurrence.” Water Oak has not filed any such reports with the Commission and
also stated that it has not had an outage affecting 10 percent or more of its
customers. Rather, the Utility stated its highest impact experience was roughly
4 percent per outage and that the community uses valves to limit outages to
only the affected section.
On February 17, 2026, the Office of Public Counsel (OPC)
filed an observation letter regarding the customer correspondence in the docket
file, BWNs, and service interruptions based on DEP records. OPC’s letter
identified three service interruptions that affected 10 percent or more of the
Utility’s customers: two in 2020 and one in 2021. Upon reviewing OPC’s
observation letter, the Utility also identified three service interruptions (9/21/20;
12/2/20; 9/22/21) that exceeded the 10 percent or greater threshold, but were
not reported to the Commission. Since that time, the Utility stated that it has
improved its infrastructure and practice of isolating outages to those areas
that require repair, which has prevented other disruptions from meeting or
exceeding the report threshold.
However, staff analyzed OPC’s letter and the DEP documentation and found one
additional instance (5/6/21) affecting 10 percent or more of the Utility’s
customers. As such, staff recommends that the Utility maintain its service
interruption records as outlined in Rule 25-30.251(1), F.A.C., and notify the
Commission of any such interruption on a going-forward basis.
Staff performed a supplemental review of the complaints
filed in CATS following the Customer Meeting and found no additional complaints.
While there were approximately 288 comments provided during the course of the
proceeding, the majority of these comments were regarding the overall rate
increase. There were few customer complaints filed during the test year and
four years prior. Further, the Utility indicated that it attempted to reach the
customers who spoke at the Customer Meeting to address their concerns and has
taken steps to mitigate service interruptions. As such, staff believes the
Utility adequately demonstrated its ability to address customer satisfaction.
Additionally, the Utility is currently in compliance with the DEP standards.
Therefore, staff recommends that the quality of service be considered
satisfactory.
Conclusion
Water Oak’s quality of the product is in compliance with
the DEP standards and staff believes the Utility adequately demonstrated its
ability to address customer satisfaction; therefore, staff recommends that the
quality of service be considered satisfactory.
Issue 2:
Is the infrastructure and operating conditions of
Water Oak Utility in compliance with DEP regulations?
Recommendation:
Yes. The Water Oak water system is currently in
compliance with the DEP. (Ramirez-Abundez)
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
Water Oak’s water system
has a permitted capacity of 334,000 gallons per day (gpd). The Utility’s water
system has two 10-inch diameter wells and four hydropneumatic storage tanks.
Well No. 1 has a pumping capacity of 1,000 gallons per minute (gpm). Well No. 2
has a pumping capacity of 750 gpm. Two of the hydropneumatic storage tanks have
a capacity of 20,000 gallons each and two additional hydropneumatic storage
tanks have a capacity of 25,000
gallons each. Groundwater is treated through hypochlorination. The DEP conducted
an inspection of Water Oak’s water treatment
plant (WTP) on March 2, 2023. The resulting Sanitary Survey Report
indicated the facility was in compliance with the DEP’s rules and regulations.
Conclusion
The Water Oak water system is currently in compliance with
the DEP.
Issue 3:
What are the used and useful (U&U) percentages
of Water Oak Utility’s water treatment plant and water distribution system?
Recommendation:
Water Oak’s water treatment plant and its
distribution system should both be considered 100 percent U&U.
Additionally, a 29.7 percent adjustment for Excessive Unaccounted for Water
(EUW) should be made to operating expenses for chemicals and purchased power.
(Ramirez-Abundez)
Staff Analysis:
As stated in Issue
2, Water Oak’s water system is served by two 10-inch diameter wells rated at
1,000 gpm and 750 gpm. The Utility
is permitted by the DEP to withdraw an average of 334,000 gpd. The
distribution system is a composite network of 2- to 3-inch Cross Linked
Polyethylene pipe and 4- to 8-inch Polyvinyl Chloride (PVC) pipe. The
distribution system has 15 fire hydrants.
Used and Useful Percentages
Rule 25-30.4325, F.A.C., addresses the method by
which the U&U percentage of a water system is determined. Rule 25-30.4325(4), F.A.C.,
states that a water
treatment system is considered 100 percent U&U if the
service territory the system is designed to serve is built out and there is no
apparent potential for expansion of the
service territory or the system is served by
a single well. Based on a review of Water Oak’s service territory and
annual report, the service territory appears to be built out. In its last
limited proceeding increase and overearning investigation, the water distribution system and storage
were found to be 100 percent
U&U.6 Therefore, the U&U
percentage for Water Oak’s WTP, storage, and distribution system should be
considered 100 percent.
Excessive Unaccounted for Water
Rule 25-30.4325, F.A.C.,
provides factors to be considered in determining whether adjustments to operating expenses are necessary for EUW. EUW is defined as “unaccounted
for water in excess of 10 percent
of the amount produced.” Unaccounted
for water is all water that is not sold, metered, or accounted
for in the records of the Utility.
EUW is calculated by
subtracting both the gallons sold to customers and the gallons used for other
services, such as flushing, from the total gallons pumped and purchased for the
test year, and dividing by the sum of the gallons pumped and purchased. The
amount in excess of 10 percent, if any, is the EUW percentage. A review of the Utility’s 2024 monthly operating
reports on file with the DEP indicates that Water Oak produced
117,276,285 gallons of water during the test
year. In response to staff data requests, the Utility indicated that
it does not purchase any water.
An examination of the Utility’s billing records indicated 67,673,649
gallons of treated water was sold to its customers.
The Utility documented 2,998,514 gallons of other water usages for line and
hydrant flushing along with water loss due to line breaks.
The resulting calculation ([117,276,285 + 0 – 67,673,649 – 2,998,514] /
[117,276,285 + 0]) for unaccounted for water is 39.7 percent. The Rule allows a
10 percent margin; therefore, there is 29.7 percent EUW. Regarding the cause,
the Utility stated that it is evaluating master and customer meter accuracy,
and assessing the distribution system for potential leaks and data
inconsistencies.
Conclusion
Water Oak’s WTP and its distribution system should both be
considered 100 percent U&U. Additionally, a 29.7 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 Water Oak Utility?
Recommendation:
The appropriate average test year rate base for
Water Oak is $1,635,857. (Cohn, Ramirez-Abundez)
Staff Analysis:
The
appropriate components of the Utility’s rate base include utility plant in
service (UPIS), land and land rights, accumulated depreciation,
contributions-in-aid of construction (CIAC), accumulated amortization of CIAC,
and working capital. Staff selected the test year ended December 31, 2024, for
the current rate case. A summary of each component and the recommended
adjustments are discussed below.
Pro Forma Plant Additions
Table 4-1 shows Water
Oak’s five requested pro forma plant
projects which are described below. It is Commission practice for staff
to ascertain whether a minimum of three bids were solicited for each project or
evaluate the Utility’s reasoning as to why three could not be obtained. Water Oak stated that it did not solicit multiple
bids for each project due to emergency circumstances or limited vendor
availability. The Utility believed the project requirements to be specialized, and
few contractors in the area possess the necessary qualification, resources, or
capacity to perform the work.
Table 4-1
Pro Forma Plant Projects
|
|
Project
|
In-Service Date
|
Account
Number
|
Amount
|
Retirement
|
|
1.
|
Generator and Automatic Transfer Switch Installation
(ATS)
|
April 2026
|
310
|
$148,330
|
$111,248
|
|
2.
|
24 - 5/8 by 3/4 inch
Meters and Transmitters
|
December 2025
|
334
|
$7,545
|
$5,659
|
|
3.
|
Water Main Leak - 10 feet (ft.) of pipe replacement
|
March 2025
|
309
|
$5,500
|
$4,125
|
|
4.
|
Water Main Leak
- 15 ft. of pipe replacement
|
April 2025
|
309
|
$13,260
|
$9,945
|
|
5.
|
New 100 Horse
Power (HP) Well Pump Replacement
|
March 2025
|
311
|
$36,619
|
$27,464
|
|
|
Total
|
|
|
$211,254
|
$158,441
|
Source: Responses to staff
data requests.
Project No. 1 – Generator and ATS Installation
Project No. 1 is the installation of a new 250kW, 480V, diesel
driven Generac generator and automatic transfer switches. Water Oak stated that
this project was necessary because the existing generator was outdated,
undersized, and no longer capable of supporting the facility’s full electrical
load.
Also, the DEP requires public water treatment plants to have backup power. The
Utility provided its contract for this project which totals $148,330 with an
in-service date of April 2026.
Water Oak stated that the new generator provides
sufficient capacity to maintain all critical plant functions, including pumps,
controls, and safety systems, during power failures. Furthermore, the addition
of automatic transfer switches facilitates the transition between Utility and
generator power, which should reduce downtime, prevent equipment damage, and
ensure continuous treatment and distribution of safe water.
Therefore, staff believes this project to be reasonable and prudent and
recommends approval of $148,330.
Project No. 2 – 24 – 5/8 by 3/4 Inch Meters and
Transmitters
Project No. 2 is for the purchase and replacement of 24
residential 5/8 by 3/4 inch
Accustream meters and end point transmitters. The Utility stated that
the existing meters and transmitters were not working properly and could not be
reset or repaired. Water Oak selected these meters based on their price,
accuracy, durability, low maintenance, and cost.
The new Accustream meters have an expected manufacturer’s service life of 10 to
15 years. The Utility provided an invoice totaling $7,545 for this project, which
was completed in December 2025.
As discussed in Issue 1,
several customers raised concerns regarding improperly functioning meters. In
its fourth data request, staff asked the Utility to explain why it proposed
replacing only 24 meters despite serving approximately 1,265 residential
customers, and to clarify whether the remaining meters had already been
replaced or were planned for future replacement. The Utility responded that
meters are replaced on an as-needed basis, specifically when repairs are not
feasible. Staff believes this project is reasonable and necessary, especially
given the customer concerns. Should the Utility determine that additional meter
replacements are warranted, it may seek Commission approval for cost recovery
in a future proceeding. Therefore, staff recommends approval of $7,545 for the
replacement of 24 residential meters.
Project No. 3 – Water Main Leak – 10 ft. of
Pipe Replacement
Project No. 3 is the
replacement of 10 feet of C900 pipe and two 8-inch mechanical joints due to a
water main break in February 2025. The Utility provided an invoice
reflecting total project costs of $5,500. The project was completed in March
2025. This repair was necessary to restore and maintain service to customers.
Based on the documentation provided, staff believes the project was necessary
and, therefore, recommends approval of the total cost of $5,500.
Project No. 4 – Water Main Leak – 15 ft. of
Pipe Replacement
Project No. 4 is the replacement of 15 feet
of PVC pipe and fittings due to a water main leak on March 14, 2025. The cost
of this project also included the costs to replace a customer’s driveway that
was removed in the process of accessing the water main leak. The Utility
provided invoices reflecting total project costs of $13,260, consisting of
$8,500 for pipe replacement and $4,760 for driveway restoration. This project
was completed April 2025.
This repair was
necessary to restore service and maintain system reliability. Additionally, the
driveway restoration costs were directly related to the repair and are
appropriately included as part of the total project expense. Therefore, staff
believes the project to be reasonable and necessary and recommends approval of
the total cost of $13,260.
Project No. 5 – New 100 Horse Power (HP) Well
Pump Replacement
Project No. 5 included
assessing the existing pump, and the
purchase, and installation of a new 100HP pump.
The Utility stated that the existing pump had reached the end of its
useful service life and was operating inefficiently, resulting in frequent
repairs, increased maintenance costs, and reduced system reliability due to
downtime.
This project
consists of $5,140 for pulling the old 100HP deep well pump to assess, gather
information, and specifications to quote a replacement, and $31,478 for the
installation of the new pump, for a total project cost of $36,619. The Utility
provided supporting invoices for these costs. Staff believes the pump
replacement to be necessary to maintain reliable service. Accordingly, staff
recommends approval of the total project cost of $36,619.
Utility Plant in Service
The Utility
recorded UPIS of $2,925,041. Based on invoices provided in response to Staff’s
Third Data Request, staff increased plant by $70,365 to reclassify plant
additions identified as “Site Work – Grading, Fence, Restoration, Driveway”
from Account 303 – Land and Land Rights to Account 304 Structures and
Improvements.[19] Staff
further increased UPIS by $211,254 to reflect pro forma additions. Staff then
made subsequent adjustments to reflect pro forma retirements, reducing UPIS by
$158,441. Additionally, staff reduced this amount by $570,871 to reflect
averaging adjustments, resulting in a net reduction to UPIS of $447,693.
Therefore, staff recommends an average UPIS of $2,477,349.
Land and Land Rights
The Utility recorded a test year
land and land rights balance of $73,415. Staff reclassified $70,365 from
Account 303 – Land and Land Rights to Account 304 – Structures and Improvements
to reflect the invoiced amounts provided in Staff’s Third Data Request, which
identified the costs as “Site Work – Grading, Fence, Restoration, Driveway.”[20]
Therefore, staff recommends a land and land rights balance of $3,050.
Accumulated Depreciation
The Utility
recorded accumulated depreciation of $1,092,623. Audit staff determined that
the Utility used incorrect depreciation rates for accounts 301, 304, 307, 311,
and 330. Additionally, the Utility did not include net salvage for account 341.
As such, audit staff reduced accumulated depreciation by $11,585 to reflect the
use of the correct depreciation rates per Rule 25-30.140, F.A.C., and to
include the net salvage. Staff decreased accumulated deprecation by $155,463 to
reflect pro forma additions and retirements. Staff increased accumulated
depreciation by $1,302 to reflect the additional accumulated depreciation
resulting from the reclassification of $70,365 of site work from land to
Account 304 – Structures and Improvements. Additionally, staff decreased
accumulated depreciation by $60,070 to reflect averaging adjustments. Staff’s
adjustments result in a total decrease to accumulated depreciation of $225,816.
Therefore, staff recommends an average accumulated depreciation balance of $866,807.
Contributions In Aid of
Construction (CIAC)
The Utility recorded CIAC of
$174,916. Staff made no adjustments to CIAC and, therefore, recommends an
average CIAC balance of $174,916.
Accumulated Amortization
of CIAC
The Utility recorded accumulated
amortization of CIAC of $174,916. Staff made no adjustments and, therefore,
recommends an average accumulated amortization of CIAC balance of $174,916.
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.[21] As such,
staff removed the rate case expense of $2,758. This resulted in an adjusted
O&M expense balance of $178,124. Applying this formula, staff recommends a
working capital allowance of $22,266.
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate base is $1,635,857. 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 Water Oak Utility?
Recommendation:
The appropriate return on equity (ROE) is 8.51
percent with a range of 7.51 percent to 9.51 percent. The appropriate overall
rate of return is 8.51 percent. (Cohn)
Staff Analysis:
The Utility’s capital structure consists of common
equity. The Utility’s capital structure has been reconciled to staff’s
recommended rate base. The ROE is 8.51 percent based on the Commission-approved
leverage formula currently in effect.
Staff recommends an ROE of 8.51 percent with a range of
7.51 percent to 9.51 percent, and an overall rate of return of 8.51 percent.
The ROE and overall rate of return are shown on Schedule No. 2.
Issue 6:
What are the appropriate amount of test year
operating revenues for Water Oak Utility?
Recommendation:
The appropriate test year operating revenues for
Water Oak’s water system are $168,055. (Sibley)
Staff Analysis:
The Utility recorded total
test year operating revenues of $191,134 for water. The water revenues included
$191,134 of service revenues and no miscellaneous revenues. Staff’s review of
the audit indicated that the Utility’s general ledger consisted of duplicate
bills for the residential class. Staff removed the duplicate bills and adjusted
the billing data to reflect the appropriate billing determinants for
residential. In addition, the general service customers were not billed during
the test year. During staff’s audit review, the Utility indicated there were 17
general service customers and usage was 190,283 gallons. In the preliminary
analysis, the general service customers were all classified as having a 5/8
inch x 3/4 inch meter size when determining the appropriate test year service
revenues.
On February 17, 2026, the OPC
submitted an observation letter and therein raised a concern regarding the
appropriate number of unbilled general service customers as well as their water
consumption. OPC
noted that the Utility’s 2024 Annual Report indicated there were 19 general
service customers at various meter sizes; therefore, based on OPC’s analysis,
the general service revenues are understated.
Staff contacted the Utility to
confirm the billing determinants and meter sizes for each general service
customer. Based
on information provided by the Utility, there had been 17 general service
customers, among them a model home. The model home had recently sold and was reclassified
from general service to residential. As a result, there are currently 16
general service customers. Fifteen of those customers have a 5/8 inch x 3/4
meter size and one customer has a two inch meter. All of the general service
consumption is for irrigation purposes only. In response to staff’s inquiry,
the Utility reevaluated the general service gallon total and indicated it
should be 197,780. The Utility acknowledged its unaccounted for water issue, is
in the process of investigating potential causes, and indicated it will address
any actionable findings in a timely manner. To determine the appropriate
service revenues, staff applied the adjusted billing determinants for both
residential and general service classes to the Utility’s tariff rates. As a
result, staff determined test year operating revenues should be $168,055. This
results in a decrease to service revenues of $23,079 ($191,134 - $168,055).
Based on the above, the
appropriate test year operating revenues for Water Oak’s water system are
$168,055.
Issue 7:
What is the appropriate amount of operating expense
for Water Oak Utility?
Recommendation:
The appropriate amount of operating expense for
Water Oak is $323,271. (Cohn)
Staff Analysis:
The
Utility recorded an operating expense of $342,547. 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
expenses as described below.
Operation and Maintenance Expenses
Salaries and Wages – Employees (601)
The Utility recorded salaries and
wages – employees expense of $51,843, which included payroll tax. Staff reduced
this account by $3,669 to reclassify payroll taxes to Taxes Other Than Income.
Therefore, staff recommends salaries and wages – employees expenses of $48,174.
Purchased Power (615)
The Utility recorded a purchased
power expense of $13,574. Audit staff increased this amount by $529 to correct
a formula error in the Utility’s supporting documentation. Additionally,
staff decreased this account by $4,189 to reflect the 29.70 percent EUW
discussed in Issue 3. Staff’s adjustments to purchased power
result in a total decrease of $3,660. Therefore, staff recommends purchased
power expenses of $9,914.
Chemicals (618)
The Utility recorded a chemicals
expense of $16,019. Staff decreased this amount by $4,758 to reflect the 29.70
percent EUW discussed in Issue 3. Therefore, staff recommends a chemicals
expense of $11,261.
Materials and Supplies (620)
The Utility recorded materials and
supplies expense of $294. Audit staff reduced this amount by $60 due to a lack
of supporting documentation. Therefore, staff recommends a materials and
supplies expenses of $234.
Contractual Services – Billing (630)
The Utility recorded contractual
services – billing expense of $10,785. Staff made no adjustments to this
account. Therefore, staff recommends a contractual services – billing expense
of $10,785.
Contractual Services – Professional (631)
The Utility recorded contractual
services – professional expense of $95,324. Audit staff reduced this amount by
$15,870 to remove expenses related to the Utility’s 2023 SARC. In addition,
staff reduced this amount by $8,574 to amortize non-reoccurring U.S.
Environmental Protection Agency related expenses over five years pursuant
to Rule 25-30.433(9), F.A.C. Staff’s adjustments result in a total
reduction to contractual services – professional of $24,444. Therefore, staff
recommends contractual services – professional of $70,880.
Contractual
Services – Testing (635)
The Utility recorded a contractual services – testing expense of
$3,629. Staff made no adjustments to this account. Therefore, staff recommends
a contractual services – testing expense of $3,629.
Contractual
Services – Other (636)
The Utility
recorded contractual services – other expense of $24,421. Audit
staff removed $2,175 of non-recoverable wastewater-related expenses.
Therefore, staff recommends contractual services – other expenses of $22,246.
Regulatory
Commission Expense (665)
The Utility did not record any rate case expense for the instant
docket. The Utility is required by Rule 25-22.0407, F.A.C., to mail
notices of the rate case overview, interim rates, final rates, and four-year
rate reduction. Staff calculated noticing costs to be $4,471.
Under
Section 367.0814(3), F.S., the Commission may allow rate case expense for
attorney fees or fees of other outside consultants if such fees are incurred after
the initial staff report. On February 17, 2026, the Utility filed documentation
to support $5,368 in additional rate case expense including actual legal
expenses and consulting fees incurred to date and estimated through the end of
the proposed agency action process.
Staff reviewed the supporting documentation and believes the Utility’s
requested rate case expense is reasonable.
Staff
calculated the distance from the Utility representative’s office in Orlando,
Florida, to Tallahassee, Florida as 261 miles. Based on the 2026 Internal
Revenue Service business mileage rate of $0.725, staff calculated round trip
travel and lodging expense to the Commission Conference of $578.
However, because the same Utility representative will be attending the
Commission Conference on behalf of this and two sister utilities, staff
allocated only 33.3 percent of the total travel expense, or $193, to Water Oak.
Additionally, the Utility paid a filing fee of $1,000.
Staff
recommends a total rate case expense, consisting of noticing costs, travel,
lodging expenses and filing fee of $11,031, which amortized over four years is
$2,758. Therefore, staff recommends total annual rate case expense of $2,758.
Bad
Debt Expense (670)
The Utility recorded $0 of bad
debt expense. Staff notes that it is Commission practice to calculate bad debt
expense using a three-year average when the information is available.[27] In its
three most-recent Annual Reports (2022, 2023, and 2024), the Utility recorded
bad debt expenses of $0 for all three years. In response to Staff’s Third Data
Request, the Utility confirmed that it recorded no bad debt and that any
uncollectible accounts are handled and absorbed by the parent company.[28]
Therefore, staff recommends a bad debt expense of $0.
Miscellaneous
Expenses (675)
The Utility
recorded a miscellaneous expense of $1,001. Staff made no adjustments to this
account. Therefore, staff recommends a miscellaneous expense of $1,001.
Operation
and Maintenance (O&M) Expense Summary
The Utility recorded a test year
O&M expense of $216,890. Based on the above adjustments, staff recommends
that O&M expenses be reduced by $36,008. This results in a total O&M
expense of $180,882. Staff’s recommended adjustments to O&M are shown on
Schedule No. 3-C.
Depreciation Expense
The Utility
recorded depreciation expense of $107,275. Using the depreciation rates
prescribed in Rule 25-30.140, F.A.C., audit staff decreased this amount by $39.
Staff increased depreciation expense by $2,606 to reflect the additional
depreciation expense resulting from the reclassification of $70,365 of site
work from land to Account 304 – Structures and Improvements. Additionally,
staff increased this amount by $2,977 to reflect the addition of pro forma
items. Staff’s adjustments result in an increase to depreciation expense of
$5,544. Therefore, staff recommends a depreciation expense of $112,819.
Taxes Other Than Income (TOTI)
The Utility
recorded TOTI of $18,382, which includes payroll tax, property tax, and
regulatory assessment fees (RAF). Staff increased this amount by $3,669 to
reflect the reclassification of payroll tax expense that had been recorded to
Account 601 – Salaries and Wages. In response to Staff’s Fifth Data Request,
the Utility stated that it paid $4,297 in property taxes.[29]
As such, staff decreased property taxes by $5,484 to reflect the accurate
property taxes the Utility paid in the test year. Additionally, staff increased
TOTI by $794 to reflect property taxes associated with pro forma plant
additions.
Based
on revenues discussed in Issue 6, TOTI should be decreased by $1,039 to reflect
a RAF rate of 4.5 percent applied to the change in test year revenues. As such,
staff recommends the appropriate amount of test year RAFs are $7,562.
As discussed
in Issue 9, staff recommends revenues be increased by $294,379 in order to
reflect the change in revenue required to cover expenses and allow an
opportunity to earn the recommended rate of return. As a result, TOTI should be
increased by $13,247 to reflect RAFs of 4.5 percent of the change in revenues.
Therefore, staff recommends a test year TOTI of $29,570.
Operating Expense Summary
The Utility recorded an operating expense of $342,547. The
application of staff’s recommended adjustments to the Utility’s operating
expense results in a total operating expense of $323,271. Operating expenses
are shown on Schedule No. 3-A, and the related adjustments are shown on
Schedule No. 3-B.
Issue 8:
Does Water Oak Utility meet the criteria for
application of the operating ratio methodology?
Recommendation:
No. Water Oak does not meet the criteria for
application of the operating ratio methodology for calculating the revenue
requirement. (Cohn)
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 Water Oak, staff has recommended a rate
base of $1,635,857. After removal of rate case expense, staff has calculated an
adjusted O&M expense of $178,124. Based on staff’s recommended amounts, the
Utility’s rate base is 918.38 percent of its adjusted O&M expense. Therefore,
the Utility does not qualify for application of the operating ratio
methodology.
Issue 9:
What is the appropriate revenue requirement for
Water Oak Utility?
Recommendation:
The appropriate revenue requirement is $462,434,
resulting in an annual increase of $294,379 (175.17 percent). (Cohn)
Staff Analysis:
Water
Oak Utility should be allowed an annual increase of $294,379 (175.17 percent).
This should allow the Utility the opportunity to recover expenses and earn 8.51
percent return on its rate base. The calculations of revenue requirement are
shown on Table 9-1 below.[30]
Table
9-1
Water Revenue Requirement
|
Water
Rate Base
|
$1,635,857
|
|
Rate
of Return
|
×
8.51%
|
|
Return
on Rate Base
|
$139,162
|
|
Water
O&M Expense
|
$180,882
|
|
Depreciation
Expense
|
112,819
|
|
Taxes
Other Than Income
|
29,570
|
|
Revenue
Requirement
|
$462,434
|
|
Less
Test Year Revenues
|
$168,055
|
|
Annual
Increase
|
$294,379
|
|
Percent
Increase
|
175.17%
|
Source: Staff calculations.
Issue 10:
What are the appropriate rate structure and rates
for Water Oak Utility?
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 by
affidavit within 10 days of the date of the notice. (Sibley)
Staff Analysis:
Water
Oak is located in Lake County within the St. Johns River Water Management
District. The Utility provides water service to 1,265 residential customers and
16 general service customers. A review of the billing data indicates
approximately 13 percent of the residential customer bills during the test year
had zero gallons, which reflects a non-seasonal customer base. The average
residential water demand was 4,540 gallons per month during the test period. Currently,
the rate structure for the residential class consists of a base facility charge
(BFC) and a three-tier inclining block gallonage charge. The general service class
consists of a BFC and uniform gallonage charge.
Staff performed an analysis of
the Utility’s billing 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 discretionary usage threshold for restricting
repression; and (4) implement, where appropriate, water conserving rate
structures consistent with Commission practice.
For this case, due to the non-seasonal customer base,
staff recommends that 30 percent of the water revenues be generated from the
BFC, which will provide sufficient revenues to design
gallonage charges that will send the appropriate pricing signals to customers
using above the non-discretionary level. The average number of people
per household is 1.87;
therefore, based on the number of people per household, 50 gallons per day, per
person, and the number of days per month, the discretionary usage threshold
should be 3,000 gallons per month. Staff’s review of the billing data indicates
that discretionary usage above 3,000 gallons represents approximately 46
percent of the bills, which accounts for approximately 57 percent of water
demand. This indicates that there is some high discretionary usage above 3,000
gallons.
Staff
recommends a continuation of the three-tier inclining block rate structure
which includes separate gallonage charges for non-discretionary and
discretionary usage for residential water rates. Due to the fairly high usage
above 3,000 gallons per month, staff believes that it is appropriate in this
case to recommend rate factors of 1.50 in the second tier and 1.75 in the third
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 175.17 percent, which excludes miscellaneous revenues, the
residential consumption can be expected to decline by 34,131,000 gallons
resulting in an anticipated average residential demand of 2,244 gallons per
month. Staff recommends a 50.6 percent reduction in test year residential gallons
for ratesetting purposes. As a result, the
corresponding reductions for purchased power expense is $5,000, $5,680 for
chemicals expense, and $503 for RAFs to reflect the anticipated repression,
which results in a post repression revenue requirement of $451,251.
Based on the
above, staff’s 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 by affidavit within 10 days
of the date of the notice.
Issue 11:
What is the appropriate amount by which rates should
be reduced four years after the published effective date to reflect the removal
of the amortized rate case expense?
Recommendation:
The rates should be reduced as shown on Schedule No.
4, to remove rate case expense grossed-up for RAFs and amortized over a
four-year period. Pursuant to Section 367.081(8), F.S., the decrease in rates
should become effective immediately following the expiration of the rate case
expense recovery period. Water Oak 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. (Cohn)
Staff Analysis:
Section 367.081(8), F.S.,
requires that the rates be reduced by the amount of the rate case expense
previously included in rates immediately following the expiration of the
recovery period. The reduction will reflect the removal of revenue associated
with the amortization of rate case expense and the gross-up for RAFs. The total
reduction is $2,888.
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. Water Oak 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 12:
Should the recommended rates be approved for Water
Oak Utility 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. Water Oak 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 sheets, 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 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. (Cohn)
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. Water Oak 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 sheets, 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.
Water Oak
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 $201,015. 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 13:
Should Water Oak Utility 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. Water Oak 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 National Association of Regulatory Commissioners (NARUC) Uniform
System of Accounts (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 requesting an extension. Upon providing a
notice of good cause, staff should be given administrative authority to grant
an extension of up to 60 days. (Cohn)
Staff Analysis:
Water Oak 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 requesting an extension. Upon providing a notice of
good cause, staff should be given administrative authority to grant an
extension of up to 60 days.
Issue 14:
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, and that the Utility submitted its letter confirming all adjustments
to applicable NARUC USOA primary accounts were made. Once these actions are
complete, this docket should be closed administratively. (Marquez)
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, and that the Utility submitted its letter confirming all
adjustments to applicable NARUC USOA primary accounts were made. Once these
actions are complete, this docket should be closed administratively.
